<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FOCAL COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4812 36-4167094
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
200 NORTH LASALLE STREET, SUITE 820, CHICAGO, ILLINOIS 60601
(312) 895-8400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOSEPH A. BEATTY
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER, AND SECRETARY
FOCAL COMMUNICATIONS CORPORATION
200 NORTH LASALLE STREET, SUITE 820
CHICAGO, ILLINOIS 60601
(312) 895-8400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SCOTT HODES, ESQ.
DAVID S. GUIN, ESQ.
ROSS & HARDIES
150 NORTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60601
(312) 558-1000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the 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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE (3)
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<S> <C> <C> <C> <C>
12.125% Senior Discount Notes Due
February 15, 2008, Series
B............................... $270,000,000 55.56578% $150,027,606 $44,258.14
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</TABLE>
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(1) This Registration Statement relates to securities of the Registrant issued
pursuant to an Offering Memorandum dated February 12, 1998.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2).
(3) There is no established trading market for the Senior Discount Notes which
are to be exchanged. Pursuant to Rule 457(f)(2), the registration fee is
based on the gross proceeds to the issuer of the 12.125% Senior Discount
Notes Due 2008 of Focal Communications Corporation to be cancelled in the
exchange transaction hereunder.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
$270,000,000
FOCAL COMMUNICATIONS CORPORATION
OFFER TO EXCHANGE ITS 12.125% SENIOR DISCOUNT NOTES DUE 2008, SERIES B FOR ANY
AND ALL OF ITS OUTSTANDING 12.125% SENIOR DISCOUNT NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
Focal Communications Corporation, a Delaware corporation ("Focal" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus (as the same may be amended or supplemented from time
to time) and in the accompanying Letter of Transmittal (the "Letter of
Transmittal") (which together constitute the "Exchange Offer"), to exchange
$1,000 stated principal amount at maturity of its 12.125% Senior Discount
Notes due February 15, 2008, Series B (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), for each $1,000 principal amount at maturity of its outstanding
unregistered 12.125% Senior Discount Notes due February 15, 2008, of which
$270,000,000 in aggregate principal amount at maturity is outstanding as of
the date hereof (the "Senior Notes" and, together with the Exchange Notes, the
"Notes").
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Senior Notes, except that (i) the
Exchange Notes will have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Senior Notes and (ii) holders of the Exchange Notes will not be
entitled to certain rights of holders of the Senior Notes under the
Registration Agreement dated February 15, 1998 (the "Registration Agreement")
among the Company and Salomon Brothers Inc, Morgan Stanley & Co. Incorporated
and NationsBanc Montgomery Securities LLC (the "Initial Purchasers"). The
Exchange Notes will evidence the same indebtedness as the Senior Notes (which
they replace) and will be issued pursuant to, and entitled to the benefits of,
an indenture dated as of February 18, 1998 between the Company and the Harris
Trust and Savings Bank, as trustee (the "Trustee"), governing the Senior Notes
and the Exchange Notes (the "Indenture").
The Exchange Notes will mature on February 15, 2008. In the period prior to
February 15, 2003, interest at a rate of 12.125% per annum will accrue on the
Exchange Notes but will not be payable in cash ("Deferred Interest"). From
February 15, 2003, interest at a rate of 12.125% per annum ("Current
Interest") on the stated principal amount at maturity of the Exchange Notes
will be payable in cash semiannually on August 15 and February 15 of each
year, beginning on August 15, 2003. For U.S. federal income tax purposes, the
Exchange Notes will be considered to bear original issue discount.
Accordingly, holders of the Notes will be required to report income for tax
purposes in advance of the receipt of current payments to which such income is
attributable. See "Description of the Exchange Notes" and "Certain United
States Federal Income Tax Considerations."
The Exchange Notes will be redeemable, at the option of the Company at any
time, in whole or in part, on or after February 15, 2003, at the redemption
prices set forth herein plus accrued and unpaid Current Interest, if any, to
the redemption date. In the event of one or more Public Equity Offerings (as
defined herein), following which there is a Public Market (as defined herein),
on or before February 15, 2001, the Company may, at its option, use all or a
portion of the net cash proceeds therefrom to redeem up to 35% of the
aggregate stated principal amount at maturity of the Exchange Notes at a
redemption price equal to 112.125% of the Accreted Value (as defined herein)
thereof plus accrued and unpaid Current Interest, if any, and Additional
Interest (as defined herein), if any, to the redemption date. See "Description
of the Exchange Notes--Optional Redemption." In the event of a Change of
Control (as defined herein) each holder of Exchange Notes will have the right
to require the Company to repurchase all or any part of such holder's Exchange
Notes at a purchase price equal to 101% of the Accreted Value thereof plus
accrued and unpaid Current Interest, if any, to the repurchase date (the
"Change of Control Purchase Price"). If after giving effect to a Change of
Control Offer (as defined herein) at least 95% of the original aggregate
stated principal amount at maturity of the Exchange Notes has been redeemed or
repurchased, the Company shall have the right to redeem the balance of the
Exchange Notes at a redemption price equal to 101% of the Accreted Value
thereof plus accrued and unpaid Current Interest, if any, and Additional
Interest, if any, to the redemption date. See "Description of the Exchange
Notes--Repurchase at the Option of Holders upon a Change of Control." There
can be no assurance that the Company will have the financial resources
necessary to repurchase the Exchange Notes in such circumstances.
(continued on next page)
---------------
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
(continued from previous page)
The Exchange Notes will be senior unsecured obligations of the Company
ranking pari passu in right of payment with the Senior Notes and all other
existing and future senior unsecured indebtedness of the Company, if any, and
will rank senior in right of payment to all existing and future subordinated
indebtedness of the Company, if any. Holders of secured indebtedness of the
Company, however, will have claims that are prior to the claims of the holders
of the Exchange Notes with respect to the assets securing such indebtedness.
The Company is a holding company that conducts all of its operations through
its subsidiaries. The Notes will therefore be effectively subordinated to the
claims of creditors and holders of preferred stock of the Company's
subsidiaries. See "Risk Factors--Holding Company Structure; Effective
Subordination of the Exchange Notes" and "Description of the Exchange Notes--
Ranking." As of December 31, 1997, on a pro forma basis after giving effect to
the Offering (as defined herein) and the application of the net proceeds
therefrom, the Company would have had no outstanding indebtedness other than
the Notes.
The Senior Notes were originally issued and sold on February 18, 1998 in a
transaction not registered under the Securities Act (the "Offering").
Accordingly, the Senior Notes may not be offered for resale, resold or
otherwise transferred unless so registered or unless an applicable exemption
from the registration requirements of the Securities Act is available. 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
unrelated to the Company, the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by holders thereof (other than any holder that is (i) a broker-
dealer that acquired Senior Notes as a result of market-making activities or
other trading activities, or (ii) a broker-dealer that acquired Senior Notes
directly from the Company for resale pursuant to Rule 144A under the
Securities Act ("Rule 144A") or another available exemption under the
Securities Act) without compliance with the registration or prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business, such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and such holders are not "affiliates" of
the Company (within the meaning of Rule 405 under the Securities Act).
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 Senior Notes in exchange for Exchange Notes, each holder will
represent to the Company, among other things, that: (i) any Exchange Notes to
be received by such holder will be acquired in the ordinary course of such
holder's business; (ii) at the time of the commencement of the Exchange Offer,
such holder has no arrangement or understanding with any person to participate
in the distribution (within the meaning of the Securities Act) of the Exchange
Notes; and (iii) such holder is not an "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act). Each broker-dealer that
receives Exchange Notes for its own account in exchange for Senior Notes,
where such Senior Notes were acquired by such broker-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 Exchange
Notes. The Letter of Transmittal states 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 Exchange Notes received in
exchange for Senior Notes where such Senior Notes 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 (as
defined herein) and ending on the close of business 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
The Company does not intend to apply for listing of the Exchange Notes for
trading on any securities exchange or for inclusion of the Exchange Notes in
any automated quotation system. The Senior Notes, however, have been
designated for trading in the Private Offerings, Resales and Trading through
Automatic Linkages ("PORTAL") Market of the National Association of Securities
Dealers, Inc. Any Senior Notes not tendered and
2
<PAGE>
accepted in the Exchange Offer will remain outstanding. To the extent that
Senior Notes remain outstanding, a holder's ability to sell such Senior Notes
could be adversely affected. Following consummation of the Exchange Offer, the
holders of Senior Notes will continue to be subject to the existing
restrictions on transfer thereof and the Company will have no further
obligation to such holders to provide for the registration under the
Securities Act of the Senior Notes, except under limited circumstances. See
"Description of the Exchange Notes--Exchange Offer; Registration Rights." No
assurance can be given as to the liquidity of either the Senior Notes or the
Exchange Notes.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF SENIOR NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER.
Senior Notes may be tendered for exchange prior to 5:00 p.m., New York City
time, on , 1998 (such time on such date being hereinafter called the
"Expiration Date"), unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). See "The Exchange Offer--Expiration
Date; Extensions; Amendments." Tenders of Senior Notes may be withdrawn at any
time prior to the Expiration Date. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Senior Notes being tendered for
exchange. The Exchange Offer is, however, subject to certain events and
conditions and to the terms of the Registration Agreement. Senior Notes may be
tendered only in integral multiples of aggregate stated principal amount at
maturity of $1,000. The Company has agreed to pay all expenses of the Exchange
Offer. This Prospectus, together with the Letter of Transmittal, is being sent
to all registered holders of Senior Notes as of , 1998.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No underwriter is being used in connection with
the Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
----------------
The Company has registered or applied to register the following trademarks
which may appear in this Prospectus: Focal(TM) and its logo, Focal
Communications Corporation(TM), Focused on Local Communications(TM),
Functionally Equivalent, Technically Superior, Low Cost(TM), The Third
Generation CLEC(TM), and Multi-Exchange Service(TM).
----------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
JOSEPH A. BEATTY, CHIEF FINANCIAL OFFICER, FOCAL COMMUNICATIONS CORPORATION,
200 NORTH LASALLE STREET, SUITE 820, CHICAGO, IL 60601, (312) 895-8400. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY , 1998.
----------------
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.
3
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information, including the Company's Consolidated
Financial Statements and notes thereto, contained herein. Unless otherwise
indicated, references to "Focal" or the "Company" include Focal Communications
Corporation, a Delaware corporation, and its consolidated subsidiaries.
THE COMPANY
Focal is a rapidly growing competitive local exchange carrier ("CLEC") which
is focused on providing local switched telecommunications services to large
corporations, Internet service providers ("ISPs"), and value-added resellers
("VARs") in Tier I markets. The Company initiated service in Chicago in May
1997 and recently began offering service in New York. Management intends to
initiate service in eight additional Tier I markets during 1998 and 1999. As of
January 28, 1998, the Company had 8,838 access lines in service and 6,198
access lines under contract for future installation. The Company's objective is
to become the local provider of choice to telecommunications-intensive
customers in Tier I markets.
FOCAL'S NETWORK
The Company has chosen to pursue a network design approach which involves
purchasing and maintaining its own switches while leasing fiber optic
transmission facilities on an incremental basis as demand dictates. This
approach is made possible by the availability of fiber optic transmission
facilities from multiple vendors in each of the markets it serves or intends to
serve. The Company's network design allows it to (i) reduce the capital
investments necessary to provide services to its customers by focusing capital
expenditures on switches and related technology (the most critical component of
its network), (ii) avoid the construction of fiber optic facilities and the
"stranded" capital sometimes associated with such construction, (iii) better
match the commitment of capital to the acquisition of revenue generating
customers and (iv) generate revenue and cash flow more quickly than if the
Company constructed its own fiber optic transmission facilities. The Company
leases transmission facilities from at least three vendors in each market in
which it conducts business, providing the Company with added negotiating
leverage and allowing the Company to offer its customers enhanced redundancy
and diversity. To satisfy the needs of its high-volume corporate customer base
the Company has engineered its network to be virtually non-blocking, thereby
maximizing call completion.
FOCAL'S MARKETS
Focal selects its target geographical markets based on several primary
criteria: sufficient market size; favorable state regulatory environment; the
pre-existence of well-developed interconnection agreements and processes with
the incumbent local exchange carrier ("ILEC"); and the existence of multiple
fiber providers with extensive networks. Based primarily on these factors, the
Company began offering service in Chicago and New York and intends to expand
into eight additional Tier I metropolitan markets by the end of 1999,
including: Los Angeles, San Francisco, Washington, D.C., Philadelphia, Boston,
Detroit, Miami and Seattle. Focal expects to generate incremental business from
its existing customer base as it expands into new markets. Many of the
Company's existing customers have operations in Focal's targeted cities and the
Company believes the opportunity to leverage its relationships with these
customers is significant. Management estimates total expenditures for local
telecommunications service in the business segment for its ten target markets
to be approximately $12.2 billion per year.
The Company believes a significant demand for its services exists because the
telecommunications-intensive users in Tier I markets are inadequately served
with regard to highly reliable, local switched telecommunications services. The
Company believes that large telecommunications-intensive users will
increasingly demand
1
<PAGE>
diversity in providers of local telecommunications service as they have already
done in long distance and private-line telecommunications services. Most second
generation CLECs initially chose to compete in Tier II and Tier III markets,
effectively ceding the Tier I markets to the first generation CLECs (i.e., MFS
Communications Company, Inc. ("MFS") and Teleport Communications Group
("TCG")). Moreover, the vast majority of CLECs, both first and second
generation, have more expertise in providing leased transport facilities, as
opposed to switched services, and provide bundled communications services to
small and medium sized business customers. Focal is The Third Generation
CLEC(TM) that focuses on providing value-added, switched local services to
large telecommunications-intensive users in Tier I markets. Management believes
that the Company's focus on providing a limited number of services to a defined
market allows it to outperform its competitors in terms of service quality,
reliability, and responsiveness.
MANAGEMENT AND SPONSORSHIP
Focal believes that its management and operations team is a critical
component of its initial success and will continue to be a key element of
differentiation. The Company has built a skilled and experienced management
team headed by the Company's Chief Executive Officer, Robert C. Taylor, Jr.,
and Chief Operating Officer, John R. Barnicle, who were most recently senior
executives at MFS. Overall, the founding management team has extensive prior
work experience at well known ILECs, CLECs and other telecommunications
companies. See "Management." Furthermore, Madison Dearborn Capital Partners,
L.P. ("MDCP"), Frontenac VI, L.P. ("Frontenac") and Battery Ventures III, L.P.
("Battery," with MDCP, Frontenac and Battery being hereinafter sometimes
individually referred to as an "Equity Investor" and collectively referred to
as the "Equity Investors") have invested, together with management and certain
other investors, an aggregate of $26.1 million of equity in the Company. As a
result of such investments, the Equity Investors own, in the aggregate,
approximately 80% of the Company's outstanding equity and each Equity Investor
has appointed one or more representatives to the Company's board of directors.
See "Security Ownership of Certain Beneficial Owners and Management."
STRATEGY
The Company's objective is to become the local provider of choice to
telecommunications-intensive customers in Tier I markets. Key strategies in the
development and fulfillment of the Company's objective are discussed below.
BUSINESS STRATEGY
Principal Focus on Local Service. The Company offers a focused set of value-
added local switched services to its customers, which management believes
differentiates the Company from a majority of competitors who are seeking to
provide "one-stop" telecommunications services. This focus allows the Company
to outperform its competitors in the areas of network provisioning, maintenance
and customer care. For example, Focal guarantees its customers that service
will be turned-up within a specified period (typically less than 20 calendar
days) or the first month fixed line charge is waived. To date, the Company has
met all of its installation commitments on time. Focal believes its target
customers prefer to purchase local telecommunications services from multiple
vendors, as they typically do with equipment, long distance and private-line
services. Management believes that the Company's customers will seek to
distribute an increasing portion of their switched local traffic to one or more
CLECs to secure redundancy and competitive pricing.
Design and Install a Highly Capital-Efficient Network. Management believes
the Company can generate a substantially greater return on invested capital by
concentrating its investment in switching, information, billing and support
systems, while leasing its transport facilities. Management also believes that
excess fiber capacity and multiple vendors in its target markets will satisfy
the Company's leasing needs and permit Focal to obtain such facilities at
competitive prices for the foreseeable future. Moreover, Focal's network
investment strategy
2
<PAGE>
results in a substantially lower, less risky initial capital requirement than
CLECs who build their own fiber facilities due to a greater proportion of
Focal's ultimate capital requirement being "success-based." Utilizing existing
fiber networks allows the Company to enter markets more quickly, generate
revenue and positive cash flows faster, avoid the need for franchise and right-
of-way agreements, and focus on providing switched services.
Build a More Robust Network than ILECs or CLECs. The Company has designed and
built its network to meet the demanding traffic and reliability requirements of
its target customers. Focal utilizes Nortel, DMS-500 SuperNode central office
switches that have been engineered by the Company to be virtually non-blocking,
thereby maximizing call completion. Focal also designs its leased fiber
facilities to avoid blocking. The Company typically connects to every local
tandem switch in operation by the ILEC and directly connects to numerous high-
use end offices. By connecting to so many points in the ILEC's network, the
Company can improve call completion even if blockage occurs in portions of the
ILEC trunking network. To optimize the entire configuration, Focal implements
overflow routing among the various trunk connections between itself and the
ILEC. Management believes this design is unique among ILECs and CLECs and is
attractive to its telecommunications-intensive customer base. Moreover, the
Company's transport-neutral design allows it to deliver service from its switch
to customers over the fiber transport systems maintained by each of its several
fiber optic transport facility providers.
Minimize Dependence on Deregulation. While the Telecommunications Act of 1996
(the "Telecom Act") is likely to benefit CLECs in the long-term, Focal believes
the tangible benefits from the Telecom Act are limited in the short-term.
Accordingly, Focal's business strategy allows it to minimize its reliance on
provisions of the Telecom Act to achieve its objectives. For example, while the
unbundling of network elements is mandated by the Telecom Act, the Company
believes the ability of a CLEC to obtain unbundled loops of acceptable
transmission quality and in reasonable volumes is not yet practicable in most
ILEC jurisdictions. However, due to its target customer base and the existence
of high capacity transmission facilities to such customers in the major
markets, Focal is able to limit its leased transport network to facilities of
T-1 capacity or greater. Similarly, while number portability is mandated by the
Telecom Act, Focal believes the interim number portability methods utilized
today are unreliable and perform poorly. Consequently, Focal has concentrated
on providing outbound and incremental inbound (i.e., inbound traffic using new
numbers) calling applications rather than expose its customers to the potential
loss of inbound calls on existing numbers due to the poor performance of remote
call forwarding applications currently used to achieve number portability.
MARKETING STRATEGY
Penetrate Corporate Accounts. The Company emphasizes the diversity,
reliability and sophistication of its network and services in order to earn its
selection as the local provider of choice for its customers. Focal has
developed a number of products and services which it believes provide it with a
competitive advantage when attempting to penetrate new corporate accounts,
including Focal Virtual Office and 800 service. See "Business--Products and
Services." Focal's initial sale to a corporate account typically involves
installing incremental lines for specialized inbound applications or
supplanting only a limited number of outbound lines. Management believes that
the Company will thereafter be able to increase its overall penetration of
local service from the customer based on the quality of its service.
Take Advantage of the Significant and Growing ISP Opportunity. The dramatic
increase in dial-up access to the Internet has created a particularly strong
demand for local access lines by ISPs. CLECs are generally well-positioned to
satisfy this demand as the only alternative source of access lines. Focal
offers advantages to ISPs that certain of its competitors are currently unable
to provide, such as environmentally conditioned colocation space, virtually
non-blocking switching and transport facilities, guaranteed installation times
and modified foreign exchange service (which allows certain calls which would
otherwise be toll calls to be made as local calls). Focal does not offer its
own Internet access service and is, therefore, not viewed as a direct
competitor of the ISPs which it serves. ISP traffic also helps maximize network
utilization by bringing traffic onto the network typically during off-peak
periods, such as evenings and weekends.
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<PAGE>
Maximize Network Utilization through VAR and Other Wholesale Arrangements. To
further maximize network utilization while minimizing cost of sales, Focal
distributes service to other customer segments through VARs and other wholesale
arrangements. Management believes that many telecommunications service
providers, including long distance companies and wireless licenseholders, will
seek to provide bundled telecommunications services in Tier I markets. The
Company does not currently intend to offer bundled telecommunications services
or directly distribute its services to residential or small to medium sized
business customers--the most attractive segment to bundled service providers.
Management, therefore, believes that entities intending to offer bundled
services are more likely to purchase local service from Focal than its ILEC or
CLEC competitors.
----------------
The Company's principal executive offices are located at 200 North LaSalle
Street, Suite 820, Chicago, Illinois 60601 and its phone number is (312) 895-
8400.
4
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer........
Up to $270,000,000 aggregate stated principal
amount at maturity of Exchange Notes are being
offered in exchange for a like aggregate principal
amount at maturity of Senior Notes. Senior Notes
may be tendered for exchange in whole or in part in
integral multiples of $1,000 stated principal
amount at maturity. The Company is making the
Exchange Offer in order to satisfy its obligations
under the Registration Agreement relating to the
Senior Notes. For a description of the procedures
for tendering Senior Notes, see "The Exchange
Offer--Procedures for Tendering Senior Notes."
Expiration Date........... 5:00 p.m., New York City time, on , 1998 unless
the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange
Offer is extended). See "The Exchange Offer--
Expiration Date; Extensions; Amendments."
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain
conditions, which may be waived by the Company in
its sole discretion. The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount at maturity of Senior Notes being tendered.
See "The Exchange Offer--Conditions to the Exchange
Offer."
The Company reserves the right in its sole and
absolute discretion, subject to applicable law, at
any time and from time to time: (i) to delay the
acceptance of the Senior Notes; (ii) to terminate
the Exchange Offer if certain specified conditions
have not been satisfied; (iii) to extend the
Expiration Date of the Exchange Offer and retain
all Senior Notes tendered pursuant to the Exchange
Offer, subject, however, to the right of holders of
Senior Notes to withdraw their tendered Senior
Notes; and (iv) to waive any condition or otherwise
amend the terms of the Exchange Offer in any
respect. See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
Withdrawal Rights......... Tenders of Senior Notes may be withdrawn at any
time prior to the Expiration Date by delivering a
written notice of such withdrawal to the Exchange
Agent (as defined herein) in conformity with
certain procedures as set forth below under "The
Exchange Offer--Withdrawal Rights."
Procedures for Tendering
Senior Notes............. Tendering holders of Senior Notes must complete and
sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same
by mail, facsimile transmission or hand delivery,
together with any other required documents, to the
Exchange Agent, either with the Senior Notes to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Senior Notes.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Senior
Notes registered in the name of a broker, dealer,
commercial
5
<PAGE>
bank, trust company or other nominee are urged to
contact such person promptly if they wish to tender
Senior Notes pursuant to the Exchange Offer. See
"The Exchange Offer--Procedures for Tendering
Senior Notes."
Letters of Transmittal and certificates
representing Senior Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender
and requests for information should be directed to
the Exchange Agent. See "The Exchange Offer--
Exchange Agent."
Resales of Exchange Based on interpretations by the staff of the
Notes.................... Commission, as set forth in no-action letters
issued to third parties unrelated to the Company,
the Company believes that holders of Senior Notes
(other than any holder that is (i) a broker-dealer
that acquired Senior Notes as a result of market-
making activities or other trading activities, or
(ii) a broker-dealer that acquired Senior Notes
directly from the Company for resale pursuant to
Rule 144A or another available exemption under the
Securities Act) who exchange their Senior Notes for
Exchange Notes pursuant to the Exchange Offer may
offer for resale, resell and otherwise transfer
such Exchange Notes without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business, such holders have no arrangement
or understanding with any person to participate in
the distribution of such Exchange Notes and such
holders are not "affiliates" of the Company (within
the meaning of Rule 405 under the Securities Act).
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. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Senior
Notes, where such Senior Notes were acquired by
such broker-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 Exchange Notes.
See "Plan of Distribution."
Exchange Agent............ The exchange agent with respect to the Exchange
Offer is Harris Trust and Savings Bank (the
"Exchange Agent"). The address, telephone number
and facsimile number of the Exchange Agent are set
forth in "The Exchange Offer--Exchange Agent" and
in the Letter of Transmittal.
Use of Proceeds........... The Company will not receive any cash proceeds from
the issuance of the Exchange Notes offered hereby.
See "Use of Proceeds."
Certain United States
Federal Income Tax The exchange of the Exchange Notes for the Senior
Considerations........... Notes will not be a taxable exchange for U.S.
federal income tax purposes, and holders of Senior
Notes should not recognize any taxable gain or loss
of any interest income as a result of such
exchange. See "Certain United States Federal Income
Tax Considerations--The Exchange."
6
<PAGE>
THE EXCHANGE NOTES
Securities Offered........ $270,000,000 aggregate stated principal amount at
maturity of 12.125% Senior Discount Notes due
February 15, 2008. The terms of the Exchange Notes
will be identical in all material respects to the
terms of the Senior Notes, except that (i) the
Exchange Notes will have been registered under the
Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the
Senior Notes and (ii) holders of the Exchange Notes
will not be entitled to certain rights of holders
of the Senior Notes under the Registration
Agreement. The Exchange Notes will evidence the
same debt as the Senior Notes and will be issued
pursuant to and entitled to the benefits of the
Indenture.
Issue Price............... $555.6578 per $1,000 stated principal amount at
maturity.
Maturity.................. February 15, 2008.
Yield and Interest........ 12.125% per annum (computed on a semiannual bond
equivalent basis). In the period prior to February
15, 2003, interest will accrue but will not be
payable in cash. From February 15, 2003, interest
on the stated principal amount at maturity of the
Notes will be payable in cash semiannually on
August 15 and February 15 of each year, beginning
on August 15, 2003. See "Description of the
Exchange Notes."
Original Issue Discount... For U.S. federal income tax purposes, the Exchange
Notes will be considered to bear original issue
discount ("OID"). Although Current Interest on the
Notes will not be payable prior to August 15, 2003,
a U.S. Holder (as defined herein) of Exchange Notes
will be required to include OID in such holder's
gross income for U.S. federal income tax purposes
in advance of receipt of the cash payments to which
the income is attributable. See "Certain United
States Federal Income Tax Considerations."
Ranking................... The Exchange Notes will be senior unsecured
obligations of the Company ranking pari passu in
right of payment with the Senior Notes and all
other existing and future senior indebtedness of
the Company, if any, and will rank senior in right
of payment to all existing and future subordinated
indebtedness of the Company, if any. Holders of
secured indebtedness of the Company, however, will
have claims that are prior to the claims of the
holders of the Exchange Notes with respect to the
assets securing such other indebtedness. As of
December 31, 1997, on a pro forma basis after
giving effect to the Offering and the application
of the net proceeds therefrom, the Company would
have had no outstanding indebtedness other than the
Notes. The Exchange Notes will be effectively
subordinated to all existing and future
indebtedness and other liabilities of the Company's
subsidiaries (including trade payables). See
"Description of the Exchange Notes--Ranking."
Optional Redemption....... The Exchange Notes will be redeemable, at the
Company's option, in whole or in part, at any time
or from time to time, on or after February
7
<PAGE>
15, 2003, at 106.063% of their stated principal
amount at maturity, plus accrued and unpaid Current
Interest, declining ratably to 100% of their stated
principal amount at maturity, plus accrued and
unpaid Current Interest, on or after 2006. 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 aggregate
stated principal amount at maturity of the Exchange
Notes with the proceeds from one or more Public
Equity Offerings following which there is a Public
Market, at a redemption price (expressed as a
percentage of Accreted Value on the redemption
date) of 112.125%, plus Additional Interest, if
any; provided that at least 65% of the original
aggregate stated principal amount at maturity of
the Exchange Notes remains outstanding after each
such redemption. See "Description of the Exchange
Notes--Optional Redemption."
Change of Control......... Upon the occurrence of a Change of Control (as
defined herein), each holder of Exchange Notes will
have the right to require the Company to repurchase
all or any part of such holder's Exchange Notes
pursuant to a Change of Control Offer (as defined
herein) at a purchase price equal to 101% of the
Accreted Value thereof plus accrued and unpaid
Current Interest, if any, to but excluding the
repurchase date. If a Change of Control Offer is
made, there can be no assurance that the Company
will have sufficient funds to pay the Change of
Control Purchase Price for all Exchange Notes
tendered by holders seeking to accept the Change of
Control Offer. Upon the occurrence of a Change of
Control, if after giving effect to a Change of
Control Offer at least 95% of the original
aggregate stated principal amount at maturity of
the Exchange Notes has been redeemed or
repurchased, the Company shall have the right to
redeem the balance of the Exchange Notes at a
redemption price equal to 101% of the Accreted
Value thereof plus accrued and unpaid Current
Interest, if any, to but excluding the Change of
Control Redemption Date (as defined herein). See
"Description of the Exchange Notes--Repurchase at
the Option of Holders upon a Change of Control."
Certain Covenants......... The Indenture contains certain covenants which,
among other things, restrict the ability of the
Company and certain of its subsidiaries to incur
additional indebtedness (and, in the case of
certain subsidiaries, issue preferred stock), pay
dividends or make distributions in respect of the
Company's or such subsidiaries' capital stock, make
other restricted payments, enter into sale and
leaseback transactions, incur liens, cause
encumbrances or restrictions to exist on the
ability of certain subsidiaries to pay dividends or
make distributions in respect of their capital
stock, issue and sell capital stock of certain
subsidiaries, enter into transactions with
affiliates, sell assets, or amalgamate,
consolidate, merge or sell or otherwise dispose of
all or substantially all of their property and
assets. These covenants are subject to important
exceptions and qualifications. See "Description of
the Exchange Notes--Certain Covenants."
For additional information regarding the Exchange Notes, see "Description of
the Exchange Notes."
8
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. See "Use of Proceeds."
RISK FACTORS
POTENTIAL PARTICIPANTS IN THE EXCHANGE OFFER SHOULD CONSIDER CAREFULLY
CERTAIN FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS." SEE "RISK FACTORS."
These risk factors are generally applicable to the Senior Notes as well as the
Exchange Notes.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial data presented below as of and for the
seven month period ended December 31, 1996, and the year ended December 31,
1997, have been derived from the Consolidated Financial Statements of the
Company, and the notes related thereto, included elsewhere in this Prospectus.
The Financial Statements of the Company for the seven month period ended
December 31, 1996 and for the year ended December 31, 1997 have been audited by
Arthur Andersen LLP, independent auditors. The summary financial data for the
three month periods ended March 31, 1997, June 30, 1997, September 30, 1997,
and December 31, 1997, have been derived from the unaudited financial
statements of the Company which, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations for the
Company for such periods. The results of operations for interim periods are not
necessarily indicative of a full year's operations. The following information
should be read in conjunction with "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
the Consolidated Financial Statements of the Company and the notes related
thereto, and the other financial data appearing elsewhere in this Prospectus.
Because the Company will not receive any proceeds for the issuance of the
Exchange Notes offered hereby, no effect has been given to the Exchange Offer
in the pro forma statements or capitalization tables which was not previously
accounted for in the Offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS THREE MONTHS ENDED
(MAY 31, 1996) TO ---------------------------------------------------- YEAR ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1997 1997 1997
----------------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ -- $ -- $ 86,907 $ 1,226,076 $ 2,710,707 $ 4,023,690
Expenses:
Customer service and
network operations.... -- 8,697 260,024 760,845 1,125,414 2,154,980
Selling, general
and administrative.... 421,777 416,492 562,347 747,102 1,161,431 2,887,372
Depreciation and
amortization.......... 1,150 7,337 85,222 179,511 343,747 615,817
---------- ----------- ----------- ----------- ----------- ------------
Operating income
(loss)................. (422,927) (432,526) (820,686) (461,382) 80,115 (1,634,479)
Interest income
(expense), net......... 17,626 42,925 52,320 20,827 (48,446) 67,626
Net income (loss)....... $ (405,301) $ (389,601) $ (768,366) $ (440,555) $ 31,669 $ (1,566,853)
========== =========== =========== =========== =========== ============
OTHER FINANCIAL DATA:
EBITDA(1)............... $ (421,777) $ (425,189) $ (735,464) $ (281,871) $ 423,862 $ (1,018,662)
Capital expenditures.... 82,303 2,244,385 1,395,695 4,341,342 3,674,102 11,655,524
Ratio of earnings to
fixed charges(2)....... -- -- -- -- 1.2 --
SUMMARY CASH FLOW DATA:
Net cash provided by
(used in) operating
activities............. $ (152,576) $ (522,595) $ (442,235) $ (687,197) $ 18,010 $ (1,634,017)
Net cash used in
investing activities... (82,303) (2,244,385) (1,395,695) (4,341,342) (3,674,102) (11,655,524)
Net cash provided by
financing activities... 4,025,000 3,999,514 285,802 2,993,499 4,477,157 11,755,972
OPERATING DATA:
Access lines in
service(3)............. -- -- 1,481 2,965 7,394 7,394
Minutes of use
(millions)............. -- -- 6.6 83.8 191.3 281.7
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, 1997
----------------------- -------------------------
PRO FORMA AS
1996 1997 PRO FORMA(4) ADJUSTED(5)
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............. $3,807,004 $ 4,737,808 $18,537,808 $158,777,562
Fixed assets, net.......... 81,153 11,176,774 11,176,774 11,176,774
Total assets............... 3,888,157 15,914,582 29,714,582 176,205,302
Long-term debt............. -- 3,536,886 3,536,886 150,027,606
Redeemable Class A Common
Stock (6)................. 4,024,653 12,403,218 -- --
Total stockholders' equity
(deficit)................. (404,954) (2,075,372) 24,127,846 24,127,846
</TABLE>
- --------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is not a measurement of financial performance under
generally accepted accounting principles, is not intended to represent cash
flow from operations, and should not be considered as an alternative to net
loss as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company believes that EBITDA is widely
used by analysts, investors and other interested parties in the
telecommunications industry. EBITDA is not necessarily comparable with
similarly titled measures for other companies. See "Consolidated Statements
of Cash Flows."
(2) The ratio of earnings to fixed charges is calculated by dividing (i) income
(loss) before provision for income taxes, plus fixed charges by (ii) fixed
charges. Fixed charges consist of interest on indebtedness, plus the
estimated interest component of rental expense deemed by the Company to be
representative of the interest factor. For the seven-month period ended
December 31, 1996 and for the year ended December 31, 1997, and the three
months ended March 31, June 30, and September 30, 1997, earnings were
insufficient to cover fixed charges by $405,301, $1,566,853, $389,601,
$768,366, and $440,555, respectively. For the three months ended December
31, 1997, the Company had a pre-tax profit of $31,669 and fixed charges of
$154,894.
(3) Represents the number of access lines in service (at a DSO level) and
excludes the signaling channel of primary rate ISDN-based connections.
(4) Gives effect to the infusion of $13.8 million prior to consummation of the
Offering by Equity Investors and Executive Investors (as defined herein) as
if such infusion had taken place on December 31, 1997, and reclassification
of redeemable Class A Common Stock to permanent equity as a result of an
amendment to the Company's Stock Purchase Agreement (as defined herein).
See "Description of Capital Stock."
(5) Gives effect to the Offering and the use of a portion of the net proceeds
therefrom. See "Capitalization" and "Use of Proceeds."
(6) See "Capitalization" and "Description of Capital Stock."
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of Senior Notes should carefully consider the risk factors set forth below
before tendering their Senior Notes for Exchange Notes.
LIMITED HISTORY OF OPERATIONS; NEGATIVE CASH FLOW
The Company began operations in May 1996. Accordingly, prospective
participants in the Exchange Offer have limited historical financial
information about the Company upon which to base an evaluation of the
Company's performance. Given the Company's limited operating history, there is
no assurance that it will be able to generate sufficient cash flow to service
its debt obligations (including the Senior Notes and the Exchange Notes) or to
compete successfully in the telecommunications business.
The development of the Company's businesses and the acquisition,
installation and expansion of its networks require significant expenditures, a
portion of which are made before any revenues may be realized. Such capital
expenditures are expected to increase as the Company grows its customer base
in existing markets and expands into additional markets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business--Market Potential." These
expenditures, together with the associated early service costs, will result in
negative cash flow and operating losses until an adequate revenue base may be
established. There can be no assurance that an adequate revenue base will be
established. The Company's operations have resulted in negative EBITDA of
$1,018,662 for the year ended December 31, 1997. As of December 31, 1997, the
Company had an accumulated deficit of $1,972,154. Management expects the
Company to produce negative consolidated cash flow for a period of at least 18
to 24 months from the date of this Prospectus. The Company will continue to
make expenditures in connection with the acquisition, development and
expansion of its networks, services and customer base. There can be no
assurance that the Company will achieve or sustain profitability or generate
sufficient cash flow to service its debt obligations (including the Senior
Notes and the Exchange Notes), to meet working capital requirements or to
compete successfully in the telecommunications business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is highly leveraged following the issuance of the Notes. As of
December 31, 1997, on a pro forma basis after giving effect to the issuance of
the Senior Notes and the application of the net proceeds therefrom, the
Company would have had no outstanding indebtedness other than the Notes. The
Indenture permits, subject to certain conditions, the incurrence of additional
indebtedness. The Company may incur substantial additional indebtedness
(including secured indebtedness) following the issuance of the Senior Notes
and Exchange Notes for the construction or acquisition and expansion of
networks, the purchase of transmission and switching equipment, and the
introduction of new service offerings. See "--Future Capital Requirements,"
and "--Holding Company Structure; Effective Subordination of the Exchange
Notes."
The Company's ability to make principal and interest payments on the Notes
will be dependent upon, among other things, the Company's future operating
performance and anticipated cash flow and its ability to obtain additional
debt or equity financing. Factors affecting the ability of the Company to
achieve the foregoing include prevailing economic, financial, competitive and
regulatory conditions and other factors affecting the Company's business and
operations, including the Company's ability to implement its business strategy
in new markets on a timely and cost-effective basis. There can be no assurance
that the Company will have adequate sources of liquidity to make required
payments of principal and interest on its indebtedness (including the Notes),
whether at or prior to maturity, finance anticipated capital expenditures and
fund working capital requirements. If the Company does not have sufficient
available resources to repay its outstanding indebtedness when it becomes due
and payable, the Company may find it necessary to refinance such indebtedness;
there can be no assurance however that refinancing will be available, or if
available, that it will be available on reasonable terms. Any failure by the
Company to satisfy its obligations with respect to its indebtedness at
maturity or prior thereto would constitute a default under such indebtedness
and could cause a default under agreements governing other
12
<PAGE>
indebtedness, if any, of the Company. Such defaults could result in a default
under the Indenture and could delay or preclude payment of interest or
principal on the Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." If the
Company were unable to obtain adequate financing or refinancing on
satisfactory terms, it would have to consider various other options such as
the sale of certain assets or additional equity to meet its debt service
requirements or other options available to it under law. There can be no
assurance that such options would be permitted under the terms of the
Company's indebtedness or other agreements or that such options would be
available on terms acceptable to the Company, if at all. See "Description of
the Exchange Notes--Certain Covenants."
The Company's high degree of leverage could have important consequences,
including: (i) a substantial portion of the Company's sources of capital and
cash flow from operations must be dedicated to debt service payments, thereby
reducing the funds available to the Company for other purposes; (ii) the
Company's ability to obtain additional debt financing in the future for
working capital, capital expenditures, acquisitions, repayment of indebtedness
or other purposes may be impaired, whether as a result of the covenants and
other terms of its debt instruments or otherwise; (iii) the Company is
substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; (iv) the Company's high degree of
leverage may limit its ability to expand capacity and otherwise meet its
growth objectives; and (v) the Company's high degree of leverage may hinder
its ability to adjust rapidly to changing market conditions and could make it
more vulnerable in the event of a downturn in general economic conditions or
its business. In addition, the Company's operating and financial flexibility
is limited by the Indenture and may be limited by covenants contained in
agreements governing future indebtedness of the Company and its subsidiaries.
Such covenants will impose significant operating and financial restrictions on
the Company and its subsidiaries and will restrict, limit or prohibit, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends, repay indebtedness prior to its stated
maturity, sell assets, make investments, engage in transactions with
affiliates, create liens or engage in mergers or acquisitions. There can be no
assurance that such covenants will not adversely affect the Company's ability
to finance its future operations or capital needs or to engage in other
business activities which may be in the interest of the Company. See
"Description of the Exchange Notes."
FUTURE CAPITAL REQUIREMENTS
Expansion of the Company's existing networks and services, the acquisition
and development of new networks and services and the funding of initial
operating losses will require significant capital expenditures. The Company
plans to have operations in ten cities by the end of 1999. The Company
currently intends to fund the expansion of its networks and the deployment of
switches in all of such networks with full capabilities for local dial tone
and switched access termination and origination services with the net proceeds
from this Offering, together with its existing cash balances and the net
proceeds of additional financings, if required. See "Use of Proceeds." If the
Company requires additional capital to complete the planned build out of its
networks, or if customer demand in such markets exceeds current expectations,
the Company's funding needs may increase. In addition, the Company will
continue to evaluate additional revenue opportunities in each of its markets
and, as attractive additional opportunities may develop, the Company plans to
make additional capital investments in its networks that might be required to
pursue such opportunities. The Company expects to meet such additional capital
needs with additional borrowings under credit facilities, proceeds from the
sale of additional debt or equity securities and joint ventures. The Company's
network design strategy of leasing its transmission facilities may result in
EBITDA levels lower than other CLECs that own their transport facilities. Such
differences may, in the absence of other factors that management believes
should increase its EBITDA relative to its competitors, make it more difficult
for the Company to obtain debt financing relative to other CLECs of similar
size. There can be no assurance, however, that the Company will be successful
in raising sufficient additional debt or equity capital on terms that it will
consider acceptable or that the Company's operations will produce cash flow in
sufficient amounts. Failure to raise and generate sufficient funds may require
the Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's
growth and its ability to compete in the telecommunications industry. The
Company's expectations
13
<PAGE>
of required future capital expenditures are based on the Company's current
estimates. There can be no assurance that actual expenditures will not be
significantly higher or lower.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF THE EXCHANGE NOTES
The Company is a holding company which derives all of its revenues from the
operation of its subsidiaries. The holders of the Exchange Notes will have no
direct claim against the subsidiaries for payment under the Exchange Notes. As
such, the Company is dependent upon dividends and other payments from its
subsidiaries to generate the funds necessary to meet its cash obligations,
including the payment of principal and interest on the Exchange Notes. The
ability of the Company's subsidiaries to make such payments will be subject
to, among other things, the availability of sufficient surplus funds, the
terms of such subsidiaries' indebtedness and applicable laws. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Claims of creditors of the Company's subsidiaries and holders of preferred
stock of such subsidiaries will have priority as to the assets of such
subsidiaries over the claims of the Company and the holders of the Company's
indebtedness, including the Exchange Notes, except to the extent that such
subsidiaries have provided guarantees of the Company's indebtedness and except
to the extent that loans made by the Company to its subsidiaries are
recognized as indebtedness. Therefore, the Exchange Notes will be effectively
subordinated in right of payment to all existing and future indebtedness and
other liabilities of the Company's subsidiaries, including trade payables. See
"Use of Proceeds" and "Description of the Exchange Notes--Ranking."
The Exchange Notes will be effectively subordinated to any secured
indebtedness of the Company because holders of such indebtedness will have
claims that are prior to the claims of the holders of the Exchange Notes with
respect to the assets securing such indebtedness except to the extent the
Exchange Notes are equally and ratably secured by such assets. As of December
31, 1997, on a pro forma basis after giving effect to the Offering and the
application of the net proceeds therefrom, the Company would have had no
outstanding indebtedness other than the Notes. The Indenture limits, but does
not prohibit, the incurrence of certain other secured and unsecured
indebtedness by the Company and its subsidiaries. See "Description of the
Exchange Notes--Certain Covenants--Limitation on Consolidated Indebtedness."
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
IMPLEMENTATION OF GROWTH STRATEGY
The expansion and development of the Company's operations will depend, among
other things, on the Company's ability to assess markets, install and operate
switches, recruit and hire personnel, install facilities, implement and
improve its operating and administrative systems and obtain any required
government authorizations, franchises and permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions. As a result, there
can be no assurance that the Company will be able successfully to expand its
existing networks or acquire or develop new networks in a timely manner in
accordance with its strategic objectives. As a result of the Company's
strategy to achieve rapid growth, the operating complexity of the Company may
increase. The Company's ability to manage its expansion effectively will
depend on, among other things, the expansion, training and management of the
Company's employee base and the Company's successful development of
operational, financial and management plans, systems and controls. Given the
Company's limited operating history, there can be no assurance that the
Company will be able to satisfy these requirements or otherwise manage its
growth effectively. Such failures could have a material adverse effect on the
Company's financial condition. See "Business."
An essential element of the Company's strategy is the provision of switched
local service. There can be no assurance that the installation of the required
switches and associated electronics necessary to implement the Company's
business plan will continue to be completed on time or that, during the
testing of these switches and related equipment, the Company will not
experience technological problems that cannot be resolved. The failure of the
Company to install and operate successfully additional switches and other
network equipment could have a material adverse effect upon the Company's
ability to enter additional markets.
14
<PAGE>
The Company has agreements for the interconnection of its networks with the
networks of the ILEC covering each market in which it is currently operating.
The U.S. Court of Appeals for the Eighth Circuit vacated Federal
Communications Commission ("FCC") rules governing, among other things, pricing
in interconnection agreements and providing "most favored nation" treatment.
This decision has been appealed to the Supreme Court, and the Supreme Court
has granted certiorari. The outcome of those appeals cannot be predicted at
this time. The Eighth Circuit decision creates uncertainty about the rules
governing pricing, terms and conditions of interconnection agreements, and
could make negotiation and enforcement of such agreements more difficult and
protracted, and may require renegotiation of existing agreements. There can be
no assurance that the Company will successfully negotiate such other
agreements for interconnection with the ILEC or renewals of existing
interconnection agreements. The failure to negotiate required interconnection
agreements could have a material adverse effect upon the Company's ability to
enter additional markets. See "--Regulation."
The Company has developed processes and procedures in the implementation of
customer orders for services, the provisioning, installation and delivery of
such services and monthly billing for those services. In connection with its
development of a comprehensive information technology platform, the Company is
developing automated internal systems for processing customer orders,
provisioning and billing. The failure to develop effective internal processes
and systems for these service elements could have a material adverse effect
upon the Company's ability to achieve its growth strategy.
COMPETITION
In each of the cities anticipated to be served by the Company's networks,
the services offered by the Company compete or will compete principally with
the services offered by the ILEC serving that area. ILECs have long-standing
relationships with their customers, have the potential to subsidize
competitive services from monopoly service revenues and benefit from favorable
state and federal regulations. While the FCC's interconnection decisions and
the Telecom Act provide increased business opportunities to CLECs such as the
Company, they also provide the ILECs with increased pricing flexibility for
their services and other regulatory relief, which could have a material
adverse effect on CLECs, including the Company. If the ILECs are allowed by
regulators to lower their rates for their services, engage in substantial
volume and term discount pricing practices for their customers, or seek to
charge CLECs substantial fees for interconnection to the ILECs' networks, the
income of CLECs, including the Company, could be materially adversely
affected.
ILECs can also adversely affect the pace at which CLECs add new customers by
prolonging the process of providing unbundled network elements, colocations,
intercompany trunks, and operations support system ("OSS") interfaces, which
allow the electronic transfer between ILECs and CLECs of needed information
about customer accounts, service orders and repairs. Although the Telecom Act
requires ILECs to provide the unbundled network elements, interconnections and
OSS interfaces needed to allow the customers of CLECs and other new entrants
to the local exchange market to obtain service comparable to that provided by
the ILECs in terms of installation time, repair response time, billing and
other administrative functions, in many cases the ILECs may not have fully
complied with the mandates of the Telecom Act. In addition, the
interconnection regulations may be affected by the outcome of the pending
Supreme Court review of the Eighth Circuit's decision. See "--Regulation."
The Company also faces, and expects to continue to face, competition from
other current and potential market entrants, including other CLECs,
interexchange carriers ("IXCs"), cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end users. A continuing trend toward combinations and
strategic alliances in the telecommunications industry, including potential
consolidation among existing telecommunications providers in the same or
different market segments, or among telephone companies and other types of
companies not currently providing telecommunications services, could give rise
to significant new competition.
The Company believes that various legislative initiatives, including the
Telecom Act, as well as a recent series of completed and proposed transactions
between ILECs, IXCs and cable companies, increase the
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likelihood that barriers to local exchange competition will be removed more
quickly than had earlier been anticipated. The introduction of such
competition, however, also means that the Company may face new or increased
competition from entities who do not currently compete with the Company in any
significant way.
Many of the Company's current and potential competitors have financial,
personnel and other resources substantially greater than those of the Company,
as well as other competitive advantages over the Company. See "Business--
Competition" for more detailed information on the competitive environment
faced by the Company.
REGULATION
The Company is subject to varying degrees of federal, state and local
regulation. The Company is not currently subject to price cap or rate of
return regulation, nor is it currently required to obtain FCC authorization
for the installation, acquisition or operation of its network facilities.
While the FCC has determined that non-dominant carriers, such as the Company
and its subsidiaries, should no longer be required to file interstate tariffs,
that decision has been stayed. Thus, carriers currently are required to
continue filing such tariffs for long-distance service. The Company's
subsidiaries that provide intrastate services are also generally subject to
certification and tariff filing requirements by state regulators. Challenges
to these tariffs by third parties could cause the Company to incur substantial
legal and administrative expenses. Although the trend in federal and state
regulation appears to favor increased competition, no assurance can be given
that changes in current or future regulations adopted by the FCC or state
regulators or other legislative or judicial initiatives relating to the
telecommunications industry would not have a material adverse effect on the
Company. In particular, the Company's ability to compete in the segments of
the local exchange market recently opened to CLEC competition depends upon
continued favorable pro-competitive regulatory changes and may be adversely
affected by the greater pricing flexibility and other regulatory relief
granted to ILECs under the Telecom Act. The Company's ability to compete also
may be affected by the recent decision of a U.S. District Court in Texas
(which has been stayed pending appeal) invalidating certain provisions of the
Telecom Act which prohibit the Regional Bell Operating Companies ("RBOCs")
from providing certain services or engaging in other activity until such time
as they have demonstrated that their local market has been opened to
competition. In addition, the Eighth Circuit's decision vacating the FCC's
interconnection pricing rules (which will be reviewed by the United States
Supreme Court during its 1998-99 term) may slow the pace of open competition
initiatives and result in individual states having a more prominent role in
the opening of local exchange markets to competition. Notwithstanding the
uncertainty of the interconnection pricing rules, the Company has in effect or
expects to have in effect interconnection agreements with the ILECs for all of
its operating networks. These agreements are subject to review and approval by
the respective states. While the Company believes its agreements will be
approved, there can be no assurance that the agreements will be approved. In
addition, one or both parties to the agreements may seek to have the
agreements modified based upon the outcome of regulatory and judicial rulings
occurring subsequent to the date of the agreements. There can be no assurances
that the outcome, or any resultant modified agreements, will not adversely
affect the Company. See "Business--Regulation."
RELIANCE ON LEASED TRANSPORT FACILITIES AND ILEC INTERCONNECTION
Because the Company has elected to lease transport capacity, it is dependent
upon the availability of fiber optic transmission facilities owned by ILECs,
CLECs and other fiber optic transport providers whose fiber optic networks are
being leased by the Company. The risks inherent in this approach include, but
are not limited to, negotiating and renewing favorable supply agreements, and
timeliness of the ILECs, CLECs or other fiber optic transport providers in
processing the Company's orders for customers who seek to utilize the
Company's service.
In addition to transport providers, the Company is reliant on executing
interconnection agreements with the ILECs operating in its target markets. The
Company's interconnection agreements currently provide that the Company's
connection and maintenance orders will receive attention at parity with the
ILECs' customers and the ILEC will provide adequate trunking capacity to keep
blockage within industry standards. Accordingly, the Company and its customers
are dependent on the ILECs to assure uninterrupted service. Blocked calls
result in customer dissatisfaction and risk the loss of Company business.
There can be no assurance ILECs will comply
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with their network provisioning requirements. Furthermore, there can be no
assurance the rates to be charged to the Company under the interconnection
agreements will allow the Company to offer low enough usage rates to attract a
sufficient number of customers and to operate the business profitably.
RECIPROCAL COMPENSATION FOR INTERNET ACCESS
The Company expects to receive a majority of its initial revenue in a given
market from the ILEC in the form of reciprocal compensation payments. This is
a result of the Company's ISP and corporate customers receiving more calls
than they make due to the initial mix of applications typically sold. Certain
ILECs have refused to pay that portion of reciprocal compensation that they
estimate is the result of inbound ISP traffic since they believe such traffic
to be interstate in nature and not covered under the interconnection
agreements. For example, Illinois Bell Telephone Company ("Ameritech") has
disputed that portion of the reciprocal compensation charges billed to it by
Focal which it believes are related to Internet access services. The Company
has recorded revenues and related accounts receivable totaling $1,685,625 as
of and for the year ended December 31, 1997 which are the subject of such
dispute. On March 11, 1998, the ICC issued an order stating that Ameritech is
required to pay reciprocal compensation with respect to calls made to ISPs. On
March 15, 1998, Ameritech filed a motion with the ICC to stay the order
pending an appeal, which was denied by the ICC on March 23, 1998. While some
states in which the Company is providing, or proposes to provide, service have
ordered ILECs to pay reciprocal compensation for such calls, an arbitrator in
Oklahoma has reached a different conclusion and other states have not
considered the issue. States which have not considered the issue could
determine that no reciprocal compensation is due with respect to calls made to
ISPs. In addition, the FCC also is considering this matter in response to a
request for a declaratory ruling. There can be no assurance that the payment
of reciprocal compensation for ISP or other traffic types will be maintained.
A change in the type of traffic eligible for reciprocal compensation payments
would have a material adverse effect on the Company. See "Business--Legal and
Administrative Proceedings."
CONTROL BY LIMITED NUMBER OF STOCKHOLDERS; POTENTIAL CONFLICT OF INTEREST
The Equity Investors control approximately 80% of the total voting power in
the Company. As a result of such control and pursuant to the terms of certain
agreements among the Company's stockholders, the Equity Investors and the
Company's management will continue to have the ability to effectively control
the future operations of the Company. See "Security Ownership of Certain
Beneficial Owners and Management." Certain decisions concerning the operations
or financial structure of the Company may present a conflict of interest
between the Company's stockholders and the holders of the Exchange Notes. For
example, if the Company encounters financial difficulties or is unable to pay
its debts as they mature, the interest of the Company's stockholders may
conflict with those of the holders of Exchange Notes. In addition, these
investors may have an interest in pursuing acquisitions, divestitures,
financings or other transactions that, in their judgment could enhance their
equity investment in the Company, even though such transactions might involve
increased risk to the holders of the Exchange Notes. In addition to their
investment in the Company, the Equity Investors or their affiliates currently
have significant investments in other telecommunications companies and may in
the future invest in other entities engaged in the telecommunications business
or in related businesses (including entities engaged in business in areas in
which the Company operates). As a result, the Equity Investors have, and may
develop, relationships with businesses that are or may be competitive with the
Company. In addition, the Company and these investors have agreed that such
investors are under no obligation to bring the Company any investment or
business opportunities of which they become aware, even if such opportunities
are within the primary objectives of the Company. See "Certain Transactions."
POTENTIAL NEED TO OBTAIN AND MAINTAIN PERMITS AND RIGHTS-OF-WAY
If the Company decides at a later date to acquire and develop its own fiber
optic transmission facilities, the Company may be required to obtain local
franchises and other permits, as well as rights to utilize underground conduit
and pole space and other rights-of-way from entities such as ILECs and other
utilities, railroads, long distance providers, state highway authorities,
local governments and transit authorities. The Telecom Act requires
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that local governmental authorities treat telecommunications carriers in a
competitively neutral, non-discriminatory manner, and that most utilities,
including most ILECs and electric companies, afford CLECs access to their
poles and conduits and rights-of-way at reasonable rates on nondiscriminatory
terms and conditions. The failure to enter into and maintain any such required
arrangements for a particular network, including a network which is already
under construction, may affect the Company's ability to develop that network.
See "Business--Network."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
A portion of the Company's future growth may come from acquisitions of other
companies. The acquisition of additional businesses will depend on the
Company's ability to identify suitable acquisition candidates, to negotiate
acceptable terms for their acquisition and to finance any such acquisitions.
The Company will also be subject to competition for suitable acquisition
candidates. Any acquisitions, if made, could divert the resources and
management time of the Company and would require integration with the
Company's existing networks and services. As a result, there can be no
assurance that any such acquisitions will occur or that any such acquisitions,
if made, would be made in a timely manner or on terms favorable to the Company
or would be successfully integrated into the Company's operations.
RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. While the Company believes that for the foreseeable future
these changes will neither materially affect the continued use of the
Company's time-division multiplexed, circuit switching systems nor materially
hinder the Company's ability to acquire necessary technologies, the effect of
technological changes on the businesses of the Company cannot be predicted.
Thus, there can be no assurance that technological developments will not have
a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's businesses are managed by a relatively small number of senior
management and operating personnel, the loss of certain of whom could have a
material adverse effect on the Company. The Company believes that its ability
to manage its planned growth successfully will depend in large part on its
continued ability to attract and retain highly skilled and qualified
personnel. See "Management" for detailed information on the Company's
management and directors. There can be no assurances that the Company will be
able to retain its key employees or that the Company can attract or retain
other skilled personnel in the future.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF NOTE PRICE
The Senior Notes have been designated for trading by qualified buyers in the
PORTAL Market. The Senior Notes have not been registered under the Securities
Act or any state securities laws, however, and will continue to be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes. Furthermore, the Exchange Offer will not be conditioned upon
any minimum or maximum aggregate principal amount of Senior Notes being
tendered for exchange. No assurance can be given as to the liquidity of the
trading market of the Senior Notes following the Exchange Offer.
Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by the holders thereof (other than any holder that is:
(i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act; (ii) a broker-dealer that acquired Senior Notes as a result of
market-making activities or other trading activities; or (iii) a broker-dealer
that acquired Senior Notes directly from the Company for resale pursuant to
Rule 144A or another available exemption under the Securities Act) without
compliance with the registration requirements under the Securities Act, they
will constitute a new issue of securities for which there is currently no
established trading market. If the Exchange Notes are traded after their
initial issuance, they may trade at a discount, depending upon prevailing
interest rates, the market for similar securities, the financial condition of
the Company and other factors beyond the control of the Company, including
general economic
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conditions. The Company does not intend to apply for a listing or quotation of
the Exchange Notes. The Initial Purchasers have informed the Company that they
currently intend to make a market in the Exchange Notes. However, the Initial
Purchasers are not obligated to do so, and any such market making may be
discontinued at any time without notice. No assurance can be given as to the
development or liquidity of any trading market for the Exchange Notes.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" of the Company (within the meaning of Rule
405 under the Securities Act) may publicly offer for sale or resell the
Exchange Notes only in compliance with the provisions of Rule 144 under the
Securities Act or any other available exemptions under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes were acquired by such
broker-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 Exchange Notes. See "Plan of Distribution."
ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL CONSEQUENCES
FOR HOLDERS OF NOTES
The Senior Notes were issued at a substantial discount from the stated
principal amount at maturity. Consequently, potential participants in the
Exchange Offer should be aware that there will be no periodic payments of cash
interest on the Exchange Notes prior to August 15, 2003 for U.S. federal
income tax purposes; however, OID (that is, the difference between the stated
redemption price at maturity and the issue price of the Senior Notes) will
accrue from February 18, 1998 and will be includible as interest income
periodically (including for periods ending prior to February 15, 2003) in a
holder's gross income in advance of receipt of the cash payments to which the
income is attributable. Similar results may apply under state and other tax
laws. The Notes constitute "applicable high yield discount obligations"
("AHYDOs"). As a result, for U.S. federal income tax purposes, a small portion
of the OID (the "Disqualified Portion") will not be deductible by the Company
and the balance of OID will not be deductible by the Company until payments
are made with respect thereto. Accordingly, during the term of the Notes, the
Company's after-tax cash flow (or its net operating loss carryforward, as the
case may be) will be less than it would be if the OID on the Notes was
deductible when accrued. For certain corporate holders of the Notes, the
Disqualified Portion may be treated for some U.S. federal income tax purposes,
as dividends to the holders (to the extent that such amounts would have been
treated as dividends to the holders of the Notes if they had been
distributions with respect to shares of stock of the Company) and thereby may
be subject to a dividends received deduction. See "Certain United States
Federal Income Tax Considerations" for a more detailed discussion of the U.S.
federal income tax consequences to the holders regarding the purchase,
ownership and disposition of the Exchange Notes.
If a bankruptcy case is commenced by or against the Company under U.S.
federal bankruptcy laws after the issuance of the Notes, the claim of a holder
of Exchange Notes with respect to the stated principal amount at maturity
thereof may be limited to an amount equal to the sum of (i) the initial
offering price of the Senior Notes and (ii) that portion of the OID which is
not deemed to constitute "unmatured interest" for purposes of U.S. federal
bankruptcy law. Any OID that was not amortized as of any such bankruptcy
filing would constitute "unmatured interest." To the extent the U.S. federal
bankruptcy law differs from the Internal Revenue Code of 1986, as amended, in
determining the method of amortization of OID, a holder of Notes may realize
taxable gain or loss upon payment of such holder's claim in bankruptcy. See
"Certain United States Federal Income Tax Considerations."
CONSEQUENCES OF A FAILURE TO EXCHANGE SENIOR NOTES
The Senior Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case
in compliance with certain other conditions and restrictions. Senior Notes
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which remain outstanding after consummation of the Exchange Offer will
continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Senior Notes
which remain outstanding will not be entitled to any right to have such Senior
Notes registered under the Securities Act, except under certain limited
circumstances. The Company does not intend to register under the Securities
Act any Senior Notes which remain outstanding after consummation of the
Exchange Offer. See "The Exchange Offer."
To the extent that Senior Notes are tendered and accepted in the Exchange
Offer, the aggregate stated principal amount at maturity of outstanding Senior
Notes will decrease, which will result in a decrease in the liquidity of the
Senior Notes. Any trading market for Senior Notes which remain outstanding
after the Exchange Offer could be adversely affected.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Senior Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent
of: (i) such Senior Notes or a book-entry confirmation of a book-entry
transfer of the Senior Notes into the Exchange Agent's account at The
Depository Trust Company ("DTC"); (ii) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees; and (iii) any other documents required by the Letter of
Transmittal. Holders of the Senior Notes desiring to tender such Senior Notes
in exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. The Company and the Exchange Agent are under no duty to give
notification of defects or irregularities with respect to the tenders of
Senior Notes for exchange. See "The Exchange Offer."
VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the significant expenses associated with the expansion and
development of its networks and services and the variability of the level of
revenues generated through sales of its services, the Company anticipates that
its operating results could vary significantly from period to period. Such
variability could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Change of Control, each holder of Exchange Notes will have the right,
at the holder's option, to require the Company to repurchase all or a portion
of such holder's Exchange Notes. If a Change of Control were to occur, there
can be no assurance that the Company would have sufficient funds to pay the
repurchase price for all Exchange Notes tendered by the holders thereof. In
addition, the Company's repurchase of Exchange Notes as a result of the
occurrence of a Change of Control may be prohibited or limited by, or create
an event of default under, the terms of agreements related to borrowings which
the Company may enter into from time to time, including senior indebtedness.
See "Description of the Exchange Notes--Repurchase at the Option of Holders
upon a Change of Control."
INVESTOR RIGHTS
In the event that the Company has not consummated a public offering of its
common stock prior to November 27, 2003, the Equity Investors will each have
the right to require the Company to liquidate and distribute the proceeds of
the liquidation to the Company's creditors and stockholders in the priority of
their claims and as required by applicable law. In the event that the Equity
Investors were to exercise such right, the Company would be forced to cease
operations and liquidate, and there can be no assurance that the Company would
have sufficient cash to pay all or any portion of the principal of or other
amounts due with respect to the Notes.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may
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recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has assessed its systems and believes them to be year 2000
compliant. In addition, the Company has received assurance from its major
software vendors that the products used by the Company are year 2000 compliant
and will function adequately. If the systems of other companies on whose
services the Company depends or with whom the Company's systems interface are
not year 2000 compliant, it could have a material adverse effect on the
Company.
The Company will continue its year 2000 issue assessment and, if it comes to
the attention of the Company's management that any of its systems, or the
systems of those on whom the Company relies, are not year 2000 compliant, the
Company intends to develop an action plan, and assess the resources it would
be required to devote, to address such problem. There can be no assurance that
devoting further resources of the Company to the year 2000 issue, if one were
to occur, would not have a material adverse effect on the Company.
RISKS REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus which are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks
and uncertainties. Management wishes to caution the reader that these forward-
looking statements, such as its anticipation of revenues from designated
markets, and statements regarding the development of the Company's businesses,
the markets for the Company's services and products, the Company's anticipated
capital expenditures, regulatory reform and other statements contained herein
regarding matters that are not historical facts, are only predictions. No
assurance can be given that the future results will be achieved; actual events
or results may differ materially as a result of risks facing the Company. Such
risks include, but are not limited to, the Company's ability to successfully
market its services to current and new customers, access markets, install
switching electronics, and obtain the use of leased fiber transport facilities
and any required governmental authorizations, franchises and permits, all in a
timely manner, at reasonable costs and on satisfactory terms and conditions,
as well as regulatory, legislative and judicial developments that could cause
actual results to differ materially from the future results indicated,
expressed or implied, in such forward-looking statements.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Senior Notes, the Company entered into
the Registration Agreement with the Initial Purchasers, pursuant to which the
Company agreed to file and to use its best efforts to cause to become
effective with the Commission a registration statement with respect to the
exchange of the Senior Notes for Exchange Notes with terms identical in all
material respects to the terms of the Senior Notes. A copy of the Registration
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part (the "Registration Statement"). The Exchange Offer
is being made to satisfy the contractual obligations of the Company under the
Registration Agreement.
By tendering Senior Notes in exchange for Exchange Notes, each holder will
represent to the Company that: (i) any Exchange Notes to be received by such
holder are being acquired in the ordinary course of such holder's business;
(ii) such holder has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
Exchange Notes; (iii) such holder is not an "affiliate" of the Company (within
the meaning of Rule 405 under the Securities Act), or if such holder is an
affiliate, that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable; (iv)
such holder has full power and authority to tender, exchange, sell, assign and
transfer the tendered Senior Notes; (v) the Company will acquire good,
marketable and unencumbered title to the tendered Senior Notes, free and clear
of all liens, restrictions, charges and encumbrances; and (vi) the Senior
Notes tendered for exchange are not subject to any adverse claims or proxies.
Each tendering holder also will warrant and agree that such holder will, upon
request, execute and deliver any additional documents deemed by the Company or
the Exchange Agent to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the Senior Notes tendered pursuant to the
Exchange Offer. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Senior Notes, where such Senior Notes were acquired by
such broker-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 Exchange Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, holders of Senior Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Senior Notes are registered
on the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder, or any participant in DTC
whose name appears on a security position listing as a holder of Senior Notes
(which, for purposes of the Exchange Offer, include beneficial interests in
the Senior Notes held by direct or indirect participants in DTC and Senior
Notes held in definitive form).
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange $1,000 stated principal amount at maturity of Exchange Notes for each
$1,000 stated principal amount at maturity of Senior Notes properly tendered
prior to the Expiration Date and not properly withdrawn in accordance with the
procedures described below. Holders may tender their Senior Notes in whole or
in part in integral multiples of $1,000 stated principal amount at maturity.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Senior Notes except that (i) the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Senior Notes and (ii)
holders of the Exchange Notes will not be entitled to certain rights of
holders of the Senior Notes under the Registration Agreement. The Exchange
Notes will evidence the same indebtedness as the Senior Notes (which they
replace) and will be issued pursuant to, and entitled to the benefits of, the
Indenture.
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The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered for exchange. The Company reserves the
right in its sole discretion to purchase or make offers for any Senior Notes
that remain outstanding after the Expiration Date or, as set forth under "--
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Senior Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer. As of
the date of this Prospectus, $270,000,000 aggregate stated principal amount at
maturity of Senior Notes is outstanding.
Holders of Senior Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Senior Notes which are not tendered for,
or are tendered but not accepted in connection with, the Exchange Offer will
remain outstanding. See "Risk Factors--Failure to Exchange Senior Notes."
If any tendered Senior Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Senior Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Senior Notes in connection with the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Senior Notes in connection with the Exchange Offer. The Company
will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS OF
SENIOR NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF SENIOR
NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE
OFFER AND, IF SO, THE AGGREGATE AMOUNT OF SENIOR NOTES TO TENDER AFTER READING
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended by the Company (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time: (i)
to delay the acceptance of the Senior Notes for exchange; (ii) to terminate
the Exchange Offer (whether or not any Senior Notes have theretofore been
accepted for exchange) if the Company determines, in its sole and absolute
discretion, that any of the events or conditions referred to under "--
Conditions to the Exchange Offer" has occurred or exists or has not been
satisfied; (iii) to extend the Expiration Date of the Exchange Offer and
retain all Senior Notes tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Senior Notes to withdraw their tendered
Senior Notes as described under "--Withdrawal Rights;" and (iv) to waive any
condition or otherwise amend the terms of the Exchange Offer in any respect.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, or if the Company waives a material condition of
the Exchange Offer, the Company will promptly disclose such amendment by means
of a prospectus supplement that will be distributed to the registered holders
of the Senior Notes, and the Company will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent (any
such oral notice to be promptly confirmed in writing) and by
23
<PAGE>
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company may choose to make any public
announcement, and subject to applicable laws, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes
for Senior Notes validly tendered and not withdrawn (pursuant to the
withdrawal rights described under "--Withdrawal Rights") promptly after the
Expiration Date.
In all cases, delivery of Exchange Notes in exchange for Senior Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of: (i) Senior Notes or a
book-entry confirmation of a book-entry transfer of Senior Notes into the
Exchange Agent's account at DTC; (ii) the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees; and (iii) any other documents required by the Letter of
Transmittal. Accordingly, the delivery of Exchange Notes might not be made to
all tendering holders at the same time, and will depend upon when Senior
Notes, book-entry confirmations with respect to Senior Notes and other
required documents are received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Senior Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Senior Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent (any such oral notice to be promptly
confirmed in writing) of the Company's acceptance of such Senior Notes for
exchange pursuant to the Exchange Offer. The Company's acceptance for exchange
of Senior Notes tendered pursuant to any of the procedures described above
will constitute a binding agreement between the tendering holder and the
Company upon the terms and subject to the conditions of the Exchange Offer.
The Exchange Agent will act as agent for the Company for the purpose of
receiving tenders of Senior Notes, Letters of Transmittal and related
documents, and as agent for tendering holders for the purpose of receiving
Senior Notes, Letters of Transmittal and related documents and transmitting
Exchange Notes to holders who validly tendered Senior Notes. Such exchange
will be made promptly after the Expiration Date. If for any reason whatsoever
the acceptance for exchange or the exchange of any Senior Notes tendered
pursuant to the Exchange Offer is delayed (whether before or after the
Company's acceptance for exchange of Senior Notes), or the Company extends the
Exchange Offer or is unable to accept for exchange or exchange Senior Notes
tendered pursuant to the Exchange Offer, then, without prejudice to the
Company's rights set forth herein, the Exchange Agent may, nevertheless, on
behalf of the Company and subject to Rule 14e-1(c) under the Exchange Act,
retain tendered Senior Notes and such Senior Notes may not be withdrawn except
to the extent tendering holders are entitled to withdrawal rights as described
under "--Withdrawal Rights."
PROCEDURES FOR TENDERING SENIOR NOTES
Valid Tender. Except as set forth below, in order for Senior Notes to be
validly tendered pursuant to the Exchange Offer, either: (i) (a) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at the address set forth under "--Exchange
Agent" prior to the Expiration Date and (b) tendered Senior Notes must be
received by the Exchange Agent, or such Senior Notes must be tendered pursuant
to the procedures for book-entry transfer set forth below and a book-entry
confirmation must be received by the Exchange Agent, in each case prior to the
Expiration Date; or (ii) the guaranteed delivery procedures set forth below
must be complied with.
24
<PAGE>
If less than all of the Senior Notes are tendered, a tendering holder should
fill in the amount of Senior Notes being tendered in the appropriate box on
the Letter of Transmittal. The entire amount of Senior Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person 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, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of Senior Notes that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
THE METHOD OF DELIVERY OF SENIOR NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE
OBTAINED. NO LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH
HOLDERS.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Senior Notes at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Senior Notes by causing
DTC to transfer such Senior Notes into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. However, although delivery of
Senior Notes may be effected through book-entry transfer into the Exchange
Agent's account at DTC, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees
and any other required documents, must in any case be delivered to and
received by the Exchange Agent at its address set forth under "--Exchange
Agent" prior to the Expiration Date, or the guaranteed delivery procedure set
forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
Signature Guarantees. Certificates for Senior Notes need not be endorsed and
signature guarantees on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are unnecessary unless (a) a certificate for Senior Notes is
registered in a name other than that of the person surrendering the
certificate or (b) a registered holder completes the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" in the Letter of
Transmittal. In the case of (a) or (b) above, such certificates for Senior
Notes must be duly endorsed or accompanied by a properly executed bond power,
with the endorsement or signature on the bond power and on the Letter of
Transmittal or the notice of withdrawal, as the case may be, guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association (each an "Eligible Institution"), unless surrendered on
behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
Guaranteed Delivery. If a holder desires to tender Senior Notes pursuant to
the Exchange Offer and the certificates for such Senior Notes are not
immediately available or time will not permit all required documents to
25
<PAGE>
reach the Exchange Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such Senior Notes
may nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, setting forth the name and address of the holder of Senior
Notes and the amount of Senior Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Senior
Notes, in proper form for 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 Exchange Agent. The
Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery; and
(iii) the certificates (or book-entry confirmation) representing all
tendered Senior Notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal, with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange
of any tendered Senior Notes will be determined by the Company, in its sole
discretion, which determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance for exchange of which may, in the view of counsel to the Company,
be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "--Conditions to the Exchange Offer" or any defect or irregularity
in any tender of Senior Notes of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will
be final and binding on all parties. No tender of Senior Notes will be deemed
to have been validly made until all defects or irregularities with respect to
such tender have been cured or waived. Neither the Company, any affiliates of
the Company, the Exchange Agent or any other person shall be under any duty to
give any notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties unrelated to the Company, the Company
believes that holders of Senior Notes (other than any holder that is (i) a
broker-dealer that acquired Senior Notes as a result of market-making
activities or other trading activities, or (ii) a broker-dealer that acquired
Senior Notes directly from the Company for resale pursuant to Rule 144A or
another available exemption under the Securities Act) who exchange their
Senior Notes for Exchange Notes pursuant to the Exchange Offer may offer for
resale, resell and otherwise transfer such Exchange Notes without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holders' business, such holders have no arrangement or understanding with
any person to participate in the distribution of such Exchange Notes and such
holders are not "affiliates" of the Company (within the meaning of Rule 405 of
the Securities Act). 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. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Senior Notes, where
26
<PAGE>
such Senior Notes were acquired by such broker-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 Exchange Notes. See
"Plan of Distribution."
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Senior Notes may be
withdrawn at any time prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "--Exchange Agent" prior to
the Expiration Date. Any such notice of withdrawal must specify the name of
the person who tendered the Senior Notes to be withdrawn, the aggregate
principal amount of Senior Notes to be withdrawn, and (if certificates for
such Senior Notes have been tendered) the name of the registered holder of the
Senior Notes as set forth on the Senior Notes, if different from that of the
person who tendered such Senior Notes. If certificates for Senior Notes have
been delivered or otherwise identified to the Exchange Agent, the notice of
withdrawal must specify the serial numbers on the particular certificates for
the Senior Notes to be withdrawn and the signature on the notice of withdrawal
must be guaranteed by an Eligible Institution, except in the case of Senior
Notes tendered for the account of an Eligible Institution. If Senior Notes
have been tendered pursuant to the procedures for book-entry transfer set
forth in "--Procedures for Tendering Senior Notes," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Senior Notes and must otherwise comply with the procedures of
DTC. Withdrawals of tenders of Senior Notes may not be rescinded. Senior Notes
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described above under "--
Procedures for Tendering Senior Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. Neither the Company, any affiliates of the Company, the Exchange
Agent or any other person shall be under any duty to give any notification of
any defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Senior Notes which
have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
The Senior Notes and the Exchange Notes will accrete from February 18, 1998
at a rate of 12.125% per annum, compounded semiannually, to an aggregate
stated principal amount of $270,000,000 by February 15, 2003. Interest will
not be payable on the Exchange Notes prior to February 15, 2003. Thereafter,
interest on the Exchange Notes will accrue at the rate of 12.125% per annum
and will be payable in cash semiannually on August 15 and February 15,
commencing August 15, 2003.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer or any extension
of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Senior Notes for any Exchange Notes, and, as
described below, may terminate the Exchange Offer (whether or not any Senior
Notes have theretofore been accepted for exchange) or may waive any conditions
to or amend the Exchange Offer, if any of the following conditions have
occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Senior Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than (i) broker-
dealers that acquired Senior Notes as a result of market-making activities
or other trading activities or (ii) broker-dealers that acquired Senior
Notes directly from the Company for resale pursuant to Rule 144A or another
available
27
<PAGE>
exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of
such holders' business, such holders have no arrangement or understanding
with any person to participate in the distribution of such Exchange Notes
and such holders are not "affiliates" of the Company (within the meaning of
Rule 405 under the Securities Act);
(b) any action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency or body with respect to
the Exchange Offer which, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Exchange
Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(d) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of
the Company, threatened for that purpose;
(e) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby; or
(f) any change, or any development involving a prospective change, in the
business or financial affairs of the Company has occurred which, in the
sole judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Senior Notes have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered holders of the Senior Notes, and the Company will extend the
Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent as
follows:
By Mail
Harris Trust and Savings Bankc/o Harris Trust Company of New YorkWall
Street StationP.O. Box 1010New York, New York 10268-1010Attention:
Reorganization Dept.
By Overnight Courier or Hand
Harris Trust and Savings Bankc/o Harris Trust Company of New YorkWall
Street Plaza88 Pine Street, 19th FloorNew York, New York 10005Attention:
Reorganization Dept.
28
<PAGE>
By Facsimile (for Eligible Institutions only)
(212) 701-7636
(212) 701-7637
Confirm by telephone: (212) 701-7624
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail. Additional solicitation may be
made personally or by telephone or other means by officers, directors or
employees of the Company.
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company
has agreed to pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Senior Notes, and in handling or tendering for
their customers.
Holders who tender their Senior Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that if Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Senior Notes tendered, or if a transfer tax
is imposed for any reason other than the exchange of Senior Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
transfer tax or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer tax will be billed directly to such
tendering holder.
29
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain obligations of the Company
under the Registration Agreement. The Company will not receive any proceeds
from the issuance of the Exchange Notes offered hereby. In consideration for
issuing the Exchange Notes as contemplated in this Prospectus, the Company
will receive, in exchange, an equal number of Senior Notes in like principal
amount. The form and terms of the Exchange Notes will be identical in all
material respects to the form and terms of the Senior Notes, except as
otherwise described herein under "The Exchange Offer--Terms of the Exchange
Offer." The Senior Notes surrendered in exchange for Exchange Notes will be
retired and cancelled and cannot be reissued. As such, no effect has been
given to the Exchange Offer in the pro forma statements or capitalization
tables.
CAPITALIZATION
The following table sets forth (i) the total capitalization of the Company
as of December 31, 1997, (ii) such capitalization presented on a pro forma
basis to reflect the infusion of $13.8 million by Investors (as defined
herein) and as adjusted to give effect to the Offering and the use of a
portion of the net proceeds therefrom. Because the Company will not receive
any proceeds for the issuance of the Exchange Notes offered hereby, no effect
has been given to the Exchange Offer in the pro forma statements or
capitalization tables which was not previously accounted for in the Offering.
The information set forth below should be read in conjunction with the
Company's Consolidated Financial Statements and notes related thereto included
elsewhere in this Prospectus. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," and "Description of Capital Stock."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
----------- ------------ --------------
<S> <C> <C> <C>
Cash and cash equivalents........... $ 2,256,552 $15,896,087 $156,135,841
=========== =========== ============
Long-term debt...................... $ 3,536,886 $ 3,536,886 $150,027,606
Redeemable Common Stock Class A,
$.01 par value, 85,567 Shares
authorized and 80,307 issued and
outstanding at December 31, 1997... 12,403,218 -- --
Stockholders' equity (deficit):
Common stock, Class A, Pro Forma
(Note 14)........................ -- 803 803
Common stock, Class B, par value
$0.01; 35,000 shares authorized;
20,000 shares issued and
outstanding...................... 200 200 200
Common stock, Class C, par value
$0.01; 15,000 shares authorized;
14,711 shares issued and
outstanding...................... 147 147 147
Additional paid-in capital........ (103,565) 26,098,850 26,098,850
Accumulated deficit............... (1,972,154) (1,972,154) (1,972,154)
----------- ----------- ------------
Total stockholders' equity
(deficit).......................... (2,075,372) 24,127,846 24,127,846
----------- ----------- ------------
Total capitalization................ $13,864,732 $27,664,732 $174,155,452
=========== =========== ============
</TABLE>
- --------
(1) Gives effect to the infusion of $13.8 million by Equity Investors and
Executive Investors as if such infusion had taken place on December 31,
1997 and reclassification of redeemable Class A Common Stock to permanent
equity as a result of an amendment to the Company's Stock Purchase
Agreement. The $13.8 million infusion includes approximately $160,000
aggregate principal amount of 90-day notes issued to the Company by the
Executive Investors. See "Description of Capital Stock" and "Certain
Transactions."
(2) Gives effect to the Offering and the use of a portion of the net proceeds
therefrom. See "Capitalization," "Use of Proceeds," and "Description of
the Exchange Notes."
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data presented below as of and for the
seven month period ended December 31, 1996, and the year ended December 31,
1997, have been derived from the Consolidated Financial Statements of the
Company, included elsewhere in this Prospectus. The Consolidated Financial
Statements of the Company as of and for the seven month period ended December
31, 1996 and for the year ended December 31, 1997 have been audited by Arthur
Andersen LLP, independent auditors. The selected financial data as of and for
the three month periods ended March 31, 1997, June 30, 1997, September 30,
1997, and December 31, 1997, have been derived from the unaudited consolidated
financial statements of the Company which, in the opinion of management,
include all adjustments necessary for a fair presentation of the financial
condition and results of operations for the Company for such periods. The
results of operations for interim periods are not necessarily indicative of a
full year's operations. The following information should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and the
Consolidated Financial Statements of the Company and the notes related
thereto, and the other financial data appearing elsewhere in this Prospectus.
Because the Company will not receive any proceeds for the issuance of the
Exchange Notes offered hereby, no effect has been given to the Exchange Offer
in the pro forma statements or capitalization tables which was not previously
accounted for in the Offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS THREE MONTHS ENDED
(MAY 31, 1996) TO ---------------------------------------------------- YEAR ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1997 1997 1997
----------------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ -- $ -- $ 86,907 $ 1,226,076 $ 2,710,707 $ 4,023,690
Expenses:
Customer service and
network operations.... -- 8,697 260,024 760,845 1,125,414 2,154,980
Selling, general
and administrative.... 421,777 416,492 562,347 747,102 1,161,431 2,887,372
Depreciation and
amortization.......... 1,150 7,337 85,222 179,511 343,747 615,817
---------- ----------- ----------- ----------- ----------- ------------
Operating income
(loss)................. (422,927) (432,526) (820,686) (461,382) 80,115 (1,634,479)
Interest income
(expense), net......... 17,626 42,925 52,320 20,827 (48,446) 67,626
Net income (loss)....... $ (405,301) $ (389,601) $ (768,366) $ (440,555) $ 31,669 $ (1,566,853)
========== =========== =========== =========== =========== ============
OTHER FINANCIAL DATA:
EBITDA(1)............... $ (421,777) $ (425,189) $ (735,464) $ (281,871) $ 423,862 $ (1,018,662)
Capital expenditures.... 82,303 2,244,385 1,395,695 4,341,342 3,674,102 11,655,524
Ratio of earnings to
fixed charges(2)....... -- -- -- -- 1.2 --
SUMMARY CASH FLOW DATA:
Net cash provided by
(used in) operating
activities............. $ (152,576) $ (522,595) $ (442,235) $ (687,197) $ 18,010 $ (1,634,017)
Net cash used in
investing activities... (82,303) (2,244,385) (1,395,695) (4,341,342) (3,674,102) (11,655,524)
Net cash provided by
financing activities... 4,025,000 3,999,514 285,802 2,993,499 4,477,157 11,755,972
OPERATING DATA:
Access lines in
service(3)............. -- -- 1,481 2,965 7,394 7,394
Minutes of use
(millions)............. -- -- 6.6 83.8 191.3 281.7
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, 1997
----------------------- ---------------------------
PRO FORMA
1996 1997 PRO FORMA(4) AS ADJUSTED(5)
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........... $3,807,004 $ 4,737,808 $18,537,808 $158,777,562
Fixed assets, net........ 81,153 11,176,774 11,176,774 11,176,774
Total assets............. 3,888,157 15,914,582 29,714,582 176,205,302
Long-term debt........... -- 3,536,886 3,536,886 150,027,606
Redeemable Class A Common
Stock(6)................ 4,024,653 12,403,218 -- --
Total stockholders'
equity (deficit)........ (404,954) (2,075,372) 24,127,846 24,127,846
</TABLE>
- --------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is not a measurement of financial performance under
generally accepted accounting principles, is not intended to represent
cash flow from operations, and should not be considered as an alternative
to net loss as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. The Company believes that EBITDA is
widely used by analysts, investors and other interested parties in the
telecommunications industry. EBITDA is not necessarily comparable with
similarly titled measures for other companies. See "Consolidated
Statements of Cash Flows."
(2) The ratio of earnings to fixed charges is calculated by dividing (i)
income (loss) before provision for income taxes, plus fixed charges by
(ii) fixed charges. Fixed charges consist of interest on indebtedness,
plus the estimated component of rental expense deemed by the Company to be
representative of the interest factor. For the seven-month period ended
December 31, 1996 and for the year ended December 31, 1997, and the three
months ended March 31, June 30, and September 30, 1997, earnings were
insufficient to cover fixed charges by $405,301, $1,566,853, $389,601,
$768,366, and $440,555, respectively. For the three months ended December
31, 1997, the Company had a pre-tax profit of $31,669 and fixed charges of
$154,894.
(3) Represents the number of access lines in service (at a DSO level) and
excludes the signaling channel of primary rate ISDN-based connections.
(4) Gives effect to the infusion of $13.8 million by Equity Investors and
Executive Investors as if such infusion had taken place on December 31,
1997 and reclassification of redeemable Class A Common Stock to permanent
equity as a result of an amendment to the Company's Stock Purchase
Agreement. See "Description of Capital Stock."
(5) Gives effect to the Offering and the use of a portion of the net proceeds
therefrom. See "Capitalization" and "Use of Proceeds."
(6) See "Capitalization" and "Description of Capital Stock."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
General: The Company began operations on May 31, 1996 and has operated in
Chicago since May 1997 and New York since January 1998, with plans to offer
services in eight additional metropolitan markets by the end of 1999. As of
January 28, 1998, the Company had 8,838 access lines in service and
approximately 6,198 lines under contract pending installation (in Chicago and
New York).
The Company's plan to expand into eight additional metropolitan markets
requires significant expenditures to fund operating losses and the purchase of
capital equipment. The Company believes it can generate a substantially
greater return on invested capital by concentrating its investment in
switching and information, billing, and support systems, while leasing
transport facilities. This network investment strategy results in a
substantially lower initial capital requirement than the fiber-based CLECs.
The Company's Chicago operating subsidiary generated positive EBITDA
(including corporate allocations) in the fourth month and net income in the
fifth month following the implementation of its first customer order in May
1997. However, management expects the Company will produce negative cash flow
on a consolidated basis for a period of at least 18 to 24 months from the date
of this Prospectus due to its expansion plan.
Revenues: The Company's revenue is comprised of monthly recurring charges,
usage charges, and initial, non-recurring charges. Monthly recurring charges
include the fees paid by customers for lines in service, additional features
on those lines, and colocation space. Monthly recurring charges are derived
only from end user customers. Usage charges consist of fees paid by end users
for each call made, fees paid by the ILEC and other CLECs as reciprocal
compensation (which results from Focal terminating calls made by ILEC
customers or other CLEC customers to Focal's customers), and access charges
paid by the IXCs for long distance traffic originated and terminated by Focal.
Usage charges are derived from both end user customers and from other
carriers. Initial non-recurring charges are paid by end users, if applicable,
for the installation of service by the Company. See "Risk Factors--
Regulation."
A majority of the Company's revenue currently consists of reciprocal
compensation. This is the result of an imbalance of inbound and outbound
traffic due to the preponderance of inbound applications utilized by the
Company's customers. Such inbound applications include Focal Virtual Office
service which is used by Focal's corporate customers and Focal Multi-Exchange
Service which is used by Focal's ISP customers. The Company expects the
proportion of revenue represented by reciprocal compensation to decline over
time as the percentage of lines sold for outbound applications increases as
each given market matures. This is due to the fact that the sales cycle for
outbound applications is longer than that for the inbound applications sold to
ISP and corporate customers. See "Risk Factors--Reciprocal Compensation for
Internet Access."
End user invoices are sent monthly with recurring charges being billed in
advance and usage charges billed in arrears. Reciprocal compensation and
carrier access invoices are sent monthly to the appropriate ILECs and IXCs
according to industry standard practices and in industry standard formats.
Ameritech has disputed that portion of the reciprocal compensation charges
billed to it which it believes are related to Internet access services. The
Company has recorded revenues and related accounts receivable totaling
$1,685,625 as of and for the year ended December 31, 1997 which are the
subject of such dispute. On March 11, 1998, the ICC issued an order stating
that Ameritech is required to pay reciprocal compensation with respect to
calls made to ISPs. On March 15, 1998, Ameritech filed a motion with the ICC
to stay the order pending an appeal, which was denied by the ICC on March 23,
1998. The Company believes that Ameritech will ultimately be required to pay
such charges after exhausting the appeal process. However, there can be no
assurance of this. While the Company does not believe the long-term effects of
an adverse outcome would be material, an adverse outcome would have a material
adverse effect on the Company's near-term earnings. See "Risk Factors--
Reciprocal Compensation for Internet Access" and "Business--Legal and
Administrative Proceedings."
Operating Expenses: The Company's operating expenses are categorized as
customer service and network operations; selling, general and administrative;
and depreciation and amortization expense. Settlement costs are
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a significant portion of customer service and network operations expense and
are comprised of leased transport charges and reciprocal compensation
payments. Leased transport charges are the lease payments incurred by Focal
for the fiber optic transmission facilities used to connect the Company's
customers to its switch and to connect to the ILEC and other CLEC networks.
The Company's strategy of leasing rather than building its own fiber transport
facilities results in the Company's cost of service being a significant
component of total costs. In addition, the Company has to date been successful
in negotiating lease agreements which match the duration of its customer
contracts, thereby allowing the Company to avoid the risk of continuing
expenses associated with transmission facilities that are not being used by
revenue generating customers. The Company pays reciprocal compensation to
ILECs and other CLECs for terminating calls made by Focal's customers to
customers of the ILEC or CLEC.
The Company actively markets its colocation service, which allows customers
to locate certain of their equipment in the Company's switching center in
order to more efficiently implement certain applications. Lines sold to
colocated customers allow Focal to avoid the incurrence of leased transport
charges since the end user's equipment is located in the same facility housing
the Company's switch. As of December 31, 1997, approximately 50% of Focal's
lines in service were terminated in its colocation space.
Other customer service and network operations expense consists of the costs
to operate the Company's network and the costs of providing customer care
activities. Major components include: wages, rent, power, equipment
maintenance, supplies, and contract employees.
Selling, general and administrative expenses consist of sales force
compensation and promotional expenses as well as the cost of corporate
activities related to regulatory, finance, human resources, legal, executive,
and other administrative activities.
The Company's strategy of leasing, rather than building, its transport
network results in capital expenditures which are proportionately lower than
most fiber-based CLECs. In addition, the proportion of capital expenditures
which are "success-based" are higher than most fiber-based CLECs. In contrast,
the Company incurs operating expenses for leased facilities which are
proportionately higher than fiber-based CLECs. The margin impact of these
higher, anticipated operating expenses is mitigated, in part, by a higher
revenue per line generated, which the Company anticipates as a result of its
focus on telecommunications--intensive users.
RESULTS OF OPERATIONS
Although the Company began operations on May 31, 1996, the Company did not
generate revenue in 1996, and, therefore, any comparison of operating results
between 1996 and 1997 would not be meaningful.
Year Ended December 31, 1997
During the year ended December 31, 1997, the Company generated $4,023,690 in
operating revenues, customer service and network operations expense totaled
$2,154,980, and selling, general and administrative expense during the period
was $2,887,372. Customer service and network operations expenses consisted
primarily of leased transport charges, payroll and rent costs. Selling,
general and administrative expenses were largely comprised of payroll and
legal and accounting costs.
Depreciation and amortization expense during the period was $615,817,
resulting primarily from network assets placed in service in the Company's
operational markets. Net interest income for the year ended December 31, 1997
was $67,626, as interest on investments exceeded interest paid on Company
borrowings. The Company's net loss for the year ended December 31, 1997,
totaled $1,566,853. This was primarily due to the incurrence of operating
expenses prior to revenue being recognized, since the Company's operational
markets were largely under development during the year.
Seven Month Period Ended December 31, 1996
During the seven months ended December 31, 1996, the Company did not
generate operating revenues due to the fact that service did not commence
until May 1997. Selling, general and administrative expenses were
34
<PAGE>
$421,777; resulting primarily from payroll costs. Depreciation and
amortization expense was $1,150 for the seven months ended December 31, 1996.
Net interest income for the period was $17,626. The Company's net loss for the
seven months ended December 31, 1996 was $405,301, resulting from operating
expenses incurred for the initial development of the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing operations have required, and its planned operations
will require, significant capital to fund the purchase and installation of
telecommunications switches, equipment, infrastructure, and the operating
losses expected during the start-up phase of each new market. Capital
expenditures were $82,303 for the seven months ended December 31, 1996 and
$11,655,524 for the year ended December 31, 1997. The Company anticipates that
the level of capital expenditures will increase in the next several years in
connection with the accelerated development of new markets, expansion of
existing markets, and purchase of related telecommunications switches,
equipment and infrastructure. Prior to the Offering, the Company funded a
substantial portion of these expenditures through the private sale of equity
securities. In November 1996, the Company entered into a Stock Purchase
Agreement (as defined herein) which provided for the contribution over time of
approximately $26.1 million of equity funding by a group of investors. As of
December 31, 1997, the Investors (as defined herein), together with certain
other investors, had contributed $12.3 million under the Stock Purchase
Agreement. The Investors contributed the remaining $13.8 million prior to the
consummation of the Offering. In addition, in 1997, the Company's Illinois
subsidiary borrowed approximately $3.5 million under a bank credit facility.
The Company used a portion of the net proceeds from the sale of the Notes to
prepay this indebtedness and cancel such credit facility.
With the exception of the fourth quarter of 1997, the Company has generated
negative EBITDA and incurred net losses. A portion of the prior equity
investments has been used to fund the Company's negative cash flow and net
losses. Management expects the Company to produce negative cash flow on a
consolidated basis for a period of at least 18 to 24 months from the date of
this Prospectus. There can be no assurance the Company will realize positive
consolidated cash flow in subsequent periods. Until sufficient cash flow is
generated, the Company will continue to rely on outside capital resources to
meet its cash requirements.
On February 18, 1998, the Company received net proceeds of $150,027,606 from
the Offering. The Notes will accrete to an aggregate stated principal amount
of $270,000,000 by February 15, 2003. No interest will be payable on the Notes
prior to August 15, 2003. Thereafter, interest will be payable semiannually on
August 15 and February 15 of each year, commencing on August 15, 2003. See
"Description of the Exchange Notes."
The Indenture imposes 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, pay dividends
or make distributions in respect of the Company's or such subsidiaries'
capital stock, make other restricted payments, enter into sale and leaseback
transactions, create liens upon assets, enter into transactions with
affiliates or related persons, sell assets, or consolidate, merge or sell all
or substantially all of their assets. See "Description of the Exchange Notes."
There can be no assurance that such covenants will not adversely affect the
Company's ability to finance its future operations or capital needs or to
engage in other business activities that may be in the interest of the
Company.
The Company expects its available cash, including the net proceeds from the
sale of the Notes, will be sufficient to fund its capital requirements through
1999. However, if the Company's expansion occurs more rapidly than currently
anticipated or if its operating results are below expectations, the Company
may require additional capital. The Company may decide to raise additional
capital before such time. The Company may secure additional funding through
the sale of public or private debt and/or equity securities or enter into a
future bank credit facility. There can be no assurance, however, that the
Company will be successful in raising sufficient additional capital on terms
that it will consider acceptable or that the Company's operations will produce
positive consolidated cash flow in sufficient amounts to meet its debt
obligations. Failure to raise and generate sufficient funds may require the
Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's
growth and its ability to compete in the telecommunications industry.
35
<PAGE>
BUSINESS
INTRODUCTION
Focal is a rapidly growing CLEC which is focused on providing local switched
telecommunications services to large corporations, ISPs, and VARs in Tier I
markets. The Company initiated service in Chicago in May 1997 and generated
positive EBITDA and net income for the fourth quarter of 1997. The Company
recently began offering service in New York and management intends to initiate
service in eight additional Tier I markets during 1998 and 1999. As of January
28, 1998, the Company had 8,838 access lines in service and 6,198 access lines
under contract for future installation. The Company's objective is to become
the local provider of choice to telecommunications-intensive customers in Tier
I markets.
MARKET POTENTIAL
The Company believes the telecommunications-intensive users in Tier I
markets are inadequately served for highly reliable, local switched
telecommunications services. Historically, the emergence of competition in the
telecommunications industry has created demand where none previously existed.
The Company believes that large telecommunications-intensive users will
increasingly demand diversity in local telecommunications providers as they
have already done in long distance and private-line telecommunications
services. The market potential for CLECs is large and growing. According to
data published by the FCC, total revenue from local telecommunications
services in 1996 was $101 billion. While this revenue figure represents total
local usage from residential and all business customers, the Company has
estimated that approximately $45.5 billion of the total $101 billion
represents local usage by businesses. Using further statistical data, the
Company has estimated that the total local usage revenues from the business
segment in the ten Tier I markets in which the Company intends to offer
service is approximately $12.2 billion per year.
The Company believes that its primary competitor in each of its target
markets is the ILEC. Most second generation CLECs initially chose to compete
in Tier II and Tier III markets, effectively ceding the Tier I markets to the
first generation CLECs (i.e., MFS and TCG). Moreover, the vast majority of
CLECs, both first and second generation, provide bundled communications
services to small and medium sized business customers. The Company's
experience to date has supported its belief that, unlike residential and small
to medium sized businesses who may prefer "one-stop" telecommunications
providers, large telecommunications-intensive users will purchase different
types of telecommunications services from different providers. As such, Focal
believes that there are few competitors offering telecommunications-intensive
users a stand-alone alternative to ILEC switched local services. Focal
represents The Third Generation CLEC(TM) that focuses on the provision of
value-added, switched local services to large telecommunications-intensive
users in Tier I markets. Management believes that it has a competitive
advantage over other local service providers as a result of its decision to
provide primarily local service to this significant and underserved market
segment.
BUSINESS STRATEGY
Principal Focus on Local Service. The Company offers a focused set of value-
added local switched services to its customers, which management believes
differentiates the Company from a majority of competitors who are seeking to
provide "one-stop" telecommunications services. This focus allows the Company
to outperform its competitors in the areas of network provisioning,
maintenance and customer care. For example, Focal guarantees its customers
that service will be turned-up within a specified period (typically less than
20 calendar days) or the first month fixed line charge is waived. To date, the
Company has met all of its installation commitments on time. Focal believes
its target customers prefer to purchase local telecommunications services from
multiple vendors, as they typically do with equipment, long distance and
private-line services. Management believes that the Company's customers will
seek to distribute an increasing portion of their switched local traffic to
one or more CLECs to secure redundancy and competitive pricing.
Design and Install a Highly Capital-Efficient Network. Management believes
the Company can generate a substantially greater return on invested capital by
concentrating its investment in switching, information, billing
36
<PAGE>
and support systems, while leasing its transport facilities. Management also
believes that excess fiber capacity and multiple vendors in its target markets
will satisfy the Company's leasing needs and permit Focal to obtain such
facilities at competitive prices for the foreseeable future. Moreover, Focal's
network investment strategy results in a substantially lower, less risky
initial capital requirement than CLECs who build their own fiber facilities
due to a greater proportion of Focal's ultimate capital requirement being
"success-based." Utilizing existing fiber networks allows the Company to enter
markets more quickly, generate revenue and positive cash flows faster, avoid
the need for franchise and right-of-way agreements, and focus on providing
switched services.
Build a More Robust Network than ILECs or CLECs. The Company has designed
and built its network to meet the demanding traffic and reliability
requirements of its target customers. Focal utilizes Nortel, DMS-500 SuperNode
central office switches that have been engineered by the Company to be
virtually non-blocking, thereby maximizing call completion. Focal also designs
its leased fiber facilities to avoid blocking. The Company typically connects
to every local tandem switch in operation by the ILEC and directly connects to
numerous high-use end offices. By connecting to so many points in the ILEC's
network, the Company can improve call completion even if blockage occurs in
portions of the ILEC trunking network. To optimize the entire configuration,
Focal implements overflow routing among the various trunk connections between
itself and the ILEC. Management believes this design is unique among ILECs and
CLECs and is attractive to its telecommunications-intensive customer base.
Moreover, the Company's transport-neutral design allows it to deliver service
from its switch to customers over the fiber transport systems maintained by
each of its several fiber optic transport facility providers.
Minimize Dependence on Deregulation. While the Telecom Act is likely to
benefit CLECs in the long-term, Focal believes the tangible benefits from the
Telecom Act are limited in the short-term. Accordingly, Focal's business
strategy is focused on customers and markets which allow it to minimize its
reliance on provisions of the Telecom Act to achieve its objectives. For
example, while the unbundling of network elements is mandated by the Telecom
Act, the Company believes the ability of a CLEC to obtain unbundled loops of
acceptable transmission quality and in reasonable volumes is not yet
practicable in most ILEC jurisdictions. However, due to its target customer
base and the existence of high capacity transmission facilities to such
customers in the major markets, Focal is able to limit its leased transport
network to facilities of T-1 capacity or greater. Similarly, while number
portability is mandated by the Telecom Act, Focal believes the interim number
portability methods utilized today are unreliable and perform poorly.
Consequently, Focal has concentrated on providing outbound and incremental
inbound (i.e., inbound traffic using new numbers) calling applications rather
than expose its customers to the potential loss of inbound calls on existing
numbers due to the poor performance of remote call forwarding applications
currently used to achieve number portability.
Penetrate Corporate Accounts. The Company emphasizes the diversity,
reliability and sophistication of its network and services in order to earn
its selection as the local provider of choice for its customers. Focal has
developed a number of products and services which it believes provide it with
a competitive advantage when attempting to penetrate new corporate accounts,
including Focal Virtual Office and 800 service. See "Business--Products and
Services." Focal's initial sale to a corporate account typically involves
installing incremental lines for specialized inbound applications or
supplanting only a limited number of outbound lines. Management believes that
the Company will thereafter be able to increase its overall penetration of
local service from the customer based on the quality of its service.
Take Advantage of the Significant and Growing ISP Opportunity. The dramatic
increase in dial-up access to the Internet has created a particularly strong
demand for local access lines by ISPs. CLECs are generally well-positioned to
satisfy this demand as the only alternative source of access lines. Focal
offers advantages to ISPs that certain of its competitors are currently unable
to provide, such as environmentally conditioned colocation space, virtually
non-blocking switching and transport facilities, guaranteed installation times
and modified foreign exchange service (which allows certain calls which would
otherwise be toll calls to be made as local calls). Focal does not offer its
own Internet access service and is, therefore, not viewed as a direct
competitor of the ISPs which it serves. ISP traffic also helps maximize
network utilization by bringing traffic onto the network typically during off-
peak periods, such as evenings and weekends.
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Maximize Network Utilization through VAR and Other Wholesale
Arrangements. To further maximize network utilization while minimizing cost of
sales, Focal distributes service to other customer segments through VARs and
other wholesale arrangements. Management believes that many telecommunications
service providers, including long distance companies and wireless
licenseholders, will seek to provide bundled telecommunications services in
Tier I markets. The Company does not currently intend to offer bundled
telecommunications services or directly distribute its services to residential
or small to medium sized business customers--the most attractive segment to
bundled service providers. Management, therefore, believes that entities
intending to offer bundled services are more likely to purchase local service
from Focal than its ILEC or CLEC competitors.
NETWORK
The Company has chosen to pursue a network design approach which involves
purchasing and maintaining its own switches while leasing fiber optic
transmission facilities on an incremental basis as demand dictates. This
approach is made possible by the availability of fiber optic transmission
facilities from multiple vendors in each of the markets it intends to serve.
This switch-based, leased transport network architecture allows the Company to
(i) reduce the capital investments necessary to provide services to its
customers by focusing its capital expenditures on its switches, the most
critical component of its network, (ii) avoid the construction of speculative
fiber optic facilities and the "stranded" capital sometimes associated with
such construction, (iii) better match the commitment of capital to the
acquisition of revenue generating customers and (iv) generate revenue and cash
flow more quickly than if the Company constructed its own fiber optic
facilities. The Company leases transmission facilities from at least three
vendors in each market in which it conducts business, providing the Company
with negotiating leverage and allowing the Company to offer its customers
added redundancy and diversity. In addition, the Company's network has been
specifically designed to satisfy the needs of its high-volume corporate
customer base and has been engineered to be virtually non-blocking, thereby
maximizing call completion.
The Company believes the implementation of its network architecture
represents a lower risk, demand-driven approach requiring less capital
deployment than that required for the build out of a fiber optic
infrastructure. The Company concludes that it can generate a substantially
greater return on invested capital by concentrating its investment in
switching, information, billing, and support systems, while leasing the
transport facilities necessary to complete its full service offering. Focal's
network investment strategy results in a substantially lower, less risky
initial capital requirement than CLECs who build their own fiber facilities
due to a greater proportion of Focal's ultimate capital requirement being
"success-based."
Focal has the flexibility to add or subtract transport capacity on an
incremental basis with the addition or loss of customers. The Company believes
that the quantity of existing and planned fiber transport facilities and its
distribution among numerous owners will be sufficient to satisfy the Company's
need for leased transport facilities and permit Focal to obtain such
facilities at competitive prices for the foreseeable future. The ability of
the Company to consider the option of leasing its transport is the result of
the relative maturity of the competitive access market and the high operating
leverage associated with such networks. For these reasons, the fiber transport
providers which own and operate such fiber networks in the major metropolitan
markets compete for the Company's transport business in order to maximize the
return on their fixed-asset fiber networks. In many cases, this occurs despite
the fiber transport provider marketing its own switched services in
competition with Focal.
While the Company expects the fiber transport providers will continue to
find it in their best interest to compete for Focal's transport business, the
fact that they are common carriers requires that they make their transport
services available to Focal on terms no worse than those provided to any
similarly situated customer. In each market, Focal has or anticipates having
multiple fiber transport providers available for transport including the ILEC
and at least two CLECs. The Company expects that over time it may become
optimal to construct a portion of its own transport facilities as the traffic
volume in certain geographic areas reaches critical mass.
38
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PRODUCTS AND SERVICES
Focal primarily offers local services to its customers. These services can
generally be segmented into inbound and outbound calling services.
Inbound Services. The Company's basic, inbound service allows for the
completion of calls to a new phone number supplied to the customer by the
Company. Focal believes the interim number portability methods utilized today
are unreliable and perform poorly. In addition, Focal has no control over such
number portability methods. Rather than migrating a customer's existing
telephone number to the Focal network, Focal has concentrated on providing
incremental inbound (i.e., inbound traffic using new numbers) calling
applications. In this way, its customers are not exposed to the potential loss
of inbound calls on existing numbers due to the poor performance of remote
call forwarding applications which are currently used to achieve number
portability.
The Company offers a number of inbound calling applications. Direct inward
dial ("DID") service allows inbound calls to reach a particular station on a
customer's telephone system without operator intervention. Focal markets DID
service to corporations as both a primary service and as a backup service. As
a primary service, the customer uses Focal numbers in instances where a new
line and number are necessary such as when a customer hires a new employee. As
a backup service, Focal can implement an alternative numbering plan for the
customer should the customer's primary service from the ILEC be interrupted.
Focal Virtual Office is designed to allow a company's employees to dial-in
to the company's local area network ("LAN") via a telephone number within that
employee's untimed local calling area. As such, the employee can access the
LAN without incurring time sensitive charges and the company avoids
maintaining relatively expensive, region-wide 800 service for LAN access.
Future enhancements to these inbound services are planned which will increase
the screening capabilities and provide an added layer of security to a
company's LAN, remote access functionality.
Focal Multi-Exchange Service, a variant of the Focal Virtual Office service,
is sold to ISPs and allows the ISPs' customers to cost-effectively access the
ISPs' remote access servers. The combination of the multi-exchange service
capability, a single point of exchange of the traffic, and Focal's high level
of customer care has resulted in strong demand for such services by the ISPs.
Outbound Services. The Company's basic outbound services allow for the
completion of local and toll calls within a metropolitan region. Such direct
outward dial ("DOD") service is utilized by end users in several ways. As a
primary service, a customer uses Focal as a replacement for the ILEC in
originating calls bound for destinations within the region. In the least cost
routing ("LCR") application, a customer can utilize Focal service in
conjunction with its existing ILEC service to route calls using whichever
carrier is least expensive for that given call type. LCR has been implemented
for long distance calling by large corporate users for a number of years.
Other outbound applications in which Focal service is utilized include
outbound 800 calling and long distance overflow service. In the 800 calling
application, Focal de-loads a customer's outbound, local lines and provides an
incentive to the customer to handle that customer's outbound 800 calls. In the
case of long distance overflow service, Focal acts as a backup to the
customer's existing long distance carrier in order to optimize the number of
direct, special access lines installed from the customer's premises to the
long distance carrier's point of presence.
All of the services described above are commonly provisioned over a T-1
facility and interface the customer's private branch exchange equipment
("PBX") directly, thereby averting the need for Focal to provision premises-
based multiplexing equipment. This is possible due to the high traffic volume
characteristic of the large telecommunications-intensive accounts which the
Company targets. The ability to directly interface existing customer premises
equipment ("CPE") further minimizes the Company's capital investment
requirements and maximizes overall return on capital.
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Focal also offers its customers the ability to colocate equipment in the
Company's switching and operations center. Equipment colocation benefits the
customer by allowing it to inexpensively deploy its equipment without having
to maintain environmentally controlled space. In addition, customers that
colocate qualify for special discounts on the monthly line rates for Focal's
switched services. From the Company's perspective, it is less costly to
deliver service within its own space since no leased transport is required to
reach the customer. This service is particularly well suited to Focal's ISP
customers, who frequently operate remote access servers and routers in
conjunction with the Company's switched services.
SALES AND MARKETING
Focal's objective is to satisfy the need for highly reliable, local switched
telecommunications services for telecommunications-intensive users in Tier I
markets by providing diverse, reliable and sophisticated service. Focal
believes it has a competitive advantage in satisfying this need since the
Company, from network architecture to customer service, is focused on
delivering a limited number of value-added services to its target customers.
Diversity. Focal provides diversity to telecommunications-intensive users by
delivering highly reliable, local switched telecommunications services as an
alternative to the ILEC in a multi-vendor environment. Such diversity already
exists with respect to other telecommunications services. Telecommunications-
intensive users clearly embrace the benefits that diversity brings;
principally, that redundancy minimizes the effects of facilities failures and
maximizes competitive pricing. As a result, the majority of Focal's target
customers typically have multiple long distance vendors, multiple equipment
providers, and multiple local private-line vendors. Because of its focused
strategy, the Company is uniquely positioned to become the preferred provider
of choice for local switched telecommunications services for large corporate
accounts, ISPs and VARs. The Company's focused strategy is predicated on its
ability to deliver the superior level of reliable, sophisticated and
competitive services that its customers require.
Reliability. Focal provides reliable service to telecommunications-intensive
users, who are highly sensitive to the potential effects of facilities
failures, by designing its own network around the same theme of diversity that
it advocates for its customers. Although local switched services are perceived
as simple, basic services, the delivery of highly reliable local switched
services requires sophisticated systems. Focal has designed and built its
switching and transport network to meet the demanding traffic and reliability
requirements of its target customers. The Company's network strategy is based
on developing and operating a highly robust, reliable, and high-throughput,
local network relative to the ILECs and other CLECs. Because Focal is a new
entrant to the market, the Company acknowledges that it must meet or exceed
the performance characteristics of the existing local networks in order to
attract telecommunications-intensive users to its service. Unlike smaller
users which tend to pre-qualify vendors based on price, the Company believes
that telecommunications-intensive users qualify potential vendors based on the
performance characteristics of their networks, particularly noting the
reliability aspects. Therefore, the design and operation of the network is a
key success factor in the business development process.
From an equipment standpoint, the Company conducted an exhaustive research
effort to identify the best hardware for the high-volume users that Focal
intends to serve. The result of such research led Focal to select Nortel, DMS-
500 SuperNode central office switches which the Company has engineered to be
virtually non-blocking. As such, customers are unlikely to find themselves
unable to complete or receive calls due to limitations inherent in Focal's
switches. In addition to engineering its switches to avoid blocking, Focal
also designs its leased fiber facilities to avoid blocking. The Company
typically connects to every local tandem switch in operation by the ILEC and
directly connects to numerous high-use end offices. By increasing the number
of connections to the ILEC's network, the Company can improve call completion
even if blockage occurs in portions of the ILEC trunking network. In order to
optimize the entire configuration, Focal implements overflow routing among the
various trunk connections between itself and the ILEC. Focal specifically
engineered its entire network to accommodate a volume per customer far in
excess of that which the ILECs or other CLECs would anticipate given the much
broader range of user volumes they serve. The Company believes its design is
unique
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among ILECs and CLECs and is attractive to its telecommunications-intensive
customer base. Moreover, reliability is further enhanced by the Company's
transport-neutral design which allows it to deliver service from its switch to
customers over the multiple fiber transport systems maintained by each of its
several fiber optic transport facility providers.
In every aspect of network design, Focal has implemented safeguards to
maximize reliability. Because of its distributed architecture, the DMS-500
switch allows the Company to automatically migrate customer traffic across
multiple bays of equipment, protecting against a line card failure. In
addition, the switch was engineered by Nortel with fully redundant processors
and memory in the event of a temporary failure. Focal's disaster prevention
strategy includes service from multiple power grids, on-site battery backup,
and diesel generator power at each switching facility to protect against
failures in its electrical service.
Sophistication. The Company recognizes that its target customers are
knowledgeable, sophisticated buyers that demand a high level of
professionalism throughout a vendor's organization. Focal believes that the
technical sophistication of its management and operations team is a critical
factor for its initial success and will continue to be a key element of
differentiation for the Company among its target customers. Focal requires a
well-experienced team of sales professionals to execute its strategy of
penetrating the telecommunications-intensive accounts. Therefore, attracting
and retaining experienced sales professionals is important to the Company's
overall success. The compensation of the Company's sales professionals is
structured to retain these valuable employees (through stock ownership) and
provides cash compensation incentives which bind the success of the sales team
members to the Company's revenue and operating cash flow objectives.
The Company has divided its direct sales force into three groups: (i) the
Corporate Services Group ("CSG"), responsible for selling to large, corporate
users; (ii) the Internet Services Group ("ISG"), responsible for selling to
Internet service providers; and (iii) the Telecom Services Group ("TSG"),
responsible for selling services on a wholesale basis to VARs and other
carriers. This segmentation permits each sales group to develop the particular
knowledge base and product focus necessary to gain credibility in each market
niche.
Focal's sales strategy for a corporate account sold through the CSG is to
complement the customer's existing service from the ILEC. Unlike other CLECs,
the Company does not offer a comprehensive bundle of telecommunications
services to corporate customers. Rather, the Company believes that there is a
specific demand for high quality, cost effective local switched service as a
stand-alone product. Focal's initial sale to a corporate account typically
involves installing incremental lines for specialized inbound applications or
supplanting only a limited number of outbound lines. After building the
service relationship, Focal anticipates increasing its overall penetration of
local service from the customer such that over a period of time, the Company
expects to dominate a corporate customer's local switched traffic. The Company
emphasizes its diversity, reliability and sophistication of service in order
to earn its selection as the local provider of choice for its customers.
Focal's ISG is able to offer several value-added services to ISPs, such as
environmentally conditioned colocation space, virtually non-blocking switching
and transport facilities, guaranteed rapid installation times and modified
foreign exchange service, which allows certain calls that would otherwise be
toll calls to be made as local calls. In addition, Focal's ISG can highlight
to the ISPs that the Company does not offer its own Internet access service
and is, therefore, an attractive, non-threatening service provider. Serving
the ISP segment also maximizes Focal's network utilization by bringing traffic
onto the network during periods, such as during evenings or on weekends, in
which the network would be otherwise underutilized.
Focal's TSG direct markets to other carriers and VARs by positioning the
Company as a highly reliable, responsive, and cost-effective source of
wholesale local switched telecommunications services. The Company believes a
wide array of telecommunications service providers, including long distance
companies and wireless licenseholders, will seek to provide bundled
telecommunications services in Tier I markets. Focal is well positioned to be
the provider of choice for re-bundled local service. The Company does not
intend to offer bundled telecommunications services or directly distribute its
services to residential or small to medium sized
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business customers--the segment which is most attractive to the "bundled"
service providers. Consequently, the Company believes that entities which
might wish to "purchase" the local service portion of their bundled offering
on a wholesale basis are more likely to purchase that service from Focal than
its ILEC or CLEC competitors.
Superior customer service is critical to achieving Focal's goal of capturing
market share. The Company is continually enhancing its service approach which
utilizes a trained team of customer sales and service representatives to
coordinate customer installation, billing and service. A comprehensive support
system is also a critical component of the Company's service delivery. The
Company has installed an integrated system which is designed to provide
comprehensive features addressing all aspects of its business, including
service order, provisioning, end user and carrier billing, and trouble
reporting. The efficiency of Focal's operating processes contributes to the
Company's ability to rapidly initiate service to new accounts. The
installation desk follows the customer's order, ensuring the installation date
is met. Additionally, customer sales representatives respond to all other
customer service inquiries, including billing questions or repair calls. The
Company believes automation of internal processes contributes greatly to the
overall success of a service provider and billing is a critical element of any
telephone company's operation. The Company expects to be able to deliver
billing information in a number of media besides paper including electronic
files, Internet inquiry or on-line inquiry. The Company believes this system
is readily adaptable to changing circumstances and is scaleable to support the
Company's operations throughout its expected growth.
COMPETITION
The primary competitor to the Company in each of its target markets is the
ILEC, most often an RBOC and/or GTE Corporation. The ILECs are generally
required to file their prices in tariffs with the public utilities commission
in each state. Any price changes must be reflected in the tariffs. Generally,
the ILECs have been given the flexibility to respond with lower pricing in
competitive situations. In most cases, these proposals must also be filed as
individual case basis tariffs and the pricing must be made available to other
similarly situated customers. Thus, while the ILECs in many states have some
pricing flexibility for local services, they must usually file any special
pricing plans offered and make such plans available to other customers. Focal
believes this provides a disincentive for the ILEC to significantly vary or
discount prices even in competitive situations.
The ILECs have substantially more resources than the Company and offer a
wider array of services and in a broader geographic area than the Company. As
a result, the ILECs may have an incentive to subsidize the pricing for
services in which Focal competes with the profits from other services in which
the ILEC remains the monopoly provider. Focal believes competition from
various providers has limited the number of ILEC monopoly services and state
regulators have exercised their enforcement powers such that it is unlikely
the ILEC would be able to successfully pursue such a protective strategy for
an extended period.
A number of IXCs have introduced local telecommunications services in
competition with the ILEC and Focal. These services include toll calling and
other local calling services; often packaged with the company's long distance
service. While Focal does not believe the packaging aspect of the service is
particularly attractive to the telecommunications-intensive users which the
Company targets, large IXCs enjoy certain competitive advantages over the
Company due to their vast financial resources. In addition, the Company
believes there is a risk that IXCs may subsidize the pricing of their local
services with profits from long distance services. Focal anticipates the entry
of the RBOCs into the long distance market will reduce the risk of such cross-
subsidization by reducing the profitability of the IXCs' long distance
minutes. Further, to the extent an IXC purchases Focal's service on a
wholesale basis and rebundles it at a subsidized rate, Focal may benefit as
the subsidized, wholesale service could result in a higher penetration than
would otherwise have occurred. In addition, Focal has successfully displaced
IXCs in customer accounts where the customer was dissatisfied with the quality
of the IXCs' local service. Focal expects its reputation for exceptional
service quality and customer care will continue to result in it displacing
IXCs as the primary alternative to the ILEC in competitive situations.
In addition to competition with the ILEC and IXCs, there are several CLECs
with switching facilities in each city in which Focal intends to operate. In
most cases, the stated target customer base for other CLECs is
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the small and medium size business customer. This differs from Focal's target
customer base of telecommunications-intensive users. Despite the current
difference in customer focus, the Company, at times, has competed against
other CLECs for customer business in the telecommunications-intensive customer
segment. The ongoing consolidation in the CLEC industry could change the
nature of the Company's competitive environment. Although there can be no
assurance, the Company does not expect that such consolidation will be
detrimental to its business.
REGULATION
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state, and local
regulation and legislation affecting the telecommunications industry. Existing
federal and state regulations are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which this industry operates.
Neither the outcome of these proceedings, nor their impact upon the
telecommunications industry or the Company, can be predicted at this time.
Overview. The Company's 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 common carriers such as the
Company, to the extent those facilities are used to provide, originate or
terminate interstate or international communications. State regulatory
commissions retain jurisdiction over most of the same facilities and services
to the extent they are used to originate or terminate intrastate
communications. In addition, many of the regulations issued by these
regulatory bodies may be subject to judicial review, the result of which
review the Company is unable to predict.
Federal Regulation. The Company must comply with the requirements of common
carriage under the Communications Act of 1934, as amended (the "Communications
Act"). Comprehensive amendments to the Communications Act were made by the
Telecom Act, which was signed into law on February 8, 1996. The Telecom Act
effected plenary changes in regulation at both the federal and state levels
that affect virtually every segment of the telecommunications industry. The
stated purpose of the Telecom Act is to promote competition in all areas of
telecommunications and to reduce unnecessary regulation to the greatest extent
possible. While management believes it will take years for the industry to
feel the full impact of the Telecom Act, it is already clear the legislation
provides the Company with both opportunities and challenges.
The Telecom Act gives the FCC the authority to forebear from regulating
companies if it finds such regulation does not serve the public interest, and
directs the FCC to review its regulations for continued relevance on a regular
basis. As a result of this directive, a number of the regulations that apply
to CLECs have been and may continue to be eliminated in the future. While it
is therefore expected that a number of regulations that were developed prior
to the Telecom Act will be eliminated in time, those which apply to the
Company at present are discussed below.
The Telecom Act greatly expands the FCC's interconnection requirements on
the ILECs. The Telecom Act requires the ILECs to: (i) provide physical
colocation, which allows companies such as Focal and other interconnectors to
install and maintain their own network termination equipment in ILEC central
offices, and virtual colocation only if required or if physical colocation is
impractical due to space limitations or due to technical infeasibility; (ii)
unbundle and provide access to components of their local service networks to
other providers of local service; and (iii) establish "wholesale" rates for
the services they offer at retail to subscribers who are not telecommuications
carriers to promote resale by CLECs and other competitors; and requires ILECs
and CLECs, such as the Company, to: (i) establish number portability, which
will allow a customer to retain its existing phone number if it switches
service providers; (ii) establish dialing parity, which is intended to ensure
customers will not detect a quality difference in dialing telephone numbers or
accessing operators or emergency services; and (iii) provide nondiscriminatory
access to telephone poles, ducts, conduits and rights-of-way. In addition, the
Telecom Act requires ILECs and CLECs to compensate each other for traffic
originated by one and terminated on the network of the other.
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ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If a requesting carrier cannot reach an
agreement within the prescribed time, either carrier may request binding
arbitration by the state commission. Where an agreement cannot be reached,
carriers remain subject to the interconnection obligations established by the
FCC and state telecommunications regulatory commission.
The Company has successfully negotiated interconnection agreements with
Ameritech in Illinois and Indiana and with Bell Atlantic Corporation ("Bell
Atlantic") in New York and has commenced negotiations with Bell Atlantic in
New Jersey, Pennsylvania and Delaware and Pacific Bell Corporation ("Pacific
Bell") in California. The Company also has been granted global authority by
the FCC to provide facilities-based and resold international
telecommunications services.
The FCC is charged with establishing national guidelines to implement the
Telecom Act. The FCC issued its Interconnection Orders on August 8, 1996,
which established detailed rules regarding rates, terms and conditions for
interconnection between CLECs and ILECs and for the implementation of dialing
parity. The Interconnection Orders were appealed to the U.S. Court of Appeals
for the Eighth Circuit. On July 18, 1997, the Court issued a final decision
vacating the interconnection pricing rules and "most favored nation" rules as
well as certain other interconnection rules. On October 14, 1997, the U.S.
Court of Appeals for the Eighth Circuit ruled that ILECs are under no
obligation to provide competing carriers, which would include the Company,
with a rebundled package of individual network elements. The Eighth Circuit
decision creates uncertainty about the rules governing pricing, terms and
conditions of interconnection agreements, and could make negotiation and
enforcement of such agreements more difficult and protracted, and may require
renegotiation of existing agreements. Several parties have appealed the Eighth
Circuit decisions to the United States Supreme Court. The Supreme Court
granted certiorari in several of those appeals. It is not possible at this
time to determine how or when the Supreme Court will respond to these appeals.
Since the Telecom Act's interconnection requirements also apply to IXCs and
all other providers of telecommunications services, including the Company, it
may provide the Company with the ability to reduce its own access costs by
interconnecting directly with non-ILECs, but may also cause the Company to
incur additional administrative and regulatory expenses in responding to
interconnection requests. At the same time, the Telecom Act also makes
competitive entry into other services or geographic markets more attractive to
RBOCs, other ILECs and IXCs and other companies, and likely will increase the
level of competition the Company faces.
While the Telecom Act reduces regulation to which non-dominant local
exchange carriers are subject, it also reduces the level of regulation that
applies to the ILECs, and increases their ability to respond quickly to
competition from the Company and others. For example, in accordance with the
Telecom Act, the FCC has applied "streamlined" tariff regulation to the ILECs,
which greatly accelerates the time prior to which changes to tariffed service
rates may take effect, and eliminates the requirement that ILECs obtain FCC
authorization before constructing new domestic facilities. These actions will
allow ILECs to change service rates more quickly in response to competition.
Similarly, the FCC has proposed affording significant new pricing flexibility
to ILECs subject to price cap regulation. To the extent such increased pricing
flexibility is provided, the Company's ability to compete with ILECs for
certain service may be adversely affected. In addition, a U.S. District Court
in Texas recently invalidated certain provisions of the Telecom Act which
prohibited RBOC engagement in certain manufacturing and marketing activities
and conditioned RBOC provision of in-region long distance service upon a
demonstration that the local market had been opened to competition. The
decision only directly applies to the RBOC parties to the proceeding. The
decision has been stayed pending appeal. The outcome of any such appeals
cannot be predicted at this time. There can be no assurances that the District
Court's decision will be reversed and, if not reversed, that the decision will
not have an adverse effect on the Company. While BellSouth Corp. ("BellSouth")
is not a party to that proceeding, BellSouth has appealed the FCC's previous
order denying BellSouth's request to provide in-region long distance service
in South Carolina. BellSouth has challenged the order on the same grounds as
Southwestern Bell Telephone Company challenged Sections 271 through 275 of the
Telecom Act.
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The Company expects to receive a significant portion of its initial revenue
in a given market from the ILEC in the form of reciprocal compensation
payments. This is a result of the Company's ISP and corporate customers
receiving more calls than they make due to the initial mix of applications
typically sold. Certain ILECs have refused to pay that portion of reciprocal
compensation that they estimate is the result of inbound ISP traffic since
they believe such traffic to be interstate in nature and not covered under the
interconnection agreements. While ILECs in several states, including states in
which the Company operates or proposes to operate, have been ordered to pay
reciprocal compensation for such calls, an arbitrator in Oklahoma has held
that ISP traffic is not local in nature, and therefore not subject to the
reciprocal compensation provisions of the Telecom Act. While this decision has
no impact on the states in which the Company operates or proposes to operate,
there can be no assurance that the payment of reciprocal compensation for ISP
traffic will be maintained. The FCC is also considering this matter in
response to a request for a declaratory ruling. A final determination that
such traffic is not eligible for reciprocal compensation would have a material
adverse effect on the Company. See "--Legal and Administrative Proceedings."
On May 8, 1997, in compliance with the requirements of the Telecom Act, the
FCC released an order establishing a new federal universal service support
fund, which provides subsidies to carriers that provide service to under-
served individuals and customers in high-cost or low-income areas, and to
companies that provide telecommunications services and wiring for schools and
libraries and to rural health care providers. The Company is required to
contribute into the universal service fund and also is required to contribute
to state universal service funds. The Company may also obtain subsidies from
the universal service fund for certain services it provides. The new universal
service rules will be administered jointly by the FCC, the fund administrator,
and state regulatory authorities, many of which are still in the process of
establishing their administrative rules. The net revenue effect of these
regulations on the Company cannot be determined at this time.
Non-dominant carriers, including the Company, must file tariffs with the FCC
listing the rates, terms and conditions of interstate and international
services provided by the carrier. On October 29, 1996, the FCC adopted an
order in which it eliminated the requirement that non-dominant interstate
carriers maintain tariffs on file with the FCC for domestic interstate
services. The FCC's order was issued pursuant to authority granted in the
Telecom Act to "forbear" from regulating any telecommunications services
provider if certain statutory analyses are satisfied. The FCC's order,
however, has been stayed by a federal court and thus, non-dominant interstate
carriers currently must continue to file interstate tariffs with the FCC.
In addition, periodic reports concerning carriers' interstate circuits and
deployment of network facilities also are required to be filed. The FCC
generally does not exercise direct oversight over cost justification and the
level of charges for services of non--dominant carriers, although it has the
power to do so. The FCC also imposes prior approval requirements on transfers
of control and assignments of operating authorizations. Fines or other
penalties also may be imposed for violations of FCC rules or regulations.
State Regulation. Most states regulate entry into the local exchange and
other intrastate services, and states' regulation of CLECs vary in their
regulatory intensity. The majority of states mandate that companies seeking to
provide local exchange and other intrastate services apply for and obtain the
requisite authorization from a state regulatory body, such as a state public
utility commission or a state public service commission. This authorization
process generally requires the carrier to demonstrate that it has sufficient
financial, technical, and managerial capabilities and that granting the
authorization will serve the public interest. As of March 27, 1998, the
Company had obtained local certification or was otherwise authorized to
provide local service in California, Florida, Illinois, Indiana, Maryland,
Massachusetts, New York, and Pennsylvania, and had applications pending for
local certification or other authorization in Delaware, the District of
Columbia, New Jersey, Michigan, Virginia, and Washington. The Company also has
authority to provide intrastate long distance (i.e. interchange services) in
California, Florida, Illinois, Indiana, Maryland, Massachusetts, New York, and
Pennsylvania. The Company has interim authority to provide a full range of
local telecommunications services in Florida. This
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authority becomes final on April 18, 1998 unless a petition for a formal
proceeding is filed by a disinterested party. In addition, the Company has
successfully negotiated interconnection agreements with Ameritech in Illinois
and Indiana and with Bell Atlantic in New York and has commenced negotiations
with Bell Atlantic in New Jersey, Pennsylvania and Delaware and Pacific Bell
in California.
As a CLEC, the Company is (and will be) subject to the regulatory directives
of each state in which the Company is (and will be) certified. Most states
require that CLECs charge just and reasonable rates and not discriminate among
similarly situated customers. Some states also require the filing of periodic
reports, the payment of various regulatory fees and surcharges, and compliance
with service standards and consumer protection rules. States also often
require prior approvals or notifications for certain transfers of assets,
customers, or ownership of a CLEC. States generally retain the right to
sanction a carrier or to revoke certifications if a carrier violates relevant-
laws and/or regulations.
In most states, certificated carriers such as the Company are required to
file tariffs setting forth the terms, conditions, and prices for services
which are classified as intrastate. In some states, the required tariff may
list a range of prices for particular services, and in others, such prices can
be set on an individual customer basis. The Company, however, may be required
to file tariff addenda of the contract terms.
Under the Telecom Act, implementation of the Company's plans to compete in
local markets is and will continue to be, to a certain extent, controlled by
the individual states. The states in which the Company operates or intends to
operate have taken regulatory and legislative action to open local
communications markets to various degrees of local exchange competition.
Local Regulation. The Company is also subject to numerous local regulations,
such as building code requirements. These regulations may vary greatly from
state to state and from city to city.
EMPLOYEES
As of March 31, 1998, the Company employed a total of 84 full-time
employees, none of whom were unionized. The Company believes that its future
success will depend on its continued ability to attract and retain the most
highly skilled and qualified employees in the industry. The Company believes
that its relations with its employees are good.
PROPERTY
The Company leases office space in a number of locations, primarily for
network equipment installations and sales and administrative space. The
Company's headquarters is housed in approximately 10,300 square feet of
rentable space in downtown Chicago, Illinois, under a lease expiring in
December 2000. The Company's Chicago switching and network operations center
is located in the same building as its headquarters and occupies approximately
10,250 square feet of rentable space. It is utilized under a ten-year lease
that expires in 2007 and includes two five-year options for renewal. The
Company's New York switching and network operations center occupies
approximately 15,200 square feet of rentable space and is located in a
commercial office building in the downtown business district. It is utilized
under a fifteen-year lease that expires in 2012 and includes a five-year
option for renewal. On January 26, 1998 the Company entered into a ten-year
lease for an approximately 17,500 square foot space in a San Francisco,
California office building. The space will be used to house the Company's San
Francisco switching and network operations center. On March 10, 1998 the
Company entered into a ten-year lease and includes two five-year options for
renewal for an approximately 17,600 square foot rentable space in a
Philadelphia, Pennsylvania office building. The space will be used to house
the Company's Philadelphia switching and network operations center.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
The Company is not aware of any litigation against the Company. The Company
is involved in a number of regulatory proceedings before various public
utilities commissions and the FCC.
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On September 16, 1997, Focal Communications Corporation of Illinois filed a
complaint and request for temporary injunction against Illinois Bell Telephone
Company d/b/a Ameritech Illinois with the ICC. The complaint was for breach of
the terms of the interconnection agreement between the parties as Ameritech
refused to pay compensation for the transport and termination of calls to
Focal end users that it believed to be ISPs. The Company has recorded revenues
and related accounts receivable totaling $1,685,625 as of and for the year
ended December 31, 1997 in relation to the disputed compensation. In the
interests of a more timely judgment, Focal withdrew its complaint without
prejudice on October 17, 1997, and filed to intervene in a consolidated docket
which included similar complaints from several other CLECs. On March 11, 1998,
the ICC issued an order stating that Ameritech is required to pay reciprocal
compensation with respect to calls made to ISPs. On March 15, 1998, Ameritech
filed a motion with the ICC to stay the order pending an appeal, which was
denied by the ICC on March 23, 1998. The Company believes that Ameritech will
ultimately be required to pay such charges after exhausting the appeal
process. However, there can be no assurance of this. Approximately twelve
other states which have previously considered this issue have ruled in favor
of the Company's position. An arbitrator in Oklahoma has, however, held that
ISP traffic is not local in nature, and therefore not subject to the
reciprocal compensation provisions of the Telecom Act. While the Company does
not believe the long-term effects of an adverse decision would be material, an
adverse decision would have a material adverse effect on the Company's near-
term earnings. See "Risk Factors--Reciprocal Compensation for Internet Access"
and "--Regulation."
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MANAGEMENT
The following table sets forth certain information with respect to certain
officers, key employees and directors of the Company as of March 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS:
Robert C. Taylor, Jr.......... 38 Director, President, and Chief Executive
Officer
John R. Barnicle.............. 33 Director, Executive Vice President, Chief
Operating Officer, and Assistant Secretary
Joseph A. Beatty.............. 34 Executive Vice President, Chief Financial
Officer, Treasurer, and Secretary
Brian F. Addy................. 33 Executive Vice President--Market Development
Renee M. Martin............... 42 Senior Vice President and General Counsel
Robert M. Junkroski........... 34 Controller
KEY EMPLOYEES:
Anthony J. Leggio............. 40 Vice President and General Manager, Focal
Communications Corporation of New York
Tony T. Lou................... 51 Vice President and General Manager, Focal
Communications Corporation of Illinois
Andrew K. Robitshek........... 30 Vice President and General Manager, Focal
Communications Corporation of California
Richard F. Knight............. 35 Director of Sales--Telecom Services Group
Patrick K. Kuchevar........... 33 Director of Data Product Development
Daniel Montgomery, Jr......... 41 Director of Network Operations
Gary D. Sloan................. 36 Director of Information Services
Jeffrey C. Wells.............. 39 Director of Network Planning
David M. Cushing.............. 31 Director of Product Development and
Business Analysis
DIRECTORS:
James E. Crawford, III........ 52 Director
Paul T. Finnegan.............. 44 Director
Richard D. Frisbie............ 48 Director
James N. Perry, Jr............ 37 Director
Paul G. Yovovich.............. 44 Director
</TABLE>
Robert C. Taylor, Jr. Mr. Taylor has been President, Chief Executive
Officer, and Director since August 1996. Mr. Taylor is a co-founder of the
Company. From 1994 to 1996, Mr. Taylor was the Vice President of Global
Accounts for MFS Communications Company, where he was responsible for the
operations and management of the Global Services Group, which included MFS'
fifty largest customers, and where he focused on developing all activities in
Mexico and Canada. From 1993 to 1994, Mr. Taylor was one of the original
senior executives at McLeod Telecommunications Group, a Cedar Rapids, Iowa
based CLEC. Mr. Taylor has also held management positions with MCI (1990-
1993), and Ameritech (1985-1990). Mr. Taylor also serves on the Executive
Board of the Association for Local Telecommunications Services. Mr. Taylor
received his M.B.A. from the University of Chicago Graduate School of Business
and holds a Bachelor of Science degree in Mechanical Engineering.
John R. Barnicle. Mr. Barnicle has been Executive Vice President, Chief
Operating Officer, Assistant Secretary and Director since June 1996. Mr.
Barnicle is a co-founder of the Company and is responsible for day-to-day
operations, engineering, marketing and long term planning. In 1996, Mr.
Barnicle was Vice President of Marketing for MFS Telecom Companies. From 1994
to 1996, Mr. Barnicle was a Vice President of Duff &
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Phelps Credit Rating Company and prior thereto held various marketing,
operations and engineering positions with MFS Telecom (1992-1994) and Centel
Corporation (1986-1992). Mr. Barnicle received his M.B.A. with Distinction
from DePaul University and holds a Bachelor of Science degree in Electrical
Engineering.
Joseph A. Beatty. Mr. Beatty has been Executive Vice President, Chief
Financial Officer, Treasurer, and Secretary since November 1996. Mr. Beatty is
a co-founder of the Company and is responsible for all financial operations
and information systems. From 1994 to 1996, Mr. Beatty was a Vice President
with NationsBanc Capital Markets where he was responsible for investment
research coverage of the telecommunications industry. From 1992 to 1994, Mr.
Beatty was a Vice President of Duff & Phelps Credit Rating Company with
responsibility for credit ratings in the telecommunications and electric
utility sectors. From 1985 to 1992, Mr. Beatty held various technical
management positions with Centel Corporation's local exchange carrier
division. Mr. Beatty received his M.B.A. with a concentration in Finance from
the University of Chicago Graduate School of Business and is a Chartered
Financial Analyst (CFA). In addition, Mr. Beatty holds a Bachelor of Science
degree in Electrical Engineering.
Brian F. Addy. Mr. Addy has been Executive Vice President of Market
Development since May 1996. Mr. Addy is a co-founder of the Company and is
responsible for national accounts sales and market development activities.
From 1993 to 1996, Mr. Addy was a Vice President and Officer of Security
Capital Industrial Trust, where he was responsible for acquisitions,
development and national marketing. From 1986 to 1993, Mr. Addy held various
management positions with Centel Corporation's cellular, paging, telephone and
telephone systems operating units. Mr. Addy holds a Bachelor of Science degree
in Electrical Engineering.
Renee M. Martin. Ms. Martin is Senior Vice President and General Counsel.
Ms. Martin is responsible for legal, regulatory, and human resources functions
within the Company. From 1984 to 1998, Ms. Martin held various executive
positions at Ameritech, most recently as Vice President and General Counsel
Small Business Services where she directed corporate legal resources to
address contract negotiations, employment issues, regulatory affairs and
litigation, as well as managing outside legal counsel. From 1982 to 1984, Ms.
Martin was an attorney at Cook and Franke, S.C. where she concentrated on
general business and corporate law. Ms. Martin received her J.D. from the
University of Wisconsin and holds a Bachelor of Arts degree in Journalism.
Robert M. Junkroski. Mr. Junkroski is Controller. Mr. Junkroski is
responsible for all internal accounting operations. From 1995 to 1997, Mr.
Junkroski was Controller for Brambles Equipment Services, Inc., where he was
responsible for establishing and maintaining the divisional accounting,
financial reporting, and budgeting function. From 1987 to 1994, Mr. Junkroski
was Controller for Focus Group, Ltd., where he was responsible for the
development and implementation of the accounting and financial reporting
functions of several emerging companies. Mr. Junkroski is a Certified Public
Accountant, received his M.B.A. with honors from Roosevelt University
concentrating in Finance and Accounting and holds a Bachelor of Business
Administration degree.
Anthony J. Leggio. Mr. Leggio is Vice President and General Manager, Focal
Communications Corporation of New York. Mr. Leggio is responsible for sales
and customer service activities in the Company's New York operation. From 1996
to 1997, Mr. Leggio was Vice President Sales, Eastern Region for Sprint PCS
where he was responsible for planning, development, organization and
implementation of the Fortune 1000 sales and support organization. From 1988
to 1996, Mr. Leggio held various management positions with Sprint Corporation;
most recently as Regional Director of national accounts for Sprint's long
distance division in the New York area. Mr. Leggio received his M.B.A. from
St. Joseph's University and holds a Bachelor of Science degree in Marketing.
Tony T. Lou. Mr. Lou is Vice President and General Manager, Focal
Communications Corporation of Illinois. Mr. Lou is responsible for sales and
customer service activities in the Company's Chicago operation. From 1996 to
1997, Mr. Lou was Vice President, Corporate Accounts for Safety-Kleen
Corporation where he was responsible for developing a national accounts
strategy, quotas, account plans and increasing sales throughout all product
lines. From 1990 to 1996, Mr. Lou held various management positions with
Sprint Corporation, most recently as Regional Director of national accounts
for Sprint's long distance division in the
49
<PAGE>
Chicago area. Mr. Lou received his Masters in Management from the Kellogg
Graduate School of Business at Northwestern University and holds a Bachelor of
Commerce degree.
Andrew K. Robitshek. Mr. Robitshek is Vice President and General Manager,
Focal Communications Corporation of California. Mr. Robitshek is responsible
for sales and customer service activities in the Company's San Francisco
operation. From 1994 to 1996, Mr. Robitshek was Director of Business Analysis
for MFS Communications Company where he was responsible for determining the
economics of local telephone service. From 1991 to 1993, Mr. Robitshek was
with MCI where he was responsible for business analysis and VNET Marketing.
Mr. Robitshek received his Masters in Management from the Kellogg Graduate
School of Business at Northwestern University, a Masters of Science in
Telecommunications from George Washington University and holds a Bachelor of
Science degree in Industrial Management.
Richard F. Knight. Mr. Knight is Director of Sales-Telecom Services Group.
Mr. Knight is responsible for managing sales and service activities to other
carriers on a nationwide basis. From 1988 to 1997, Mr. Knight held various
management positions at MCI Telecommunications, most recently as Senior
Manager-Carrier Product Marketing and Development. Mr. Knight received his
M.B.A. from DePaul University and holds a Bachelor of Business Administration
degree.
Patrick K. Kuchevar. Mr. Kuchevar is Director of Data Product Development.
Mr. Kuchevar is responsible for managing sales and service activities to large
Internet service providers on a nationwide basis and for data product
development across all customer groups. From 1992 to 1997, Mr. Kuchevar held
various management positions at Sprint, most recently as Global Account
Manager in the long-distance division. From 1988 to 1992, Mr. Kuchevar was
responsible for the marketing of X.25-based data switching services for
Sprint's local telecom division in Illinois. Mr. Kuchevar holds a Bachelor of
Business Administration degree.
Daniel Montgomery, Jr. Mr. Montgomery is Director of Network Operations. Mr.
Montgomery is responsible for coordinating the implementation of Focal's
transmission network. From 1988 to 1997, Mr. Montgomery held several
management positions with MFS Communications Company including Director--
Client Network Engineering and Senior Manager--Network Services. From 1987 to
1988, Mr. Montgomery was Senior Communications Analyst for Sears
Communications Network, Inc. Mr. Montgomery received his Masters of Science in
Computer Science with Distinction from DePaul University and holds a Bachelor
of Arts degree in Economics.
Gary D. Sloan. Mr. Sloan is Director of Information Services. Mr. Sloan is
responsible for managing all aspects of the Company's information systems.
From 1995 to 1997, Mr. Sloan was Director of Software Development, Billing
Division, MIS for MFS Communications Company where he was responsible for
implementing a new corporate billing platform. From 1988 to 1995, Mr. Sloan
was Director of System Development, MIS for MFS Telecom where he was
responsible for the implementation and operation of management information
systems. From 1984 to 1988, Mr. Sloan was a consultant for Andersen
Consulting. Mr. Sloan holds a Bachelor of Science degree in Computer Science.
Jeffrey C. Wells. Mr. Wells is Director of Network Planning. Mr. Wells is
responsible for implementing Focal's network interconnection with the ILECs
and engineering the Company's switches for local network facilities. From 1995
to 1997, Mr. Wells was Senior Manager--Local Network Planning/Implementation
for MFS Communications Company where he was responsible for designing and
implementing all phases of the local networks as well as overseeing
interconnections with the ILECs. From 1985 to 1995, Mr. Wells held various
technical management positions with Sprint/Centel, including Manager of
Central Offices for Sprint's local telephone operations in Chicago. Mr. Wells
holds an Associate in Electronic Technology degree.
David M. Cushing. Mr. Cushing is Director of Product Development and
Business Analysis. Mr. Cushing is responsible for all aspects of developing
and implementing new products as well as the pricing and financial analysis of
new services. From 1995 to 1997, Mr. Cushing held various management positions
at WorldCom (MFS Communications Company) most recently as Senior Manager,
Business Analysis. From 1988 to 1995, Mr.
50
<PAGE>
Cushing held several positions at GTE/Contel most recently as Budget and
Performance Analyst where he initiated performance analyses and designed
reports to monitor customer service performance. Mr. Cushing received his
M.B.A. from the University of Chicago and holds a Bachelor of Science degree
in General Engineering.
James E. Crawford, III. Mr. Crawford is a Director. Mr. Crawford has served
as a Director of the Company since November, 1996. He is a general partner of
Frontenac Company, a venture capital firm that he joined in August, 1992. From
February, 1984 to August, 1992, Mr. Crawford was a general partner of William
Blair Venture Management Co., the general partner of William Blair Venture
Partners III, a venture capital fund. He was also a general partner of William
Blair & Company, an investment bank and brokerage affiliated with William
Blair Venture Management Co., from January, 1987 to August, 1992. Mr. Crawford
serves as a director of Optika Imaging Systems, Inc., Cornerstone Imaging,
Inc., Allegiance Telecom, Inc. and several other private companies.
Paul J. Finnegan. Mr. Finnegan is a Director. Mr. Finnegan has served as a
Director of the Company since November, 1996. Since January, 1993, Mr.
Finnegan has been Vice President of Madison Dearborn Partners, Inc., the
general partner of Madison Dearborn Capital Partners, L.P. Previously, he
served in various positions at First Capital Corporation of Chicago and its
affiliates. Mr. Finnegan currently serves on the Board of Trustees of The
Skyline Fund, the Board of Advisors of Falcon Cable Holding Group, L.P., the
Board of Directors of Omnipoint Corporation, and the Board of Directors of
Allegiance Telecom Inc.
Richard D. Frisbie. Mr. Frisbie is a Director. Mr. Frisbie has served as a
Director of the Company since November, 1996. Mr. Frisbie is a founder and
Managing Partner of Battery Ventures. He is responsible for management of the
Battery Funds and focuses principally on communications and software
opportunities. From 1976 to 1983, Mr. Frisbie was a principal at UNC Ventures
("UNC"), where he was instrumental in developing and implementing its high
technology investment strategy. Prior to joining UNC, Mr. Frisbie was employed
at Hutchins & Wheeler (1974-1976), a Boston law firm. Mr. Frisbie serves as a
director of Allegiance Telecom, PCS Development, Phoenix Wireless, UniSite,
and XCOM Technologies and is a member of the Board of Directors of the
National Venture Capital Association.
James N. Perry, Jr. Mr. Perry is a Director. Mr. Perry has been a Director
of the Company since November, 1996. In January, 1993, he became Vice
President of Madison Dearborn Partners, Inc. Previously, Mr. Perry served in
various positions at First Capital Corporation of Chicago and its affiliates.
Mr. Perry currently serves as a director of Clearnet Communications, Inc.,
Omnipoint Corporation, and Allegiance Telecom Inc.
Paul G. Yovovich. Mr. Yovovich is a Director. Mr. Yovovich has served as a
Director of the Company since March 1997. Mr. Yovovich served as President of
Advance Ross Corporation from 1993 to 1996. He served in several executive
positions with Centel Corporation from 1982 to 1992, where his last position
was that of President of its Central Telephone Company unit. Before joining
Centel, he was a Vice President in the investment banking unit of Dean Witter.
Mr. Yovovich also serves as a director of 3Com Corporation, APAC TeleServices,
Inc., May & Speh, Inc., Comarco, Inc., and Mastering, Inc.
BOARD COMMITTEES
The Board has established a Compensation Committee and an Audit Committee.
The Compensation Committee establishes salaries, incentives and other forms of
compensation for directors, executive officers and key employees of the
Company and administers the Company's 1997 Non-Qualified Stock Option Plan
(the "Stock Option Plan") and other incentive and benefit plans. Members of
the Compensation Committee are Messrs. Taylor, Perry, Finnegan, Crawford,
Frisbie, and Yovovich. The Audit Committee oversees the work performed by the
Company's independent auditors, and reviews internal audit controls. Members
of the Audit Committee are Messrs. Perry, Finnegan, Crawford, and Frisbie.
51
<PAGE>
COMPENSATION OF DIRECTORS
Except for Mr. Yovovich, outside directors do not currently receive cash
fees or option grants for serving as directors or for attending meetings. On
April 1, 1997, Mr. Yovovich was awarded an option to purchase 260 shares of
the Company's Class A Common (as defined herein), with such option to
immediately vest as to 10% of such shares and to vest as to an additional 15%
of such shares each six months thereafter. The Company reimburses directors
for out-of-pocket expenses incurred in connection with attendance at meetings.
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth certain information
concerning compensation paid or accrued for services rendered to the Company
in all capacities for the seven months ended December 31, 1996 and the year
ended December 31, 1997 by the Chief Executive Officer and each of the four
other most highly compensated officers or key employees of the Company whose
combined salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ------------
NUMBER OF
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------ ---- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Taylor, Jr. .. 1997 $120,000 $50,000(2) $ -- -- $ --
Chief Executive Officer 1996 20,000 -- -- -- --
and President
John R. Barnicle........ 1997 120,000 47,000(2) -- -- --
Executive Vice 1996 20,000 -- -- -- --
President and Chief
Operating Officer
Joseph A. Beatty........ 1997 120,000 45,000(2) 25,000(1) -- --
Executive Vice 1996 20,000 -- -- -- --
President, Chief
Financial Officer,
Treasurer, and
Secretary
Brian F. Addy........... 1997 120,000 38,000(2) -- -- --
Executive Vice 1996 20,000 -- -- -- --
President of Market
Development
Patrick K. Kuchevar..... 1997 63,333 87,000(2) -- 80(3) --
Director of Data 1996 -- -- -- -- --
Product Development
</TABLE>
- --------
(1) Reimbursement for moving expenses.
(2) Discretionary bonuses are granted by the Board of Directors.
(3) Granted pursuant to the Company's Stock Option Plan.
Except for Mr. Kuchevar, none of the named executive officers owns any
options to purchase shares of the Company's Common Stock.
STOCK OPTION PLAN
The Company's Stock Option Plan was adopted on February 27, 1997 by Focal
Communications Corporation of Illinois and pursuant to a Plan of
Reorganization and an Assignment of Interest Agreement, dated
52
<PAGE>
August 18, 1997, such plan was adopted by the Company. The Stock Option Plan
provides for the grant of options to purchase up to an aggregate of 5,260
shares of Common Stock. The Plan is administered by the Board of Directors
which makes discretionary grants ("discretionary grants") of options to
employees (including employees who are officers and directors of the Company)
and directors.
Options granted pursuant to the plan are to be non-qualified options and are
not intended to be "incentive stock options" within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended.
The selection of participants, allotment of shares, determination of price
and other conditions of purchase of such options are determined by the Board,
in its sole discretion. Options are exercisable for a period of up to ten
years. The per share exercise price of options must be no less than 100% of
the fair market value of the Common Stock on the date of grant. As of April 1,
1998, the Board had granted options to purchase a net total of 2,926 shares of
the Company's Class A Common to 77 employees and directors pursuant to the
Stock Option Plan, after taking into account forfeited option grants. As of
December 31, 1997, the Board had granted options to purchase 1,222 shares of
Class A Common at prices ranging from $290 to $320 per share. On January 1,
1998, the Board granted additional options to purchase 677 shares of Class A
Common at $333 per share. On April 1, 1998, the Board granted additional
options to purchase 1,057 shares of Class A Common at $1,050 per share.
Options granted under the Stock Option Plan are nontransferable, other than
by will or by the laws of descent and distribution, and during the lifetime of
the optionee, may be exercised only by the optionee, or in the event of
optionee's legal incapacity to do so, by the optionee's guardian or legal
representative.
The following table sets forth certain information with respect to options
granted to the Named Executive Officers during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT
OPTIONS TO EMPLOYEES PRICE EXPIRATION DATE
NAME GRANTED (#) IN 1997 ($/SH)(1) DATE VALUE(2)
- ---- ----------- ---------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Taylor, Jr.... -- 0% $-- -- $ --
John R. Barnicle........ -- 0% -- -- --
Joseph A. Beatty........ -- 0% -- -- --
Brian F. Addy........... -- 0% -- -- --
Patrick Kuchevar........ 80 6.55% 290 04/01/07 13,600
</TABLE>
- --------
(1) Options were granted under the Stock Option Plan at an exercise price
equal to the fair market value of the Company's Class A Common on the date
of grant, as determined by the Board.
(2)Calculation based on the Black-Scholes model.
53
<PAGE>
The following table sets forth certain information with respect to the
unexercised options held by the Named Executive Officers as of December 31,
1997. No options were exercised by the Named Executive Officers during 1997.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS AT YEAR- OPTIONS AT YEAR-
END 1997(#) END 1997($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE (1)
- ---- --------------- -------- ---------------- -----------------
<S> <C> <C> <C> <C>
Robert C. Taylor, Jr.... -- $-- -- $ --
John R. Barnicle........ -- -- -- --
Joseph A. Beatty........ -- -- -- --
Brian F. Addy........... -- -- -- --
Patrick Kuchevar........ 0 0 0/80 0/3,600
</TABLE>
- --------
(1) As of the end of fiscal year 1997, none of the options held by the Named
Executive Officers had been exercised.
EMPLOYMENT AGREEMENTS
The Company entered into continuing Executive Stock Agreement and Employment
Agreements (the "Employment Agreements") with each of the Executive Investors
(as defined herein) on of November 27, 1996 upon the same terms and
conditions. The Employment Agreements provide that each Executive Investor
shall receive a minimum base salary of $120,000 and bonuses based upon the
Company achieving certain performance goals set in advance of each year in the
sole discretion of the Board of Directors. Each Executive Investor is entitled
to severance payments if he is terminated other than for cause. In addition to
provisions relating to each Executive Investor's duties and compensation, the
Employment Agreements require each Executive Investor to assign all inventions
he develops in the course of his employment with the Company to the Company,
maintain the confidentiality of the Company's proprietary information and
refrain from competing with and soliciting employees from the Company during
his employment with the Company and for a period of up to eighteen months
thereafter. Each Executive Investor is entitled to certain Noncompete
Compensation. The Company entered into an employment agreement with Ms. Martin
on March 20, 1998 on substantially the same employment terms as the Executive
Investors.
54
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of
the Company's Common Stock as of March 27, 1998 for (i) each of the Named
Executive Officers, (ii) each director of the Company, (iii) all Named
Executive Officers and directors of the Company as a group, and (iv) each
stockholder of the Company who beneficially owns 5% or more of the Company's
Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME OWNED(1) SHARES
- ---- ---------------- -----------
<S> <C> <C>
OFFICERS:
Robert C. Taylor, Jr.(2)......................... 5,230.77 4.54%
John R. Barnicle(3).............................. 5,230.77 4.54%
Joseph A. Beatty(4).............................. 5,230.77 4.54%
Brian F. Addy(5)................................. 5,230.77 4.54%
Patrick Kuchevar(6).............................. 20.00 *
DIRECTORS:
James N. Perry Jr.(7)............................ 54,807.70 47.55%
Paul Finnegan(8)................................. 54,807.70 47.55%
James Crawford(9)................................ 25,576.92 22.19%
Richard Frisbie(10).............................. 12,788.46 11.10%
Paul G. Yovovich(11)............................. 334.77 *
ALL OFFICERS AND DIRECTORS AS A GROUP (10 STOCK-
HOLDERS)........................................ 114,450.93 99.30%
5% STOCKHOLDERS:
Madison Dearborn Capital Partnership, L.P.(12)... 54,807.70 47.55%
Frontenac VI, L.P.(13)........................... 25,576.92 22.19%
Battery Ventures III, L.P.(14)................... 12,788.46 11.10%
</TABLE>
- --------
* Less than 1% of the issued and outstanding shares of the Common Stock of the
Company.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned by them, subject to community property laws
where applicable. The percentage of beneficial ownership is based on
115,260.983 shares of Common Stock outstanding as of March 27, 1998,
including 241.75 shares of Common Stock subject to options that are
currently exercisable or are exercisable within 60 days, which are deemed
to be outstanding and to be beneficially owned by the person holding such
options.
(2) Includes 230.77 shares of Class A Common and 5,000 shares of Class B
Common, but excludes 3,677.885 shares of Class C Common owned of record
by Mr. Taylor. The voting rights with respect to the Class C Common have
been transferred to the Equity Investors pursuant to the Vesting
Agreements (as hereinafter defined). The Class C Common and 3,000 shares
of Class B Common are subject to forfeiture. See "Description of Capital
Stock."
(3) Includes 230.77 shares of Class A Common and 5,000 shares of Class B
Common, but excludes 3,677.885 shares of Class C Common owned of record
by Mr. Barnicle. The voting rights with respect to the Class C Common
have been transferred to the Equity Investors pursuant to the Vesting
Agreements. The Class C Common and 3,000 shares of Class B Common are
subject to forfeiture. See "Description of Capital Stock."
(4) Includes 230.77 shares of Class A Common and 5,000 shares of Class B
Common, but excludes 3,677.885 shares of Class C Common owned of record
by Mr. Beatty. The voting rights with respect to the Class C Common have
been transferred to the Equity Investors pursuant to the Vesting
Agreements. The Class C Common and 3,000 shares of Class B Common are
subject to forfeiture. See "Description of Capital Stock."
55
<PAGE>
(5) Includes 230.77 shares of Class A Common and 5,000 shares of Class B
Common, but excludes 3,677.885 shares of Class C Common owned of record
by Mr. Addy. The voting rights with respect to the Class C Common have
been transferred to the Equity Investors pursuant to the Vesting
Agreements. The Class C Common and 3,000 shares of Class B Common are
subject to forfeiture. See "Description of Capital Stock."
(6) Includes 20 shares of Class A Common subject to options which are
exercisable within 60 days of March 27, 1998. Excludes 100 shares of
Class A Common subject to options which are not exercisable within 60
days of March 27, 1998.
(7) Mr. Perry, a director of the Company, owns no shares in his own name.
Includes 46,153.85 shares of Class A Common owned by MDCP and 8,653.85
shares of Class C Common, the voting rights with respect to which have
been transferred to MDCP pursuant to the Vesting Agreements. See
"Description of Capital Stock." Mr. Perry's address is c/o Madison
Dearborn Partners, Inc., Three First National Plaza, Suite 3800, Chicago,
IL 60602.
(8) Mr. Finnegan, a director of the Company, owns no shares in his own name.
Includes 46,153.85 shares of Class A Common owned by MDCP and 8,653.85
shares of Class C Common, the voting rights with respect to which have
been transferred to MDCP pursuant to the Vesting Agreements. See
"Description of Capital Stock." Mr. Finnegan's address is c/o Madison
Dearborn Partners, Inc., Three First National Plaza, Suite 3800, Chicago,
IL 60602.
(9) Mr. Crawford, a director of the Company, owns no shares in his own name.
Includes 21,538.46 shares of Class A Common owned by Frontenac and
4,038.46 shares of Class C Common, the voting rights with respect to
which have been transferred to Frontenac pursuant to the Vesting
Agreements. See "Description of Capital Stock." Mr. Crawford's address is
c/o Frontenac Company, 135 S. LaSalle Street, Suite 3800, Chicago, IL
60603.
(10) Mr. Frisbie, a director of the Company, owns no shares in his own name.
Includes 10,769.23 shares of Class A Common owned by Battery and
2,019.23 shares of Class C Common, the voting rights with respect to
which have been transferred to Battery pursuant to the Vesting
Agreements. See "Description of Capital Stock." Mr. Frisbie's address is
c/o Battery Ventures, 20 William Street, Wellesley, MA 02181.
(11) Includes 230.77 shares of Class A Common and an additional 104 shares of
Class A Common subject to options which are exercisable within 60 days
of March 27, 1998. Excludes 156 shares of Class A Common subject to
options which are not exercisable within 60 days of March 27, 1998.
(12) Includes 46,153.85 shares of Class A Common owned by MDCP and 8,653.85
shares of Class C Common, the voting rights with respect to which have
been transferred to MDCP pursuant to the Vesting Agreements. See
"Description of Capital Stock."
(13) Includes 21,538.46 shares of Class A Common owned by Frontenac and
4,038.46 shares of Class C Common, the voting rights with respect to
which have been transferred to Frontenac pursuant to the Vesting
Agreements. See "Description of Capital Stock."
(14) Includes 10,769.23 shares of Class A Common owned by Battery and
2,019.23 shares of Class C Common, the voting rights with respect to
which have been transferred to Battery pursuant to the Vesting
Agreements. See "Description of Capital Stock."
56
<PAGE>
CERTAIN TRANSACTIONS
THE STOCK PURCHASE AGREEMENT
The Company and certain of its stockholders entered into a Stock Purchase
Agreement (as defined herein). Pursuant to such agreement and additional
agreements related thereto the Investors were granted certain put rights,
voting rights, and registration rights. See "Description of Capital Stock" for
a detailed discussion of the various rights and restrictions affecting the
Common Stock of the Company and its stockholders. The consideration for the
issuance of shares of Common Stock to the Executive Investors involved the
forgiveness of an aggregate of $24,000 of indebtedness owed by the Company to
the Executive Investors. The Executive Investors issued notes to the Company
and subsequently repaid such notes in connection with certain capital
contributions required under the Stock Purchase Agreement. The Executive
Investors issued approximately $160,000 aggregate principal amount of notes to
the Company and the Equity Investors paid approximately $13.6 million to the
Company prior to the consummation of the Offering in connection with certain
final capital contributions required under the Stock Purchase Agreement.
Concurrent with the consummation of the Offering, the Equity Investors
relinquished certain Put Rights (as defined herein) in exchange for certain
liquidation rights. See "Description of Capital Stock."
DIRECTOR/STOCKHOLDER RELATIONSHIPS
Several directors of the Company, who serve as designees of the Equity
Investors, also serve on the boards of companies with which the Company may
compete or enter into agreements. Specifically, Messrs. Crawford, Finnegan,
Frisbie, and Perry are directors of Allegiance Telecom, Inc., a Dallas-based
CLEC which competes with the Company. In addition, Mr. Frisbie serves as a
director of XCOM Technologies, a Boston-based CLEC which competes with the
Company.
DESCRIPTION OF CAPITAL STOCK
As of December 31, 1997, there were a total of (i) 85,567.693 shares of
Class A Common authorized and 80,307.693 shares outstanding, (ii) 35,000
shares of Class B Common authorized and 20,000 shares outstanding, and (iii)
15,000 shares of Class C Common authorized and 14,711.54 shares outstanding.
Pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") and
related documents, each dated November 27, 1996, the Company sold 79,384.62
shares of its Class A Common Stock, $0.01 par value per share (the "Class A
Common"), to MDCP, Frontenac, Battery, Brian F. Addy ("Addy"), John R.
Barnicle ("Barnicle"), Joseph A. Beatty ("Beatty"), and Robert C. Taylor, Jr.
("Taylor," with Addy, Barnicle, Beatty and Taylor being hereinafter
individually referred to as an "Executive Investor" and collectively as the
"Executive Investors," and the Equity Investors and the Executive Investors
being hereinafter collectively referred to as the "Investors") and converted
1,500 shares of its then outstanding common stock into 20,000 shares of Class
B Common Stock, $0.01 par value per share (the "Class B Common"), and
14,711.54 shares of Class C Common Stock, $0.01 par value per share (the
"Class C Common," the Class A Common, Class B Common and Class C Common are
hereinafter collectively referred to as the "Common Stock"). The Company
issued 923.073 shares of Class A Common to stockholders who were designated by
the Equity Investors and other investors concurrent with the Stock Purchase
Agreement.
In connection with the Stock Purchase Agreement, the Company and the
Investors entered into a number of additional agreements which affect their
relative rights as Stockholders of the Company. Following is a description of
the relative rights and obligations of the Company's Class A Common, Class B
Common and Class C Common.
Certain Voting Requirements
Pursuant to the Stock Purchase Agreement, the Company can not take certain
enumerated actions without obtaining the prior written consent of the holders
of at least 67% of the shares of Class A Common issued to
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Equity Investors pursuant to the Stock Purchase Agreement. Until such consent
is obtained the Company may not, among other things: declare or pay dividends;
redeem or purchase the Company's stock or the stock of any of its
subsidiaries; issue or agree to issue any securities containing equity
features; sell more than 10% of the Company's assets; acquire or invest in
another entity; enter into the operation of any business other than the
provision of local exchange telecommunications services or other businesses
identified in an approved business plan; become subject to any agreement which
would restrict the Company's right to perform under the Stock Purchase
Agreement or related documents; incur indebtedness exceeding $100,000
(excluding the Notes and any refinancing thereof); make capital expenditures
or enter into lease agreements exceeding $100,000 in any twelve-month period
unless provided for in an approved business plan; or use proceeds of Class A
Common contributions made pursuant to the Stock Purchase Agreement for
purposes other than for working capital and budgeted general corporate
purposes or as contemplated by an approved business plan. The requirement for
such consent terminates upon the consummation of the Company's Initial Public
Offering.
Voting
Pursuant to the Company's Certificate of Incorporation (the "Certificate"),
each share of Common Stock is entitled to one vote per share with the holders
of Class A Common, Class B Common and Class C Common voting together as a
single class.
Pursuant to the Vesting Agreement, the Executives have named the Equity
Investors as their proxies to vote all shares of Unvested Class C Common from
time-to-time outstanding. In addition, pursuant to the Stockholders Agreement,
the Stockholders have agreed, among other things, that the authorized number
of directors shall be established by the bylaws and remain at seven directors.
The Stockholders Agreement provides that the seven directors will include (i)
two directors designated by MDCP, so long as MDCP holds at least 50% of the
shares of Common Stock initially purchased by MDCP under the Stock Purchase
Agreement and thereafter one director designated by MDCP so long as MDCP holds
at least 10% of such Common Stock and at least 3% of the Company's outstanding
Common Stock, (ii) one director designated by Frontenac so long as Frontenac
holds at least 20% of the shares of Common Stock initially purchased by
Frontenac under the Stock Purchase Agreement and at least 3% of the Company's
outstanding Common Stock, (iii) one director designated by Battery so long as
Battery holds at least 50% of the shares of Common Stock initially purchased
by Battery under the Stock Purchase Agreement and at least 3% of the Company's
outstanding Common Stock, (iv) two Executive Investors employed by the Company
designated by a majority of the outstanding shares of Common Stock issued to
the Executive Investors pursuant to the Stock Purchase Agreement, and (v) one
outside director designated by the Equity Investors and reasonably acceptable
to the Executive Investors. The rights and requirements under the Stockholders
Agreements as to directors shall terminate at the earlier of the closing of
the Company's Initial Public Offering or the sale of the Company.
Investors' Liquidation Right
Pursuant to the Stock Purchase Agreement, Equity Investors had the right
(the "Put Right"), beginning after November 27, 2003, to require the Company
to repurchase all, but not less than all, of the Equity Investors' Class A
Common purchased pursuant to the Stock Purchase Agreement. Pursuant to a
January 1998 amendment to the Stock Purchase Agreement the Investors have
agreed to relinquish such Put Right in exchange for certain rights to require
liquidation of the Company if the Company has not completed a public offering
of its Common Stock prior to November 27, 2003. If a demand for liquidation is
made, at the option of the Company, in lieu of liquidation, the Company may
repurchase all, but not less than all, the shares of the Company's capital
stock then held by the Investors exercising such liquidation right. The
Indenture limits the ability of the Company to liquidate itself or to
repurchase shares of its Common Stock. In connection with the Offering, the
Equity Investors have acknowledged that the Indenture could restrict the
Company from liquidating or repurchasing Shares of its Common Stock and agreed
in writing that any claim for such payments would be subordinated in right of
payment to the Notes.
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Forfeiture, Conversion and Repurchase of Common Stock
Pursuant to the terms of four separate Vesting Agreements (the "Vesting
Agreements"), each dated November 27, 1996, by and among the Executive
Investors and each of the Equity Investors, the shares of Class C Common owned
by each of the Executive Investors are subject to certain forfeiture
provisions.
Upon the vesting of the Class C Common, such shares of Class C Common are
convertible into Class B Common. Pursuant to the Vesting Agreements, upon the
vesting of any shares of Class C Common an equal number of shares of Class A
Common held by the Equity Investors shall be forfeited by such Equity
Investors.
Pursuant to the terms of the Employment Agreements by and between the
Company and each of the Executive Investors, the shares of Class B Common
owned by each of the Executive Investors (including any shares of Class B
Common received upon conversion of the Class C Common as to which the vesting
provisions of the Vesting Agreement have lapsed) are subject to certain
forfeiture provisions.
Pursuant to the Employment Agreements, the Company has the option to
purchase (the "Repurchase Option") all Class A Common, Class B Common and
Class C Common then owned by each Executive Investor upon the termination of
such Executive Investors' employment by the Company for any reason. In certain
circumstances, the Company may be required to assign the Repurchase Option, or
a portion thereof, to the Equity Investors and/or the other Executive
Investors. The purchase price for shares of Unvested Class B and Unvested
Class C shall be the par value thereof. The purchase price for the vested
shares of Common Stock shall be the fair market value of such shares as
determined by the formula set forth in the Employment Agreements.
Registration Rights
Pursuant to the terms of a Registration Agreement (the "Registration
Agreement") dated November 27, 1996, the Company granted certain holders of
the Company's Class A Common and Class B Common Registration Rights. The
holders of approximately 78,461.54 shares of Class A Common have the benefit
of demand registration rights. Holders of Class A Common which have the
benefit of demand registration rights are hereinafter referred to as "Demand
Rights Holders." In order for the Demand Rights Holders to effect a demand for
registration prior to an Initial Public Offering, the Registration Agreement
requires that at least 67% of the Demand Rights Holders request such
registration. Prior to an Initial Public Offering, an unlimited number of
demands may be made for registration on Form S-1 or any similar long-form
registration ("Long-Form Registrations"). After an Initial Public Offering and
subject to minimum dollar limits, each Demand Rights Holder is subject to
certain limitations on demands which can be made for Long-Form Registrations,
while the Demand Rights Holders may make an unlimited number of demands for
registration on Form S-2 or S-3 or any similar short-form registration, if
available. In addition to demand registration rights, the Demand Rights
Holders and the holders of approximately 20,000 shares of Class B Common have
unlimited "piggyback" registration rights (hereinafter the Demand Rights
Holders and the holders of Class B Common to which such piggyback registration
rights have attached will be collectively called the "Piggyback Rights
Holders") pursuant to which the Piggyback Rights Holders have the right to
request that the Company register their registrable Class A Common and Class B
Common whenever the Company registers any of its securities under the
Securities Act (other than pursuant to a demand registration) and the
registration form to be used may be used for the registration of the
registrable Class A Common or Class B Common; unless the piggyback
registration is in connection with an underwritten registration and the
managing underwriter is of the opinion that inclusion of all or any portion of
the shares of Class A Common or Class B Common with respect to which the
Piggyback Rights Holders request registration would have an adverse impact on
the marketing of the securities to be sold in such underwritten offering.
Distributions
Pursuant to the Company's Certificate of Incorporation, the holders of Class
A Common, Class B Common, and Class C Common have differing rights to
distributions made by the Company depending on the type of distribution
involved.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Senior Notes were, and the Exchange Notes will be, issued under the
Indenture between the Company and Harris Trust and Savings Bank, as trustee
under the Indenture. For purposes of this Description of the Exchange Notes
only, the term "Company" refers to Focal Communications Corporation and does
not include its subsidiaries except where specifically noted and for purposes
of financial data determined on a consolidated basis.
The terms of the Exchange Notes will be identical in all material respects
to the Senior Notes, except that (i) the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Senior Notes and (ii)
Holders of the Exchange Notes will not be entitled to certain rights of
Holders of Senior Notes under the Registration Agreement. The terms of the
Exchange Notes include those stated in the Indenture and those made a part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Exchange Notes will be subject to all such terms,
and Holders of the Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a complete statement of such terms. A copy of the Indenture
is available from the Company on request. The statements and definitions of
terms under this caption relating to the Exchange Notes and the Indenture are
summaries and do not purport to be complete. Such summaries make use of
certain terms defined in the Indenture but not herein and are qualified in
their entirety by express reference to the Indenture. Certain capitalized
terms used herein and not otherwise defined below under "--Certain
Definitions" are defined in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes mature on February 15, 2008 (the "Stated Maturity"). The
Exchange Notes will be limited to an aggregate stated principal amount at
maturity of $270,000,000. The Senior Notes were issued at an issue price of
$555.6578 per $1,000 stated principal amount at maturity (the "Issue Price")
(55.56578% of the stated principal amount at maturity) to generate gross
proceeds to the Company of $150,027,606. The Exchange Notes are being issued
in substitution for the Senior Notes and are, therefore, deemed to have been
issued at the same discount. The Exchange Notes will bear interest on the
Issue Price at a rate of 12.125% per annum computed on a semiannual bond
equivalent basis from the Issue Date. In the period prior to February 15,
2003, interest at a rate of 12.125% per annum will accrue on the Issue Price
but will not be payable in cash ("Deferred Interest"). For United States
federal income tax purposes, a significant amount of original issue discount,
taxable as ordinary income, will be recognized by a holder of Exchange Notes
as such Deferred Interest accrues from the Issue Date. From February 15, 2003,
interest at a rate of 12.125% per annum ("Current Interest") on the stated
principal amount at maturity of the Exchange Notes will be payable in cash
semiannually on August 15 and February 15 of each year, beginning on August
15, 2003, to the Person in whose name the Exchange Note (or any predecessor
Exchange Note) is registered at the close of business on the preceding August
1, or February 1, as the case may be. The stated principal amount at maturity
is $1,000 per Exchange Note and represents the Issue Price plus Deferred
Interest accrued but unpaid up to February 15, 2003. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. The Company
shall pay interest on overdue principal and premium, if any, of the Exchange
Notes and, to the extent lawful, interest on overdue installments of interest
on the Exchange Notes at a rate per annum equal to the interest rate payable
on the Exchange Notes.
The Exchange Notes will be issued without coupons and in fully registered
form only, in minimum denominations of $1,000 stated principal amount at
maturity and integral multiples thereof. The Exchange Notes will be issued
only against surrender of an equal stated principal amount at maturity of
Senior Notes.
The interest rate on the Exchange Notes is subject to increase if certain
conditions are not satisfied, all as further described under "Description of
the Exchange Notes--Exchange Offer; Registration Rights." All references
herein to Current Interest and Deferred Interest include any such Additional
Interest.
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RANKING
The Exchange Notes will be senior unsecured obligations of the Company
ranking pari passu in right of payment with the Senior Notes and all other
existing and future senior Indebtedness of the Company, and will rank senior
in right of payment to all existing and future subordinated Indebtedness of
the Company, if any. Holders of secured Indebtedness of the Company, however,
will have claims that are prior to the claims of the Holders with respect to
the assets securing such other Indebtedness except to the extent the Notes are
equally and ratably secured by such assets. The Indenture will permit the
Company to incur secured Indebtedness. As of December 31, 1997, on a pro forma
basis after giving effect to the Offering and the application of the net
proceeds therefrom, the Company would have had no outstanding indebtedness
other than the Notes.
The operations of the Company are conducted through its subsidiaries and,
therefore, the Company is dependent upon cash flow from such entities to meet
its obligations. The Company's subsidiaries will have no direct obligation to
pay amounts due on the Exchange Notes and will not guarantee the Exchange
Notes. As a result, the Exchange Notes will be effectively subordinated to all
existing and future Indebtedness and other liabilities of the Company's
subsidiaries (including trade payables). See "Risk Factors--Holding Company
Structure; Effective Subordination of the Exchange Notes." Except to the
extent that loans made by the Company to its subsidiaries are recognized as
Indebtedness, any rights of the Company and its creditors, including the
Holders, to participate in the assets of any of the Company's subsidiaries
upon any liquidation or reorganization of any such subsidiaries will be
subject to the prior claims of such subsidiary's creditors (including trade
creditors).
BOOK-ENTRY SYSTEM
The Exchange Notes will initially be issued in the form of one or more
Global Notes (as defined in the Indenture) held in book-entry form. The
Exchange Notes will be deposited with the Trustee as custodian for DTC, and
DTC or its nominee will initially be the sole registered Holder of the
Exchange Notes for all purposes under the Indenture. Except as set forth
below, a Global Note may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC.
The Exchange Notes that are issued as described below under "--Certificated
Notes" will be issued in definitive form.
Upon the transfer of an Exchange Note in definitive form, such Exchange Note
will, unless the Global Note has previously been exchanged for Exchanges Notes
in definitive form, be exchanged for an interest in the Global Note
representing the principal amount of the Exchange Notes being transferred.
Upon the issuance of a Global Note, DTC or its nominee will credit, on its
internal system, the accounts of persons holding through it with the
respective principal amount of Exchange Notes of the individual beneficial
interests represented by such Global Note. Ownership of beneficial interests
in a Global Note will be limited to persons that have accounts with DTC
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests by participants in a Global Note will be
shown on, and the transfer of that ownership interest will be effected only
through, records maintained by DTC or its nominee for such Global Note.
Ownership of beneficial interests in such Global Note by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Note.
Payment of principal of, premium, if any, on and interest on Exchange Notes
represented by any such Global Note will be made to DTC or its nominee, as the
case may be, as the sole registered owner and the sole Holder of the Exchange
Notes represented thereby for all purposes under the Indenture. None of the
Company, the Trustee, or any agent of the Company will have any responsibility
or liability for (i) any aspect of DTC's reports relating to or payment made
on account of beneficial ownership interests in a Global Note representing
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any Exchange Notes or for maintaining, supervising or reviewing any of DTC's
records relating to such beneficial ownership interests or (ii) any other
matter relating to the actions and practices of DTC or any of its
participants.
The Company has been advised by DTC that upon receipt of any payment of
principal of, premium, if any, on or interest on any Global Note, DTC will
immediately credit, on its book-entry registration and transfer system, the
accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the principal or face amount of such Global
Note, as shown on the records of DTC. The Company expects that payments by
participants to owners of beneficial interests in a Global Note held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for customer accounts
registered in "street name" and will be the sole responsibility of such
participants.
So long as DTC or its nominee is the registered owner or Holder of such
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of the Exchange Notes represented by such Global Note for
the purposes of receiving payment on the Exchange Notes, receiving notices and
for all other purposes under the Indenture and the Exchange Notes. Beneficial
interests in Exchange Notes will be evidenced only by, and transfers thereof
will be effected only through, records maintained by DTC and its participants.
Except as provided above, owners of beneficial interests in a Global Note will
not be entitled to and will not be considered the Holders of such Global Note
for any purposes under the Indenture. Accordingly, each person owning a
beneficial interest in a Global Note must rely on the procedures of DTC and,
if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a
Holder under the Indenture. The Company understands that, under existing
industry practices, in the event that the Company requests any action of
Holders or that an owner of a beneficial interest in a Global Note desires to
give or take any action that a Holder is entitled to give or take under the
Indenture, DTC would authorize the participants holding the relevant
beneficial interest to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account with DTC interests in the Global Note are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such participant or participants has or have
given such direction.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a "banking
organization" within the meaning of New York Banking Law, 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 under the
Exchange Act. DTC was created to hold the securities of its 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 the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations some of whom (and/or their representatives) own DTC.
Access to DTC's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
CERTIFICATED NOTES
The Exchange Notes represented by a Global Note are exchangeable for
certificated Exchange Notes only if: (i) DTC notifies the Company that it is
unwilling or unable to continue as a depository for such Global Note
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or if at any time DTC ceases to be a clearing agency registered under the
Exchange Act, and a successor depository is not appointed by the Company
within 90 days; (ii) the Company executes and delivers to the Trustee a notice
that such Global Note shall be so transferable, registrable and exchangeable,
and such transfer shall be registrable; or (iii) there shall have occurred and
be continuing an Event of Default with respect to the Notes represented by
such Global Note. Any Global Note that is exchangeable for certificated
Exchange Notes pursuant to the preceding sentence will be transferred to, and
registered and exchanged for, certificated Exchange Notes in authorized
denominations and registered in such names as DTC or its nominee holding such
Global Note may direct. Subject to the foregoing, a Global Note is not
exchangeable, except for a Global Note of like denomination to be registered
in the name of DTC or its nominee. In the event that a Global Note becomes
exchangeable for certificated Exchange Notes: (i) certificated Exchange Notes
will be issued only in fully registered form in denominations of $1,000 or
integral multiples thereof; (ii) payment of principal, any repurchase price,
and interest on the certificated Exchange Notes will be payable, and the
transfer of the certificated Exchange Notes will be registrable, at the office
or agency of the Company maintained for such purposes; and (iii) no service
charge will be made for any issuance of the certificated Exchange Notes,
although the Company may require payment of a sum sufficient to cover any tax
or governmental charge imposed in connection therewith.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after February 15, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
by first class mail to each Holder's last address as it appears in the
Register, at the redemption prices (expressed in percentages of stated
principal amount at maturity) set forth below, plus accrued and unpaid Current
Interest, if any, on the stated principal amount at maturity so redeemed to
the redemption date (subject to the right of Holders of record on the relevant
Record Date that is on or prior to the redemption date to receive Current
Interest, if any, due on an interest payment date), if redeemed during the 12-
month period commencing February 15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003..................................................... 106.063%
2004..................................................... 104.042
2005..................................................... 102.021
2006 and thereafter...................................... 100.000
</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 aggregate
stated principal amount at maturity of the Exchange Notes with the proceeds
from one or more Public Equity Offerings following which there is a Public
Market at a redemption price (expressed as a percentage of Accreted Value on
the redemption date) of 112.125%, plus Additional Interest, if any; provided,
that at least 65% of the original aggregate stated principal amount at
maturity of the Notes remains outstanding after each such redemption.
If less than all of the Notes are to be redeemed, the Trustee shall select,
in such manner as it shall deem fair and appropriate, the particular Notes to
be redeemed or any portion thereof in stated principal amounts at maturity of
$1,000 or integral multiples thereof.
MANDATORY REDEMPTION
Except as set forth under "--Repurchase at the Option of Holders upon a
Change of Control" and "--Asset Sale," the Company is not required to make
redemption payments or sinking fund payments with respect to the Exchange
Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require the Company to repurchase all or any part (equal to $1,000 stated
principal amount at maturity or an integral multiple thereof) of
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such Holder's Exchange Notes pursuant to the offer described below (the
"Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") equal to 101% of the Accreted Value thereof plus accrued and
unpaid Current Interest, if any, to but excluding any Change of Control
Payment Date (as defined below).
Within 30 days following any Change of Control, the Company or the Trustee
(at the expense of the Company) shall mail a notice to each Holder stating:
(i) that a Change of Control Offer is being made pursuant to the covenant
described under "--Repurchase at the Option of Holders upon a Change of
Control" and that all Exchange Notes timely tendered will be accepted for
payment; (ii) the Change of Control Purchase Price and the purchase date (the
"Change of Control Payment Date"), which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed; (iii) any Exchange
Notes or portions thereof not tendered or accepted for payment will continue
to accrue interest; (iv) that unless the Company defaults in the payment of
the Change of Control Purchase Price, all Exchange Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest from and after the Change of Control Payment Date; (v) Holders
electing to have any Exchange Notes or portions thereof purchased pursuant to
a Change of Control Offer will be required to surrender their Exchange Notes
to the Paying Agent at the address set forth in the notice prior to the close
of business on the third Business Day preceding the Change of Control Payment
Date; (vi) Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second Business
Day preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the stated
principal amount at maturity of Exchange Notes delivered for purchase, and a
statement that such Holder is withdrawing such Holder's election to have such
Exchange Notes or portions thereof purchased; (vii) Holders whose Exchange
Notes are being purchased only in part will be issued new Exchange Notes equal
in stated principal amount at maturity to the unpurchased portion of the
Exchange Note or Exchange Notes surrendered, which unpurchased portion must be
equal to $1,000 in stated principal amount at maturity or an integral multiple
thereof; and (viii) if after giving effect to such Change of Control Offer, at
least 95% of the original aggregate stated principal amount at maturity of the
Notes has been redeemed or repurchased, the Company shall have the right to
redeem the balance of the Notes at the Change of Control Redemption Purchase
Price.
On the Change of Control Payment Date, the Company will: (i) accept for
payment Exchange Notes or portions thereof properly tendered pursuant to the
Change of Control Offer; (ii) irrevocably deposit with the Paying Agent in
immediately available funds an amount equal to the Change of Control Purchase
Price in respect of all Exchange Notes or portions thereof so tendered; and
(iii) deliver, or cause to be delivered, to the Trustee the Exchange Notes so
accepted together with an Officers' Certificate listing the Exchange Notes or
portions thereof tendered to the Company and accepted for payment. The Paying
Agent shall promptly mail to each Holder of Exchange Notes so accepted,
payment in an amount equal to the Change of Control Purchase Price for such
Exchange Notes, and the Company shall execute and the Trustee shall promptly
authenticate and mail to each Holder a new Note equal in stated principal
amount at maturity to any unpurchased portion of the Exchange Notes
surrendered, if any; provided that each such new Note shall be in a stated
principal amount at maturity of $1,000 or an integral multiple thereof.
If after giving effect to a Change of Control Offer at least 95% of the
original aggregate stated principal amount at maturity of the Notes has been
repurchased, the Company shall have the right to redeem the balance of the
Notes at a redemption price (the "Change of Control Redemption Purchase
Price") equal to 101% of the Accreted Value thereof plus accrued and unpaid
Current Interest, if any, to but excluding the Change of Control Redemption
Date (as defined below) by giving the Holders notice of such redemption within
30 days following the Change of Control Payment Date with respect to such
Change of Control Offer (the "Change of Control Redemption"). Such notice
shall state that (i) a Change of Control Offer has been consummated and after
giving effect thereto at least 95% of the original aggregate stated principal
amount at maturity of the Notes has been redeemed or repurchased, (ii) the
Company is exercising its right to redeem the balance of the outstanding
Notes, (iii) the redemption date (the "Change of Control Redemption Date")
with respect to such Notes which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, (iv) unless the Company
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defaults in the payment of the Change of Control Redemption Purchase Price
with respect to such Notes, all such Notes will cease to accrue interest from
and after such Change of Control Redemption Date and (v) Holders are required
to surrender their Notes to the Paying Agent at the address set forth in the
notice prior to the close of business on the third Business Day preceding such
Change of Control Redemption Date.
On the Change of Control Redemption Date, the Company will: (i) accept for
payment Exchange Notes or portions thereof properly tendered pursuant to the
Change of Control Redemption; (ii) irrevocably deposit with the Paying Agent
in immediately available funds an amount equal to the applicable Change of
Control Redemption Purchase Price in respect of all Exchange Notes so
tendered; and (iii) deliver, or cause to be delivered, to the Trustee the
Exchange Notes so accepted together with an Officers' Certificate listing the
Exchange Notes tendered to the Paying Agent and accepted for payment. The
Paying Agent shall promptly mail to each Holder of Exchange Notes so accepted,
payment in an amount equal to the applicable Change of Control Redemption
Purchase Price for such Exchange Notes.
The existence of the Holders' right to require, subject to certain
conditions, the Company to repurchase Exchange Notes upon a Change of Control
may deter a third party from acquiring the Company in a transaction that
constitutes a Change of Control. Future indebtedness of the Company may
contain provisions which prohibit the purchase by the Company of any Exchange
Notes prior to their stated maturity, require obligations thereunder to be
repurchased upon a Change of Control or limit or prohibit the Company's
ability to comply with its obligations under the Indenture in the event of a
Change of Control. Further, the failure of the Company to pay the Change of
Control Purchase Price would constitute an Event of Default which in turn
could cause an event of default under such other indebtedness of the Company.
Moreover, due to the financial effect of such repurchase on the Company, the
exercise by the Holders of their right to require the Company to repurchase
the Exchange Notes could cause a default under such other indebtedness, even
if the Change of Control itself does not. If a Change of Control Offer is
made, there can be no assurance that the Company will have sufficient funds to
pay the Change of Control Purchase Price for all Exchange Notes tendered by
Holders seeking to accept the Change of Control Offer. In the event that a
Change of Control Offer occurs at a time when the Company does not have
sufficient available funds to pay the Change of Control Purchase Price for all
Exchange Notes tendered pursuant to such offer or at a time when the Company
is prohibited from purchasing the Notes (and the Company is unable either to
obtain the consent of the holders of the relevant indebtedness or to repay
such indebtedness), an Event of Default would occur under the Indenture.
One of the events that constitutes a Change of Control under the Indenture
is a sale, conveyance, transfer or lease of all or substantially all of the
Property of the Company. The Indenture will be governed by New York law, and
there is no established definition under New York law of "substantially all"
of the assets of a corporation. Accordingly, if the Company were to engage in
a transaction in which it disposed of less than all of its assets, a question
of interpretation could arise as to whether such disposition was of
"substantially all" of its assets and whether the Company was required to make
a Change of Control Offer.
To the extent such laws and regulations are applicable, the Company will
comply with the requirements of Section 14(e) under the Exchange Act and any
other securities laws and regulations in connection with the repurchase of
Exchange Notes pursuant to a Change of Control Offer or a Change of Control
Redemption.
Except as described herein with respect to a Change of Control, the
Indenture does not contain any other provisions that permit Holders to require
that the Company repurchase or redeem Exchange Notes in the event of a
takeover, recapitalization or similar restructuring.
ASSET SALE
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate an Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration for
such Asset Sale at least equal to the Fair Market Value (as evidenced by a
Board Resolution delivered to the Trustee) of the Property or other assets
sold or otherwise disposed of, (ii) at least 75% of the consideration
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received by the Company or such Restricted Subsidiary for such Property or
other assets consists of (a) cash, readily-marketable cash equivalents or
Telecommunications Assets, (b) the assumption of Indebtedness of the Company
or such Restricted Subsidiary (other than Indebtedness that is subordinated by
its terms to the Notes) and the release of the Company or the Restricted
Subsidiary, as the case may be, from all liability on the Indebtedness so
assumed or (c) publicly-traded shares of Capital Stock (other than Preferred
Stock and Disqualified Stock) traded in the United States of any Person
engaged in a Telecommunications Business and (iii) the Company or any
Restricted Subsidiary, as the case may be, uses the Net Cash Proceeds from
such Asset Sale in the manner set forth in the next paragraph.
Within 360 days after any Asset Sale, the Company or any Restricted
Subsidiary, as the case may be, may at its option (i) reinvest an amount equal
to the Net Cash Proceeds (or any portion thereof) from such Asset Sale in
Telecommunications Assets or in Capital Stock of any Person engaged in the
Telecommunications Business and/or (ii) apply an amount equal to such Net Cash
Proceeds (or remaining Net Cash Proceeds) (a) to the permanent reduction of
senior secured Indebtedness of the Company (other than Indebtedness to a
Restricted Subsidiary unless the proceeds thereof are used by such Restricted
Subsidiary in a manner contemplated by (i) through (iii) of this sentence) or
other Indebtedness of the Company (other than Indebtedness to a Restricted
Subsidiary unless the proceeds thereof are used by such Restricted Subsidiary
in a manner contemplated by (i) through (iii) of this sentence) that is senior
to the Notes or to the permanent reduction of Indebtedness, or to the
redemption of Preferred Stock, of any Restricted Subsidiary (other than
Indebtedness to, or Preferred Stock owned by, the Company or another
Restricted Subsidiary unless the proceeds thereof are used by the Company or
such Restricted Subsidiary in a manner contemplated by (i) through (iii) of
this sentence) or (b) to the extent none of the Company or any of its
Restricted Subsidiaries has any Indebtedness outstanding of the type referred
to in the immediately preceding clause (a) (other than Indebtedness under
senior secured revolving credit facilities), to the repayment of outstanding
Indebtedness under any such revolving credit facility; provided, however, that
neither the Company nor any Restricted Subsidiary shall be required to
permanently reduce the commitments under any such revolving credit facility by
an amount equal to the outstanding Indebtedness thereunder so repaid or
prepaid and/or (iii) apply an amount equal to such Net Cash Proceeds (or
remaining Net Cash Proceeds) to prepay, whether in whole or in part,
Indebtedness that is pari passu with the Notes and that matures prior to
February 15, 2008. Any Net Cash Proceeds from any Asset Sale that are not used
within 360 days as described in (i) through (iii) above shall constitute
"Excess Proceeds."
If at any time the aggregate amount of Excess Proceeds calculated as of any
date exceeds $5 million, the Company shall, within 30 days of such date, make
an offer to purchase (an "Asset Sale Offer"), on a pro rata basis, (i) Notes
at a purchase price (the "Offer Purchase Price") in cash equal to 100% of the
Accreted Value thereof, plus accrued and unpaid Current Interest thereon, if
any, to but excluding the purchase date, in accordance with the procedures set
forth in the Indenture and (ii) to the extent required by the terms thereof,
any other Indebtedness of the Company that is pari passu with the Notes. The
pro rata amount of such Excess Proceeds to be used to purchase Notes shall be
in an amount equal to the aggregate amount of such Excess Proceeds multiplied
by the quotient obtained by dividing the Accreted Value of the outstanding
Notes by the sum of such Accreted Value and the principal amount of such other
Indebtedness. To the extent that the aggregate Offer Purchase Price of all
Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds relating thereto (such shortfall constituting a "Deficiency"), the
Company may use such Deficiency for general corporate purposes and such
Deficiency shall not thereafter constitute Excess Proceeds for any purpose. In
the event the aggregate Accreted Value of the outstanding Notes tendered
pursuant to an Asset Sale Offer is in excess of the Excess Proceeds to be used
to purchase such Notes, such Excess Proceeds shall be applied to purchase such
Notes on a pro rata basis in stated principal amounts at maturity of $1,000 or
integral multiples thereof. Any amount remaining after giving effect to such
purchase shall constitute a Deficiency and shall be applied as provided in the
immediately preceding sentence. Upon the completion of the purchase of all
Notes tendered pursuant to an Asset Sale Offer, the amount of Excess Proceeds
shall be reset to zero.
To the extent such laws and regulations are applicable, the Company will
comply with the requirements of Section 14(e) under the Exchange Act and any
securities laws and regulations, in connection with the repurchase of Notes
pursuant to an Asset Sale Offer.
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CERTAIN COVENANTS
Set forth below are certain covenants that are contained in the Indenture:
Limitation on Consolidated Indebtedness
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness after the Issue Date; provided
that the Company may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the net
proceeds therefrom, the ratio of (a) the aggregate consolidated principal
amount of Indebtedness of the Company (including, in the case of the Notes,
only the Accreted Value thereof) outstanding as of the most recent available
quarterly or annual balance sheet, after giving pro forma effect to the
Incurrence of such Indebtedness and any other Indebtedness Incurred since such
balance sheet date and the receipt and application of the proceeds thereof, to
(b) Consolidated Cash Flow Available for Fixed Charges for the four full
fiscal quarters immediately preceding the Incurrence of such Indebtedness for
which consolidated financial statements of the Company are available,
determined on a pro forma basis as if any such Indebtedness had been Incurred
and the proceeds thereof had been applied at the beginning of such four fiscal
quarters, would be less than 6.0 to 1.0 for such four-quarter period.
Notwithstanding the foregoing limitation, the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Senior Indebtedness in an aggregate principal amount outstanding at
any one time not to exceed $100,000,000, and any renewal, extension,
refinancing or refunding thereof in an amount which, together with any
principal amount remaining outstanding or available pursuant to this clause
(i) does not exceed the aggregate principal amount outstanding or available
under all such Senior Indebtedness immediately prior to such renewal,
extension, refinancing or refunding, less, in any case, any amount of such
Indebtedness permanently repaid under the covenant described above under
"--Asset Sale";
(ii) Indebtedness (including Guarantees) 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 acquisitions by way of
any Capital Lease Obligation 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 network assets so acquired) by
the Company or a Restricted Subsidiary after the Issue Date;
(iii) Indebtedness owed by the Company to any Significant Restricted
Subsidiary or Indebtedness owed by a Restricted Subsidiary to the Company
or to a Significant Restricted Subsidiary; provided that upon either (a)
the transfer or other disposition by a Significant Restricted Subsidiary or
the Company of any Indebtedness so permitted to a Person other than the
Company or a Significant Restricted Subsidiary or (b) the issuance (other
than directors' qualifying shares), sale, transfer or other disposition of
shares of Capital Stock (including by amalgamation, consolidation or
merger) of a Significant Restricted Subsidiary (such that upon such sale,
transfer or other disposition such Restricted Subsidiary would no longer
meet the definition of a Significant Restricted Subsidiary) to a Person
other than the Company or a Significant Restricted Subsidiary, the
provisions of this clause (iii) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed to have been Incurred at
the time of such transfer or other disposition;
(iv) Indebtedness Incurred to renew, extend, refinance or refund
(including successive extensions, renewals, refinancings and refundings),
whether in whole or in part (each, a "refinancing") (a) the Notes, (b)
Indebtedness outstanding at the date of the Indenture, (c) Indebtedness
Incurred pursuant to clause (ii) of this paragraph or (d) Indebtedness
Incurred pursuant to the first paragraph under the caption "--Limitation on
Consolidated Indebtedness," in an aggregate principal amount not to exceed
the aggregate principal amount of the Indebtedness so refinanced plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness so refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the expenses of the Company
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and its Restricted Subsidiaries incurred in connection with such
refinancing; provided that Indebtedness the proceeds of which are used to
refinance the Notes or Indebtedness which is pari passu with the Notes or
Indebtedness which is subordinate in right of payment to the Notes shall
only be permitted under this clause (iv) if (y) in the case of any
refinancing of the Notes or Indebtedness which is pari passu with the
Notes, the refinancing Indebtedness is made pari passu to the Notes or
constitutes Subordinated Indebtedness, and, in the case of any refinancing
of Subordinated Indebtedness, the refinancing Indebtedness constitutes
Subordinated Indebtedness and (z) in any case, the refinancing Indebtedness
by its terms, or by the terms of any agreement or instrument pursuant to
which such Indebtedness is issued, (1) does not provide for payments of
principal of such Indebtedness at stated maturity or by way of a sinking
fund applicable thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by the Company (including any redemption,
retirement or repurchase which is contingent upon events or circumstances,
but excluding any retirement required by virtue of the acceleration of any
payment with respect to such Indebtedness upon any event of default
thereunder), in each case prior to the time the same are required by the
terms of the Indebtedness being refinanced and (2) does not permit
redemption or other retirement (including pursuant to an offer to purchase
made by the Company) of such Indebtedness at the option of the holder
thereof prior to the time the same are required by the terms of the
Indebtedness being refinanced, other than a redemption or other retirement
at the option of the holder of such Indebtedness (including pursuant to an
offer to purchase made by the Company) which is conditioned upon a change
of control pursuant to provisions substantially similar to those described
under "--Repurchase at the Option of Holders upon a Change of Control";
(v) Indebtedness (a) in respect of performance, surety or appeal bonds
provided in the ordinary course of business, (b) in respect of guarantees
or letters of credit Incurred in the ordinary course of business or (c)
arising from customary agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such agreements,
in the case of this clause (c) Incurred in connection with the disposition
of any business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition);
(vi) Indebtedness outstanding under the Notes and the Indenture;
(vii) Subordinated Indebtedness in an aggregate principal amount
outstanding at any one time not to exceed $100,000,000, less, in any case,
any amount of such Indebtedness permanently repaid as provided under the
covenant described above under "--Asset Sale";
(viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times (a) the Net Cash Proceeds received by the Company
after the Issue Date as a capital contribution 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 (x) such capital
contribution or Net Cash Proceeds have not been used pursuant to clause
(iii)(c) of the first paragraph, or clause (ii) or (vi) of the second
paragraph, of the "--Limitation on Restricted Payments" covenant described
below to make a Restricted Payment and (y) if such capital contribution or
Net Cash Proceeds are used to consummate a transaction pursuant to which
the Company Incurs Acquired Indebtedness, the amount of such Net Cash
Proceed exceeds one-half of the amount of Acquired Indebtedness so Incurred
and (b) 80% of the fair market value of property (other than cash and cash
equivalents) received by the Company after the Issue Date from the sale of
its Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of the Company, to the extent (x) such capital contribution or
Net Cash Proceeds have not been used pursuant to clause (iii)(c) of the
first paragraph, or clause (ii) or (vi) of the second paragraph, of the "--
Limitation on Restricted Payments" covenant described below to make a
Restricted Payment and (y) if such capital contribution or Capital Stock is
used to consummate a transaction pursuant to which the Company Incurs
Acquired Indebtedness, 80% of the fair market value of the property
received exceeds one-half of the amount of Acquired Indebtedness so
Incurred provided, in the case of each of clause (a) and (b), that any such
Indebtedness Incurred pursuant to this clause (viii) does not mature prior
to the Stated Maturity of the Notes and has an Average Life longer than the
Notes;
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(ix) Acquired Indebtedness;
(x) Indebtedness of the Company to the extent the net proceeds thereof
are promptly (a) used to repurchase Notes tendered as a result of a Change
of Control Offer or (b) deposited to defease the Notes as provided under
the covenant described below under "--Satisfaction and Discharge of the
Indenture, Defeasance"; and
(xi) Indebtedness not otherwise permitted to be Incurred pursuant to
clauses (i) through (x) above, which, together with any other outstanding
Indebtedness Incurred pursuant to this clause (xi), will not exceed
$5,000,000 aggregate principal amount at any one time outstanding.
For purposes of determining any particular amount of Indebtedness under this
"--Limitation on Consolidated Indebtedness" covenant, (i) Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (ii) any Liens granted pursuant to the equal and ratable
provisions referred to in the "--Limitation on Liens" covenant described below
shall not be treated as Indebtedness. For purposes of determining compliance
with this "--Limitation on Consolidated Indebtedness" covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the types
of Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses;
provided, however, that the Company may allocate portions of such Indebtedness
between or among such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time of
and after giving effect to such proposed Restricted Payment (i) no Default or
Event of Default shall have occurred and be continuing or shall occur as a
consequence thereof, (ii) after giving effect, on a pro forma basis, to such
Restricted Payment and the incurrence of any Indebtedness the net proceeds of
which are used to finance such Restricted Payment, the Company could incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of "--
Limitation on Consolidated Indebtedness" and (iii) after giving effect to such
Restricted Payment on a pro forma basis, the aggregate amount expended (the
amount so expended, if other than cash, to be determined in good faith by a
majority of the disinterested members of the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) or
declared for all Restricted Payments after the Issue Date does not exceed the
sum of (a) 50% of the Consolidated Net Income of the Company (or, if
Consolidated Net Income shall be a deficit, minus 100% of such deficit) for
the period (taken as one accounting period) beginning on the last day of the
fiscal quarter immediately preceding the Issue Date and ending on the last day
of the fiscal quarter for which the Company's financial statements are
available immediately preceding the date of such Restricted Payment, plus (b)
100% of the net reduction in Investments, subsequent to the Issue Date, in any
Person, resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of Property (but only to
the extent such interest, dividends, repayments or other transfers of Property
are not included in the calculation of Consolidated Net Income), in each case
to the Company or any Restricted Subsidiary from any Person (including,
without limitation, from Unrestricted Subsidiaries) or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment"), not to exceed in the case of any
Person the amount of Investments previously made subsequent to the Issue Date
by the Company or any Restricted Subsidiary in such Person and which was
treated as a Restricted Payment; plus (c) the aggregate Net Cash Proceeds
received after the Issue Date (x) as capital contributions to the Company, (y)
from the issuance (other than to a Subsidiary of the Company) of Capital Stock
(other than Disqualified Stock) of the Company and warrants, rights or options
on Capital Stock (other than Disqualified Stock) of the Company, or (z) from
the conversion of Indebtedness of the Company into Capital Stock (other than
Disqualified Stock and other than by a Subsidiary of the Company) of the
Company after the date of the Indenture, except, in the case of this clause
(c), to the extent such Net Cash Proceeds are used to Incur Indebtedness
pursuant to clause (viii) under the covenant described above under "--
Limitation on Consolidated Indebtedness" or to make Restricted Payments
pursuant to clauses (ii) or (vi) of the second paragraph of this "Limitation
on Restricted Payments" covenant.
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The foregoing limitations shall not prevent the Company from (i) paying a
dividend on its Capital Stock at any time within 60 days after the declaration
thereof if, on the declaration date, the Company could have paid such dividend
in compliance with the preceding paragraph, (ii) retiring (a) any Capital
Stock of the Company or (b) any Indebtedness of the Company that is
subordinate in right of payment to the Notes, in exchange for, or out of the
proceeds of the substantially concurrent sale of Qualified Stock of the
Company, (iii) retiring any Indebtedness of the Company subordinated in right
of payment to the Notes in exchange for, or out of the proceeds of, the
substantially concurrent incurrence of Indebtedness of the Company (other than
Indebtedness to a Subsidiary of the Company), provided that such new
Indebtedness (a) is subordinated in right of payment to the Notes at least to
the same extent as the Indebtedness being refinanced, (b) has an Average Life
longer than the Notes, and (c) has no scheduled principal payments due in any
amount earlier than the equivalent amount of principal under the Indebtedness
so retired, (iv) retiring any Capital Stock or options to acquire Capital
Stock of the Company held by any directors, officers or employees of the
Company or any Restricted Subsidiary upon the termination of such Person's
tenure as a director or employee, as the case may be; provided that the
aggregate price paid for all such retired Capital Stock or options shall not
exceed $5,000,000 in the aggregate, (v) retiring any Capital Stock of the
Company to the extent necessary (as determined in good faith by a majority of
the disinterested members of the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution) 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 agency, (vi)
Investments in any Person the primary business of which is related, ancillary
or complimentary to the business of the Company and its Restricted
Subsidiaries on the date of such Investments; provided that the aggregate
amount of Investments made pursuant to this clause (vi) does not exceed the
sum of (a) $20,000,000 and (b) the amount of Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution or from the sale of its
Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, except to the extent such Net Cash Proceeds are
used to Incur Indebtedness pursuant to clause (viii) under the covenant
described above under
"--Limitation on Consolidated Indebtedness" or to make Restricted Payments
pursuant to clause (iii)(c) of the first paragraph, or clause (ii) or this
clause (vi) of this paragraph, of this "Limitation on Restricted Payments"
covenant, plus (c) the net reduction in Investments made pursuant to this
clause (vi) resulting from distributions on or repayments of such Investments
or from the Net Cash Proceeds from the sale of any such Investment (except in
each case to the extent any such payment or proceeds are included in the
calculation of Consolidated Net Income) or from such Person becoming a
Restricted Subsidiary (valued in each case as provided in the definition of
"Investment"), provided that the net reduction in any Investment shall not
exceed the amount of such Investment, (vii) the declaration or payment of
dividends on the Common Stock of the Company (so long as such dividends are
paid to the holders of all classes of Common Stock) following a Public Equity
Offering of such Common Stock of up to 6% per annum of the Net Cash Proceeds
received by the Company in such Public Equity Offering, (viii) payments or
distributions to dissenting stockholders pursuant to applicable law to the
extent required in connection with a consolidation, merger or transfer of
assets that complies with the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company and (ix) making Investments not otherwise
permitted in an aggregate amount not to exceed $2,000,000 at any one time
outstanding.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (ii) and (iii) of the foregoing
paragraph shall not be included as Restricted Payments.
Not later than the date of making any Restricted Payment (including any
Restricted Payment permitted to be made pursuant to the two previous
paragraphs), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the required calculations were computed, which calculations may be
based upon the Company's latest available financial statements.
Limitation on Liens
The Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, Incur or suffer to exist any Lien on or with respect
to any Property or other assets or interests therein now owned or
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hereafter acquired or any income or profits therefrom or any interest thereon
to secure any Indebtedness without making, or causing such Restricted
Subsidiary to make, effective provision for securing the Notes equally and
ratably with such Indebtedness, provided that no Indebtedness of the Company
which is subordinate in right of payment to the Notes may be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing on the
date of the Indenture and securing Indebtedness outstanding on the date of the
Indenture, (ii) Liens Incurred on or after the Issue Date pursuant to clause
(i) of the second paragraph under the covenant "--Limitation on Consolidated
Indebtedness", (iii) Liens in favor of the Company or any Significant
Restricted Subsidiary, (iv) Liens on Property of the Company or a Restricted
Subsidiary acquired, constructed or constituting improvements made after the
Issue Date to secure Indebtedness incurred pursuant to clause (ii) of the
second paragraph under "--Limitation on Consolidated Indebtedness" which is
otherwise permitted under the Indenture, provided that (a) the principal
amount of any Indebtedness secured by any such Lien does not exceed 100% of
such purchase price or cost of construction or improvement of the Property
subject to such Lien, (b) such Lien attaches to such Property prior to, at the
time of, or within 180 days after the engineering, acquisition, installation,
development, improvement, completion of construction or commencement of
operation of such Property and (c) such Lien does not extend to or cover any
Property other than the specific item of Property (or portion thereof)
acquired, engineered, constructed, installed, developed or constituting the
improvements made with the proceeds of such Indebtedness, (v) Liens to secure
Acquired Indebtedness, provided that (a) such Lien attaches to the acquired
asset prior to the time of the acquisition of such asset and (b) such Lien
does not extend to or cover any other Property, (vi) Liens to secure
Indebtedness Incurred to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part,
Indebtedness secured by any Lien referred to in the foregoing clauses (i),
(ii), (iv) and (v) so long as such Lien does not extend to any other Property
and the principal amount of Indebtedness so secured is not increased except as
otherwise permitted under clause (iv) of the second paragraph of
"--Limitation on Consolidated Indebtedness," (vii) Liens not otherwise
permitted by the foregoing clauses (i) through (vi) in an aggregate amount not
to exceed 5% of the Company's Consolidated Tangible Assets as of the date on
which any such Lien arises, (viii) Liens granted after the Issue Date pursuant
to the immediately preceding paragraph to secure the Notes and (ix) Permitted
Liens.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction (other than a Sale
and Leaseback Transaction between the Company or a Restricted Subsidiary on
the one hand and a Restricted Subsidiary or the Company on the other hand),
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Sale and Leaseback Transaction at
least equal to the Fair Market Value (as evidenced by a Board Resolution) of
the Property subject to such transaction, (ii) the Attributable Indebtedness
of the Company or such Restricted Subsidiary with respect thereto is included
as Indebtedness and would be permitted under the covenant described under "--
Limitation on Consolidated Indebtedness," (iii) the Company or such Restricted
Subsidiary would be permitted to create a Lien on such Property without
securing the Notes by the covenant described under "--Limitation on Liens" and
(iv) the Net Cash Proceeds from such transaction are applied in accordance
with the covenant described under "--Asset Sale."
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, cause or suffer to exist or become effective, or enter
into, any encumbrance or restriction (other than pursuant to law or
regulation) on the ability of any Restricted Subsidiary (i) to pay dividends
or make any other distributions in respect of its Capital Stock or pay any
Indebtedness or other obligation owed to the Company or any Restricted
Subsidiary, (ii) to make loans or advances to the Company or any Restricted
Subsidiary or (iii) to transfer any of its Property to the Company or any
other Restricted Subsidiary, except: (a) any encumbrance or restriction
existing as of the Issue Date, (b) any encumbrance or restriction pursuant to
an agreement relating to an
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acquisition of Property, so long as the encumbrances or restrictions in any
such agreement relate solely to the Property so acquired, (c) any encumbrance
or restriction relating to any Indebtedness of any Restricted Subsidiary
existing on the date on which such Restricted Subsidiary is acquired by the
Company or another Restricted Subsidiary (other than any such Indebtedness
Incurred by such Restricted Subsidiary in connection with or in anticipation
of such acquisition), (d) any encumbrance or restriction pursuant to an
agreement effecting a permitted refinancing of Indebtedness issued pursuant to
an agreement referred to in the foregoing clauses (a) through (c), so long as
the encumbrances and restrictions contained in any such refinancing agreement
are not materially more restrictive than the encumbrances and restrictions
contained in such agreements, (e) in the case of clause (iii) above only,
customary provisions (x) that restrict the subletting, assignment or transfer
of any Property or other asset that is a lease, license, conveyance or
contract or similar Property or other asset, (y) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or Lien
on, any Property or other assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the Indenture or (z) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do
not, individually or in the aggregate, detract from the value of Property or
other assets of the Company or any Restricted Subsidiary in any manner
material to the Company or any Restricted Subsidiary, (f) in the case of
clause (iii) above only, restrictions contained in any security agreement
(including a Capital Lease Obligation) securing Indebtedness of the Company or
a Restricted Subsidiary otherwise permitted under the Indenture, but only to
the extent such restrictions restrict the transfer of the Property subject to
such security agreement, (g) any encumbrance or restriction pursuant to Senior
Indebtedness which is permitted to be outstanding under clause (i) of the
second paragraph of "--Limitation on Consolidated Indebtedness," (h) in the
case of clause (iii) only, any encumbrance or restriction pursuant to an
agreement for Indebtedness that is permitted to be outstanding under clause
(ii) of the second paragraph of "--Limitation on Consolidated Indebtedness,"
and (i) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary, provided that the consummation of such transaction
would not result in a Default, that such restriction terminates if such
transaction is not consummated and that the consummation or abandonment of
such transaction occurs within one year of the date such agreement was entered
into.
The foregoing limitations shall not prevent the Company or any Restricted
Subsidiary from (i) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted under the "--Limitation on Liens" covenant or (ii)
restricting the sale or other disposition of Property or other assets of the
Company or any of its Restricted Subsidiaries that secure Indebtedness of the
Company or any of its Restricted Subsidiaries otherwise permitted under "--
Limitation on Consolidated Indebtedness."
Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of directors' qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been
permitted to be made under the covenant described above under "--Limitation on
Restricted Payments" if made on the date of such issuance or sale; or (iv)
issuances or sales of Common Stock (other than Disqualified Stock) of a
Restricted Subsidiary, provided that the Company or such Restricted Subsidiary
applies the Net Cash Proceeds, if any, of any such sale in accordance with the
covenant described above under "--Asset Sale."
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, sell, lease, transfer, or otherwise dispose of,
any of its Properties or assets to, or purchase any Property or other assets
from, or enter into any contract, agreement, understanding, loan, advance or
Guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (i) such Affiliate Transaction or series
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of related Affiliate Transactions is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that could have been
obtained in a comparable arm's-length transaction by the Company or such
Restricted Subsidiary with a Person that is not an Affiliate (or, in the event
that there are no comparable transactions involving Persons who are not
Affiliates of the Company or the relevant Restricted Subsidiary to apply for
comparative purposes, is otherwise on terms that, taken as a whole, the
Company has determined to be fair to the Company or the relevant Restricted
Subsidiary) and (ii) the Company delivers to the Trustee (a) with respect to
any Affiliate Transaction involving aggregate payments or, in the case of
assets or Property, a Fair Market Value in excess of $1,000,000, a certificate
of the chief executive, operating or financial officer of the Company
evidencing such officer's determination that such Affiliate Transaction or
series of related Affiliate Transactions complies with clause (i) above and is
in the best interests of the Company or such Restricted Subsidiary, (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate payments or, in the case of assets or
Property, a Fair Market Value in excess of $5,000,000, a Board Resolution
certifying that such Affiliate Transaction or series of related Affiliate
Transactions complies with clause (i) above and that such Affiliate
Transaction or series of related Affiliate Transactions has been approved by a
majority of the disinterested members of the Board of Directors who have
determined that such Affiliate Transaction or series of related Affiliate
Transactions is in the best interest of the Company or such Restricted
Subsidiary and (c) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate payments or, in the case of
any assets or Property, a Fair Market Value in excess of $10,000,000, a
written opinion stating that the transaction complies with clause (i) above
from a financial point of view from an investment banking firm of national
standing in the United States which, in the good faith judgment of the Board
of Directors, is independent with respect to the Company and its Subsidiaries
and qualified to perform such task; provided that the following shall not be
deemed Affiliate Transactions: (1) any employment, noncompetition,
confidentiality or similar agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business, (2) any agreement
or arrangement with respect to the compensation of a director or officer of
the Company or any Restricted Subsidiary approved by a majority of the
disinterested members of the Board of Directors, (3) transactions permitted by
the covenant described under "--Limitation on Restricted Payments," (4)
transactions pursuant to any agreement or arrangement existing on the Issue
Date, including any renewal, replacement, extension, amendment or other
modification thereof, provided such modifications are not materially more
adverse to the Company or the Restricted Subsidiaries, (5) issuances of
Capital Stock of the Company to any Affiliates and (6) the sale of
telecommunications services to any Affiliate on an arm's length basis which is
undertaken in the ordinary course of the Company's business.
Restricted and Unrestricted Subsidiaries
(i) The Company may designate a Subsidiary (including a newly formed or
newly acquired Subsidiary) of the Company or any of its Restricted
Subsidiaries as an Unrestricted Subsidiary if such Subsidiary does not have
any obligations which, if in default, would result in a cross default on
Indebtedness of the Company or a Restricted Subsidiary (other than
Indebtedness to the Company or a Significant Restricted Subsidiary), and
(a) such Subsidiary has total assets of $1,000 or less, (b) such Subsidiary
has assets of more than $1,000 and an Investment in such Subsidiary in an
amount equal to the Fair Market Value of such Subsidiary would then be
permitted under the first paragraph of "--Limitation on Restricted
Payments" or (c) such designation is effective immediately upon such Person
becoming a Subsidiary. Unless so designated as an Unrestricted Subsidiary,
any Person that becomes a Subsidiary of the Company shall be classified as
a Restricted Subsidiary thereof.
(ii) The Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (a) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect
to such designation and (b) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if
Incurred at such time, have been permitted to be Incurred (and shall be
deemed to have been Incurred) for all purposes of the Indenture.
(iii) The designation of a Subsidiary as an Unrestricted Subsidiary or
the designation of an Unrestricted Subsidiary as a Restricted Subsidiary in
compliance with clause (ii) shall be made by the Board of Directors
pursuant to a Board Resolution and shall be effective as of the date
specified in such Board Resolution.
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Reports
The Company has agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders, to securities analysts and to prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act. The Company will file
with the Trustee within 15 days after it files them with the Commission copies
of the annual reports on Form 10-K and the information, documents, and other
reports that the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act as well as quarterly reports ("SEC
Reports"). In the event the Company shall cease to be required to file SEC
Reports pursuant to either of such sections of the Exchange Act, the Company
will nevertheless continue to file such reports with the Commission (unless
the Commission will not accept such a filing) and the Trustee. The Company
will furnish copies of the SEC Reports to the Holders of Notes at the time the
Company is required to file the same with the Trustee.
AMALGAMATION, CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Company will not, in any transaction or series of related transactions,
amalgamate or consolidate with, or merge with or into, any other Person (other
than a merger of a Restricted Subsidiary into the Company in which the Company
is the surviving corporation), or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of the Property and assets of
the Company and its Restricted Subsidiaries taken as a whole to any other
Person, unless:
(i) either (a) the Company shall be the surviving corporation or (b) the
corporation (if other than the Company) formed by such amalgamation or
consolidation or into which the Company is merged, or the Person which
acquires, by sale, assignment, conveyance, transfer, lease or disposition,
all or substantially all of the Property and assets of the Company and the
Restricted Subsidiaries taken as a whole (such corporation or Person, the
"Surviving Entity"), shall be a corporation organized and validly existing
under the laws of the United States of America, any political subdivision
thereof, any state thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Notes and the
performance of the Company's covenants and obligations under the Indenture;
(ii) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred in connection with or in respect of such
transaction or series of related transactions), no Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred in connection with or in respect of, and any
Indebtedness to be repaid in connection with or as a result of, such
transaction or series of related transactions), the Company (or the
Surviving Entity, if the Company is not the surviving corporation) (A)
shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
and (B) would be permitted to Incur at least $1 of additional Indebtedness
pursuant to the first paragraph of the covenant "--Limitation on
Consolidated Indebtedness"; provided that this clause (iii)(B) shall not
apply to (x) a consolidation, merger or sale of all (but not less than all)
of the assets of the Company if all Liens and Indebtedness of the Company
or the Surviving Entity, as the case may be, and its Restricted
Subsidiaries outstanding immediately after such transaction would, if
Incurred at such time, have been permitted to be Incurred (and all such
Liens and Indebtedness, other than Liens and Indebtedness of the Company
and its Restricted Subsidiaries outstanding immediately prior to the
transaction, shall be deemed to have been Incurred for all purposes of the
Indenture) or (y) a consolidation, merger or sale of all or substantially
all of the assets of the Company if immediately after giving effect to such
transaction or series of related transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred in connection
with or in respect of, and any Indebtedness to be repaid in connection with
or as a result of, such transaction or series of related transactions) the
Company's (or the Surviving Entity's) leverage ratio computed pursuant to
the first paragraph under "--Limitation on Consolidated Indebtedness" would
be equal to or less than the leverage ratio of the Company immediately
prior to such transaction.
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(iv) if, as a result of any such transaction, Property of the Company
would become subject to a Lien prohibited by the provisions of the
Indenture described under "--Limitation on Liens" above, the Company or the
Surviving Entity to the Company shall have secured the Notes as required
thereby; and
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clause (iii)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indenture:
(i) default in the payment of interest (including Additional Interest, if
any) on any Note when the same becomes due and payable, and the continuance
of such default for a period of 30 days;
(ii) default in the payment of the principal of (or premium, if any, on)
any Note at its maturity, upon optional redemption, including a Change in
Control Redemption Offer, required repurchase (including pursuant to a
Change of Control Offer or an Asset Sale Offer) or otherwise or the failure
to make an offer to purchase any Note as required under the Indenture;
(iii) default in the performance, or breach, of any covenant or warranty
of the Company in the Indenture (other than a covenant or warranty
addressed in clauses (i) or (ii) above) and continuance of such Default or
breach for a period of 60 days after written notice thereof has been given
to the Company by the Trustee or to the Company and the Trustee by Holders
of at least 25% of the aggregate stated principal amount at maturity of the
outstanding Notes;
(iv) (a) any principal payment in excess of $1,000,000 with respect to
Indebtedness of the Company or any Restricted Subsidiary is not paid when
due within the applicable grace period, if any, or (b) Indebtedness of the
Company or any Restricted Subsidiary is accelerated by the Holders thereof
and the principal amount of such accelerated Indebtedness exceeds
$5,000,000;
(v) the entry by a court of competent jurisdiction of one or more final
judgments against the Company or any Restricted Subsidiary in an uninsured
or unindemnified aggregate amount in excess of $10,000,000 which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period of
60 consecutive days; or
(vi) certain events of bankruptcy, insolvency or reorganization affecting
the Company or any Restricted Subsidiary shall occur.
If any Event of Default (other than an Event of Default specified in clause
(vi) above) occurs and is continuing, then and in every such case either the
Trustee or the Holders of not less than 25% of the aggregate stated principal
amount at maturity of the outstanding Notes may declare the Accreted Value of,
and any accrued and unpaid Current Interest on, all Notes then outstanding to
be immediately due and payable by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon any such declaration, such Accreted
Value and any accrued and unpaid Current Interest thereon will become and be
immediately due and payable. If any Event of Default specified in clause (vi)
above occurs, the Accreted Value of, and any accrued and unpaid Current
Interest on, the Notes then outstanding shall become immediately due and
payable without any declaration or other act on the part of either the Trustee
or any Holder. In the event of a declaration of acceleration because an Event
of Default set forth in clause (iv) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (iv)
shall be remedied, or cured or waived by the holders of the relevant
Indebtedness, within 60 days after such Event of Default.
The Company will be required to deliver to the Trustee on or before a date
not more than 90 days after the end of each fiscal year a statement regarding
compliance with the Indenture. In addition, the Company is required within 30
days after becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement
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describing such Default or Event of Default, its status and what action the
Company is taking or proposes to take with respect thereto. The Trustee may
withhold from Holders notice of any continuing Default or Event of Default
(other than relating to the payment of principal or interest) if the Trustee
determines that withholding such notice is in the Holders' interest.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any Holder of Notes, enter into one or more indentures
supplemental to the Indenture (i) to evidence the succession of another Person
to the Company in accordance with the terms of the Indenture and the
assumption by such successor of the covenants of the Company in the Indenture
and the Notes, (ii) to add to the covenants of the Company, for the benefit of
the Holders, or to surrender any right or power conferred upon the Company by
the Indenture, (iii) to add any additional Events of Default, (iv) to evidence
and provide for the acceptance of appointment under the Indenture of a
successor Trustee, (v) to secure the Notes, (vi) to cure any ambiguity in the
Indenture, to correct or supplement any provision in the Indenture which may
be inconsistent with any other provision therein or to add any other
provisions with respect to matters or questions arising under the Indenture;
provided such actions shall not adversely affect the interests of the Holders
in any material respect or (vii) to comply with the requirements of the
Commission or any other regulatory authority in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
With the consent of the Holders of not less than a majority in stated
principal amount at maturity of the outstanding Notes, the Company and the
Trustee may enter into one or more indentures supplemental to the Indenture
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or modifying in any manner
the rights of the Holders; provided that no such supplemental indenture shall,
without the consent of the Holder of each outstanding Note: (i) change the
Stated Maturity of the principal of, or the due date of any installment of
interest on, any Note, or alter the redemption provisions thereof, or reduce
the principal amount thereof (or premium, if any), or the interest thereon
that would be due and payable upon Maturity thereof, or change the place of
payment where, or the coin or currency in which, any Note or any premium or
interest thereon is payable, (ii) reduce the percentage in stated principal
amount at maturity of the outstanding Notes, (iii) subordinate in right of
payment, or otherwise subordinate, the Notes to any other Indebtedness, (iv)
impair the right to institute suit for the enforcement of any payment with
respect to the Notes, (v) make any change that would result in the Company
being required to make any deduction or withholding from any payment made
under or with respect to the Notes or modify any provision of this paragraph
(except to increase any percentage set forth herein).
The Holders of not less than a majority in stated principal amount at
maturity of the outstanding Notes may, on behalf of the Holders of all the
Notes, waive any past Default under the Indenture and its consequences, except
a Default (i) in the payment of any amount on any Note, or (ii) in respect of
a covenant or provision hereof which under the proviso to the prior paragraph
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected.
Satisfaction and Discharge of the Indenture, Defeasance
The Company may terminate its obligations under the Indenture when (i)
either (a) all outstanding Notes have been delivered to the Trustee for
cancellation or (b) all such Notes not theretofore delivered to the Trustee
for cancellation have become due and payable, will become due and payable
within one year or are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name and at the expense of the Company,
and the Company has irrevocably deposited or caused to be deposited with the
Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of (or premium, if any, on) and interest to the
date of deposit or maturity or date of redemption, (ii) the Company has paid
or caused to be paid all sums payable by the Company under the Indenture and
(iii) the Company has delivered an Officers' Certificate and an Opinion of
Counsel relating to compliance with the conditions set forth in the Indenture.
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The Company, at its election, shall (i) be deemed to have paid and
discharged its debt on the Notes and the Indenture shall cease to be of
further effect as to all outstanding Notes (except as to (a) rights of
registration of transfer, substitution and exchange of Notes and the Company's
right of optional redemption, (b) rights of Holders to receive payments of
principal of, premium, if any, and interest on the Notes (but not the Change
of Control Purchase Price or the Offer Purchase Price), (c) the rights,
obligations and immunities of the Trustee under the Indenture and (d) certain
other specified provisions in the Indenture) and (ii) cease to be under any
obligation to comply with certain restrictive covenants including those
described under "--Certain Covenants," after the irrevocable deposit by the
Company with the Trustee, in trust for the benefit of the Holders, at any time
prior to the Maturity of the Notes, of (a) United States dollars in an amount,
(b) U.S. Government Obligations which through the payment of interest and
principal will provide, not later than one day before the due date of payment
in respect of the Notes, money in an amount, or (c) a combination thereof,
sufficient to pay and discharge the principal of, and interest on, the Notes
then outstanding on the dates on which any such payments are due in accordance
with the terms of the Indenture and of the Notes. Such defeasance or covenant
defeasance shall be deemed to occur only if certain conditions are satisfied,
including, among other things, delivery by the Company to the Trustee of an
opinion of independent counsel, reasonably acceptable to the Trustee to the
effect that (i) such deposit, defeasance and discharge will not be deemed, or
result in, a taxable event for U.S. federal income tax purposes with respect
to the Holders (and, in the case of defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable U.S. federal income tax law), and (ii) the Company's deposit will
not result in the trust created thereby or the Trustee being subject to
regulation under the Investment Company Act of 1940, as amended.
THE TRUSTEE
Harris Trust and Savings Bank will be the Trustee under the Indenture and
its current address is 111 West Monroe Street, Chicago, Illinois 60690-0755.
The Holders of not less than a majority in stated 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. Except during the
continuance of an Event of Default, the Trustee will perform only such duties
as are specifically set forth in the Indenture. The Indenture provides that in
case an Event of Default shall occur (which shall not be cured or waived), the
Trustee will be required, in the exercise of its rights and powers under the
Indenture, to use the degree of care of a prudent person in the conduct of
such person's 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 of the Holders, unless such Holders shall have
offered to the Trustee indemnity satisfactory to it against any loss,
liability or expense.
No Personal Liability of Controlling Persons, Directors, Officers, Employees
and Stockholders
No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
covenant, agreement or other obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of its past, present or future
status as a controlling Person, director, officer, employee, incorporator or
stockholder of the Company. By accepting a Note each Holder waives and
releases all such liability (but only such liability). The waiver and release
are part of the consideration for issuance of the Notes. Nonetheless, such
waiver may not be effective to waive liabilities under the Federal securities
laws and it has been the view of the Commission that such a waiver is against
public policy.
GOVERNING LAW
The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York without giving effect to its conflicts
of laws provisions.
TRANSFER AND EXCHANGE
The Senior Notes will be subject to certain restrictions on transfer. A
Holder may transfer or exchange Notes in accordance with the Indenture. The
Company, the Registrar and the Trustee may require a Holder, among
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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.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company entered into a Registration Agreement with the Initial
Purchasers for the benefit of the holders of Senior Notes, pursuant to which
the Company has filed a Registration Statement (of which this Prospectus
constitutes a part) with the Commission (the "Exchange Offer") registering the
exchange of the Senior Notes for the Exchange Notes having terms substantially
identical in all material respects to the Senior Notes (except that the
Exchange Notes will not contain terms with respect to transfer restrictions
and will not be entitled to certain benefits under the Registration
Agreement). The Company will offer the Exchange Notes in exchange for
surrender of the Senior Notes. Pursuant to the Registration Agreement, the
Company will keep the Exchange Offer open for not less than 30 days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Senior Notes. For each Senior Note surrendered to
the Company pursuant to the Exchange Offer, the holder of such Senior Note
will receive an Exchange Note having a stated principal amount at maturity
equal to that of the surrendered Senior Note. Under existing Commission
interpretations, the Exchange Notes would be freely transferable by holders
other than affiliates of the Company after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of
its business, that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and that it is not an
affiliate of the Company, as such terms are interpreted by the Commission;
provided that broker-dealers ("Participating Broker-Dealers") receiving
Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to Exchange Notes (other than a
resale of an unsold allotment from the original sale of the Senior Notes) with
the prospectus contained in the Registration Statement. Under the Registration
Agreement, the Company is required to allow Participating Broker-Dealers and
other persons, if any, with similar prospectus delivery requirements to use
this Prospectus in connection with the resale of such Exchange Notes. The
Registration Statement will be kept effective for a period of 90 days after
the Exchange Offer has been consummated in order to permit resales of Exchange
Notes acquired by broker-dealers in after-market transactions.
A holder of Senior Notes (other than certain specified holders) who wishes
to exchange such Senior Notes for Exchange Notes in the Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it is not an "affiliate" of the
Company, as defined in Rule 405 of the Securities Act, or if it is an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
The Company has filed the Registration Statement and will commence the
Exchange Offer pursuant to the Registration Agreement. In the event that (i)
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer, (ii) for any other reason the
Registration Statement is not declared effective within 180 days after the
date of original issuance of the Senior Notes, (iii) the Exchange Offer is not
consummated (the term "consummated" as used in this context shall mean that
the Company has offered the Exchange Notes in exchange for surrender of the
Senior Notes, kept such offer open for the period of time required above and
fulfilled all of its other obligations under such offer) within 210 days after
the date of original issuance of the Senior Notes, (iv) the Initial Purchasers
so request with respect to Senior Notes held by such Initial Purchasers and
thus not eligible to be exchanged for Exchange Notes in the Exchange Offer, or
(v) any holder of the Senior Notes (other than an Initial Purchaser or any
affiliate of the Company) does not receive freely tradeable Exchange Notes in
the Exchange Offer (it being understood that, for purposes of this clause (v),
(a) the requirement that a holder deliver a prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the
Securities Act in connection with sales of Exchange Notes acquired in exchange
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for the Senior Notes shall result in such Exchange Notes being not "freely
tradeable" but (b) the requirement that a Participating Broker-Dealer deliver
a prospectus in connection with sales of Exchange Notes acquired in the
Exchange Offer in exchange for Senior Notes acquired as a result of market
making activities or other trading activities shall not result in the Exchange
Notes being not "freely tradeable"), the Company will, at its cost, (x) as
promptly as practicable, file a Shelf Registration Statement covering resales
of the Senior Notes or the Exchange Notes, as the case may be, (y) use its
reasonable best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act and (z) keep the Shelf
Registration Statement effective until two years (or any shorter period under
Rule 144(k) under the Securities Act) after its effective date (or until one
year after such effective date if such Shelf Registration Statement is filed
at the request of an Initial Purchaser) or such shorter period that will
terminate when all the Senior Notes or Exchange Notes, as applicable, covered
by the Shelf Registration Statement have been sold. 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 the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Senior Notes or the Exchange Notes, as the case may be. A holder selling
such Senior Notes or Exchange Notes 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 Agreement which are applicable to such holder (including certain
indemnification obligations).
In the event that (i) either the Exchange Offer has not been consummated or
the Shelf Registration Statement has not been declared effective on or prior
to the 210th day following the date of original issuance of the Senior Notes;
or (ii) after the Shelf Registration Statement has been declared effective,
such Registration Statement thereafter ceases to be effective or usable
(subject to certain exceptions) in connection with resales of Senior Notes or
Exchange Notes in accordance with and during the periods specified in the
Registration Agreement without being succeeded promptly by an additional
registration statement filed and declared effective (each such event referred
to in clauses (i) and (ii) a "Registration Default"), interest ("Additional
Interest") will accrue on the Senior Notes and the Exchange Notes (in addition
to the stated interest on the Senior Notes and the Exchange Notes) 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.
Additional Interest will be payable in cash semiannually in arrears on August
15 and February 15 of each year, beginning on the August 15 or February 15
immediately following a Registration Default, at a rate per annum equal to
0.50% of the Accreted Value of the Notes (determined daily) at the end of each
subsequent 90-day period. In no event shall such rate per annum exceed 1.50%
of the Accreted Value of the Notes (determined daily) in the aggregate
regardless of the number of Registration Defaults.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is available upon request to the Company.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no
definition is provided.
"Accreted Value" means, as of any date (the "Specified Date"), with respect
to each $1,000 stated principal amount at maturity of Notes the sum of (i) the
Issue Price of each Note and (ii) the amount of accrued but unpaid Deferred
Interest on such Note to the Specified Date such that:
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(a) If the Specified Date is one of the following dates (each a
"Semiannual Accrual Date") the Accreted Value will be the amount set forth
opposite such date below:
<TABLE>
<CAPTION>
SEMIANNUAL ACCRUAL DATE ACCRETED VALUE
----------------------- --------------
<S> <C>
February 18, 1998.......................................... $ 555.66
August 15, 1998............................................ $ 588.77
February 15, 1999.......................................... $ 624.46
August 15, 1999............................................ $ 662.32
February 15, 2000.......................................... $ 702.47
August 15, 2000............................................ $ 745.06
February 15, 2001.......................................... $ 790.23
August 15, 2001............................................ $ 838.14
February 15, 2002.......................................... $ 888.95
August 15, 2002............................................ $ 942.84
February 15, 2003 and thereafter........................... $1,000.00
</TABLE>
(b) If the Specified Date occurs before February 15, 2003, and between
two Semiannual Accrual Dates, the Accreted Value shall be the sum of (x)
the Accreted Value for the Semiannual Accrual Date immediately preceding
the Specified Date and (y) an amount equal to the Deferred Interest accrued
from such Semiannual Accrual Date to the Specified Date.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person; provided that
such Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such other Person merging
with or into or becoming a Subsidiary of such specified Person.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by,
such Person; provided that each Unrestricted Subsidiary shall be deemed to be
an Affiliate of the Company and of each other Subsidiary of the Company;
provided further that neither the Company nor any of its Restricted
Subsidiaries shall be deemed to be Affiliates of each other. For purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "under common control with" and "controlled by"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of Voting Stock, by agreement or
otherwise.
"Asset Sale" means any transfer, conveyance, sale, lease or other
disposition by the Company or any of its Restricted Subsidiaries (including an
amalgamation, consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to any Person (other than the Company or any other
Restricted Subsidiary) in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary of the Company, but excluding a
disposition by a Restricted Subsidiary to the Company or a Significant
Restricted Subsidiary or by the Company to a Significant Restricted
Subsidiary) of (i) shares of Capital Stock or other ownership interests of a
Subsidiary of the Company (other than pursuant to an amalgamation, merger or
consolidation of a Restricted Subsidiary into the Company or any Restricted
Subsidiary), (ii) substantially all of the assets of the Company or any
Restricted Subsidiary representing a division or line of business (other than
as part of a Permitted Investment) or (iii) other assets or rights of the
Company or any of its Restricted Subsidiaries outside of the ordinary course
of business and, in each case, that is not governed by the provisions of the
Indenture applicable to amalgamations, consolidations, mergers, and transfers
of all or substantially all of the assets of the Company; provided that "Asset
Sale" shall not include (a) sales or other dispositions of inventory,
receivables and other current assets in the ordinary course of business or
sales or other dispositions of equipment that has become worn-out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of the
Company or a Restricted Subsidiary, (b) contemporaneous exchanges by the
Company or any Restricted Subsidiary of
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Telecommunications Assets for other Telecommunications Assets in the ordinary
course of business; provided that the applicable Telecommunications Assets
received by the Company or such Restricted Subsidiary have at least
substantially equal Fair Market Value to the Company or such Restricted
Subsidiary (as evidenced by a Board Resolution), or (c) the sale or other
disposition of any assets (x) with a Fair Market Value (as certified in an
Officers' Certificate) not in excess of $1,000,000 or (y) that constitute
Restricted Payments which are permitted under the covenant "--Limitation on
Restricted Payments" above.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present
value (discounted at a rate consistent with accounting guidelines, as
determined in good faith by the responsible accounting officer of such Person)
of the payments during the remaining term of the lease (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended) or until the earliest date on which the lessee may terminate such
lease without penalty or upon payment of a penalty (in which case the payments
during the remaining term shall include such penalty).
"Average Life" means, as of any date, with respect to any debt security or
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund
or mandatory redemption payment requirements) of such debt security or
Disqualified Stock multiplied in each case by (b) the amount of such principal
or redemption payment, by (ii) the sum of all such principal or redemption
payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors.
"Board Resolution" means a copy of a resolution, certified by the Secretary
of the Company to have been a duly adopted resolution of the Board of
Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee within 60 days of adoption
thereof.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal Property which is required to be
classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person prepared in accordance with GAAP, and the
maturity thereof shall be the date of the last payment of rent or any 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. The principal amount of
such obligation shall be the capitalized amount that would appear on the face
of a balance sheet of such Person in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
participation or other equivalents of an equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to subscribe for or acquire an equity
interest in such Person.
"Change of Control" shall be deemed to occur if (i) the sale, conveyance,
transfer or lease of all or substantially all of the assets of the Company to
any "Person" or "group" (as such term is used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(i) under the Exchange Act), other than any Permitted Holder (as defined
below) or any Restricted Subsidiary, shall have occurred, (ii) any "Person" or
"group" (as the term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(i) under the
Exchange Act), other than any Permitted Holder, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the
total voting power of all classes of the Voting Stock of the Company
(including any warrants, options or rights to acquire such Voting Stock),
calculated on a fully diluted basis, (iii) at any time after a Public Market
shall exist, during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together with
(a) any directors whose
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election or appointment by the Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a
majority of the directors 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 and (b) any directors elected pursuant to the terms of
any shareholders' agreement among the Company's shareholders) cease for any
reason to constitute a majority of the Board of Directors then in office or
(iv) the merger, amalgamation or consolidation of the Company with or into
another Person or the merger of another Person with or into the Company shall
have occurred, and 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 giving effect to such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
corporation.
"Common Stock" means, with respect to the Company, the Class A Common Stock,
Class B Common Stock, Class C Common Stock or any similar common stock of the
Company.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased, to the extent deducted in arriving at Consolidated Net
Income, by the sum of (i) Consolidated Interest Expense of the Company and its
Restricted Subsidiaries for such period, (ii) Consolidated Income Tax Expense
of the Company and its Restricted Subsidiaries for such period, (iii) the
consolidated depreciation and amortization expense of the Company and its
Restricted Subsidiaries for such period, (iv) any non-cash expense related to
the issuance to employees of the Company or any Restricted Subsidiary of
options to purchase Capital Stock of the Company or such Restricted
Subsidiary, (v) any charge related to any premium or penalty paid in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity and (vi) any non-cash expense related to a purchase accounting
adjustment not requiring an accrual or reserve and separately disclosed in the
Company's consolidated statement of operations and deficit, and decreased by
the amount of any non-cash item that increases such Consolidated Net Income,
all as determined on a consolidated basis in accordance with GAAP; provided
that (a) there shall be excluded therefrom the Consolidated Cash Flow
Available for Fixed Charges (if positive) of any Restricted Subsidiary
(calculated separately for such Restricted Subsidiary in the same manner as
provided above for the Company) that is subject to a restriction which
prevents the payment of dividends or the making of distributions to the
Company or another Restricted Subsidiary to the extent of such restriction and
(b) (1) if, during or after such period, the Company or any of its Restricted
Subsidiaries shall have made any disposition of any Person or business, then
Consolidated Cash Flow Available for Fixed Charges of the Company and its
Restricted Subsidiaries shall be computed so as to give pro forma effect to
such disposition and (2) if, during or after such period, the Company or any
of its Restricted Subsidiaries completes an acquisition of any Person or
business which immediately after such acquisition is a Subsidiary of such
Person or whose assets are held directly by the Company or a Restricted
Subsidiary, then Consolidated Cash Flow Available for Fixed Charges shall be
computed so as to give pro forma effect to the acquisition of such Person or
business.
"Consolidated Income Tax Expense" for any period means the aggregate amount
of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means for any period the interest expense
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with
GAAP, including without limitation or duplication (or, to the extent not so
included, with the addition of), (i) the amortization of Indebtedness discount
(including original issue discount), (ii) any payments or fees with respect to
letters of credit, bankers' acceptances or similar facilities, (iii) fees with
respect to interest rate swap or similar agreements or foreign currency hedge,
exchange or similar agreements, (iv) Preferred Stock dividends of the
Company's Restricted Subsidiaries (other than dividends paid in shares of
Preferred Stock that is not Disqualified Stock) declared and paid or payable,
(v) accrued Disqualified Stock dividends of the Company
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and its Restricted Subsidiaries, whether or not declared or paid, (vi)
interest on Indebtedness guaranteed by the Company and its Restricted
Subsidiaries, (vii) the portion of any Capital Lease Obligation accruing
during such period that is allocable to interest expense in accordance with
GAAP, (viii) capitalized interest and (ix) commitment and other fees with
respect to senior credit facilities.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or net loss) of the Company and its Restricted
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP; provided that there shall be excluded therefrom, without
duplication (i) all items classified as extraordinary or non-recurring, (ii)
any net income (or net loss) of any Person other than the Company and its
Restricted Subsidiaries, except to the extent of the amount of dividends or
other distributions actually paid to the Company or its Restricted
Subsidiaries by such other Person during such period, (iii) the net income (or
net loss) of any Person acquired by the Company or any of its Restricted
Subsidiaries in a pooling-of-interests transaction for any period prior to the
date of the related acquisition, (iv) any gain or loss, net of taxes, realized
on the termination of any employee pension benefit plan, (v) net gains (or net
losses) in respect of Asset Sales by the Company or its Restricted
Subsidiaries, (vi) the net income (or net loss) of any Restricted Subsidiary
to the extent that the payment of dividends or other distributions to the
Company is restricted by the terms of its constituting documents or any
agreement, instrument, contract, judgment, order, decree, statute, rule,
governmental regulation or otherwise, except for any dividends or
distributions actually paid by such Restricted Subsidiary to the Company,
(vii) with regard to a non-wholly owned Restricted Subsidiary, any aggregate
net income (or net loss) in excess of the Company's or such Restricted
Subsidiary's pro rata share of such non-wholly owned Restricted Subsidiary's
net income (or net loss), and (viii) the cumulative effect of changes in
accounting principles.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person
and its Restricted Subsidiaries after deducting therefrom all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other
like intangibles, which in each case under GAAP would be included on such
consolidated balance sheet.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take account of Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
the Capital Stock of the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP.
"Default" means any event, act or condition, the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Disqualified Stock" means 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, or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness by the holder thereof at any time, in whole or in part, on or
prior to the Stated Maturity of the Notes.
"Eligible Cash Equivalents" 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
in each case with a term of not more than one year, (ii) investments in time
deposit accounts, term deposit accounts, certificates of deposit, money-market
deposits, bankers acceptances and obligations maturing within one year 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 or any state thereof
and which bank or trust company has, or the obligation of which bank or trust
company is guaranteed by a bank or trust company which has, capital, surplus
and undivided profits aggregating in excess of $150,000,000 and has
outstanding debt which is rated "A" (or
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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 180 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 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 & Poor's Corporation
and (v) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state, commonwealth,
territory or province of the United States of America or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Corporation or "A-2" by Moody's Investors Service, Inc.
"Fair Market Value" means, with respect to any asset or Property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy, as determined in good faith by the
Board of Directors.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied, which are in effect on the date of the Indenture.
"Guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative
to the foregoing); provided that the term "Guaranteed" and any meaning
correlative thereto shall not include endorsements for collection or deposit.
"Holder" means (i) in the case of any Certificated Note, the Person in whose
name such Certificated Note is registered in the Note Register and (ii) in the
case of any Global Note, the Depositary.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Indebtedness
or other obligation including by acquisition of Subsidiaries or the recording,
as required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
"Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided that a change in GAAP that results in an obligation of
such Person that exists at such time becoming Indebtedness shall not be deemed
an Incurrence of such Indebtedness and that the accrual of interest shall not
be deemed an Incurrence of Indebtedness. Indebtedness otherwise Incurred by a
Person before it becomes a Subsidiary of the Company (whether by merger,
amalgamation, consolidation, acquisition or otherwise) shall be deemed to have
been Incurred by the Company at the time at which such Person becomes a
Subsidiary of the Company.
"Indebtedness" means, at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with the acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business, (iii) any reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) any obligation of such Person
issued or assumed as the deferred purchase price of Property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business, which in either case are being contested in good
faith), (v) any Capital Lease Obligation of such Person, (vi) the maximum
fixed redemption or repurchase price of Disqualified Stock of such Person and,
to the extent held by Persons other than such Person or its Restricted
Subsidiaries, the maximum fixed redemption or repurchase price of Preferred
Stock of such Person's Restricted Subsidiaries, at
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the time of determination, (vii) any Attributable Indebtedness with respect to
any Sale and Leaseback Transaction to which such Person is a party, (viii)
Indebtedness of other Persons secured by a Lien to which the Property owned or
held by such first Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed (the amount of such
Indebtedness being deemed to be the lesser of the value of such property and
assets or the amount of the Indebtedness so secured) and (ix) any obligation
of the type referred to in clauses (i) through (viii) of this definition of
another Person and all dividends and distributions of another Person the
payment of which, in either case, such Person has Guaranteed or is responsible
or liable for, directly or indirectly, as obligor, Guarantor or otherwise. For
purposes of the preceding sentence, the maximum fixed repurchase price of any
Disqualified Stock or Preferred Stock that does not have a fixed repurchase
price shall be calculated in accordance with the terms of such stock as if
such stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture; provided that, if such
stock is not then permitted to be repurchased, the repurchase price shall be
the book value of such stock. 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, with respect to contingent obligations,
the maximum liability upon the occurrence of the contingency giving rise to
the obligation; provided that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Investment" in any Person means any direct, indirect or contingent (i)
advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all
of the business, assets or stock or other evidence of beneficial ownership of
such Person; provided that Investments shall exclude extensions of trade
credit in the ordinary course of business. The amount of any Investment shall
be the original cost of such Investment, plus the cost of all additions
thereto and minus the amount of any portion of such Investment repaid to such
Person in cash as a repayment of principal or a return of capital, as the case
may be, but without any other adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment. In
determining the amount of any Investment involving a transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such transfer.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
"Lien" means, with respect to any Property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, setoff right, easement,
encumbrance, preference, priority or other security or similar agreement or
preferential arrangement of any kind or nature whatsoever on or with respect
to such Property or other asset (including, without limitation, any
conditional sale or title retention agreement having substantially the same
economic effect as any of the foregoing).
"Maturity" means, when used with respect to a Note, the date on which the
principal of such Note becomes due and payable as provided therein or in the
Indenture, whether on the Stated Maturity, on the Change of Control Payment
Date or purchase date established pursuant to the terms of the Indenture with
regard to an Asset Sale Offer, as applicable, or by declaration of
acceleration, call for redemption or otherwise.
"Net Cash Proceeds" means (i) with respect to the sale of any Property or
other assets by the Company or any of the Restricted Subsidiaries, cash or
readily marketable cash equivalents received net of (a) all reasonable out-of-
pocket expenses of the Company or such Restricted Subsidiary incurred in
connection with such sale, including, without limitation, all legal, title and
recording tax expenses, commissions and other fees and expenses incurred (but
excluding any finder's fee or broker's fee payable to any Affiliate of the
Company) and all U.S. federal, state, provincial, foreign and local taxes
arising in connection with such sale that are paid or required to be accrued
as a liability under GAAP by the Company or its Restricted Subsidiaries, (b)
all payments made or required to be made by the Company or its Restricted
Subsidiaries on any Indebtedness which is secured by
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such Properties or other assets in accordance with the terms of any Lien upon
or with respect to such Properties or other assets or which must, by the terms
of such Lien, or in order to obtain a necessary consent to such transaction or
by applicable law, be repaid in connection with such sale, (c) all
contractually required distributions and other payments made to minority
interest holders (but excluding distributions and payments to Affiliates of
the Company) in Restricted Subsidiaries as a result of such transaction and
(d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reasonable reserve against any
liabilities associated with such assets and retained by the Company or any
Restricted Subsidiary thereof, as the case may be, after such transaction,
including, without limitation, liabilities under any indemnification
obligations and severance and other employee termination costs associated with
such transaction, in each case as determined by the Board of Directors, in its
reasonable good faith judgment evidenced by a Board Resolution; provided that,
in the event that any consideration for a transaction (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment or indemnification or
other payment or similar adjustment will be made, such consideration (or any
portion thereof) shall become Net Cash Proceeds only at such time as it is
released to the Company or the Restricted Subsidiaries from escrow; and
provided, further, that any noncash consideration received in connection with
any transaction, which is subsequently converted to cash, shall be deemed to
be Net Cash Proceeds at such time, and shall thereafter be applied in
accordance with the Indenture and (ii) with respect to any sale, issuance,
transfer or other disposition of Capital Stock, the proceeds of such sale,
issuance, transfer or other disposition in the form of cash or cash
equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees and reasonable out-of-pocket expenses of the Company or any
Subsidiary of the Company incurred in connection with such sale, issuance,
transfer or other disposition and net of taxes paid or payable as a result
thereof.
"Officers' Certificate" means a certificate signed by (i) the President or
the Chief Executive Officer and (ii) the Chief Financial Officer, the Chief
Accounting Officer or the Treasurer, of the Company and delivered to the
Trustee, which shall comply with the Indenture.
"Permitted Holders" means Madison Dearborn Capital Partnership, L.P.,
Frontenac V.I. L.P., and Battery Ventures III, L.P., and Affiliates (other
than the Company and the Restricted Subsidiaries) of each of the foregoing.
"Permitted Investments" means (i) Eligible Cash Equivalents, (ii)
Investments in any Person engaged in a Telecommunications Business as a result
of which such Person becomes a Restricted Subsidiary in compliance with the
Indenture, (iii) Investments pursuant to agreements or obligations of the
Company or a Restricted Subsidiary, in effect on the Issue Date, to make
Investments described in clause (ii) above, (iv) Investments in prepaid
expenses, negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits, (v)
Investments, Capital Stock, bonds, notes, debentures or other debt or equity
securities received as a result of Asset Sales permitted under the covenant
described under "--Asset Sale," (vi) Investments in existence at the Issue
Date, (vii) commission, payroll, travel and similar advances made in the
ordinary course of business to cover matters that are expected at the time of
such advances ultimately to be treated as expenses in accordance with GAAP,
(viii) loans or advances to employees and directors made in the ordinary
course of business at any time outstanding not to exceed in the aggregate
$5,000,000 and (ix) stock, obligations or securities received in satisfaction
of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor, (ii) other Liens incidental to the conduct of the
Company's or a Restricted Subsidiary's business or the ownership of its
Property and assets, and which do not in the aggregate materially detract from
the value of the Company's and its Restricted Subsidiaries' Property or other
assets when taken as a whole, or materially impair the use thereof in the
operation of its business, (iii) Liens with respect to assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to secure Indebtedness owing
to the Company, (iv) Liens incurred or pledges and
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deposits made in the ordinary course of business in connection with workers'
compensation and unemployment insurance and other types of social security,
(v) statutory Liens of landlords, carriers, warehousemen, mechanics,
materialmen, repairmen and other types of statutory obligations, (vi) deposits
made to secure the performance of tenders, bids, leases, surety and appeal
bonds, government contracts, performance and return-of money bonds and other
obligations of like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money), (vii) zoning
restrictions, servitudes, easements, rights-of-way, restrictions and other
similar charges or encumbrances incurred in the ordinary course of business
which, in the aggregate, do not materially detract from the value of the
Property subject thereto or interfere with the ordinary conduct of the
business of the Company or its Restricted Subsidiaries, (viii) Liens arising
out of judgments or awards against the Company or any Restricted Subsidiary
with respect to which the Company or such Restricted Subsidiary is prosecuting
an appeal or proceeding for review and the Company or such Restricted
Subsidiary is maintaining adequate reserves in accordance with GAAP, (ix) any
interest or title of a lessor in the Property subject to any lease other than
a Capital Lease, (x) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, (xi) Liens encumbering Property or other assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such Property or other
assets, (xii) Liens on Property of, or on shares of stock or Indebtedness of,
any corporation existing at the time such corporation becomes, or becomes a
part of, any Restricted Subsidiary, provided that such Liens do not extend to
or cover any Property or other assets of the Company or any Restricted
Subsidiary other than the Property or other assets acquired, (xiii) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other Property relating to such letters of credit and
the products and proceeds thereof, (xiv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods, (xv) 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, (xvi) Liens on or sales of
receivables; and (xvii) Liens in favor of the Trustee pursuant to the
Indenture.
"Person" means any individual, corporation, limited liability company,
partnership, limited liability partnership, joint venture, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares
of Capital Stock of any other class of such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or other asset, whether real, personal or mixed, or
tangible or intangible, excluding Capital Stock of any other Person.
"Public Equity Offering" means an underwritten primary public offering of
the Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company immediately prior to the consummation of such
Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Qualified Stock" of any Person means a class of Capital Stock other than
Disqualified Stock.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared or paid to any Person other than the
Company or a Restricted Subsidiary on the Capital Stock of any Restricted
Subsidiary, in each case, other than dividends, distributions or payments made
solely in Qualified Stock of the Company or such Restricted Subsidiary and
other than pro rata dividends or other distributions made by a Restricted
Subsidiary
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that is not a Significant Restricted Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Restricted Subsidiary that
is an entity other than a corporation), (ii) a payment made by the Company or
any of its Restricted Subsidiaries (other than to the Company or any
Restricted Subsidiary) to purchase, redeem, acquire or retire any Capital
Stock of the Company or (iii) a payment made by the Company or any of its
Restricted Subsidiaries (other than a payment made solely in Qualified Stock
of the Company) to redeem, repurchase, defease (including an in-substance or
legal defeasance) or otherwise acquire or retire for value (including pursuant
to mandatory repurchase covenants), prior to any scheduled maturity, scheduled
sinking fund or mandatory redemption payment, Indebtedness of the Company
which is subordinate (whether pursuant to its terms or by operation of law) in
right of payment to the Notes and which was scheduled to mature on or after
the maturity of the Notes (other than permitted refinancings thereof) or (iv)
an Investment in any Person, including an Unrestricted Subsidiary or the
designation of a Subsidiary as an Unrestricted Subsidiary, other than (a) a
Permitted Investment, (b) an Investment by the Company in a Restricted
Subsidiary engaged in a Telecommunications Business or (c) an Investment by a
Restricted Subsidiary in the Company or in a Restricted Subsidiary engaged in
a Telecommunications Business.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated as an "Unrestricted Subsidiary."
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"Senior Indebtedness" means all Indebtedness of the Company which is not,
expressly by its terms, subordinate or junior in right of payment to the
Notes.
"Significant Restricted Subsidiary" means any Restricted Subsidiary of which
the Company owns, directly or indirectly, 80% or more of all of the
outstanding Capital Stock or other ownership interests (other than any
director's qualifying shares).
"Subordinated Indebtedness" means Indebtedness of the Company as to which
the payment of principal of (and premium, if any) and interest and other
payment obligations in respect of such Indebtedness shall be subordinate to
the prior payment in full of the Notes to at least the following extent: (i)
no payments of principal of (or premium, if any) or interest on or otherwise
due in respect of such Indebtedness may be permitted for so long as any
Default in the payment of principal (or premium, if any) or interest on the
Notes exists, (ii) in the event that any other Default exists, upon notice by
Holders of 25% or more of the aggregate stated principal amount at maturity of
the outstanding Notes to the Trustee, the Trustee shall have the right to give
notice to the Company and the holders of such Indebtedness (or trustees or
agents therefor) of a payment blockage, and thereafter no payments of
principal of (or premium, if any) or interest on or otherwise due in respect
of such Indebtedness may be made for a period of 179 days from the date of
such notice, and (iii) such Indebtedness may not (x) provide for payments of
principal of such Indebtedness at the stated maturity thereof or by way of a
sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of acceleration
of such Indebtedness upon an event of default thereunder), in each case prior
to the final Stated Maturity of the Notes or (y) permit redemption or other
retirement (including pursuant to an offer to purchase made by the Company) of
such other Indebtedness at the option of the holder thereof prior to the final
Stated Maturity of the Notes, other than a redemption or other retirement at
the option of the holder of such Indebtedness (including pursuant to an offer
to purchase made by the Company) which is conditioned upon a change of control
of the Company pursuant to provisions substantially similar to those described
under "--Repurchase at the Option of Holders upon a Change of Control" (and
which shall provide that such Indebtedness will not be repurchased pursuant to
such provisions prior to the Company's repurchase of the Notes required to be
repurchased by the Company pursuant to the provisions described under "--
Repurchase at the Option of Holders upon a Change of Control").
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"Subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50%
of the outstanding partnership or similar interests of which are owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries
of such Person, or by such Person and one or more other Subsidiaries of such
Person and (iii) any limited partnership of which such Person or any
Subsidiary of such Person is a general partner.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, real or personal, whether tangible or intangible,
used or intended for use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products, or (iii) evaluating, owning, operating,
participating in or pursuing any other business that is primarily related to
those identified in the foregoing clauses (i) or (ii) above (in the case of
this clause (iii), however, in a manner consistent with the Company's manner
of business on the Issue Date), and shall, in any event, include all
businesses in which the Company or any of its Subsidiaries are engaged on the
Issue Date or have entered into agreements to engage in or to acquire a
company to engage in or contemplate engaging in, as expressly set forth in
this Prospectus; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of
Directors.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to the terms of the
Indenture. See "--Restricted and Unrestricted Subsidiaries" for a description
of the conditions in which the Company may designate a Subsidiary of the
Company an "Unrestricted Subsidiary."
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests (other than any director's qualifying shares) of which
shall at the time be owned by such Person or by one or more other Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more other
Wholly Owned Restricted Subsidiaries of such Person.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. 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 Exchange Notes received in exchange for Senior
Notes where such Senior Notes 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 90 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. In
addition, until , 1998, all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes 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 Exchange Notes 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 and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes 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 Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states 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 90 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 the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including the expenses of one counsel for the holders of
the Senior Notes), other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Senior Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR U.S. HOLDERS
The following summary describes, subject to the limitations set forth below,
the material U.S. federal income tax consequences associated with the
acquisition, ownership, and disposition of the Notes. As used herein, a "U.S.
Holder" means a beneficial owner of a Note who purchased a Senior Note
pursuant to the Offering at the Issue Price that is for U.S. federal income
tax purposes (i) a citizen or resident of the United States; (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof; (iii) an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or (iv) a trust if (A) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (B) one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust. This summary deals only with Notes held as
capital assets and does not address persons with special tax situations, such
as Non-U.S. Holders (as defined herein), financial institutions, insurance
companies, tax-exempt organizations, dealers in securities or currencies,
persons holding Notes as a hedge against currency risks or that are part of a
straddle or a conversion transaction, or persons whose functional currency is
not the U.S. dollar, and does not discuss any aspect of state, local or
foreign tax laws or any estate or gift tax considerations.
This summary is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder
(the "Regulations"), rulings and judicial decisions issued thereunder, all of
which may be repealed, revoked or modified, possibly with retroactive effect.
Holders of the Notes should consult their tax advisors regarding the U.S.
federal, state, local and foreign income and other tax considerations of the
purchase, exchange, ownership and disposition of the Notes.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH HOLDER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS,
OF THE ACQUISITION, EXCHANGE OWNERSHIP AND DISPOSITION OF THE NOTES.
THE EXCHANGE
The exchange of Senior Notes for Exchange Notes will not be treated as an
exchange for U.S. federal income tax purposes because the Exchange Notes will
not differ materially in kind or extent from the Senior Notes. As a result,
holders who exchange their Senior Notes for Exchange Notes will not recognize
any income, gain or loss for U.S. federal income tax purposes. A U.S. Holder
will have the same adjusted issue price, adjusted basis and holding period in
the Exchange Notes immediately after the exchange as it had in the Senior
Notes immediately before the exchange.
ORIGINAL ISSUE DISCOUNT
General
Because the Senior Notes were issued at an Issue Price which was
substantially less than their stated principal amounts at maturity and because
Current Interest on the Notes will not be payable until August 15, 2003, the
Notes have been issued with OID, and each U.S. Holder will be required to
include in income in each year, in advance of the receipt of cash payments on
such Notes, that portion of the OID, computed on a constant yield basis,
attributable to each day during such year on which the U.S. Holder held the
Notes.
In the event of a Registration Default as described under "Description of
the Exchange Notes--Exchange Offer; Registration Rights", Additional Interest
will accrue on the Notes in the manner described therein. According to the
Regulations, the possibility of a change in the interest rate will not affect
the amount of interest
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income recognized by a U.S. Holder if the likelihood of the change, as of the
date the Notes are issued, is remote. The Company believes that the likelihood
of a change in the interest rate on the Notes is remote and does not intend to
treat the possibility of a change in the interest rate as affecting the yield
to maturity of any Note. Solely for purposes of determining the amount of OID,
the Notes would be treated as retired and reissued on any date the amount of
interest were changed for an amount equal to its adjusted issue price.
The Amount of Original Issue Discount
The amount of OID with respect to each Note is equal to the excess of (i)
its "stated redemption price at maturity" over (ii) its "issue price." The
"issue price" of the Notes is equal to the initial offering price to the
public (not including any bond house, broker or similar person or organization
acting in the capacity of an underwriter, placement agent or wholesaler) at
which a substantial amount of the Notes are sold. The "stated redemption price
at maturity" of each Note will include all payments to be made in respect
thereof, including any Current Interest payments. Accordingly, payments on the
Note (including principal and Current Interest payments) are not separately
included in a U.S. Holder's income as interest, but rather are treated first
as payments of accrued OID and then as payments of principal which reduce the
U.S. Holder's basis in the Notes.
A U.S. Holder of a debt instrument issued with OID is required to include in
gross income for U.S. federal income tax purposes an amount equal to the sum
of the "daily portions" of such OID for all days during the taxable year on
which the holder holds the debt instrument. The daily portions of OID required
to be included in a holder's gross income in a taxable year will be determined
on a constant yield basis by allocating to each day during the taxable year on
which the holder holds the debt instrument a pro rata portion of the OID on
such debt instrument which is attributable to the "accrual period" in which
such day is included. Accrual periods with respect to a Note may be any set of
periods (which may be of varying lengths) selected by a U.S. Holder as long as
(i) no accrual period is longer than one year and (ii) each scheduled payment
of interest or principal on the Note occurs on either the first or final day
of an accrual period. The amount of OID attributable to each "accrual period"
will be equal to the product of (i) the "adjusted issue price" at the
beginning of such accrual period and (ii) the "yield to maturity" of the debt
instrument stated in a manner appropriately taking into account the length of
the accrual period. The "yield to maturity" is the discount rate that, when
used in computing the present value of all payments to be made under the
Notes, produces an amount equal to the issue price of the Notes. The "adjusted
issue price" of a Note at the beginning of an accrual period is generally
defined as the issue price of the Note plus the aggregate amount of OID that
accrued in all prior accrual periods, less any cash payments on the Note.
Accordingly, a U.S. Holder of a Note will be required to include OID thereon
in gross income for U.S. federal tax purposes in advance of the receipt of
cash in respect of such income. The amount of OID allocable to an initial
short accrual period may be computed using any reasonable method if all other
accrual periods, other than a final short accrual period, are of equal length.
The amount of OID allocable to the final accrual period at maturity of a Note
is the difference between (x) the amount payable at the maturity of the Note
and (y) the Note's adjusted issue price as of the beginning of the final
accrual period.
High-Yield Discount Obligations
The Notes constitute AHYDOs as their yield to maturity exceeds the sum of
the applicable federal rate in effect at the time of the issuance of the Notes
(the "AFR") plus five percentage points. For February 1998, the long-term AFR
was 5.84% (based on semiannual compounding). Under Sections 163(e) and 163(i)
of the Code, a C corporation that is an issuer of a debt obligation subject to
the AHYDO rules may not deduct any portion of OID on the obligation until such
portion is actually paid. A debt obligation is generally subject to the AHYDO
rules if (i) its maturity date is more than five years from the date of issue,
(ii) its yield to maturity equals or exceeds the sum of the AFR plus five
percentage points, and (iii) it bears "significant OID." A debt obligation
will bear significant OID for this purpose if, as of the close of any accrual
period ending more than five years after issuance, the total amount of income
includible by a holder with respect to the debt instrument exceeds the sum of
(i) the total amount of "interest" paid under the obligation before the close
of such accrual period and (ii) the product of the issue price of the debt
instrument and its yield to maturity. In addition, the yield to maturity of
the Notes exceeds the sum of the AFR plus six percentage points. Accordingly,
under the Code, a portion of
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the OID under the Notes, equal to the product of the total OID under the Notes
times the ratio of (a) the excess of the yield to maturity over the sum of the
AFR plus six percentage points to (b) the yield to maturity (the "Disqualified
Portion"), will not be deductible by the Company and will be treated for some
purposes as dividends to the holders of the Notes (to the extent that such
amounts would have been treated as dividends to the holders of the Notes if
they had been distributions with respect to the Company's stock). The
Disqualified Portion will be nondeductible by the Company, and may qualify for
the dividend received deduction for corporate U.S. Holders, but will be
treated as OID and not as dividends for withholding tax purposes.
Effect of Mandatory and Optional Redemptions on OID
In the event of a Change of Control, the Company will be required to offer
to redeem all of the Notes, at redemption prices specified elsewhere herein.
If after giving effect to a Change of Control Offer at least 95% of the
original aggregate stated principal amount of the Notes has been repurchased,
the Company may, at its option, redeem the balance of the Notes at redemption
prices specified elsewhere herein. In the event that the Company receives net
proceeds from one or more public offerings, the Company may, at its option,
use all or a portion of such net proceeds to redeem Notes having an aggregate
issue price of up to 35% of the aggregate Issue Price of the Notes at
redemption prices specified elsewhere herein; provided that Notes having an
issue price equal to at least 65% of the original aggregate stated principal
amount of the Notes remain outstanding after such redemption. In addition,
upon an Asset Sale, the Company may in certain circumstances be required to
redeem all or part of the Notes. Computation of the yield and maturity of the
Notes is not affected by such redemption rights and obligations if, based on
all the facts and circumstances as of the issue date, the stated payment
schedule of the Notes (that does not reflect a Change of Control, an Asset
Sale, or a Public Equity Offering) is significantly more likely than not to
occur. The Company has determined that, based on all of the facts and
circumstances as of the issue date, it is significantly more likely than not
that the Notes will be paid according to their stated schedule.
The Company may redeem the Notes, in whole or in part, at any time on or
after February 15, 2003, at redemption prices specified elsewhere herein plus
accrued and unpaid Current Interest, if any, on the Notes so redeemed to but
excluding the date of redemption. The Regulations contain rules for
determining the "maturity date" and the stated redemption price at maturity of
an instrument that may be redeemed prior to its stated maturity date at the
option of the issuer. Under the Regulations, solely for purposes of the
accrual of OID, it is assumed that the issuer will exercise any option to
redeem a debt instrument if such exercise will lower the yield-to-maturity of
the debt instrument. The Company believes that it will not be presumed to
redeem the Notes prior to their stated maturity under these rules because the
exercise of such option would not lower the yield-to-maturity of the Notes.
U.S. Holders may wish to consult their tax advisor regarding the treatment
of such contingencies under the Regulations.
Tax Basis
A U.S. Holder's initial tax basis in a Note generally will be equal to the
purchase price paid by such U.S. Holder for such Note. A U.S. Holder's tax
basis in a Note will be increased by the amount of OID that is included in
such U.S. Holder's income and will be decreased by the amount of any cash
payments received.
Sale or Redemption
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of a Note
will be a taxable event for U.S. federal income tax purposes. In such event, a
U.S. Holder will recognize gain or loss equal to the difference between (i)
the amount of cash plus the fair market value of any property received by such
holder and (ii) the U.S. Holder's adjusted tax basis therein. Such gain or
loss will be capital gain or loss and will be long-term capital gain or loss
if the Note was held by the U.S. Holder for more than one year at the time of
such sale, exchange, redemption or other disposition. On
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August 5, 1997, legislation was enacted which, among other things, reduces to
20% the maximum rate of tax on long-term capital gains on most capital assets
held by an individual for more than 18 months. Gain on most capital assets
held by an individual more than one year and up to 18 months is subject to tax
at a maximum rate of 28%. The distinction between capital gain or loss and
ordinary income or loss is also relevant for purposes of, among other things,
limitations on the deductibility of capital losses.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following summary describes certain United States federal income and
estate tax consequences of the ownership of Notes as of the date hereof by any
holder who is a beneficial owner of a Note but is not a U.S. Holder (a "Non-
U.S. Holder").
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) generally no withholding of United States federal income tax will be
required with respect to the payment by the Company or any paying agent of
principal or interest (including OID) on a Note owned by a Non-U.S. Holder,
provided (i) that the beneficial owner does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote within the meaning of section 871(h)(3) of
the Code and the regulations thereunder, (ii) the beneficial owner is not a
"controlled foreign corporation" (as defined in Section 957 of the Code)
that is related directly, indirectly or constructively to the Company
through stock ownership and (iii) the beneficial owner satisfies the
statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder;
(b) generally no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-U.S. Holder
upon the sale, exchange or retirement of a Note and
(c) a Note beneficially owned by an individual who at the time of death
is a Non-U.S. Holder generally will not be includible in the individual's
gross estate for the purposes of the United States federal estate tax as a
result of such individual's death, provided that such individual does not
at the time of death actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Note will not have been, if
received at the time of such individual's death, effectively connected with
the conduct of a United States trade or business by such individual.
To satisfy the requirement referred to in (a)(iii) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, the Company
or a paying agent of the Company with a statement to the effect that the
beneficial owner is not a U.S. person. Pursuant to current temporary
Regulations, these requirements will be met if (1) the beneficial owner
provides the payor his name and address, and certifies, under penalties of
perjury, that he is not a U.S. person (which certification may be made on an
Internal Revenue Service Form W-8 (or successor or substitute form)) or (2) a
financial institution that holds customers' securities in the ordinary course
of its trade or business and holds the Note on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received
by it (or by another financial institution acting on behalf of the Non-U.S.
Holder), and furnishes a paying agent with a copy thereof.
Regulations recently issued by the Internal Revenue Service, which will be
effective for payments made after December 31, 1998 (subject to certain
transition rules), made modifications to the certification procedures
applicable to Non-U.S. Holders. In general, these regulations unify certain
certification procedures and forms and clarify and modify reliance standards.
A Non-U.S. Holder should consult its own advisor regarding the effect of the
new Regulations.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of interest (including
OID) made to Non-U.S. Holders will generally be subject to a 30%
94
<PAGE>
withholding tax, or such lower rate as may be specified by an applicable
income tax treaty, unless the beneficial owner of the Note provides the
Company or its paying agent, as the case may be, with a properly executed (1)
Internal Revenue Service Form 1001 (or successor form) claiming an exemption
from withholding under the benefit of a tax treaty or (2) Internal Revenue
Service Form 4224 (or successor form) stating that interest (including OID)
paid on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and interest (including OID) on the Note is effectively connected with the
conduct of such trade or business, the Non-U.S. Holder, although exempt from
the withholding tax discussed above, will generally be subject to United
States federal income tax on such interest (including OID) on a net income
basis in the same manner as if it were a United States person. In addition, if
such holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% of its effectively connected earnings and profits for the
taxable year, or such lower rate as may be specified by an applicable income
tax treaty, subject to adjustments.
Any gain or income realized upon the sale, exchange or retirement of a Note
generally will not be subject to United States federal income tax unless (i)
such gain or income is effectively connected with a trade or business in the
United States of the Non--U.S. Holder, or (ii) in the case of a Non-U.S.
Holder who is a nonresident alien individual, such Holder is present in the
United States for 183 days or more in the taxable year of such sale, exchange
or retirement, and certain other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The "backup" withholding and information reporting requirements may apply to
certain payments of principal and interest (including OID) on a Note and to
certain payments or proceeds of the sale or retirement of a Note. The Company,
its agent, a broker, the Trustee or any paying agent, as the case may be, is
required to withhold tax from any payment that is subject to backup
withholding at a rate of 31% of such payment if the holder fails to furnish
his taxpayer identification number (social security number or employer
identification number), to certify that such holder is not subject to backup
withholding, or to otherwise comply with the applicable requirements of the
backup withholding rules. Certain holders (including, among others, all
corporations) are not subject to the backup withholding and reporting
requirements.
Under current Treasury Regulations, backup withholding and information
reporting do not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a holder of a Note who has provided the required
certification under penalties of perjury that it is not a U.S. Holder as set
forth in the third paragraph under "--Non-U.S. Holders" or has otherwise
established an exemption (provided that neither the Company nor such agent has
actual knowledge that the holder is a U.S. Holder or that the conditions of
any other exemption are not in fact satisfied). Payments of the proceeds from
the sale by a holder who is not a U.S. Holder of a Note made to or through a
foreign office of a broker will not be subject to U.S. information reporting
or backup withholding, except that if the broker is a U.S. person, a
controlled foreign corporation for U.S. tax purposes or a foreign person 50%
or more of whose gross income is effectively connected with a United States
trade or business for a specified three-year period, U.S. information
reporting may apply to such payments.
Payments of the proceeds from the sale of a Note to or through the United
States office of a broker is subject to U.S. information reporting and backup
withholding unless the holder or beneficial owner certifies as to its non-U.S.
status or otherwise establishes an exemption from U.S. information reporting
and backup withholding.
In October 1997, Regulations were issued which alter the foregoing rules in
certain respects and which generally will apply to any payments (including
OID) in respect of a Note or proceeds from the sale of a Note that are made
after December 31, 1998. Among other things, such regulations expand the
number of foreign intermediaries that are potentially subject to information
reporting and address certain documentary evidence requirements relating to
exemption from the general backup withholding requirements. Holders of the
Notes should consult their tax advisors concerning possible application of the
final regulations to amounts of OID that
95
<PAGE>
they are required to include as well as the possible application of such
regulation to any payments made on or with respect to the Notes.
Any amounts withheld under the backup withholding rules from a payment to a
holder may be claimed as a credit against such holder's United States federal
income tax liability.
The Company is required to furnish certain information to the Internal
Revenue Service, and will furnish annually to record holders of Notes,
information with respect to interest and OID accruing during the calendar
year. The OID information will be based upon the adjusted issue price of the
debt instrument as if the holder were the original holder of the debt
instrument. No assurance can be given that the Internal Revenue Service will
not challenge the accuracy of the reported information. Subsequent holders who
purchase Notes for an amount other than the adjusted issue price and/or on a
date other than the last day of an accrual period will be required to
determine for themselves the amount of OID, if any, they are required to
include in gross income for U.S. federal income tax purposes.
LEGAL MATTERS
The legality of the Exchange Notes offered hereby are being passed upon for
the Company by Ross & Hardies, Chicago, Illinois. Certain legal matters
relating to the Offering were passed upon for the Initial Purchasers by Paul,
Hastings, Janofsky & Walker LLP (a limited liability partnership including
professional corporations), New York, New York.
INDEPENDENT PUBLIC ACCOUNTANTS
The Consolidated Financial Statements as of December 31, 1996 and 1997 and
for the period from May 31, 1996 to December 31, 1996 and for the year ended
December 31, 1997 and the financial statement schedule included in this
Registration Statement have been audited and the Pro Forma Consolidated
Balance Sheet and Pro Forma Statements of Operations and Stockholders' Equity
as of and for the year ended December 31, 1997 included in this Registration
Statement have been examined by Arthur Andersen LLP, independent public
accountants, as stated in their reports appearing herein.
AVAILABLE INFORMATION
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement on Form S-4 under the
Securities Act with respect to the Exchange Offer. As permitted by the rules
and regulations of the Commission, this Prospectus does not contain all the
information set forth in the Registration Statement. For further information
about the Company and the Exchange Offer, reference is made to the
Registration Statement and to the financial statements, exhibits and schedules
filed therewith. The statements contained in this Prospectus about the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to a copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of each
such document may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the charges prescribed by the Commission or,
in the case of certain such documents, by accessing the Commission's World
Wide Web site at http://www.sec.gov.
The Company has agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders of the Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. The Company
will file with the Trustee after it files with the Commission copies of the
annual reports on Form 10-K and the information, documents, and other reports
that the Company is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act as well as quarterly reports (collectively,
the "SEC Reports"). In the event the Company ceases to be required to file SEC
Reports pursuant to either of such Sections of the Exchange Act, the Company
will nevertheless continue to file such reports with the Commission (unless
the Commission will not accept such a filing) and the Trustee. The Company
will furnish copies of the SEC Reports to the Holders of the Notes at the time
the Company is required to file the same with the Trustee.
96
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS............................. F-2, F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1996 and 1997........ F-4
Consolidated Statements of Operations for the Period from May 31,
1996 (Commencement of Operations), to December 31, 1996, and for
the Year Ended December 31, 1997................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the
Period from May 31, 1996 (Commencement of Operations), to December
31, 1996, and for the Year Ended December 31, 1997................. F-6
Consolidated Statements of Cash Flows for the Period from May 31,
1996 (Commencement of Operations), to December 31, 1996, and for
the Year Ended December 31, 1997................................... F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors ofFocal Communications Corporation:
We have audited the accompanying consolidated balance sheets of FOCAL
COMMUNICATIONS CORPORATION AND SUBSIDIARIES (a Delaware corporation) as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the period from May 31,
1996 (commencement of operations), to December 31, 1996, and for the year
ended December 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Focal
Communications Corporation and Subsidiaries as of December 31, 1996 and 1997,
and the results of its operations and its cash flows for the period from May
31, 1996 (commencement of operations), to December 31, 1996, and for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
January 14, 1998 (Except with respect tothe matters discussed in Note 14, as
towhich the date is February 18, 1998)
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Focal Communications Corporation:
We have examined the pro forma adjustment reflecting the event described in
Note 14 and the application of the adjustment to the historical amounts in the
assembly of the accompanying pro forma consolidated balance sheet of Focal
Communications Corporation and Subsidiaries as of December 31, 1997, and the
pro forma consolidated statements of operations and stockholders' equity for
the year then ended. Such pro forma adjustment is based upon the event
described in Note 14. Our examination was made in accordance with standards
established by the American Institute of Certified Public Accountants and,
accordingly, included such procedures as we considered necessary in the
circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been
had the event occurred at an earlier date.
In our opinion, the event described in Note 14 provides a reasonable basis
for presenting the significant effects directly attributable to the above-
mentioned event, the related pro forma adjustment gives appropriate effect to
that event, and the pro forma column reflects the proper application of this
adjustment to the historical financial statement amounts in the pro forma
consolidated balance sheet as of December 31, 1997, and the pro forma
consolidated statements of operations and stockholders' equity for the year
then ended.
Arthur Andersen LLP
Chicago, Illinois
January 23, 1998
F-3
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PRO FORMA
1996 1997 1997
---------- ----------- -----------
(NOTE 14)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.............. $3,790,121 $ 2,256,552 $ 2,256,552
Accounts receivable, trade (net of
allowance for doubtful accounts of
$469,000 in 1997)..................... -- 2,355,814 2,355,814
Related-party receivables.............. 16,883 34,883 34,883
Other current assets................... -- 90,559 90,559
---------- ----------- -----------
Total current assets................. 3,807,004 4,737,808 4,737,808
---------- ----------- -----------
FIXED ASSETS, at cost:
Communications network................. -- 7,906,336 7,906,336
Construction in progress............... 37,285 1,938,236 1,938,236
Computer equipment..................... 45,018 941,237 941,237
Leasehold improvements................. -- 652,173 652,173
Furniture and fixtures................. -- 355,759 355,759
---------- ----------- -----------
82,303 11,793,741 11,793,741
Less--Accumulated depreciation and
amortization.......................... 1,150 616,967 616,967
---------- ----------- -----------
Fixed assets, net.................... 81,153 11,176,774 11,176,774
---------- ----------- -----------
$3,888,157 $15,914,582 $15,914,582
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
------------------------------------
CURRENT LIABILITIES:
Accounts payable....................... $ 197,246 $ 1,502,479 $ 1,502,479
Accrued liabilities.................... 71,212 367,890 367,890
Current maturities of long-term debt... -- 943,621 943,621
---------- ----------- -----------
Total current liabilities............ 268,458 2,813,990 2,813,990
LONG-TERM DEBT, net of current
maturities.............................. -- 2,593,265 2,593,265
---------- ----------- -----------
OTHER NONCURRENT LIABILITIES............. -- 179,481 179,481
---------- ----------- -----------
REDEEMABLE COMMON STOCK:
Class A, $.01 par value, 85,567 shares
authorized and 79,461 and 80,307
issued and outstanding at December 31,
1996 and 1997, respectively........... 4,024,653 12,403,218 --
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, Class A, Pro Forma (Note
14)................................... -- -- 803
Common stock, Class B, $.01 par value;
35,000 shares authorized, 20,000
shares issued and outstanding at
December 31, 1996 and 1997,
respectively.......................... 200 200 200
Common stock, Class C, $.01 par value;
15,000 shares authorized, 14,711
shares issued and outstanding at
December 31, 1996 and 1997,
respectively.......................... 147 147 147
Additional paid-in capital............. -- (103,565) 12,298,850
Accumulated deficit.................... (405,301) (1,972,154) (1,972,154)
---------- ----------- -----------
Total stockholders' equity
(deficit)........................... (404,954) (2,075,372) 10,327,846
---------- ----------- -----------
$3,888,157 $15,914,582 $15,914,582
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM MAY 31, 1996 (COMMENCEMENT OF OPERATIONS), TO DECEMBER 31,
1996 AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
1996 1997 1997
--------- ----------- -----------
(NOTE 14)
<S> <C> <C> <C>
REVENUES................................. $ -- $ 4,023,690 $ 4,023,690
EXPENSES:
Customer service and network
operations............................ -- 2,154,980 2,154,980
Selling, general and administrative.... 421,777 2,887,372 2,887,372
Depreciation and amortization.......... 1,150 615,817 615,817
--------- ----------- -----------
Total operating expenses............. 422,927 5,658,169 5,658,169
--------- ----------- -----------
Operating loss....................... (422,927) (1,634,479) (1,634,479)
--------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income........................ 17,626 195,696 195,696
Interest expense....................... -- (128,070) (128,070)
--------- ----------- -----------
17,626 67,626 67,626
--------- ----------- -----------
NET LOSS................................. (405,301) (1,566,853) $(1,566,853)
--------- ----------- ===========
ACCRETION TO REDEMPTION VALUE OF CLASS A
COMMON STOCK............................ -- (103,565)
--------- -----------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS............................ $(405,301) $(1,670,418)
========= ===========
BASIC AND DILUTED NET LOSS PER SHARE OF
COMMON STOCK............................ $ (12.42) $ (16.69) $ (15.65)
========= =========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OF COMMON STOCK OUTSTANDING... 32,625 100,093 100,093
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MAY 31, 1996 (COMMENCEMENT OF OPERATIONS), TO DECEMBER 31,
1996 AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK
COMMON STOCK $.01 PAR VALUE $.01 PAR VALUE $.01 PAR VALUE ADDITIONAL
-------------- ---------------- ---------------- ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ -------- ------- -------- ------- -------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MAY 31, 1996
(commencement of
operations)...... -- $-- -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of
common stock.... 1,500 -- -- -- -- -- -- -- -- -- --
Conversion of
common stock to
Class B common.. (1,125) -- -- -- 20,000 200 -- -- -- -- 200
Conversion of
common stock to
Class C common.. (375) -- -- -- -- -- 14,711 147 -- -- 147
Net loss......... -- -- -- -- -- -- -- -- -- (405,301) (405,301)
------ ---- -------- ------ -------- ------ -------- ------ ----------- ----------- -----------
BALANCE,
December 31, 1996.. -- -- -- -- 20,000 200 14,711 147 -- (405,301) (404,954)
Accretion of
redeemable
common stock.... -- -- -- -- -- -- -- -- (103,565) -- (103,565)
Net loss......... -- -- -- -- -- -- -- -- -- (1,566,853) (1,566,853)
------ ---- -------- ------ -------- ------ -------- ------ ----------- ----------- -----------
BALANCE,
December 31, 1997.. -- -- -- -- 20,000 200 14,711 147 (103,565) (1,972,154) (2,075,372)
PRO FORMA:
Adjustment to
reflect
amendment to
Stock Purchase
Agreement (Note
14)............. -- -- 80,307 803 -- -- -- -- 12,402,415 -- 12,403,218
------ ---- -------- ------ -------- ------ -------- ------ ----------- ----------- -----------
PRO FORMA BALANCE,
December 31,
1997............. -- $-- 80,307 $ 803 20,000 $ 200 14,711 $ 147 $12,298,850 $(1,972,154) $10,327,846
====== ==== ======== ====== ======== ====== ======== ====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM MAY 31, 1996 (COMMENCEMENT OF OPERATIONS), TO DECEMBER 31,
1996 AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (405,301) $ (1,566,853)
Adjustments to reconcile net loss to net cash used
in operating activities--
Depreciation and amortization.................... 1,150 615,817
Deferred lease costs............................. -- 179,481
Provision for losses on accounts receivable...... -- 469,000
(Increase) decrease in operating assets and
liabilities--
Accounts receivable............................ -- (2,824,814)
Related-party receivables...................... (16,883) (18,000)
Other assets................................... -- (90,559)
Accounts payable and accrued liabilities....... 268,458 1,601,911
---------- ------------
Net cash used in operating activities........ (152,576) (1,634,017)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (82,303) (11,655,524)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........... -- 3,697,500
Payments on bank revolving credit facility......... -- (216,528)
Proceeds from the issuance of Class A common
stock............................................. 4,025,000 8,275,000
---------- ------------
Net cash provided by financing activities.... 4,025,000 11,755,972
---------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS......................................... 3,790,121 (1,533,569)
CASH AND CASH EQUIVALENTS, beginning of period....... -- 3,790,121
---------- ------------
CASH AND CASH EQUIVALENTS, end of period............. $3,790,121 $ 2,256,552
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND OPERATIONS
Focal Communications Corporation began operations on May 31, 1996. Focal
Communications Corporation and Subsidiaries (the "Company") is a competitive
local exchange carrier ("CLEC") in the United States and offers a range of
telecommunications services. The Company currently has operations in Illinois
and New York. The Company competes with incumbent local exchange carriers
("ILECs") by providing high quality, local telecommunications services,
primarily over fiber optic digital networks, to meet the voice and data
transmission needs of its customers. The Company's customers are principally
telecommunications-intensive businesses, other carriers and resellers and
internet service providers.
The Company had experienced an accumulated deficit of $404,954 from May 31,
1996 (commencement of operations), through December 31, 1996, as a development
stage enterprise. The Company must recognize significant sales and obtain
additional capital to adequately grow its operations. Future profitability of
the Company is dependent upon continued market acceptance and the Company
continuing to adequately provide and maintain its services. Management feels
that current financial forecasts, marketing strategies and capital raising
plans are adequate to address these issues.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The 1996 and 1997 consolidated balance sheets include the accounts of the
Company and all wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.
Basis of Accounting
The accompanying consolidated financial statements have been prepared on the
accrual basis of accounting.
Use of Estimates and Assumptions
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company has recorded revenues and related accounts receivable totaling
$1,685,625 as of December 31, 1997, from another carrier who is currently
disputing this obligation to the Company. This dispute has been filed with the
Illinois Commerce Commission ("ICC") whose order is not expected until March,
1998. The Company's management and legal counsel believe that, based on the
terms of the contract, the statutory and regulatory context of the dispute and
prior rulings in similar circumstances, it is probable that the ICC will order
the carrier to pay its obligation to the Company. While the Company does not
believe the long-term effects of an adverse ICC decision would be material, an
adverse decision would have a material adverse effect on the Company's near-
term earnings.
Concentration of Suppliers
The Company currently leases its transport capacity from a limited amount of
suppliers and is dependent upon the availability of fiber optic transmission
facilities owned by the suppliers. The Company is currently vulnerable to the
risk of renewing favorable supplier contracts, timeliness of the supplier in
processing the
F-8
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's orders for customers and is at risk to regulatory agreements that
govern the rates to be charged to the Company.
Cash and Cash Equivalents
Cash and cash equivalents (stated at cost which approximates market) consist
principally of highly liquid investments, with a maturity date of three months
or less when purchased.
Revenue Recognition
Revenue is recognized in accordance with tariffs and over the period in
which the services are provided.
Depreciation and Amortization
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<CAPTION>
ASSET DESCRIPTION USEFUL LIFE
----------------- -----------
<S> <C>
Communications network.............. 3-8 years
Computer equipment.................. 3 years
Leasehold improvements.............. Shorter of asset life or life of lease
Furniture and fixtures.............. 2-5 years
</TABLE>
When depreciable assets are replaced or retired, the amounts at which such
assets were carried are removed from the respective accounts and charged to
accumulated depreciation and any gains or losses on disposition is recorded
currently in the consolidated statements of operations.
Maintenance and repairs are charged to expense as incurred, while major
replacements and improvements are capitalized.
Impairment of Long-Lived Assets
Management periodically evaluates the realizability of its long-lived
assets. Based on its review, management does not believe that an impairment of
the long-lived assets has occurred.
Capitalized Interest
Interest is capitalized in connection with the construction of major
facilities and communication networks. The capitalized interest is recorded as
part of the asset to which it relates and is amortized over the asset's
estimated useful life. No interest was capitalized for the period from May 31,
1996, to December 31, 1996, and for the year ended December 31, 1997.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," pursuant to which deferred income tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates currently in effect.
State and local taxes may be based on factors other than income.
Other Noncurrent Liabilities
Other noncurrent liabilities represent deferred lease incentives which
reduce lease expense ratably over future periods.
F-9
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
The carrying value for current assets and liabilities reasonably
approximates fair value due to the short maturity of these items. The
Company's long-term debt is not publicly traded but approximates fair value
due to the debt being entered into during September, 1997.
Stock-Based Compensation
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees." Accordingly, no
compensation expense has been recorded for its stock option awards, but
rather, the Company has determined the pro forma net loss amount for 1997 as
if compensation expense had been recorded for options granted during 1997
under the fair value method described in Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation."
The Company utilized the Black-Scholes option pricing model to estimate the
fair value of options at the date of grant during 1997. Had the Company
adopted SFAS No. 123, pro forma net loss applicable to common stockholders and
pro forma basic and diluted net loss per share of common stock would have been
approximately ($1,710,434) and ($17.09) for the year ended December 31, 1997.
The pro forma disclosure is not likely to be indicative of pro forma results
which may be expected in future years because of the fact that options vest
over several years, compensation expense is recognized as the options vest and
additional awards may also be granted.
Accretion to Redemption Value of Class A Common Stock
Accretion to redemption value of redeemable Class A common stock represents
the change in the redemption value of all outstanding Class A common stock
allocable to each period. The redemption values for all Class A common shares
are based on fair market value and accretion is calculated using the effective
interest method (Note 11).
Loss Per Share
Basic and diluted loss per share were computed in accordance with SFAS No.
128, "Earnings Per Share" (Note 7).
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," was issued in July, 1997,
and will be adopted by the Company effective January 1, 1998. This new
pronouncement establishes standards for reporting and display of comprehensive
income and its components. Adoption of this standard will not impact the
Company's financial position or results of operations.
3. RELATED-PARTY RECEIVABLES
As part of the stock purchase agreement (Note 10), executive shareholders,
as defined, purchased their Class A common shares with 90-day promissory
notes. The promissory notes are with recourse to each executive and have a
prepayment provision without penalty. The notes are secured by a pledge of all
Company common stock and other assets held by the executives. Interest accrues
on a daily basis at a rate equal to the applicable federal rate (5.87% at
December 31, 1997) for obligations of similar duration. These notes were paid
in January, 1998.
4. LONG-TERM DEBT
During September, 1997, the Company entered into a credit facility with a
bank which provides for, among other things, a committed equipment line of up
to a maximum principal amount of $6,000,000. The credit facility expires on
October 30, 2002.
F-10
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company may request advances ranging from 70% to 100%, of invoice
amounts related to equipment purchases and construction of facilities, as
defined. All advances under the committed equipment line bear interest at two
percentage points above the prime rate (10.5% at December 31, 1997).
All advances that are outstanding for 30 days will be payable in 48 equal
monthly installments of principal, plus all accrued interest. Advances, once
repaid, may not be reborrowed. Total advances of $3,480,972 were outstanding
as of December 31, 1997. All of the outstanding Class A, Class B and Class C
common stock have been pledged as security for the performance of all
obligations as defined in the credit facility.
Long-term debt at December 31, 1997, consists of the following:
<TABLE>
<S> <C>
Credit facility with a bank, maximum borrowing level at
$6,000,000 (see above)......................................... $3,480,972
Capital leases on equipment with interest at 14.66%, $2,327 due
monthly through April, 2000.................................... 55,914
----------
3,536,886
Less--Current maturities........................................ 943,621
----------
$2,593,265
==========
</TABLE>
Aggregate maturities of long-term debt outstanding as of December 31, 1997,
is as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 943,621
1999.............................................................. 943,621
2000.............................................................. 937,579
2001.............................................................. 712,065
----------
Total............................................................. $3,536,886
==========
</TABLE>
The credit facility provides for certain restrictive financial and
nonfinancial covenants. Among other things, these covenants require the
maintenance of minimum equity and revenue levels. The Company was in
compliance with these covenants as of December 31, 1997.
5. STOCK OPTIONS
The Company established the Focal Communications Corporation 1997 Non-
Qualified Stock Option Plan (the "Plan") effective February 27, 1997. The Plan
is administered by the Company's Board of Directors (the "Board"). The Board
has sole and complete authority to select participants and grant options for
the Company's Class A common shares which shall not exceed 5,260 shares, as
defined. During 1997, stock options were granted to employees and a director
with exercise prices approximating the fair market value of the shares on the
date of grant and, accordingly, no compensation expense has been recognized in
connection with the options.
The Plan gives the Board complete discretion in determining vesting periods
and terms of each participant's options granted. All options granted to
employees and to a director during 1997 provide vesting ranging from three to
four years. Vesting occurs at 10% immediately for one participant, 25% on the
first-year anniversary from grant date for all remaining participants and
vesting at 12.5% to 15% every six months for the remainder of vesting years.
The term of each option has a life of 10 years. In addition, the Plan provides
for accelerated vesting upon certain events, as defined.
F-11
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summarizes option activity:
<TABLE>
<CAPTION>
WEIGHTED
SHARES OF AVERAGE
CLASS A EXERCISE EXERCISE
COMMON PRICES PRICES
--------- ---------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1996............... -- $ -- $ --
Granted during 1997.......................... 1,222 $290--$320 $296.61
----- ---------- -------
Outstanding at December 31, 1997............... 1,222 $290--$320 $296.61
===== ========== =======
</TABLE>
The fair value of each option was estimated on the date of grant based on
the Black-Scholes option pricing model assuming, among other things, no
dividend yield, a risk-free interest rate ranging from 6.0% to 6.66%, expected
volatility of 41.67% and expected life of five years.
The Black-Scholes option model estimated the weighted average fair value at
the date of grant of options granted in 1997 to be $167 per option as of
December 31, 1997, the remaining contractual life of all options was
approximately 10 years.
6. INCOME TAXES
There is no current or deferred tax expense for the period from May 31,
1996, to December 31, 1996, and for the year ended December 31, 1997. The
deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, if appropriate.
Realization of future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income. Management has considered these factors and has concluded that a full
valuation allowance for financial reporting purposes is required for the
deferred tax assets. The income tax effect of temporary differences comprising
the net deferred tax asset is a result of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Deferred income tax liabilities--
Depreciation......................................... $ -- $(227,000)
-------- ---------
Deferred income tax assets--
Assets recorded for tax purposes..................... -- 205,000
Net operating losses................................... 76,000 724,000
-------- ---------
76,000 929,000
-------- ---------
Less--Valuation allowance.............................. (76,000) (702,000)
-------- ---------
Net deferred tax assets................................ $ -- $ --
======== =========
</TABLE>
The Company has net operating loss carryforwards of approximately $1,811,000
for tax purposes to offset future taxable income. The operating loss
carryforwards expire principally in 2012.
7. LOSS PER SHARE
SFAS No. 128, "Earnings Per Share," requires the Company to calculate its
earnings per share based on basic and diluted earnings per share, as defined.
Basic and diluted loss per share for the period from May 31, 1996, to December
31, 1996, and for the year ended December 31, 1997, was computed by dividing
net loss applicable to common stockholders by the weighted average number of
shares of common stock (Class A and Class B common stock).
F-12
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 14,711 Class C common shares and the Company's 1,222 unvested stock
options granted during 1997 as of December 31, 1997, are antidilutive and have
been excluded from diluted loss per share calculation for the year ended
December 31, 1997.
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Plan (the "Plan") covering substantially all
eligible employees. Under the Plan, participants may make pretax contributions
from 1% to 15% of eligible earnings, as defined. The Company may elect to
contribute to the Plan at its discretion. There have been no Company
contributions to the Plan for the years ended December 31, 1996 and 1997.
9. COMMITMENTS AND CONTINGENCIES
Under the terms of various short- and long-term contracts, the Company is
obligated to pay office rents and rent for leasing fiber optic transmission
facilities. The Company is obligated to pay office rents in connection with
its operations through 2012. The office rent contracts provide for certain
scheduled increases and for possible escalation of basic rentals based on a
change in the cost of living or on other factors. The Company expects to enter
into other contracts for additional office space, other facilities, equipment
and maintenance services in the future.
A summary of such fixed commitments at December 31, 1997, is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1998.............................................................. $ 575,000
1999.............................................................. 584,000
2000.............................................................. 595,000
2001.............................................................. 475,000
2002.............................................................. 500,000
Thereafter........................................................ 4,784,000
----------
Total........................................................... $7,513,000
==========
</TABLE>
Rent expense under operating leases for office rent and rent for leasing
fiber optic transmission facilities was approximately $6,488 for the period
from May 31, 1996, to December 31, 1996, and $651,159 for the year ended
December 31, 1997.
In the ordinary course of business, the Company is involved in various
regulatory matters (Note 2), proceedings and claims. In the opinion of the
Company's management, the outcome of such proceedings will not have a
materially adverse effect on the Company's financial position, results of
operations or cash flows.
10. STOCK PURCHASE AGREEMENT
On November 27, 1996, the Company entered into a Stock Purchase Agreement
(the "Agreement") with Institutional Investors and Executives ("Investors"),
as defined in the Agreement. The Agreement resulted in 79,384 shares of Class
A Common Stock, par value $.01 per share being issued for an aggregate
purchase price of $4 million, and subsequent transactions in which Investors
will make pro-rata contributions to the capital of the Company (with no
additional shares being issued) of up to an additional $21.8 million (total
investment of up to $25.8 million). Total capital contributions to the Company
for the issuance of Class A common were $4,025,000 and $8,275,000 for the
period from May 31, 1996, to December 31, 1996, and for the year ended
December 31, 1997, respectively.
F-13
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to the closing of the Agreement, the Company sold 77 shares and
846 shares of Class A Common shares to Designees (as defined in the Agreement)
of the Institutional Investors, for a total purchase price of $25,000 and
$275,000 for the period from May 31, 1996, to December 31, 1996, and for the
year ended December 31, 1997, respectively.
As part of the Agreement, the Company and Executives' existing common stock
held by the executives converted into newly issued Class B common and Class C
common shares (the "Exchange"). The closing of the Exchange and issuance of
Class B common and Class C common shares took place simultaneously with the
initial closing of the issuance of Class A common shares under the Agreement.
A summary of the Company's Class A, B and C common stock is as follows:
Class A Common--A total of 85,567 shares have been authorized and 79,461 and
80,307 are issued and outstanding as of December 31, 1996 and 1997,
respectively. Institutional Investors, as defined, who hold Class A common
shares have the right to put the shares to the Company at fair market value
(Notes 11 and 14). Once the put right is exercised by the Institutional
Investors, the Executive Investors and Designees of the Institutional
Investors have the right to participate in the put option as to all, but not
less than all, of the shares of Class A common owned by them and pursuant to
the Agreement. The Class A common held by Institutional Investors have demand
registration rights, all Class A common stockholders have voting rights,
piggyback registration rights, participate in earnings and dividends and other
preference features, as defined.
Class B Common--A total of 35,000 shares have been authorized and 20,000
shares are issued and outstanding as of December 31, 1996 and 1997. Class B
common stockholders have voting rights, piggyback registration rights,
participate in earnings and dividends and other preference features, as
defined. The Executive Stock Agreement ("ESA") provides vesting for Class B
common of 20% at the closing of the Agreement and an additional 20% on each of
the four anniversaries of the closing date of the Agreement. The ESA also
provides for vesting acceleration upon the occurrence of certain events (as
defined): (a) qualified sale of the Company; (b) qualified reorganization; and
(c) public offering of the Company's stock.
Class C Common--A total of 15,000 shares have been authorized and 14,711
shares are issued and outstanding as of December 31, 1996 and 1997. Class C
common stockholders have voting rights in which the executives have named the
Institutional Investors as their proxies to vote all unvested Class C common
shares. The ESA and other vesting agreements, under the Agreement, provide
vesting of the Class C common shares. Under the vesting agreements, the Class
C common shares vest, based upon certain triggering events (as defined),
including: (a) qualified sale of the Company; (b) qualified liquidation of the
Company; and (c) public offering of the Company's stock. The Class C common
shares will be automatically forfeited on November 27, 2003 if a triggering
event does not occur. Once a triggering event takes place the vesting of Class
C common shares will also be subject to vesting under the ESA which provides
vesting at 20% at the closing of the agreement and an additional 20% on each
of the four anniversaries of the closing date (November 27, 1996). Pursuant to
the vesting agreements, upon the vesting of any shares of Class C common an
equal number of shares of Class A common held by the Institutional Investors
will be forfeited. At the time of a triggering event the Company will be
subject to a compensation charge equal to the value transferred to the Class C
common stockholders.
11. REDEEMABLE COMMON STOCK
As defined in the Agreement (Note 10), Institutional Investors which hold an
aggregate of 78,461 shares of Class A common shares have the right to put the
shares to the Company on or after November 27, 2003, at the greater of the
initial purchase price per share of Class A common owned by the Institutional
Investors or fair market value, as defined in the Agreement. Once the put
right is exercised by the Institutional Investors, the Executive Investors and
Designees of the Institutional Investors have the right to participate in the
put option as to all, but not less than all, of the shares of Class A common
owned by them and pursuant to the Agreement.
F-14
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
This put right automatically terminates upon the closing of an initial public
offering, as defined. The Company records accretion each quarter to the
expected redemption value at November 27, 2003, based on the effective
interest method.
Although management has not obtained an appraisal of the fair market value
of the Company, certain public equity transactions have occurred within the
industry upon which management has based its estimate on the potential
redemption value of the aforementioned shares to be $333 and $325 per share as
of December 31, 1997 and 1996, respectively. The Company recorded accretion
totaling $103,565 and $0 for the year ended December 31, 1997, and for the
period from May 31, 1996, to December 31, 1996, respectively.
On January 23, 1998, the Agreement was amended and the aforementioned put
right was replaced by a provision which would allow the Class A common
Institutional Investors, Executive Investors, and Designees of Institutional
Investors, as defined, to require the Company to voluntarily liquidate. The
Institutional Investors at any time and from time to time on or after November
27, 2003, but not after the consummation of a public offering, shall have the
right to require the Company to voluntarily liquidate the assets of the
Company. Upon receipt of notice of the required liquidation, the Company may
elect to purchase all but not less than all of the Institutional Investors'
Class A common shares.
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest and noncash investing and financing activities for
the year ended December 31, 1997, was as follows:
<TABLE>
<S> <C>
Cash paid during the year for interest............................. $ 94,533
========
Fixed assets acquired under capital leases......................... $ 68,589
========
Payments made under capital leases................................. $ 12,675
========
Accretion to redemption value of Class A common stock.............. $103,565
========
</TABLE>
13. SELECTED CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
LST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1996 (for period from May
31, 1996 (commencement of
operations), to
December 31, 1996)--
Revenues................... $ -- $ -- $ -- $ --
Loss from operations....... -- -- (21,650) (401,277)
Net loss applicable to
common stockholders....... (21,650) (383,651)
========= ========= ========== ==========
Basic and diluted net loss
per share................. $ -- $ -- $ (1.08) $ (7.77)
========= ========= ========== ==========
1997--
Revenues................... $ -- $ 86,907 $1,226,076 $2,710,707
Income (loss) from
operations................ (432,526) (820,686) (461,382) 80,115
Net income (loss)
applicable to
common stockholders....... (415,492) (794,257) (466,446) 5,777
========= ========= ========== ==========
Basic and diluted net
income (loss)
per share................. $ (4.18) $ (7.92) $ (4.65) $ .06
========= ========= ========== ==========
</TABLE>
F-15
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUBSEQUENT EVENT AND PRO FORMA FINANCIAL DATA
On January 23, 1998, the Company amended its Stock Purchase Agreement (Notes
10 and 11). As a result of the amendment, the redeemable Class A common stock
was reclassified into permanent equity during the first quarter of 1998. The
audited pro forma consolidated balance sheet gives effect to this item as if
the amendment was effective on November 27, 1996 (effective date of Stock
Purchase Agreement).
On February 13, 1998, the Company received the remaining $13.8 million of
capital contributions from Investors, as defined in the Stock Purchase
Agreement (Note 10).
On February 18, 1998, the Company closed its Offering of 12.125% Senior
Discount Notes, maturing on February 15, 2008, which resulted in gross
proceeds of $150,027,606.
F-16
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PRO-
SPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANY-
ONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 12
The Exchange Offer....................................................... 22
Use of Proceeds.......................................................... 30
Capitalization........................................................... 30
Selected Consolidated Financial and Operating Data....................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 36
Management............................................................... 48
Security Ownership of Certain Beneficial Owners and Management........... 55
Certain Transactions..................................................... 57
Description of Capital Stock............................................. 57
Description of the Exchange Notes........................................ 60
Plan of Distribution..................................................... 90
Certain United States Federal Income Tax Considerations.................. 91
Legal Matters............................................................ 96
Independent Public Accountants........................................... 96
Available Information.................................................... 96
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$270,000,000
FOCAL COMMUNICATIONS CORPORATION
OFFER TO EXCHANGE ITS 12.125% SENIOR DISCOUNT NOTES DUE 2008, SERIES B FOR ANY
AND ALL OF ITS OUTSTANDING 12.125% SENIOR DISCOUNT NOTES DUE 2008
[LOGO]
----------------
PROSPECTUS
DATED , 1998
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law. The Company has statutory authority to
indemnify the officers and directors. The applicable provisions of the DGCL
state that, to the extent such person is successful on the merits or
otherwise, a corporation may indemnify any person who was or is a party or who
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise ("such Person"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such Person, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. In
any threatened, pending or completed action by or in the right of the
corporation, a corporation also may indemnify any such Person for costs
actually and reasonably incurred by him in connection with that action's
defense or settlement, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation;
however, no indemnification shall be made with respect to any claim, issue or
matter as to which such Person shall have been adjudged to be liable to the
corporation, unless and only to the extent that a court shall determine that
such indemnity is proper.
Under the applicable provisions of the DGCL, any indemnification shall be
made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable
standard of conduct. Such determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum consisting
of directors who are not parties to such action, suit or proceeding; or
(2) If such a quorum is not obtainable or, even if obtainable, a quorum
of disinterested directors so directs, by independent legal counsel in a
written opinion; or
(3) By the affirmative vote of a majority of the shares entitled to vote
thereon.
The Company's Certificate of Incorporation provides for indemnification to
the full extent permitted by the laws of the State of Delaware against and
with respect to threatened, pending or completed actions, suits or proceedings
arising from or alleged to arise from, a party's actions or omissions as a
director, officer, employee or agent of the Company or of any subsidiary of
the Company or of any other corporation, partnership, joint venture, trust or
other enterprise which he has served in such capacity at the request of the
Company if such acts or omissions occurred or were or are alleged to have
occurred, while said party was a director or officer of the Company.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Purchase Agreement with Salomon Brothers Inc, Morgan Stanley & Co.
Incorporated, and NationsBanc Montgomery Securities LLC, dated
February 12, 1998.
2.1 Plan of Reorganization and Agreement by and among Focal Communications
Corporation and its Subsidiaries, dated June 12, 1997.
3.1 Certificate of Incorporation
3.2 By-Laws
4.1 Indenture with Harris Trust and Savings Bank, dated February 18, 1998.
4.2 Initial Global 12.125% Senior Discount Note Due February 15, 2008,
dated February 18, 1998.
4.3 Exchange and Registration Agreement with Salomon Brothers Inc, Morgan
Stanley & Co. Incorporated, and NationsBanc Montgomery Securities LLC,
dated February 18, 1998.
4.4 Exchange Agent Agreement with Harris Trust and Savings Bank, dated
, 1998.*
4.5 Stock Purchase Agreement with Madison Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated November 27,
1996.
4.6 Amendment to Stock Purchase Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P., Battery Ventures III, L.P., Brian
F. Addy, John R. Barnicle, Joseph Beatty, and Robert C. Taylor Jr.,
dated January 23, 1998.
4.7 Executive Investor Stock Pledge Agreement with Brian F. Addy, dated
November 27, 1996.
4.8 Executive Investor Stock Pledge Agreement with John R. Barnicle, dated
November 27, 1996.
4.9 Executive Investor Stock Pledge Agreement with Joseph A. Beatty, dated
November 27, 1996.
4.10 Executive Investor Stock Pledge Agreement with Robert C. Taylor, Jr.,
dated November 27, 1996.
4.11 Stockholders Agreement with Madison Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated November 27,
1996.
4.12 Executive Stock Agreement and Employment Agreement with Brian F. Addy,
dated November 27, 1996.
4.13 Executive Stock Agreement and Employment Agreement with John R.
Barnicle, dated November 27, 1996.
4.14 Executive Stock Agreement and Employment Agreement with Joseph A.
Beatty, dated November 27, 1996.
4.15 Executive Stock Agreement and Employment Agreement with Robert C.
Taylor, Jr., dated November 27, 1996.
4.16 Registration Agreement with Madison Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated November 27,
1996.
5.1 Opinion of Ross & Hardies
8.1 Tax Opinion of Ross & Hardies
10.1 Interconnection Agreement with Ameritech Information Industry
Services, dated October 28, 1996.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.2 Interconnection Agreement with Ameritech Information Industry
Services, dated October 24, 1997.
10.3 Interconnection Agreement with New York Telephone Company, dated
November 10, 1997.
10.4 Amended and Restated Interconnection Agreement with Ameritech
Information Industry Services, dated March 16, 1998.
10.5 Network Products Purchase Agreement with Northern Telecom Inc., dated
January 21, 1997.*
10.6 Amendment No. 1 to Network Products Purchase Agreement with Northern
Telecom Inc., dated June 10, 1997.*
10.7 Lease Agreement for property located at 200 North LaSalle, Chicago,
IL, dated December 31, 1996.
10.8 First Amendment to Lease Agreement for property located at 200 North
LaSalle, Chicago, IL, dated May 14, 1997.
10.9 Second Amendment to Lease Agreement for property located at 200 North
LaSalle, Chicago, IL, dated November 15, 1997.
10.10 Third Amendment to Lease Agreement for property located at 200 North
LaSalle, Chicago, IL, dated March 2, 1998.
10.11 Lease Agreement for property located at 32 Old Slip, New York, NY,
dated May 20, 1997.
10.12 Lease Agreement for property located at 650 Townsend Street, San
Francisco, CA, dated January 26, 1998.
10.13 Lease Agreement for property located at 701 Market Street,
Philadelphia, Pennsylvania, dated March 10, 1998.
10.14 1997 Non-Qualified Stock Option Plan, adopted February 27, 1997.
10.15 Form of Stock Option Agreement
10.16 Employment Agreement with Renee M. Martin, dated March 20, 1998
10.17 Software License with DPI/TFS, Inc., dated April 10, 1997*
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
Consent of Ross & Hardies (included as part of its opinions filed as
23.2 Exhibits 5.1 and 8.1 hereto)
24.1 Powers of Attorney (included on signature pages hereof)
25.1 Statement of Eligibility of Trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
* To be filed by amendment
(B) Financial Statement Schedules.
Schedules not listed have been omitted because they are inapplicable or the
information required to be set forth therein is provided in the Consolidated
Financial Statements of the Company or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
II-3
<PAGE>
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, office or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this Registration Statement when it became effective.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the time
it was declared effective.
The undersigned registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement related 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.
The undersigned registrant hereby undertakes 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 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
The undersigned registrant hereby undertakes 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 , 1998.
Focal Communications Corporation
/s/ Robert C. Taylor, Jr.
By: _________________________________
ROBERT C. TAYLOR, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert C. Taylor, Jr. and Joseph A. Beatty, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in furtherance of the foregoing, as fully to all intents and purposes as
the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on , 1998.
SIGNATURE TITLE(S)
/s/ Robert C. Taylor, Jr. President, Chief Executive Officer and
- ------------------------------------- Director
ROBERT C. TAYLOR, JR.
/s/ John R. Barnicle Executive Vice President, Chief
- ------------------------------------- Operating Officer, Assistant
JOHN R. BARNICLE Secretary, and Director
/s/ Joseph A. Beatty Executive Vice President, Chief
- ------------------------------------- Financial Officer, Treasurer and
JOSEPH A. BEATTY Secretary
/s/ Robert M. Junkroski Controller (Chief Accounting Officer)
- -------------------------------------
ROBERT M. JUNKROSKI
/s/ James E. Crawford, III Director
- -------------------------------------
JAMES E. CRAWFORD, III
/s/ Paul T. Finnegan Director
- -------------------------------------
PAUL T. FINNEGAN
Director
- -------------------------------------
RICHARD D. FRISBIE
/s/ James N. Perry Director
- -------------------------------------
JAMES N. PERRY, JR.
/s/ Paul G. Yovovich Director
- -------------------------------------
PAUL G. YOVOVICH
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
(LOCATION
OF
DOCUMENT IN
SEQUENTIAL
NUMBERING
SYSTEM) DESCRIPTION OF DOCUMENT
----------- -----------------------
<C> <S>
1.1 Purchase Agreement with Salomon Brothers Inc, Morgan Stanley & Co.
Incorporated, and NationsBanc Montgomery Securities LLC, dated
February 12, 1998.
2.1 Plan of Reorganization and Agreement by and among Focal
Communications Corporation and its Subsidiaries, dated June 12,
1997.
3.1 Certificate of Incorporation
3.2 By-Laws
4.1 Indenture with Harris Trust and Savings Bank, dated February 18,
1998.
4.2 Initial Global 12.125% Senior Discount Note Due February 15, 2008,
dated February 18, 1998.
4.3 Exchange and Registration Agreement with Salomon Brothers Inc,
Morgan Stanley & Co. Incorporated, and NationsBanc Montgomery
Securities LLC, dated February 18, 1998.
4.4 Exchange Agent Agreement with Harris Trust and Savings Bank, dated
, 1998.*
4.5 Stock Purchase Agreement with Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P., Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty, and Robert C. Taylor Jr.,
dated November 27, 1996.
4.6 Amendment to Stock Purchase Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty, and Robert
C. Taylor Jr., dated January 23, 1998.
4.7 Executive Investor Stock Pledge Agreement with Brian F. Addy,
dated November 27, 1996.
4.8 Executive Investor Stock Pledge Agreement with John R. Barnicle,
dated November 27, 1996.
4.9 Executive Investor Stock Pledge Agreement with Joseph A. Beatty,
dated November 27, 1996.
4.10 Executive Investor Stock Pledge Agreement with Robert C. Taylor,
Jr., dated November 27, 1996.
4.11 Stockholders Agreement with Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P., Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty, and Robert C. Taylor Jr.,
dated November 27, 1996.
4.12 Executive Stock Agreement and Employment Agreement with Brian F.
Addy, dated November 27, 1996.
4.13 Executive Stock Agreement and Employment Agreement with John R.
Barnicle, dated November 27, 1996.
4.14 Executive Stock Agreement and Employment Agreement with Joseph A.
Beatty, dated November 27, 1996.
4.15 Executive Stock Agreement and Employment Agreement with Robert C.
Taylor, Jr., dated November 27, 1996.
4.16 Registration Agreement with Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P., Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty, and Robert C. Taylor Jr.,
dated November 27, 1996.
5.1 Opinion of Ross & Hardies
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
(LOCATION
OF
DOCUMENT IN
SEQUENTIAL
NUMBERING
SYSTEM) DESCRIPTION OF DOCUMENT
----------- -----------------------
<C> <S>
8.1 Tax Opinion of Ross & Hardies
10.1 Interconnection Agreement with Ameritech Information Industry
Services, dated October 28, 1996.
10.2 Interconnection Agreement with Ameritech Information Industry
Services, dated October 24, 1997.
10.3 Interconnection Agreement with New York Telephone Company, dated
November 10, 1997.
10.4 Amended and Restated Interconnection Agreement with Ameritech
Information Industry Services, dated March 16, 1998.
10.5 Network Products Purchase Agreement with Northern Telecom Inc.,
dated January 21, 1997.*
10.6 Amendment No. 1 to Network Products Purchase Agreement with
Northern Telecom Inc., dated June 10, 1997.*
10.7 Lease Agreement for property located at 200 North LaSalle,
Chicago, IL, dated December 31, 1996.
10.8 First Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated May 14, 1997.
10.9 Second Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated November 15, 1997.
10.10 Third Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated March 2, 1998.
10.11 Lease Agreement for property located at 32 Old Slip, New York, NY,
dated May 20, 1997.
10.12 Lease Agreement for property located at 650 Townsend Street, San
Francisco, CA, dated January 26, 1998.
10.13 Lease Agreement for property located at 701 Market Street,
Philadelphia, Pennsylvania, dated March 10, 1998.
10.14 1997 Non-Qualified Stock Option Plan, adopted February 27, 1997.
10.15 Form of Stock Option Agreement
10.16 Employment Agreement with Renee M. Martin, dated March 20, 1998
10.17 Software License with DPI/TFS, Inc., dated April 10, 1997*
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ross & Hardies (included as part of its opinions filed
as Exhibits 5.1 and 8.1 hereto)
24.1 Powers of Attorney (included on signature pages hereof)
25.1 Statement of Eligibility of Trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
* To be filed by amendment
(B) Financial Statement Schedules.
Schedules not listed have been omitted because they are inapplicable or the
information required to be set forth therein is provided in the Consolidated
Financial Statements of the Company or notes thereto.
2
<PAGE>
Exhibit 1.1
FOCAL COMMUNICATIONS CORPORATION
$270,000,000
12.125% Senior Discount Notes due 2008
PURCHASE AGREEMENT
New York, New York
February 12, 1998
Salomon Brothers Inc
Morgan Stanley & Co. Incorporated
NationsBanc Montgomery Securities LLC
In care of Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Focal Communications Corporation (the "Company"), a Delaware
corporation, proposes to issue and sell to you (the "Initial Purchasers"),
$270,000,000 aggregate stated principal amount at maturity of its 12.125% Senior
Discount Notes due 2008 (the "Notes"). The Notes are to be issued under an
indenture (the "Indenture") dated as of February 18, 1998 between the Company
and Harris Trust and Savings Bank, as trustee (the "Trustee").
The sale of the Notes to the Initial Purchasers will be made without
registration of the Notes under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereunder in
compliance with Rule 144A under the Securities Act. The Initial Purchasers have
advised the Company that the Initial Purchasers will offer and sell the Notes
purchased by them hereunder in accordance with Section 4 hereof on the terms set
forth in the Final Memorandum
<PAGE>
(as defined below) as soon as the Initial Purchasers deem advisable after this
Purchase Agreement (the "Agreement") has been executed and delivered.
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum, dated January 30, 1998 (the "Preliminary
Memorandum") and a final offering memorandum, dated February 12, 1998 (the
"Final Memorandum"). Each of the Preliminary Memorandum and the Final
Memorandum sets forth certain information concerning the Company and the Notes.
The Company hereby confirms that it has authorized the use of the Preliminary
Memorandum and the Final Memorandum, and any amendment or supplement thereto, in
connection with the offer and sale of the Notes by the Initial Purchasers.
Unless stated to the contrary, all references herein at the Execution Time (as
defined therein) and are not meant to include any amendment or supplement
subsequent to the Execution Time.
The holders of the Notes will be entitled to the benefits of the
Exchange and Registration Agreement dated the Closing Date (as defined herein)
among the Company and the Initial Purchasers (the "Registration Agreement") in
the form of Exhibit C attached hereto.
1. Representations and Warranties. The Company and the Executing
------------------------------
Subsidiaries represent and warrant to, and agree with, the Initial Purchasers as
set forth below in this Section 1.
(a) The Preliminary Memorandum, at the date thereof did not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The Final
Memorandum at the date hereof and at all times subsequent hereto up to
and including the Closing Date, does not, and will not (and, together
with any amendment or supplement thereto, at the date thereof and at the
Closing Date, will not), contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no
-------- -------
representation or warranty as to the information contained in or omitted
from the Preliminary Memorandum, or the Final Memorandum, or any
amendment or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the
Initial Purchasers specifically for inclusion therein.
(b) Neither the Company, nor any of its Affiliates (as defined in
Rule 501(b) of Regulation D of the Securities Act ("Regulation D")), nor
any person acting on its or their behalf has, directly or indirectly, (i)
made offers or sales of any security, or solicited offers to buy any
security, under circumstances that would require the registration of the
Notes under the Securities Act or (ii) has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D)
or in any manner or action involving a public offering within the meaning
of Section 4(2) of the Act in connection with the offering of
2
<PAGE>
the Notes (provided that no representation is made as to the Initial
--------
Purchasers or any person acting on their behalf).
(c) Assuming (i) that the representations and warranties of the
Initial Purchasers in Section 4 hereof are true and (ii) compliance by
the Initial Purchasers with the covenants set forth in Section 4 hereof,
it is not necessary in connection with the offer, sale and delivery of
the Notes in the manner contemplated by this Agreement and the Final
Memorandum or in connection with the initial resale of the Notes by the
Initial Purchasers in accordance with this Agreement and the Final
Memorandum to register the Notes under the Securities Act or to qualify
the Indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act").
(d) The Notes satisfy the eligibility requirements set forth in
Rule 144A(d)(3) under the Securities Act.
(e) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf has engaged in any directed selling
efforts (as defined in Regulation S under the Securities Act ("Regulation
S")) with respect to the Notes, and each of them has complied with the
offering restrictions requirement of Regulation S (provided that no
--------
representation is made as to the Initial Purchasers or any person acting
on their behalf).
(f) The Company reasonably believes that there is no substantial
U.S. market interest (as defined in Regulation S) in the Notes.
(g) The Company agrees to permit the Notes to be designated
PORTAL eligible securities and will pay the requisite fees related
thereto.
(h) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), without taking account of any exemption arising out of the
number of holders of the Company's securities.
(i) The Company has not paid or agreed to pay to any person any
compensation for soliciting another to purchase any Notes (except as
contemplated by this Agreement and as disclosed in the Final Memorandum).
(j) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with
any offering of the Notes.
(k) The information provided by the Company pursuant to Section
5(k) hereof will not, at the date thereof, contain any untrue statement
of a material fact
3
<PAGE>
or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(l) Each of the Company and its subsidiaries (all of which are
listed in Annex I hereto) (individually a "Subsidiary" and collectively
the "Subsidiaries") has been duly incorporated and is validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation, with the requisite corporate power and capacity to own its
material properties and conduct its business and proposed business as
described in, and contemplated by, the Final Memorandum; and each of the
Company and its subsidiaries is duly qualified or registered to carry on
business as a corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business
requires such qualification or registration, other than where the failure
to so qualify or register could not reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
financial condition or business, proposed business as described in the
Final Memorandum, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole (a "Material Adverse
Effect"). Neither the Company nor any of its Subsidiaries is in
liquidation, administration or receivership nor has any petition been
presented for the winding up of the Company or any of its Subsidiaries.
(m) The Company is a holding company which derives all of its
revenues from the operations of its Subsidiaries. The Company does not
have any investment in any person other than its investments in its
Subsidiaries.
(n) Neither the Company nor any of its Subsidiaries is in
violation of its articles or by-laws or in default in the performance of
any indenture or other agreement or instrument to which it is a party or
by which it is bound or to which it or any of its properties is subject,
which default or defaults individually or in the aggregate would have a
Material Adverse Effect.
(o) Except as otherwise set forth in the Final Memorandum, the
(i) issuance and sale of the Notes to the Initial Purchasers by the
Company pursuant to this Agreement, (ii) execution, delivery and
performance of this Agreement, the Registration Agreement and the
Indenture by the Company, (iii) compliance by the Company and the
Executing Subsidiaries with all the provisions hereof and thereof and
(iv) consummation on the Closing Date of the transactions contemplated
hereby and thereby by the Company and the Executing Subsidiaries do not
require any consent, permission, authorization, approval or order of, or
filing or registration with or notice to, any court, regulatory body,
administrative agency or other governmental body (except as may be
required under blue sky laws of the various states of the United States
and those consents, permissions, authorizations, approvals, orders,
filings, registrations or notices which have been obtained or made, as
the case may be, or may be obtained or
4
<PAGE>
made, as the case may be, pursuant to the Registration Agreement) and do
not and will not conflict with, or constitute a breach or a violation of
any of the terms or provisions of, or a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any Subsidiary under, (i) the
articles, by-laws or other governing documents of the Company or any
Subsidiary, (ii) any material statute, rule or regulation applicable to
the Company or any Subsidiary or any order of any governmental agency or
body or any court having jurisdiction over the Company or any Subsidiary
or any of their respective properties, (iii) any agreement or instrument
relating to borrowed money to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is bound or to which any
of their respective properties is subject, or (iv) any other material
agreement or instrument to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary is bound or to which any of
their respective properties is subject.
(p) (i) There are no restrictions (other than restrictions which
have been waived) on the corporate power and capacity of the Company to
enter into this Agreement, the Indenture and the Registration Agreement,
to execute and sell the Notes, or to carry out its obligations hereunder
and thereunder; (ii) the execution and delivery of this Agreement, the
Indenture and the Registration Agreement and the consummation on the
Closing Date of the transactions contemplated herein and therein have
been duly authorized by all necessary corporate action on the part the
Company; (iii) this Agreement has been duly executed and delivered by and
constitutes a valid and binding obligation of the Company and is
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other laws relating to or affecting creditors' rights and
remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity); (iv)
when duly executed and delivered by the Company and the other parties
thereto, each of the Indenture and the Registration Agreement will
constitute valid and binding obligations of the Company and will be
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other laws relating to or affecting creditors' rights and
remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity).
(q) (i) There are no restrictions (other than restrictions which
have been waived) on the corporate power and capacity of either Focal
Communications Corporation of Illinois or Focal Communications
Corporation of New York (each an "Executing Subsidiary" and collectively,
the "Executing Subsidiaries") to enter into this Agreement; (ii) the
execution and delivery of this Agreement and the consummation on the
Closing Date of the transactions contemplated herein have been duly
authorized by all necessary corporate action on the part of each of the
5
<PAGE>
Executing Subsidiaries; (iii) this Agreement has been duly executed and
delivered by each of the Executing Subsidiaries and constitutes a valid
and binding obligation of each of the Executing Subsidiaries and is
enforceable against each of the Executing Subsidiaries in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other laws relating to or affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at
law or in equity).
(r) All of the issued and outstanding shares of capital stock of,
or other ownership interests in, each of the Subsidiaries have been duly
authorized and validly issued and, with the exception of the outstanding
shares of capital stock of Focal Communications Corporation of Virginia,
all of which are registered in the name of Focal Communications
Corporation of the Mid-Atlantic, a wholly owned subsidiary of the
Company, all of the shares of capital stock of, or other ownership
interests in, each of the Subsidiaries are owned beneficially and of
record directly by the Company. All such shares of capital stock are
fully paid and nonassessable, and are owned free and clear of any lien
(other than the lien granted in connection with the bank credit facility
of Focal Communications Corporation of Illinois, which lien will be
released upon application of the proceeds from the sale of the Notes).
There are no outstanding subscriptions, rights, warrants, options, calls,
convertible or exchangeable securities, commitments of sale or liens
related to, or entitling any person to purchase or otherwise to acquire
any shares of, the capital stock of, or other ownership interest in, any
of the Subsidiaries.
(s) The authorized capital stock of the Company as of February
12, 1998 is as set forth in the Final Memorandum under "Description of
Capital Stock"; all the issued and outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully
paid and nonassessable; the capital stock of the Company conforms in all
material respects to all statements relating thereto in the Final
Memorandum.
(t) The Notes have been duly authorized for issuance and sale by
the Company to the Initial Purchasers and will, upon execution and
delivery of the Indenture, and when issued, executed and delivered in
accordance with the Indenture, and paid for in accordance with the terms
of this Agreement, constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms
and be entitled to the benefits of the Indenture, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
and other laws relating to or affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
6
<PAGE>
(u) The statements set forth in the Final Memorandum under the
captions "Risk Factors", "Business", "Management", "Security Ownership of
Certain Beneficial Owners and Management", "Certain Transactions",
"Description of the Notes", "Description of Capital Stock", "Exchange
Offer; Registration Rights", "Certain United Federal Income Tax
Considerations", "Plan of Distribution", and "Notice to Investors",
insofar as they describe the provisions of the laws and documents
referred to therein, are accurate, complete and fair.
(v) Except as disclosed in the Final Memorandum, (i) there are no
legal or governmental actions, suits or proceedings pending or, to the
best knowledge of the Company or the Executing Subsidiaries, threatened
to which the Company or any of its Subsidiaries is or is threatened to be
made a party or of which property owned or leased by the Company or any
of its Subsidiaries is or is threatened to be made the subject, which
actions, suits or proceedings could, individually or in the aggregate,
have a Material Adverse Effect, or materially and adversely affect the
ability of the Company to perform its obligations under this Agreement,
the Indenture, the Registration Agreement or the Notes or to consummate
the transactions contemplated hereby and thereby, and (ii) no labor
disturbance by the employees of the Company or any of its Subsidiaries
exists or, to the best of the Company's knowledge, is imminent, in either
case which could have a Material Adverse Effect or which could materially
and adversely affect the ability of the Company to perform its
obligations under this Agreement, the Indenture, the Registration
Agreement or the Notes or to consummate the transactions contemplated
hereby and thereby. Except as disclosed in the Final Memorandum, neither
the Company nor any of its Subsidiaries is a party or subject to the
provisions of any material injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body
(other than orders of regulatory bodies and administrative agency which
are generally applicable to similarly situated telecommunications
company).
(w) The Company has not received any notice of, nor does it have
any actual knowledge of, any failure by it or any of its Subsidiaries to
be in compliance with all existing statutes and regulations, ordinances,
administrative or governmental rules or regulations or court decrees
applicable to it or any of its Subsidiaries, which failure could have a
Material Adverse Effect.
(x) The Company and its Subsidiaries are conducting business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which they conduct business, including, without
limitation, all applicable environmental laws and regulations, except
where the failure to be so in compliance would not have a Material
Adverse Effect.
(y) Except as disclosed in the Final Memorandum, the Company and
its Subsidiaries have good and marketable title to all material real
properties and all
7
<PAGE>
other material properties and assets owned by them, in each case free
from liens, encumbrances and defects, other than those which do not,
individually or in the aggregate, have a Material Adverse Effect. Except
as disclosed in the Final Memorandum, the Company and its Subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions, other than those which do not, individually or
in the aggregate, have a Material Adverse Effect.
(z) The Company and its Subsidiaries hold all Federal
Communications Commission ("FCC") licenses or authorizations and possess
adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them, other than those the absence of which could not
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect and have not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or its
Subsidiaries, could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
(aa) The Company and its Subsidiaries own or possess adequate
trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual
property (collectively, the "Intellectual Property") necessary to conduct
the business now operated by them, other than those the absence of which
could not, individually or in the aggregate, have a Material Adverse
Effect. With respect to the Intellectual Property presently employed by
the Company or its Subsidiaries, neither the Company nor any of its
Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any Intellectual Property that,
if determined adversely to the Company or any of its Subsidiaries, could
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect.
(bb) The Company and its Subsidiaries comply with all
Environmental Laws (as defined below), except to the extent that failure
to comply with such Environmental Laws could not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect;
neither the Company nor any of its Subsidiaries is the subject of any
pending or, to the best knowledge of the Company, threatened federal,
state or local investigation evaluating whether any remedial action by
the Company or any of its Subsidiaries is needed to respond to a release
of any Hazardous Materials (as defined below) into the environment,
resulting from the Company's or of the Company or any of its Subsidiaries
business properties or assets of the Company or any of its Subsidiaries,
or whether the Company or any of its Subsidiaries is in contravention of
any Environmental Law; neither the Company nor any of its Subsidiaries
has received any notice or claim, nor are there pending or, to the best
knowledge of the Company, threatened
8
<PAGE>
lawsuits against them, with respect to violations of any Environmental
Law or in connection with any release of any Hazardous Materials into the
environment; as used herein, "Environmental Laws" means any federal,
state or local law, regulation, permit, rule or order of any governmental
authority, administrative body or court applicable to the Company's or of
the Company or any of its Subsidiaries business operations or the
ownership or possession of any of their properties or assets relating to
environmental matters, and "Hazardous Materials" means those substances
that are regulated by, or form the basis of liability under, any
Environmental Laws.
(cc) The consolidated financial statements (including all notes
thereto) included in the Final Memorandum present fairly the financial
position of the Company and its consolidated subsidiaries as of the dates
shown and their results of operations and cash flows for the periods
shown, and such financial statements have been prepared in conformity
with generally accepted accounting principles in the United States
applied on a consistent basis. The selected financial data and all
operating data included in the Final Memorandum present fairly the
information shown therein and have been compiled on a basis consistent
with that of the audited consolidated financial statements included in
the Final Memorandum.
(dd) Except as disclosed in the Final Memorandum, since the date
of the latest audited consolidated financial statements included in the
Final Memorandum there has been no change, development or event which
could reasonably be expected to have a Material Adverse Effect and there
has been no dividend or distribution of any kind declared, paid or made
by the Company on any class of its capital stock. The Company shall have,
prior to the Closing Date, received $13.8 million of additional capital
from the Equity Investors (as defined in the Final Memorandum) as
described in the Final Memorandum and, as a result of the amendment of
the Stock Purchase Agreement, the Company's Redeemable Class A Common
Stock will be classified as permanent equity on the face of the Company's
financial statements for all periods subsequent to December 31, 1997.
(ee) The Final Memorandum or the Company's consolidated financial
statements contained therein disclose each agreement or other instrument
to which the Company or any Subsidiary is a party under which the Company
or any Subsidiary has indebtedness outstanding of $500,000 or more or is
entitled, subject to the satisfaction of conditions specified in such
agreement or instrument, to incur indebtedness in such amount. The
Company has disclosed to the Initial Purchasers and counsel to the
Initial Purchasers that it has no swap or other hedging or derivative
agreement or transaction to which the Company or any Subsidiary is a
party or may in any way be contingently liable.
9
<PAGE>
(ff) Arthur Andersen LLP, who are reporting on the audited
consolidated financial statements of the Company included in the Final
Memorandum, are independent public accountants in accordance with the
provisions of the Securities Act.
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
55.56578% of the stated principal amount at maturity thereof, plus accrued
original issue discount thereon, if any, from February 18, 1998 to the Closing
Date, the respective stated principal amount at maturity of Notes set forth
opposite such Initial Purchaser's name in Schedule I hereto. Concurrently with
the payment by the Initial Purchasers of the purchase price for the Notes, the
Company agrees to pay to the Initial Purchasers an underwriting commission equal
to 1.94480% of the total stated principal amount at maturity of Notes set forth
in Schedule I.
3. Delivery and Payment. Delivery of and payment for the Notes
--------------------
shall be made at 10:00 AM, New York City time, on February 18, 1998, or such
later date as the Initial Purchasers shall designate, which date and time may be
postponed by agreement between the Initial Purchasers and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Notes being herein called the "Closing Date"). Delivery of the Notes shall be
made to the Initial Purchasers for the respective accounts of the several
Initial Purchasers against payment by the several Initial Purchasers through
Salomon Brothers Inc of the purchase price thereof to or upon the order of the
Company by wire transfer in immediately available U.S. funds or such other
manner of payment as may be agreed by the Company and the Initial Purchasers not
less than two business days prior to the Closing Date. Delivery of the Notes
shall be made at such location as the Initial Purchasers shall reasonably
designate at least one business day in advance of the Closing Date and payment
for the Notes shall be made at the office of Ross & Hardies, 150 North Michigan
Avenue, Suite 2500, Chicago, Illinois. Certificates for the Notes shall be
registered in such names and in such denominations as the Initial Purchasers may
request not less than two full business days in advance of the Closing Date.
The Company agrees to have the certificates for the Notes
available for inspection by the Initial Purchasers in Chicago, Illinois, at the
offices of Ross & Hardies, not later than 1:00 PM on the business day prior to
the Closing Date .
4. Offering of Notes. (a) Each Initial Purchaser (i) represents
-----------------
and warrants to and agrees with the Company that it, its Affiliates and any
person acting on its or its Affiliates' behalf, have not solicited and will not
solicit any offer to buy or offer to sell the Notes by means of any form of
general solicitation or general advertising (within the meaning of Regulation D)
or in any manner involving a public offering within
10
<PAGE>
the meaning of Section 4(2) of the Securities Act, except pursuant to a
registered public offering as provided in the Registration Agreement or, with
respect to Notes sold in reliance on Regulation S, by means of any directed
selling efforts, (ii) acknowledges that it is purchasing the Notes pursuant to a
private sale exemption from registration under the Securities Act and that the
Notes have not been registered under the Securities Act and may not be offered
or sold except pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act or pursuant to an
effective registration statement under the Securities Act, and (iii) severally
and not jointly, represents and warrants to and agrees with the Company that:
(1) It has not offered or sold, and will not offer or sell, any
Notes except (A) to those it reasonably believes to be qualified
institutional buyers (as defined in Rule 144A under the Securities Act)
and that, in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of such Notes is aware that
such sale is being made in reliance on Rule 144A, or (B) in accordance
with the restrictions set forth in Exhibit A hereto.
(2) It is a qualified institutional buyer (as defined in Rule
144A) and will offer the Notes for resale only upon the terms and
conditions set forth in this Agreement and in the Final Memorandum.
5. Agreements. The Company agrees with each Initial Purchaser
----------
that:
(a) The Company will furnish to each Initial Purchaser and its
counsel, without charge, during the period referred to in paragraph (c)
below, as many copies of the Final Memorandum and any amendments and
supplements thereto as it may reasonably request. The Company will pay
the expenses of printing or other production of all documents relating to
the offering of the Notes.
(b) Except as set forth in paragraph (c) of this Section 5, the
Company will not amend or supplement the Final Memorandum prior to the
completion of the sale of the Notes by the Initial Purchasers without
prior consent of the Initial Purchasers, which consent will not be
unreasonably withheld.
(c) If at any time prior to the completion of the sale of the
Notes by the Initial Purchasers (as determined by the Initial
Purchasers), any event occurs as a result of which the Final Memorandum,
as then amended or supplemented, would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it should be necessary to amend or
supplement the Final Memorandum to comply with applicable law, the
Company will promptly notify the Initial Purchasers of the same and,
subject to the requirements of paragraph (b) of this Section 5, will
prepare and provide, at its own expense, to the Initial Purchasers
pursuant to paragraph (a) of this Section 5
11
<PAGE>
an amendment or supplement which will correct such statement or omission
or effect such compliance.
(d) The Company will promptly take such action as the Initial
Purchasers may reasonably request to qualify the Notes for sale by the
Initial Purchasers in the manner contemplated by this Agreement and under
the securities or blue sky laws of the United States as the Initial
Purchasers may designate and will maintain such qualifications in effect
so long as required for the sale of the Notes by the Initial Purchasers;
provided, however, that the Company shall not be required to amend its
-------- -------
articles or by-laws or to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction. The Company
will promptly advise the Initial Purchasers of the receipt by the Company
of any notification with respect to the suspension of the qualification
of the Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose.
(e) The Company will not, and will not permit any of its
Affiliates to, resell any Notes that have been acquired by any of them
except for any such Notes resold in a transaction registered under the
Securities Act or pursuant to an exemption therefrom.
(f) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf will, directly or indirectly, make
offers or sales of any security, or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Securities Act),
under circumstances that would require the registration of the Notes
under the Securities Act, except as contemplated in the Registration
Agreement.
(g) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf will engage in any form of general
solicitation or general advertising (within the meaning of Regulation D)
in connection with any offer or sale of the Notes in the United States,
except pursuant to a registered public offering as provided in the
Registration Agreement.
(h) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf will engage in any directed selling
efforts (as defined in Regulation S) with respect to the Notes, except
pursuant to a registered public offering as provided in the Registration
Agreement, and the Company, its Affiliates and each person acting on its
or their behalf will comply with the offering restrictions requirement of
Regulation S. Terms used in this paragraph have the meanings given to
them by Regulation S.
12
<PAGE>
(i) The Company will cooperate with the Initial Purchasers and
use its reasonable best efforts to permit the Notes to be eligible for
clearance and settlement through The Depository Trust Company.
(j) The Company and the Subsidiaries will not, until 90 days
following the date of the Final Memorandum, without the prior written
consent of Salomon Brothers Inc, offer, sell or contract to sell, grant
any option to purchase or otherwise dispose of, directly or indirectly,
or announce the offering of, any debt securities or any securities
exchangeable for debt securities or any securities exchangeable for debt
securities issued or guaranteed by the Company or any Subsidiary (other
than the Notes or pursuant to a registered public offering as provided in
the Registration Agreement), or enter into any agreement to do any of the
foregoing. The Company and the Subsidiaries will not at any time offer,
sell or contract to sell, grant any option to purchase or otherwise
dispose of, directly or indirectly, any securities under circumstances
where such offer, sale, contract or disposition would cause the exemption
afforded by Section 4(2) of the Securities Act or the safe harbor of
Regulation S thereunder to cease to be applicable to the offer and sale
of the Notes as contemplated by this Agreement and the Final Memorandum.
(k) So long as any of the Notes remain outstanding, the Company
will furnish to the holders of the Notes and to prospective investors (as
designated by holders of the Notes ), upon the request of such holders or
prospective investors, any information required to be delivered by Rule
144A(d)(4) under the Securities Act. In the event the Company is
required to file information, documents or other reports with the
Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of
the Exchange Act, the Company will furnish copies thereof to the holders
of the Notes at the time the Company is required to file the same with
the Trustee under the Indenture and will make such information, documents
or other reports available to prospective investors who request it in
writing. This covenant is intended to be for the benefit of the holders
of the Notes, and prospective investors in the Notes.
(l) The Company will not be or become an open-end investment
company, unit investment trust, closed-end investment company or face-
amount certificate company that is or is required to be registered under
the Investment Company Act.
(m) The Company shall include information substantially in the
form set forth in Exhibit B in each Final Memorandum.
(n) The Company will apply the net proceeds from the sale of the
Notes sold by it substantially in accordance with its statements under
the caption "Use of Proceeds" in the Final Memorandum.
13
<PAGE>
(o) Neither the Company nor any of its Subsidiaries will take,
directly or indirectly, any action which is designed to or which
constitutes or which might reasonably be expected to cause or result in
any act prohibited by Regulation M.
(p) The Notes will bear the legend set forth in Exhibit A until
such legend shall no longer be necessary or advisable because the Notes
are no longer subject to the restrictions of transfer described therein.
(q) The Company and the Executing Subsidiaries will do and
perform all things required by it prior to or after the Closing Date and
to satisfy all conditions precedent on its part prior to delivery of the
Notes.
6. Conditions to the Obligations of the Initial Purchasers. The
-------------------------------------------------------
obligations of the Initial Purchasers to purchase the Notes shall be subject to
the continued accuracy of the representations and warranties on the part of the
Company and the Executing Subsidiaries contained herein at the date and time
that this Agreement is executed and delivered by the parties hereto (the
"Execution Time"), and at the Closing Date to the accuracy of the statements of
the Company and the Executing Subsidiaries made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Executing
Subsidiaries of their respective obligations hereunder and to the following
additional conditions:
(a) The Company shall have furnished to the Initial Purchasers
the opinion of Ross & Hardies, special counsel for the Company, dated the
Closing Date, substantially to the effect that:
(i) the statements in the Final Memorandum under the caption
"Risk Factors--Original Issue Discount; Possible Unfavorable Tax
and Other Legal Consequences for Holders of Notes", Certain United
States Federal Income Tax Considerations" and "Exchange Offer;
Registration Rights", to the extent such statements constitute
matters of law, summaries of legal matters or legal conclusions,
have been reviewed by such counsel and are correct in all material
respects;
(ii) no consent, approval, authorization or order of any
state or Federal governmental authority is required under
applicable law to be obtained by the Company or the Executing
Subsidiaries as of the Closing Date for the consummation by the
Company and the Executing Subsidiaries of the transactions
contemplated herein, except any such consent, approval,
authorization or order as may be required under the blue sky or
securities laws of any state in the United States in connection
with the purchase and sale of the Notes by the Initial Purchasers,
as to which such counsel shall not be required to render any
opinion;
14
<PAGE>
(iii) neither the issuance and sale of the Notes by the
Company to the Initial Purchasers, the execution and delivery by
the Company of this Agreement, the Indenture and the Registration
Agreement, the execution and delivery by the Executing
Subsidiaries of this Agreement, nor the consummation by the
Company, as of the Closing Date of the transactions herein or
therein contemplated will conflict with, result in a breach or
violation of, or constitute a default under the terms of (a) any
other indenture, material agreement or instrument known to such
counsel and to which the Company or its Subsidiaries is a party or
bound, (b) any judgment, order or decree known to such counsel and
binding on the Company or its Subsidiaries of any state or Federal
court or any state or Federal governmental agency having
jurisdiction over the Company or its Subsidiaries or (c) the
articles of incorporation or by-laws of the Company or its
Subsidiaries;
(iv) assuming (A) the accuracy of the representations and
warranties of the Company set forth in Section 1 of this
Agreement, (B) the due performance by the Company of the
agreements set forth in Section 5 of this Agreement, (C) the
accuracy of the representations and warranties made by the Initial
Purchasers in Section 4 of this Agreement and the due performance
by the Initial Purchasers of the agreements set forth in Section 4
of this Agreement (including all exhibits hereto), (D) compliance
by the Initial Purchasers with the offering and transfer
procedures and restrictions described elsewhere in this Agreement
and the Final Memorandum and (E) the accuracy of the
representations and warranties made in accordance with this
Agreement and the Final Memorandum by purchasers to whom the
Initial Purchasers initially resell Notes, no registration of the
Notes under the Securities Act is required, and no qualification
of the Indenture under the Trust Indenture Act is necessary, for
the offer and sale by the Initial Purchasers of the Notes in the
manner contemplated by this Agreement;
(v) the Company is not an "investment company" within the
meaning of the Investment Company Act without taking account of
any exemption arising out of the number of holders of the
Company's securities;
(vi) the summaries in the Final Memorandum of (x) the
provisions of the certain investors liquidation rights described
under the heading "Description of Capital Stock -- Investors'
Liquidation Rights" and (y) the Stock Purchase Agreement (as
defined in the Final Memorandum) provide a fair summary of such
provisions;
15
<PAGE>
(vii) the Notes are in the form contemplated by the
Indenture and, when executed by the Company and authenticated or
countersigned by the Trustee, in accordance with the provisions of
the Indenture and delivered to and paid for by the Initial
Purchasers pursuant to this Agreement, will constitute legal,
valid and binding obligations of the Company entitled to the
benefits of the Indenture;
(viii) the statements set forth under the headings
"Description of the Notes" insofar as such statements purport to
summarize certain provisions of the Notes and the Indenture
provide a fair summary of such provisions;
(ix) each of this Agreement, the Indenture and the
Registration Agreement constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company, in
accordance with their respective terms; and the Agreement
constitutes a legal, valid and binding obligation of the Executing
Subsidiaries, enforceable against the Executing Subsidiaries, in
accordance with its terms;
(x) each of the Company and its Subsidiaries is a
corporation in good standing under the laws of the jurisdiction of
its incorporation; there are no restrictions on the corporate
power and capacity of the Company or any of its Subsidiaries to
own and lease property and assets and to carry on business;
(xi) each of the Company and its Subsidiaries is qualified
or registered to carry on business as a foreign corporation in
each jurisdiction in which failure to do so would have a material
adverse effect on it or its operations;
(xii) the authorized capital of the Company consists of
85,567.693 Class A Common Shares, 35,000 Class B Common Shares and
15,000 Class C Common Shares and conforms in all material respects
to the information contained in the Final Memorandum under the
heading "Description of Capital Stock";
(xiii) the outstanding shares of capital stock of the Company
and its Subsidiaries have been duly authorized and validly issued
and, assuming receipt of the consideration thereof, are
outstanding as fully paid and non-assessable; all of the
outstanding shares of capital stock of the Subsidiaries are
registered in the name of the Company or its Subsidiaries;
(xiv) there are no restrictions (other than restrictions
which have been waived) on the corporate power and capacity of the
Company to enter into this Agreement, the Indenture and the
Registration Agreement, to
16
<PAGE>
execute, issue and sell the Notes or to carry out its obligations
hereunder and thereunder;
(xv) the execution and delivery of this Agreement, the
Indenture, the Registration Agreement and the consummation of the
transactions contemplated herein and therein have been duly
authorized by all necessary corporate action on the part of the
Company;
(xvi) the execution, issuance and sale of the Notes has
been duly authorized by all necessary corporate action on the part
of the Company;
(xvii) each of the Notes, this Agreement, the Indenture and
the Registration Agreement has been duly executed and delivered by
the Company;
(xviii) to the knowledge of such counsel, there is no pending
or threatened action or suit or judicial, arbitral or other
administrative proceeding to which the Company or its Subsidiaries
is the subject that, singly or in the aggregate, (A) questions the
validity of this Agreement, the Registration Agreement or the
Indenture or any action taken or to be taken pursuant hereto or
thereto, or (B) if determined adversely to the Company or its
Subsidiaries is reasonably likely to have a Material Adverse
Effect;
(xix) the Indenture conforms to all material requirements
of the Trust Indenture Act and the rules and regulations
applicable thereto;
Such counsel shall also state that they have no reason to
believe that at the Execution Time the Final Memorandum contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that at the
Closing Date, the Final Memorandum includes an untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than
the States of Illinois, Delaware and New York or the United States, to
the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be
reliable and who are satisfactory to Paul, Hastings, Janofsky & Walker
LLP and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials
and upon the representations and warranties set forth in this Agreement,
the Indenture and the Registration Agreement.
17
<PAGE>
In addition, such opinion may be qualified to the extent that
the enforceability of any right or remedy, including without limitation
any right to liquidated damages, may be subject to general principles of
equity, including without limitation concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether
enforceability is considered in a proceeding in equity or in law) and to
the discretion of the court before which proceedings hereof may be
brought.
Such opinion may also be subject to standard limitations,
assumptions, qualifications and exceptions.
All references in this Section 6(a) to the Final Memorandum
shall be deemed to include any amendment or supplement thereto at the
Closing Date.
(b) The Company shall have furnished to the Initial Purchasers
the opinion of Swidler & Berlin, special regulatory counsel for the
Company, dated the Closing Date, in form and substance satisfactory to
the Initial Purchasers and their counsel.
(c) The Initial Purchasers shall have received from Paul,
Hastings, Janofsky & Walker LLP such opinion dated the Closing Date, with
respect to the issuance and sale of the Notes, the Final Memorandum and
other related matters as the Initial Purchasers may reasonably require,
and the Company shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
(d) Each of the following conditions shall have been satisfied
and the Company shall have furnished to the Initial Purchasers a
certificate of the Company, signed by each of the Chief Executive Officer
and the Chief Financial Officer of the Company, dated the Closing Date,
to the effect that the signatories thereto have carefully examined the
Final Memorandum, any amendment or supplement to the Final Memorandum and
this Agreement and that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on
and as of the Closing Date with the same effect as if made on the
Closing Date, and the Company has complied in all material
respects with all the agreements and satisfied in all material
respects all the conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date;
(ii) since the date of the most recent financial statements
included in the Final Memorandum, there has been no Material
Adverse Change, whether or not arising from transactions in the
ordinary course of business,
18
<PAGE>
except as set forth in or contemplated by the Final Memorandum
(exclusive of any amendment or supplement thereto); and
(iii) the sale of the Notes hereunder has not been enjoined
(temporarily or permanently).
(e) At the Execution Time and at the Closing Date, Arthur
Andersen LLP shall have furnished to the Initial Purchasers a letter or
letters, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the Initial
Purchasers, addressed to the Initial Purchasers confirming that they are
independent accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder and stating in
effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma information included
in the Final Memorandum and reported on by them comply as to form
in all material respects with generally accepted accounting
principles;
(ii) based upon a reading of the latest unaudited
consolidated financial statements made available by the Company;
their limited review in accordance with the standards established
by the American Institute of Certified Public Accountants
("AICPA") of the unaudited interim financial information for the
date covered by such financial statements for the period; carrying
out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which would
not necessarily reveal matters of significance with respect to the
comments set forth in such letter; such specified procedures would
include, but are not limited to, a reading of minutes of the
shareholders' and directors' meetings (and any meetings of
committees of the Board of Directors) of the Company, and its
Subsidiaries; and inquiries of certain officials of the Company
who have responsibility for financial and accounting matters of
the Company and Subsidiaries as to transactions and events
subsequent to December 31, 1997, nothing has come to their
attention that causes them to believe that:
(1) any unaudited financial statements included in the Final
Memorandum do not comply as to form in all material respects with
accounting requirements of the Securities Act and with the
published rules and regulations of the Commission; and any
unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Final Memorandum; or
19
<PAGE>
(2) with respect to the period subsequent to December 31,
1997, there were any changes, at February 10, 1998, in the long-
term obligations of the Company and the Subsidiaries or capital
stock of the Company or decreases in the consolidated assets or
shareholders' equity of the Company as compared with the amounts
shown on the December 31, 1997 consolidated balance sheet included
in the Final Memorandum, or for the period from December 31, 1997
to February 10, 1998 there were any decreases, as compared with
the corresponding period in the preceding year, in net sales,
operating expenses, operating income or income (loss) before
income taxes and extraordinary items or in total, of the Company
and the Subsidiaries, except in all instances for changes or
decreases set forth in such letter, in which case the letter shall
be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Initial Purchasers; and
(iii) they have performed certain other specified procedures
as a result of which they determined that certain information of
an accounting, financial or statistical nature (which is limited
to accounting, financial or statistical information derived from
the general accounting records of the Company) set forth in the
Final Memorandum is mathematically accurate and agrees with the
accounting records of the Company and its Subsidiaries, in each
case, excluding any questions of legal interpretation.
All references in this Section 6(e) to the Final Memorandum
shall be deemed to include any amendment or supplement thereto at
the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Final Memorandum,
there shall not have been (i)any change, decrease or increase
specified in the letter or letters referred to in paragraph (e) of
this Section6 or (ii)any change, or any development involving a
prospective change, in or affecting the business, proposed
business or properties of the Company and the Subsidiaries the
effect of which, in any case referred to in clause(i) or (ii)
above, is, in the judgment of the Initial Purchasers, so material
and adverse as to make it impractical or inadvisable to market the
Notes as contemplated by the Final Memorandum.
(g) On or prior to the Closing Date, the Registration
Agreement, in form and substance satisfactory to the Company and
its counsel and the Initial Purchasers and their counsel, shall
have been executed and shall have been delivered to you and the
Trustee.
(h) On or prior to the Closing Date, the Company and the
Trustee shall have entered into and delivered the Indenture and
the Initial
20
<PAGE>
Purchasers shall have received a counterpart, conformed as
executed, thereof. The Indenture shall be in full force and
effect.
(i) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchasers such further information,
certificates and documents as the Initial Purchasers may
reasonably request.
If any of the conditions specified in this Section 6
shall not have been fulfilled in all material respects when and as
provided in this Agreement, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall
not be in all material respects reasonably satisfactory in form
and substance to the Initial Purchasers and Paul, Hastings,
Janofsky & Walker LLP, this Agreement and all obligations of the
Initial Purchasers hereunder may be canceled at, or at any time
prior to, the Closing Date by the Initial Purchasers. Notice of
such cancellation shall be given to the Company in writing or by
telephone or telegraph confirmed in writing.
The documents required to be delivered by this
Section 6 will be delivered at the office of Ross & Hardies, 150
North Michigan Avenue, Suite 2500, Chicago, Illinois, on the
Closing Date.
7. Reimbursement of Expenses. If the sale of the
Notes provided for herein is not consummated because any condition
to the obligations of the Initial Purchasers set forth in Section
6 hereof is not satisfied, because of any termination pursuant to
Section10 hereof or because of any refusal, inability or failure
on the part of the Company or any Executing Subsidiary to perform
any agreement herein or comply with any provision hereof other
than by reason of a default by any of the Initial Purchasers in
payment for the Notes on the Closing Date, the Company and the
Executing Subsidiaries, jointly and severally, will reimburse the
Initial Purchasers severally upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the
proposed purchase and sale of the Notes.
8. Indemnification and Contribution. (a)The Company
and the Executing Subsidiaries, jointly and severally, agree to
indemnify and hold harmless each Initial Purchaser, the directors,
officers, employees and agents of each Initial Purchaser and each
person, if any, who controls any Initial Purchaser within the
meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or other
21
<PAGE>
Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Memorandum or the Final Memorandum or
any information provided by the Company to any holder or
prospective investor in Notes pursuant to Section 5(k), or in any
amendment thereof or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, and agree to reimburse each
such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the Company and the Executing
Subsidiaries will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is
based upon any such untrue statement or alleged untrue statement
or omission or alleged omission made in the Preliminary Memorandum
or the Final Memorandum, or in any amendment thereof or supplement
thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any
Initial Purchaser specifically for inclusion therein, it being
understood that the only such information is that described in
Section 8(b). This indemnity agreement will be in addition to any
liability which the Company or the Executing Subsidiaries may
otherwise have.
(b) Each Initial Purchaser, severally and not jointly,
agrees to indemnify and hold harmless the Company, its directors,
its officers, employees and agents, and each person who controls
the Company within the meaning of either the Securities Act or the
Exchange Act, to the same extent as the foregoing indemnity from
the Company to each Initial Purchaser, but only with reference to
written information relating to such Initial Purchaser furnished
to the Company by or on behalf of such Initial Purchaser
specifically for inclusion in the Preliminary Memorandum or the
Final Memorandum (or in any amendment or supplement thereto). This
indemnity agreement will be in addition to any liability which the
Initial Purchasers may otherwise have. The Company acknowledges
that the statements set forth in the last paragraph of the cover
page and under the heading "Plan of Distribution" in the
Preliminary Memorandum and the Final Memorandum constitute the
only information furnished in writing by or on behalf of the
Initial Purchasers for inclusion in the Preliminary Memorandum or
the Final Memorandum (or in any amendment or supplement thereto).
22
<PAGE>
(c) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section8, notify
the indemnifying party in writing of the commencement thereof; but
the failure so to notify the indemnifying party (i)will not
relieve it from liability under paragraph(a) or(b) above unless
and to the extent it did not otherwise learn of such action and
such failure results in the forfeiture by the indemnifying party
of substantial rights and defenses and (ii)will not, in any event,
relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation
provided in paragraph(a) or (b) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's
choice at the indemnifying party's expense, which counsel,
together with one local counsel in each jurisdiction, shall act on
behalf of all the indemnified parties in any action for which
indemnification is sought (in which case the indemnifying party
shall not thereafter be responsible for the fees and expenses of
any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel
shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear
the reasonable fees, costs and expenses of such separate counsel
if (i)the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a
conflict of interest, (ii)the actual or potential defendants in,
or targets of, any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, (iii)the
indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of
such action or (iv)the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the
indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to
any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim,
action, suit or proceeding.
23
<PAGE>
(d) In the event that the indemnity provided in
paragraph(a) or (b) of this Section 8 is unavailable to or
insufficient to hold harmless an indemnified party for any reason,
the Company and the Executing Subsidiaries, on the one hand, and
the Initial Purchasers, on the other hand, agree to contribute to
the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which
the Company and one or more of the Initial Purchasers may be
subject in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and by
the Initial Purchasers, on the other hand, from the offering of
the Notes; provided, however, that in no case shall any Initial
Purchaser be responsible for any amount in excess of the purchase
discount or commission applicable to the Notes purchased by such
Initial Purchaser hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the
Company and the Executing Subsidiaries, on the one hand, and the
Initial Purchasers, on the other hand, shall contribute in such
proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and of the
Initial Purchasers in connection with the statements or omissions
which resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company shall
be deemed to be equal to the total net proceeds from the offering
(before deducting expenses), and benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase
commissions (before deducting expenses), in each case as set forth
on the cover page of the Final Memorandum. Relative fault shall be
determined by reference to whether any alleged untrue statement or
omission relates to information provided by the Company or the
Initial Purchasers. The Company, the Executing Subsidiaries and
the Initial Purchasers agree that it would not be just and
equitable if contribution were determined by pro rata allocation
or any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding
the provisions of this paragraph(d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person who controls an
Initial Purchaser within the meaning of either the Securities Act
or the Exchange Act and each director, officer, employee and agent
of an Initial Purchaser shall have the same rights to contribution
as such Initial Purchaser, and each person who controls the
Company within the meaning of either the Securities Act or the
Exchange Act and each officer, director, employee and agent of the
Company shall have the same rights to contribution as the Company,
subject in each case to the applicable terms and conditions of
this paragraph(d).
24
<PAGE>
9. Default by an Initial Purchaser. If any one or
more Initial Purchasers shall fail to purchase and pay for any of
the Notes agreed to be purchased by such Initial Purchaser
hereunder and such failure to purchase shall constitute a default
in the performance of its or their obligations under this
Agreement, the remaining Initial Purchasers shall be obligated
severally to take up and pay for (in the respective proportions
which the stated principal amount at maturity of Notes set forth
opposite their names in Schedule I hereto bears to the aggregate
stated principal amount at maturity of Notes set forth opposite
the names of all the remaining Initial Purchasers) the Notes which
the defaulting Initial Purchaser or Initial Purchasers agreed but
failed to purchase; provided, however, that in the event that the
aggregate stated principal amount at maturity of Notes which the
defaulting Initial Purchaser or Initial Purchasers agreed but
failed to purchase shall exceed 10% of the aggregate stated
principal amount at maturity of Notes set forth in Schedule I
hereto, the remaining Initial Purchasers shall have the right to
purchase all, but shall not be under any obligation to purchase
any, of the Notes, and if such non-defaulting Initial Purchasers
do not purchase all the Notes, this Agreement will terminate
without liability to any non-defaulting Initial Purchaser, the
Company or the Executing Subsidiaries. In the event of a default
by any Initial Purchaser as set forth in this Section 9, the
Closing Date shall be postponed for such period, not exceeding
seven days, as the non-defaulting Initial Purchasers shall
determine in order that the required changes in the Final
Memorandum or in any other documents or arrangements may be
effected. Nothing contained in this Agreement shall relieve any
defaulting Initial Purchaser of its liability, if any, to the
Company or any non-defaulting Initial Purchaser for damages
occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Initial Purchasers,
by notice given to the Company prior to delivery of and payment
for the Notes, if prior to such time (i)trading in securities
generally on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") shall have been suspended or
limited or minimum prices shall have been established on either of
such Exchanges or Nasdaq, (ii)a general moratorium on commercial
banking activities in NewYork or the United States shall have been
declared by the relevant authorities or (iii)there shall have
occurred any outbreak or escalation of hostilities, declaration by
the United States of a national emergency or war or other calamity
or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Initial Purchasers, impracticable
or inadvisable to proceed with the offering or delivery of the
Notes as contemplated by the Final Memorandum.
25
<PAGE>
11. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities
and other statements of the Company or its officers and of the
Initial Purchasers set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any
investigation made by or on behalf of the Initial Purchasers, the
Company or any of the officers, directors or controlling persons
referred to in Section 8 hereof, and will survive delivery of and
payment for the Notes. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in
writing and effective only on receipt, and, if sent to the Initial
Purchasers, will be mailed, delivered or telegraphed and confirmed
to them, care of Salomon Brothers Inc, at Seven World Trade
Center, New York, New York 10048 (telephone: (212)783-7000,
facsimile: (212) 783-4799), attention: Stephen M. Winningham, with
a copy to Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue,
New York, New York 10022 (telephone: (212) 318-6400, facsimile
(212) 319-4090), attention: William F. Schwitter; or, if sent to
the Company, will be mailed, delivered or telegraphed and
confirmed to it at 200 N. LaSalle, Chicago, Illinois 60601
(telephone: (312)895-8400; facsimile: (312)895-8403), attention:
Joseph A. Beatty, Executive Vice President and Chief Financial
Officer, with a copy to Ross & Hardies, 150 North Michigan Avenue,
Suite 2500, Chicago, Illinois 60601-7567 (telephone: (312) 750-
3501, facsimile (312) 750-8600), attention: David Guin.
13. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their
respective successors and the officers, directors, employees and
agents and controlling persons referred to in Section 8 hereof,
and, except as expressly set forth in Section 5(k) hereof, no
other person will have any right or obligation hereunder.
14. Governing Law. This Agreement will be governed by
and construed in accordance with the internal laws of the State of
NewYork without regard to principles of conflict of laws.
15. Business Day. For purposes of this Agreement,
"business day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in the City
of NewYork, New York are authorized or obligated by law, executive
order or regulation to close.
26
<PAGE>
16. Counterparts. This Agreement may be executed in
one or more counterparts, each of which will be deemed to be an
original, but all such counterparts will together constitute one
and the same instrument.
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us the
enclosed duplicate hereof, whereupon this Agreement and your
acceptance shall represent a binding agreement between the
Company, the Executing Subsidiaries and the Initial Purchasers.
Very truly yours,
Focal Communications Corporation
By: /s/ Robert C. Taylor, Jr.
---------------------------------------------------------------
Name: Robert C. Taylor, Jr.
Title: Chief Executive Officer
Focal Communications Corporation of Illinois
By: /s/ Robert C. Taylor, Jr.
---------------------------------------------------------------
Name: Robert C. Taylor, Jr.
Title: Chief Executive Officer
Focal Communications Corporation of New York
By: /s/ Robert C. Taylor, Jr.
---------------------------------------------------------------
Name: Robert C. Taylor, Jr.
Title: Chief Executive Officer
27
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Morgan Stanley & Co. Incorporated
NationsBanc Montgomery Securities LLC
By: Salomon Brothers Inc
By: /s/ Stephen M. Winningham
---------------------------------------------------------------
Name: Stephen M. Winningham
Title: Managing Director
28
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Initial Purchasers Stated Amount
------------------ at Maturity
of Notes
to be Purchased
---------------
<S> <C>
Salomon Brothers Inc $ 135,000,000
Morgan Stanley & Co. Incorporated $ 81,000,000
NationsBanc Montgomery Securities LLC $ 54,000,000
-----------
Total $ 270,000,000
===========
</TABLE>
29
<PAGE>
EXHIBIT A
SELLING RESTRICTIONS FOR OFFERS AND
SALES OUTSIDE THE UNITED STATES
(1)(a) The Notes have not been and will not be registered under the
Securities Act and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except in accordance with Regulation
S under the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Each Initial Purchaser represents and agrees
that, it has offered and sold the Notes, and will offer and sell the Notes, (i)
as part of its distribution at any time and (ii) otherwise until 40 days after
the later of the commencement of the offering and the Closing Date, only in
accordance with Rule 903 of Regulation S. Accordingly, each Initial Purchaser
represents and agrees that neither it, nor any of its affiliates nor any person
acting on its or their behalf has engaged or will engage in any directed selling
efforts with respect to the Notes, and that it and they have complied and will
comply with the offering restrictions requirement of Regulation S. Each Initial
Purchaser agrees that, at or prior to the confirmation of sale of Notes (other
than a sale of Notes pursuant to Section 4(a)(1)(A) of the Agreement to which
this is an exhibit), it shall have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases Notes
from it during the restricted period a confirmation or notice to substantially
the following effect:
"The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii) otherwise
until 40 days after the later of the commencement of the offering and
February 18, 1998, except in either case in accordance with Regulation S,
Rule 144A or other exemption from registration under the Securities Act.
Terms used above have the meanings given to them by Regulation S."
(b) Each Initial Purchaser also represents and agrees that it has not entered
and will not enter into any contractual arrangement with any distributor with
respect to the distribution of the Notes, except with its affiliates or with the
prior written consent of the Company.
(c) Terms used in this Section have the meanings given to them by Regulation S.
30
<PAGE>
EXHIBIT B
NOTICE TO INVESTORS
Offers and Sales by the Initial Purchasers
- ------------------------------------------
The Notes have not been registered under the Securities Act and may not be
offered or sold in the United States or to, or for the account or benefit of,
U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Notes are being offered and
sold only (1) in the United States to qualified institutional buyers ("Qualified
Institutional Buyers") under Rule 144A under the Securities Act, and (2) outside
the United States to non-U.S. persons ("foreign purchasers") in reliance upon
Regulation S under the Securities Act.
Investor Representations and Restrictions on Resale
- ---------------------------------------------------
Each purchaser of the Notes will be deemed to have represented and agreed
as follows:
(1) it is acquiring the Notes for its own account or for an account
with respect to which it exercises sole investment discretion, and that it
or such account is a Qualified Institutional Buyer, an Institutional
Accredited Investor acquiring the Notes for investment purposes and not for
distribution or a foreign purchaser outside the United States;
(2) it acknowledges that the Notes have not been registered under the
Securities Act or any other applicable securities laws and may not be sold
or otherwise transferred except as permitted below;
(3) it understands and agrees (x) that such Notes are being offered
only in a transaction not involving any public offering within the meaning
of the Securities Act, and (y) that (A) if within two years after the date
of original issuance of the Notes or, if within three months after it
ceases to be an affiliate (within the meaning of Rule 144 under the
Securities Act) of the Company, it decides to resell, pledge or otherwise
transfer Notes on which the legend set forth below appears, such Notes may
be resold, pledged or transferred only (i) to the Company, (ii) so long as
such Note is eligible for resale pursuant to Rule 144A, to a person whom
the seller reasonably believes is a Qualified Institutional Buyer that
purchases for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A (as indicated by the box
checked by the transferor on the
31
<PAGE>
Certificate of Transfer on the reverse of the Note if such Note is not in
book-entry form), (iii) in an offshore transaction in accordance with
Regulation S (as indicated by the box checked by the transferor on the
Certificate of Transfer on the reverse of the Note if such Note is in book-
entry form), (iv) to an Institutional Accredited Investor (as indicated by
the box checked by the transferor on the Certificate of Transfer on the
reverse of the Note if such Note is not in book-entry form), who has
certified to the Company and the Trustee for the Notes that such transferee
is an Institutional Accredited Investor and is acquiring the Notes, for
investment purposes and not for distribution, (v) pursuant to an exemption
from the registration requirements of the Securities Act provided by Rule
144 (if applicable) under the Securities Act or (vi) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States, (B) the purchaser will, and each subsequent holder is required to,
notify any purchaser of Notes from it of the resale restrictions referred
to in (A) above, if then applicable, and (C) with respect to any transfer
of Notes by an Institutional Accredited Investor, such holder will deliver
to the Company and the Trustee such certificates and other information as
they may reasonably require to confirm that the transfer by it complies
with the foregoing restrictions; and
(4) it understands that the notification requirement referred to in
(3) above will be satisfied, in the case only of transfer by physical
delivery of certificated Notes other than a global certificate, by virtue
of the fact that the following legend will be placed on the Notes unless
otherwise agreed by the Company:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF THE COMPANY THAT
THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X)
PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR A
PREDECESSOR NOTE HERETO) OR (Y) BY ANY HOLDER THAT WAS AN
AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN
(1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A
(AS INDICATED BY THE BOX CHECKED BY THE
32
<PAGE>
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
REGULATIONS UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE
REVERSE OF THIS NOTE), (4) TO AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY
THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF
THIS NOTE) THAT IS ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES
AND NOT FOR DISTRIBUTION AND A CERTIFICATE IN THE FORM ATTACHED
TO THIS NOTE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND
THE TRUSTEE, (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE
SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS NOTE
AGREES THAT IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH
CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY REASONABLY
REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE COMPLIES
WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING
THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A OR (2) AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IS HOLDING THIS NOTE FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT
SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902
UNDER) REGULATION S UNDER THE SECURITIES ACT."
(5) it (i) is able to fend for itself in the transactions
contemplated by this Offering Memorandum; (ii) has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its prospective investment in the Notes; and (iii)
has the ability to bear the economic risks of its prospective investment
and can afford the complete loss of such investment; and
33
<PAGE>
(6) it has received a copy of this Offering Memorandum relating to
the Offering and acknowledges that it has had access to such financial and
other information, and has been afforded the opportunity to ask questions
of the Company and receive answers thereto, as is deemed necessary in
connection with its decision to purchase the Notes; and
(7) it understands that the Company, the Initial Purchasers and
others will rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements and agrees that if any of
the acknowledgments, representations and warranties deemed to have been
made by it by its purchase of Notes are no longer accurate, it shall
promptly notify the Company and the Initial Purchasers. If it is acquiring
the Notes as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such
account and it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of such account.
34
<PAGE>
Exhibit 2.1
PLAN OF REORGANIZATION AND AGREEMENT
BY AND AMONG FOCAL COMMUNICATIONS CORPORATION
AND ITS SUBSIDIARIES
This Plan of Reorganization and Agreement is made this 12th day of June,
1997, by and among Focal Communications Corporation ("Focal Holding"), Focal
Communications Corporation of Illinois (now known as Focal Communications
Corporation, "Focal Existing") and provides for Focal Holding to become the
holding company of all existing and proposed operating subsidiaries of Focal
Existing. The reorganization shall be accomplished through an exchange of
shares of Focal Existing for shares of Focal Holding. The reorganization shall
comprise and be consummated with Focal Holding becoming a limited operating
holding company with operating regional subsidiaries.
WHEREAS, Focal Existing owns 100% of the outstanding shares of the
following subsidiaries: Focal Communications Corporation of New York, Focal
Telecommunications Corporation, Focal Communications Corporation of New Jersey,
Focal Communications Corporation of Massachusetts and Focal Communications
Corporation of California (hereinafter referred to as the "Subsidiaries").
WHEREAS, it is the intent of Focal Existing that each subsidiary of Focal
Holding shall operate and provide telecommunications services in a specific
geographic region as authorized by Federal and State regulators.
WHEREAS, Focal Existing is an operating telecommunications company doing
business in the State of Illinois.
WHEREAS, it is the desire of Focal Existing to reorganize so that the
operating company in the State of Illinois and all other operating subsidiaries
become same-tier subsidiaries of a holding company. The Holding Company and its
subsidiaries are sometimes referred to as "Focal Enterprises".
WHEREAS, to accomplish such corporate reorganization, a new holding company
to be known as Focal Communications Corporation must be formed to accomplish
such parent-subsidiaries structure.
WHEREAS, the company believes that the desired corporate reorganization and
structure shall provide greater regulatory, corporate and financial flexibility
to Focal Enterprises and to each Focal subsidiary, including Focal Existing
which shall operate as a separate and distinct subsidiary providing
telecommunications services in the State of Illinois.
<PAGE>
WHEREAS, such structure shall be accomplished through the implementation of
this Plan of Reorganization as provided below:
ARTICLE I
TRANSACTION
-----------
1.1 Focal Existing shall amend its Certificate of Incorporation and
change its name, pursuant to an action by written consent of shareholders and
directors to "Focal Communications Corporation of Illinois". Upon Focal
Existing consummating its name change, Focal Existing shall cause the formation
of Focal Holding for the purpose of becoming the Holding Company all of Focal
Enterprises. Focal Holding shall be formed as "Focal Communications
Corporation". Terms of the Certificate of Incorporation and Bylaws of Focal
Holding, including terms of the shares of stock of Focal Holding, shall be
identical to Focal Existing.
1.2. Focal Existing shareholders shall upon the closing date as defined
herein voluntarily exchange their shares of Focal Existing for the exact number
and terms of shares of Focal Holding. In exchange for such transfer, Focal
Holding shall issue to each shareholder of Focal Existing the exact number and
terms of shares of Focal Existing received by Focal Holding, thereby resulting
in each previous shareholder of Focal Existing becoming a shareholder of Focal
Holding with identical share rights and privileges previously had in Focal
Existing. Focal Existing shall upon closing and consummation of the share
exchange become a wholly owned subsidiary of Focal Holding and all subsidiaries
of Focal Existing becoming second-tier subsidiaries of Focal Holding.
1.3. Focal Existing shall upon the closing of the share exchange distribute
to Focal Holding its shares then held in Focal Existing's subsidiaries,
specifically, all shares of Common Stock then outstanding of Focal
Communications Corporation of New York, Focal Communications Corporation of New
Jersey, Focal Communications Corporation of Massachusetts, Focal Communications
Corporation of California, and Focal Telecommunications Corporation.
1.4. Focal Existing shall upon the closing date as defined herein assign to
Focal Holding its rights, title and interest in the closing documents entered
into by Focal Existing on November 27, 1996 or such documents subsequently
entered into which provide for capitalization of Focal Existing. Specifically,
Focal Existing shall assign its rights, title and interest to the following
identified agreements:
a. Stock Purchase Agreement by and among Focal Communications Corporation
and Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P., Battery
Ventures III, L.P., Brian F. Addy, John R. Barnicle, Joseph A. Beatty and Robert
C. Taylor, Jr.;
b. Executive Investor Stock Pledge Agreement entered into by and between
Brian F. Addy, and Focal Communications Corporation; Executive Investors Stock
Agreement entered into by and between John R. Barnicle and Focal Communications
Corporation; Executive Investors Stock Agreement entered into by and between
Robert C. Taylor, Jr. and Focal
<PAGE>
Communications Corporation, and Executive Investors Stock Agreement entered into
by and between Joseph A. Beatty and Focal Communications Corporation;
c. Stockholder's Agreement entered into by and among Focal Communications
Corporation and Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R. Barnicle, Joseph A. Beatty
and Robert C. Taylor, Jr.;
d. Executive Stock Agreement and Employment Agreement entered into by
Focal Communications Corporation and each of Brian F. Addy, John R. Barnicle,
Joseph A. Beatty and Robert C. Taylor, Jr.;
e. Registration Agreement entered into by and among Focal Communications
Corporation and Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R. Barnicle, Joseph A. Beatty
and Robert C. Taylor, Jr.;
f. Vesting Agreement entered into by and among Focal Communications
Corporation and Madison Dearborn Capital Partners, L.P., Brian F. Addy, John R.
Barnicle, Joseph A. Beatty and Robert C. Taylor, Jr.;
g. Vesting Agreement entered into by and among Focal Communications
Corporation and Frontenac VI, L.P., Brian F. Addy, John R. Barnicle, Joseph A.
Beatty and Robert C. Taylor, Jr.;
h. Vesting Agreement entered into by and among Focal Communications
Corporation and Battery Ventures III, L.P., Brian F. Addy, John R. Barnicle,
Joseph A. Beatty and Robert C. Taylor, Jr.;
i. Purchase and Joinder Agreement entered into by and between Focal
Communications Corporation and Northwestern University;
j. Purchase and Joinder Agreement entered into by and between Focal
Communications Corporation and Michael Price.
k. Purchase and Joinder Agreement entered into by and between Focal
Communications Corporation and David Lee.
l. Purchase and Joinder Agreement entered into by and between Focal
Communications Corporation and the King Children Trust Partnership.
m. Purchase, Joinder and Consent Agreement entered into by and between
Focal Communications Corporation and Paul G. Yovovich.
n. Purchase, Joinder and Consent Agreement entered into by and between
Focal Communications Corporation and the King Children Trust Partnership.
<PAGE>
ARTICLE II
CLOSING
-------
2.1 The closing hereunder shall take place at the office at Focal
Existing at a time and date designated by the President of Focal Existing as
soon as is practicable after all conditions to closing have been satisfied or
waived in writing; however, such closing shall take place within thirty (30)
days of satisfaction of all conditions precedent to closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARTY
---------------------------------------
The following representations and warranties are made to Focal Existing,
Focal Holding and each of the shareholders of Focal Existing who shall become
shareholders of Focal Holding:
3.1. Organization and Qualification. Each of the Participants in the Plan
of Reorganization is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and each has the requisite
corporate power and authority to carry on its business as it is now being
conducted. Each of the Participants in the Plan of Reorganization is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction where the character of the property owned or leased by it, or
the nature of its activities, is such that qualification as a foreign
corporation in that jurisdiction is required by law.
3.2. Each of the Participants in the Plan of Reorganization has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized and approved by the Board of Directors of Focal Existing and
upon approval of the Amendment of the Certificate of Incorporation for the
purpose of changing the name of Focal Existing to Focal Communications
Corporation of Illinois, no other corporate proceedings on the part of Focal
Existing are necessary to approve and adopt this Agreement or to approve the
consummation of the transactions contemplated hereby, including delivery of
consideration. This Agreement has been duly and validly executed on behalf of
each of the participating corporations.
3.3. The execution, delivery and performance of this Agreement, and the
performance by each participating corporation of its obligations hereunder will
not have a material adverse affect on the business, conditions, operations or
prospects of the participating corporations, conflict with or result in a
material breach of or default under any material indenture or loan or credit
agreement or any other material agreement or instrument to which each of the
participating corporations or any of its subsidiaries is a party, require the
authorization, consent, approval or license of any third party other than is as
contemplated under this Agreement or constitute grounds for loss or suspension
of any permits, licenses or other authorizations material to the business
condition, operations or prospects of each of the participating corporations.
<PAGE>
3.4 Each of the subsidiaries is wholly owned by Focal Existing, has no
other outstanding warrants, options or rights to issue additional shares and
upon conveyance of all subsidiary shares owned by Focal Existing to Focal
Holding shall become a wholly owned subsidiary of Focal Holding, has conducted
no business, has no value other than its original stated capital which is the
minimum required under Delaware law and is of negligible value.
3.5. The Plan of Reorganization as contemplated herein is intended to be
and shall qualify as a tax free reorganization; there shall be no recognition of
gain or loss to the shareholders and to participating corporations as a result
of consummation of this Plan of Reorganization.
3.6. Each of the participating corporations is in substantial compliance
with all, and have received no notice of any violation of any, rules or
regulations applicable to its operations.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
The obligations of the parties hereto to affect the transaction shall be
subject to the fulfillment at or prior to the closing of all of the following
conditions, unless the relying party on which such action required to be taken
shall waive such fulfillment:
4.1. Each and all shareholders of Focal Existing shall approve of the
transaction through a Unanimous Action by Written Consent, which shall include
consent to the exchange of Focal Existing shares for Focal Holding shares,
consent to assignment by Focal Existing of its rights, title and interest in the
closing documents to Focal Holding, and approve the Amendment of the Certificate
of Incorporation of Focal Existing to change its name to Focal Communications
Corporation of Illinois.
4.2. The Certificate of Incorporation of Focal Existing shall have been
amended to change its name to Focal Communications Corporation of Illinois and
the Certificate of Incorporation of Focal Holding shall designate as its name
Focal Communications Corporation.
4.3. The representations and warranties made herein are true as of the date
of closing.
ARTICLE V
SECURITIES AND SECURITY HOLDERS
-------------------------------
5.1. The shareholders of Focal Existing shall have approved of the
transaction contemplated herein, including the exchange of shares and the
consent to assignment of Focal Existing rights, title and interest in the
closing documents to Focal Holding.
5.2. The shares issued by Focal Holding to shareholders of Focal Existing
shall be exempt from registration with the Securities and Exchange Commission
pursuant to Section 4.2 of the Securities Act of 1933, and are exempt from
applicable State Securities registration.
<PAGE>
5.3. The Securities shall be issued with legends identical to such
legends currently placed upon Certificates of Focal Existing, and shall include
the following additional legend:
<PAGE>
THE SECURITIES AS REPRESENTED HEREBY HAVE BEEN ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THE
TRANSFEROR FIRST SATISFIES THE ISSUER THAT THE PROPOSED TRANSFER, IN THE MANNER
PROPOSED, DOES NOT VIOLATE THE REGISTRATION REQUIREMENTS OF SAID ACT.
5.4 Upon closing, Focal Existing shall correspond with each of its
shareholders and request such shareholder to exchange its or their shares of
Focal Existing for Focal Holding by Executing a share transmittal form which
shall provide that each shareholder forwards shares of Focal Existing to Focal
Existing, and upon receipt thereof, shall be automatically entitled to the same
number of shares with identical terms in Focal Holding.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
6.1. This Agreement and transaction may be terminated at any time prior to
the closing, whether before or after any approval by shareholders, by resolution
of the Board of Directors of Focal Existing.
6.2. This Agreement may be amended in writing executed by and on behalf of
the each of the parties hereto.
ARTICLE VII
GENERAL PROVISIONS
------------------
7.1. All representations and warranties contained herein and made in
writing by any party in connection herewith shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby, regardless of any investigation made by any party.
<PAGE>
7.2. Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights and obligations
of the participating corporations and their stockholders. All other issues and
questions concerning the instruction, validity, enforcement, interpretation of
this Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with the laws of the State of Illinois, without giving
effect to any choice of law or conflict of law rules or provisions that would
cause the application of the laws of any jurisdiction other than the State of
Illinois.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed on
the date first written above by their respective officers, thereunto duly
authorized.
FOCAL COMMUNICATIONS CORPORATION (FOCAL EXISTING)
By: /s/ Robert C. Taylor, Jr.
-----------------------------------------------
Robert C. Taylor, Jr., President
By: /s/ Joseph A. Beatty
-----------------------------------------------
Joseph A. Beatty, Secretary/Treasurer
FOCAL COMMUNICATIONS CORPORATION (IN FORMATION, FOCAL HOLDING)
By: /s/ Robert C. Taylor, Jr.
-----------------------------------------------
Robert C. Taylor, Jr., President
By: /s/ Joseph A. Beatty
-----------------------------------------------
Joseph A. Beatty, Secretary/Treasurer
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
FOCAL COMMUNICATIONS CORPORATION
--------------------------------
********
FIRST. The name of the Corporation is:
FOCAL COMMUNICATIONS CORPORATION
SECOND. The address of its registered office in the State of Delaware
is 1313 N. Market Street, Wilmington, Delaware 19801-1151, County of New
Castle. The name of its registered agent at such address is The Company
Corporation.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware ("GCL").
FOURTH.
PART A. AUTHORIZED SHARES
-----------------
The total number of shares of capital stock which the Corporation has
authority to issue is 135,567.693 shares, consisting of:
(1) 85,567.693 shares of Class A Common Stock, par value $.01 per
share ("Class A Common");
--------------
(2) 35,000 shares of Class B Common Stock, par value $.01 per share
("Class B Common"); and
--------------
(3) 15,000 shares of Class C Common Stock, par value $.01 per share
("Class C Common").
--------------
The shares of Class A Common, Class B Common, and Class C Common
(each, a "Class") are referred to collectively as the "Common Stock." The
----- ------------
shares of Common Stock shall have the rights, preferences and limitations set
forth below.
<PAGE>
PART B. COMMON STOCK
------------
SECTION 1. VOTING RIGHTS. Except as otherwise required by applicable
-------------
law, all holders of Class A Common, Class B Common, and Class C Common shall be
entitled to one vote per share on all matters to be voted on by the
Corporation's stockholders, and the holders of Class A Common, Class B Common,
and Class C Common shall vote together as a single class.
SECTION 2. DISTRIBUTIONS. Capitalized terms not otherwise defined in
-------------
this Section 2 are used herein with the meanings set forth in paragraph 2D.
2A. Dividends out of Earnings. Each holder of Class A Common or
-------------------------
Class B Common shall be entitled to receive a percentage of all dividends out of
earnings, such percentage to be determined by dividing (i) the aggregate number
of shares of Class A Common and Class B Common held by each such holder on the
Record Date for such dividend, by (ii) the aggregate number of shares of Class A
Common and Class B Common outstanding on the Record Date for such dividend. The
holders of Class C Common shall have no right (except such right as may result
from their holding Class A Common or Class B Common) to receive any portion of
any dividends out of earnings.
2B. Other Non-Liquidating Distributions. All Distributions
-----------------------------------
(other than dividends made out of earnings or Distributions as part of any
complete liquidation, dissolution, or winding up of the Corporation) ("Other
-----
Non-Liquidating Distributions") shall be made in the following order of
- -----------------------------
priority:
(i) First, to the holders of Class A Common (ratably among such
holders based upon the unpaid Distribution Preference for the Class A
Common held by each such holder as of the Record Date for such Other Non-
Liquidating Distribution), until the total Other Non-Liquidating
Distributions with respect to the Class A Common from November 27, 1996
(the "Starting Date") through the date of such Other Non-Liquidating
-------------
Distribution are equal to the aggregate Distribution Preference (paid and
unpaid) for all of the Class A Common in effect on the Record Date of such
Other Non-Liquidating Distribution;
(ii) Second, to the holders of Class B Common (ratably among such
holders based on the number of shares of Class B Common held by each such
holder as of the Record Date for such Other Non-Liquidation Distribution),
until the aggregate amount distributed pursuant to this subparagraph 2B(ii)
from and after the Starting Date is equal to the product of (A) the
quotient obtained by dividing the aggregate number of shares of Class B
Common outstanding on the Record Date for such Other Non-Liquidating
Distribution, by the aggregate number of shares of Class A Common and Class
B Common outstanding on the Record Date for such Other Non-Liquidating
Distribution, times (B) the aggregate Other Non-Liquidating Distributions
-----
on the Class A Common and Class B Common pursuant to subparagraph 2B(i)
above and this subparagraph 2B(ii) from and after the Starting Date; and
2
<PAGE>
(iii) Thereafter, to the holders of Class A Common and Class B
Common, ratably among such holders based on the number of shares of Class A
Common and Class B Common held by each such holder as of the Record Date
for such Other Non-Liquidating Distribution. The holders of Class C Common
shall have no right (except such right as may result from their holding
Class A Common or Class B Common) to receive any portion of any Other Non-
Liquidating Distributions.
2C. Liquidating Distributions. All Distributions in any complete
-------------------------
liquidation, dissolution, or winding up of the Corporation ("Liquidating
-----------
Distributions") shall be made in the following order of priority:
- -------------
(i) First, to the holders of Class A Common (ratably among such
holders based upon the unpaid Distribution Preference for the Class A
Common held by each such holder as of the Record Date for such Liquidating
Distribution), until the total Other Non-Liquidating Distributions and
Liquidating Distributions with respect to the Class A Common pursuant to
subparagraph 2B(i) above and this subparagraph 2C(i) from the Starting Date
through the date of such Liquidating Distribution are equal to the
aggregate Distribution Preference (paid and unpaid) for all of the Class A
Common in effect on the Record Date of such Liquidating Distribution;
(ii) Second, to the holders of Class C Common (ratably among
such holders based on the number of shares of Class C Common held by each
such holder as of the Record Date for such Liquidating Distribution), until
the aggregate amount distributed with respect to the Class C Common
pursuant to this paragraph 2C(ii) from and after the Starting Date is equal
to the product of (A) the quotient obtained by dividing the aggregate
number of shares of Class C Common outstanding on the Record Date for such
Liquidating Distribution, by the aggregate number of shares of Class B
Common and Class C Common outstanding on the Record Date for such
Liquidating Distribution, times (B) the aggregate Other Non-Liquidating
Distributions and Liquidating Distributions with respect to the Class B
Common and Class C Common pursuant to subparagraphs 2B(ii) and 2B(iii)
above and this subparagraph 2C(ii) from and after the Starting Date;
(iii) Third, to the holders of Class B Common and Class C Common
(ratably among such holders based on the number of shares of Class B Common
and Class C Common held by each such holder as of the Record Date for such
Liquidating Distribution), until the aggregate amount distributed with
respect to the Class B Common and Class C Common pursuant to subparagraphs
2B(ii), 2B(iii), and 2C(ii) above and this subparagraph 2C(iii) from and
after the Starting Date is equal to the product of (A) the quotient
obtained by dividing the aggregate number of shares of Class B Common and
Class C Common outstanding on the Record Date for such Liquidating
Distribution, by the aggregate number of shares of Common Stock outstanding
on the Record Date for such Liquidating Distribution, times (B) the
-----
aggregate Other Non-Liquidating Distributions and Liquidating Distributions
with respect to the Common Stock pursuant to subparagraphs 2B(i), 2B(ii),
2B(iii), 2C(i) and 2C(ii) above and this subparagraph 2C(iii) from and
after the Starting Date;
3
<PAGE>
(iv) Thereafter, to the holders of Common Stock, ratably among
such holders based on the number of shares of Common Stock held by each
such holder as of the Record Date for such Liquidating Distribution.
2D. Definitions.
-----------
(i) "Distribution" means each distribution made by the
------------
Corporation to holders of Common Stock, whether in cash, securities or
other property and whether by dividend, liquidating distribution,
redemption, repurchase or otherwise; provided that none of the following
shall be a Distribution: (a) any redemption, repurchase, or cancellation by
the Corporation of Common Stock pursuant to the Stock Purchase Agreement or
any of the Vesting Agreements, (b) any redemption or repurchase by the
Corporation, approved by the Corporation's Board of Directors, of Common
Stock held by an employee of the Corporation or any of its subsidiaries (or
such employee's transferees) pursuant to any agreement to which the
Corporation is a party, (c) any recapitalization or exchange of any shares
of Common Stock or (d) any subdivision (by stock split, stock dividend or
otherwise) or any combination (by stock split, stock dividend or otherwise)
of all outstanding shares of Common Stock.
(ii) The "Distribution Preference" for any Class A Common on the
-----------------------
Record Date for any Distribution shall equal the sum of (a) the initial
price paid to the Corporation for such Class A Common plus (b) the
aggregate contributions to the capital of the Corporation made with respect
to such Class A Common after the Starting Date until and including the date
of such Distribution.
(iii) The "Record Date" for a vote or Distribution (including
-----------
dividends out of earnings, Other Non-Liquidating Distributions, and
Liquidating Distributions) means the date as of which the persons and
shares of Common Stock entitled to participate in such vote or share in
such Distribution is determined.
(iv) "Stock Purchase Agreement" means the Stock Purchase
------------------------
Agreement by and among the Corporation and the initial holders of Class A
Common, dated as of November 27, 1996, as amended from time to time.
(v) "Vested Class C Common" has the meaning ascribed to such
---------------------
term in the Vesting Agreements.
(vi) "Vesting Agreements" means the several Vesting Agreements
------------------
dated as of November 27, 1996, each entered into by and among the
Corporation and the initial holders of Common Stock listed on the signature
pages attached thereto, as such agreements may be amended from time to
time.
4
<PAGE>
SECTION 3. CONVERSION.
----------
3A. Conversion of Vested Class C Common. Each holder of shares of
-----------------------------------
Class C Common that have become Vested Class C Common pursuant to the terms of
any Vesting Agreement shall be entitled at any time to convert any or all of the
shares of such holder's Vested Class C Common into an equal number of shares of
Class B Common.
3B. Conversion Procedure.
--------------------
(i) Each conversion of shares of Vested Class C Common into
shares of Class B Common shall be effected by the surrender of the
certificate or certificates representing the shares of Vested Class C
Common to be converted at the principal office of the Corporation at any
time during normal business hours (or at such other time and place as may
be mutually agreeable to the Corporation and the holder of such Vested
Class C Common), together with a written notice by the holder of such
Vested Class C Common specifying the number of shares of Vested Class C
Common represented by such certificate or certificates that such holder
desires to convert into shares of Class B Common. Each conversion shall be
deemed to have been effected as of the date on which such certificate or
certificates have been surrendered and such notice has been received, and
at such time the rights of the holder of the converted Vested Class C
Common as such holder shall cease and the person or persons in whose name
or names the certificate or certificates for shares of Class B Common are
to be issued upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Class B Common represented thereby.
(ii) Promptly after the surrender of certificates and the
receipt of written notice, the Corporation shall issue and deliver in
accordance with the surrendering holder's instructions (a) the certificate
or certificates for the Class B Common issuable upon such conversion and
(b) a certificate representing any Class C Common which was represented by
the certificate or certificates delivered to the Corporation in connection
with such conversion but which was not converted.
(iii) The issuance of certificates for Class B Common upon
conversion of Vested Class C Common shall be made without charge to the
holders of such shares for any issuance tax in respect thereof or other
cost incurred by the Corporation in connection with such conversion and the
related issuance of Class B Common.
(iv) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Class B Common,
solely for the purpose of issuance upon the conversion of the Vested Class
C Common, such number of shares of Class B Common issuable upon the
conversion of all outstanding Class C Common. All shares of Class B Common
which are so issuable shall, when issued, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to assure that
all such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any
domestic securities exchange upon
5
<PAGE>
which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately transmitted by the Corporation upon
issuance).
(v) The Corporation shall not close its books against the
transfer of shares of Vested Class C Common or of Class B Common issued or
issuable upon conversion of the Vested Class C Common in any manner which
would interfere with the timely conversion of any shares of Vested Class C
Common. The Corporation shall assist and cooperate with any holder of
Vested Class C Common required to make any governmental filings to obtain
any governmental approval prior to or in connection with any conversion of
Vested Class C Common hereunder (including, without limitation, making any
filings required to be made by the Corporation).
SECTION 4. STOCK SPLITS. If the Corporation in any manner sudivides
------------
or combines the outstanding shares of Class A Common, Class B Common or Class C
Common, the outstanding shares of the other classes of Common Stock shall be
proportionately subdivided or combined in a similar manner.
SECTION 5. REGISTRATION OF TRANSFER. The Corporation shall keep at
------------------------
its principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of Common Stock. Upon the
surrender of any certificate representing shares of any Class of Common Stock at
such place, the Corporation shall, at the request of the registered holder of
such certificate, execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of such
Class represented by the surrendered certificate, and the Corporation forthwith
shall cancel such surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of shares of such Class
as is requested by the holder of the surrendered certificate (provided that the
aggregate number of shares represented by all such new certificates shall be
equal to the number of shares represented by the surrendered certificate) and
shall be substantially identical in form to the surrendered certificate. The
issuance of new certificates shall be made without charge to the holders of the
surrendered certificates for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such issuance.
SECTION 6. REPLACEMENT. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any Class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such Class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
SECTION 7. NOTICES. All notices referred to in this Certificate of
-------
Incorporation shall be in writing, shall be delivered personally or by first
class mail, postage prepaid, and shall be deemed to have been given when so
delivered or three business days after being deposited in the
6
<PAGE>
U.S. mail to the Corporation at its principal executive offices and to any
stockholder at such holder's address as it appears in the stock records of the
Corporation (unless otherwise specified in a written notice to the Corporation
by such holder).
SECTION 8. AMENDMENT AND WAIVER. No amendment or waiver of any
--------------------
provision of this Article Fourth shall be effective without the prior written
consent of the holders of a majority of the voting power of the Common Stock
voting as set forth in Section 1 above and at least 67% of the outstanding
shares of Institutional Investor Stock (as such term is defined in the Stock
Purchase Agreement); provided that no amendment adversely affecting the Class B
--------
Common or Class C Common relative to any other Class shall be effective without
the prior consent of the holders of a majority of the then outstanding shares of
each Class so affected.
FIFTH. All corporate powers of the Corporation shall be exercised by
or under the direction of the Board of Directors except as otherwise provided
herein, by any Bylaws of the Corporation, or by applicable law.
SIXTH. No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such director; provided, however, that the foregoing shall not
be deemed to eliminate or limit the liability of a director to the extent
provided by applicable law: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the GCL; or (iv) for any transaction from which
the director derived an improper personal benefit. This provision is not
intended to eliminate or narrow any defenses to or protection against liability
otherwise available to directors of the Corporation. No amendment to or appeal
of this Article Sixth shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment.
SEVENTH.
A. Every person who was or is a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person or a person of whom such person is a legal
representative is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation or for its benefit as a director,
officer, employee or agent of any other corporation, or as the representative of
the Corporation in a partnership, joint venture, trust or other entity, shall be
indemnified and held harmless by the Corporation to the fullest extent legally
permissible under the GCL, as amended from time to time, against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines and amounts
paid or to be paid in settlement) reasonably paid or incurred by such person in
connection therewith. Such right of indemnification shall be a contract right
that may be enforced in any manner desired by such person. Such right of
indemnification shall include the right to be paid by the Corporation the
expenses incurred in defending any such action, suit or proceeding in advance of
its final disposition upon receipt of an undertaking by or on behalf of such
person to repay such amount if ultimately it should be determined that such
person is not
7
<PAGE>
entitled to be indemnified by the Corporation under the GCL. Such right of
indemnification shall not be exclusive of any right which such directors,
officers or representatives may have or hereafter acquire and, without limiting
the generality of such statement, they shall be entitled to their respective
rights of indemnification under any Bylaw, agreement, vote of stockholders,
provision of law or otherwise, as well as their rights under this Article
Seventh.
B. The Board of Directors may adopt Bylaws from time to time with
respect to indemnification to provide at all times the fullest indemnification
permitted by the GCL, as amended from time to time, and may cause the
Corporation to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation or for its benefit as a director,
officer, employee or agent of any other corporation, or as the representative of
the Corporation in a partnership, joint venture, trust or other entity, against
any expense, liability or loss asserted against or incurred by any such person
in any such capacity or arising out of any such status, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss.
8
<PAGE>
Exhibit 3.2
BYLAWS OF
FOCAL COMMUNICATIONS CORPORATION
--------------------------------
A Delaware Corporation
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
corporation in the State of Delaware shall be located at 1313 N. Market Street,
Wilmington, Delaware 19801-1151, County of New Castle. The name of the
corporation's registered agent at such address shall be The Company Corporation.
The registered office and/or registered agent of the corporation may be changed
from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at
--------- -------------
such other places, both within and without the State of Delaware, as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
--------- --------------------------
stockholders shall be held each year within one hundred eighty (180) days after
the close of the immediately preceding fiscal year of the corporation for the
purpose of electing directors and conducting such other proper business as may
come before the meeting. The date, time and place of the annual meeting shall be
determined by the president of the corporation; provided, that if the president
does not act, the board of directors shall determine the date, time and place of
such meeting.
Section 2. Special Meetings. Special meetings of stockholders may be
--------- ----------------
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver or notice thereof. Such meetings may be called at any time by
the board of directors or the president and shall be called by the president
upon the written request of holders of shares entitled to cast 25% of the votes
at the meeting. Such written request shall state the purpose or purposes of the
meeting and shall be
<PAGE>
delivered to the president. On such written request, the president shall fix a
date and time for such meeting within two days of the date requested for such
meeting in such written request.
Section 3. Place of Meetings. The board of directors may designate any
--------- -----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
--------- ------
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the president or the secretary, and if
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, postage prepaid, addressed to the stockholder at his, her or its
address as the same appears on the records of the corporation. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends for the express purpose of objecting at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
--------- -----------------
ledger of the corporation shall make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
--------- ------
capital stock entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders, except
as otherwise provided by statute or by the certificate of incorporation. If a
quorum is not present, the holders of a majority of the shares present in person
or represented by proxy at the meeting, and entitled to vote at the meeting, may
adjourn the meeting to another time and /or place. When a quorum is once
present to commence a meeting of stockholders, it is not broken by the
subsequent withdrawal of any stockholders or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
--------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
<PAGE>
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
--------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the General
--------- -------------
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
---------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. At each meeting
of the stockholders, and before any voting commences, all proxies filed at or
before the meeting shall be submitted to and examined by the secretary or a
person designated by the secretary, and no shares may be represented or voted
under a proxy that has been found to be invalid or irregular. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have the voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy.
Section 11. Action by Written Consent. Unless otherwise provided in the
---------- -------------------------
certificate of incorporation, any action required to be taken at any annual or
special meeting of the stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock entitled to vote thereon having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the corporation by delivery to its
registered office in the State of Delaware, or the corporation's principal place
of business, or an officer or agent of the corporation having custody of the
book or books in which
3
<PAGE>
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the earliest dated consent delivered to the
corruption as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Any action taken pursuant to such written
consent or consents of the stockholders shall have the same force and effect as
if taken by the stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation shall
- --------- --------------
be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
--------- -----------------------------------
which shall constitute the first board shall be seven (7). Thereafter, the
number of directors shall be established from time to time by vote of the
stockholders. The directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote in the election of directors. The directors shall be elected in this manner
at the annual meeting of the stockholders, except as provided in Section 4 of
this Article III. Each director elected shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
--------- -----------------------
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole.
Section 4. Vacancies. Vacancies and newly created directorships resulting
--------- ---------
from any increase in the authorized number of directors may be filled by a
majority of the shares then entitled to vote at an election of directors. Each
director so chosen shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as herein
provided.
4
<PAGE>
Section 5. Annual Meetings. The annual meeting of each newly elected
--------- ---------------
board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
--------- -------------------------
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president or at least two directors on at least twenty-four (24)
hours notice to each director, either personally, by telephone, by mail, or by
telegraph; in like manner and on like notice the president must call a special
meeting on the written request of at least two of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
--------- -------------------------------------
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
--------- ----------
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these bylaws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
--------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors or
---------- ------------------------
any committee thereof may participate in and act any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all
5
<PAGE>
persons participating in the meeting can hear each other, and participation in
the meeting pursuant to this section shall constitute presence in person at the
meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
---------- ------------------------------------------
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
---------- -------------------------
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by the board
- --------- ------
of directors and shall consist of a president, one or more vice-presidents, a
treasurer, a secretary, and such other officers and assistant officers as may be
deemed necessary or desirable by the board of directors. Any number of offices
may be held by the same person. In its discretion, the board of directors may
choose not to fill any office for any period as it may deem advisable, except
that the offices of president and secretary shall be filled as expeditiously as
possible.
Section 2. Election and Term of Office. The officers of the corporation
--------- ---------------------------
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
--------- -------
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation
6
<PAGE>
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
--------- ---------
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
--------- ------------
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. President. The president shall be the chief executive officer
--------- ---------
of the corporation, and shall have the powers and perform the duties incident to
that position. Subject to the powers of the board of directors, he or she shall
be in the general and active charge of the entire business and affairs of the
corporation, and shall be its chief policy making officer. He or she shall
preside at all meetings of the board of directors and stockholders and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or provided in these bylaws.
Section 7. Vice-presidents. The vice-president, or if there shall be more
--------- ---------------
than one, the vice-presidents in the order determined by the board of directors,
shall, in the absence or disability of the president, act with all of the powers
and be subject to all the restrictions of the president. The vice-presidents
shall also perform such other duties and have such other powers as the board of
directors, the president or these bylaws may, from time to time, prescribe.
Section 8. The Secretary and Assistant Secretaries. The secretary shall
--------- ---------------------------------------
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these bylaws or by law; shall have such powers
and perform such duties as the board of directors, the president or these bylaws
may, from time to time, prescribe; and shall have custody of the corporate seal
of the corporation. The secretary, or an assistant secretary, shall have the
authority to affix the corporate seal to any instrument requiring it and when so
affixed, it may be attested by his or her signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his or her signature. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors, the president, or secretary may, from
time to time, prescribe.
Section 9. The Treasurer and Assistant Treasurer. The treasurer shall
--------- -------------------------------------
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and
7
<PAGE>
disbursements in books belonging to the corporation; shall deposit all monies
and other valuable effects in the name and to the credit of the corporation as
may be ordered by the board of directors; shall cause the funds of the
corporation to be disbursed when such disbursements have been duly authorized,
taking proper vouchers for such disbursements; and shall render to the president
and the board of directors, at its regular meeting or when the board of
directors so requires, an account of the corporation; shall have such powers and
perform such duties as the board of directors, the president or these bylaws
may, from time to time, prescribe. If required by the board of directors, the
treasurer shall give the corporation a bond (which shall be rendered ever six
(6) years) in such sums and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of the office of treasurer and for the restoration to the corporation, in
case of death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in the possession
or under the control of the treasurer belonging to the corporation. The
assistant treasurer, or if there shall be more than one, the assistant
treasurers in the order determined by the board of directors, shall in the
absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the president or
treasurer may, from time to time, prescribe.
Section 10. Other Officers, Assistant Officers and Agents. Officers,
---------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 11. Absence or Disability of Officers. In the case of the absence
---------- ---------------------------------
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
---------
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. Nature of Indemnity. Each person who was or is made a party or is
- --------- -------------------
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such
8
<PAGE>
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than said law permitted the corporation
to provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees actually and reasonably incurred by such person in
connection with such proceeding) and such indemnification shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 2 hereof, the corporation shall indemnify
any such person seeking indemnification in connection with a proceeding
initiated by such person only if such proceeding was authorized by the board of
directors of the corporation. The right to indemnification conferred in this
Article V shall be a contract right and, subject to Section 2 and 5 hereof,
shall include the right to be paid by the corporation the expenses incurred in
defending any such proceedings in advance of its final disposition. The
corporation may, by action of its board of directors, provide indemnification to
employees and agents of the corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
--------- -------------------------------------------------------
indemnification of a director or officer of the corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within thirty (30) days, upon the written
request of the director or officer. If the corporation denies a written request
for indemnification or advancing of expenses, in whole or in part, or if payment
in full pursuant to such request is not made within thirty (30) days, the right
to indemnification or advances as granted by this Article V shall be enforceable
by the director or officer in any court of competent jurisdiction. Such
person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for expense
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the corporation to
indemnify the claimant for the amount claimed, but the burden of such defense
shall be on the corporation. Neither the failure of the corporation (including
its board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
met the applicable standard of conduct set forth in the General Corporation Law
of the State of Delaware, nor an actual determination by the corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
--------- ---------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
9
<PAGE>
Section 4. Insurance. The corporation may purchase and maintain insurance
--------- ---------
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the corporation would have the power to indemnify such
person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
--------- --------
1 of this Article V in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
--------- --------------------
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
--------- ---------------
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
--------- -----------------------
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director, officer, employee or agent of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
10
<PAGE>
ARTICLE VI
----------
CERTIFICATE OF STOCK
--------------------
_______
_______
Section 1. Form. Ever holder of stock in the corporation shall be entitled to
- --------- ----
have a certificate, signed by, or in the name of the corporation by the
president, or a vice-president and the secretary or an assistant secretary of
the corporation, certifying the number of shares owned by such holder in the
corporation. If such a certificate is countersigned (1) by a transfer agent or
an assistant transfer agent other than the corporation or its employee or (2) by
a registrar, other than the corporation or its employee, the signature of any
such president, vice-president, secretary, or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the corporation. Shares of stock of the corporation
shall only be transferred on the books of the corporation by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the corporation of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such evidence of the
authenticity of such endorsement, transfer, authorization, and other matters as
the corporation may reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the corporation to issue
a new certificate to the person entitled thereto, cancel the old certificate or
certificates, and record the transaction on its books. The board of directors
may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
corporation.
Section 2. Lost Certificates. The board of directors may direct a new
--------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any
certificate or the issuance of such new certificate.
11
<PAGE>
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
--------- ---------------------------------------------
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which upon record date shall not be more than sixty (60) days nor
less than ten (10) days before the date of such meeting. If no record date is
fixed by the board of directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be the close
of business on the next day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
--------- --------------------------------------------------
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
--------- ---------------------------------------
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.
12
<PAGE>
Section 6. Registered Stockholders. Prior to the surrender to the
--------- -----------------------
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscription of Stock. Unless otherwise provided for in the
--------- ---------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
______
______
Section 1. Dividends. Dividends upon the capital stock of the corporation,
- --------- ---------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sums or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or any other purpose and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
--------- ------------------------
for the payment of money by or to the corporation and all notes and other
evidence of indebtedness issued in the name of the corporation shall be signed
by such officers, agent or agents of the corporation, and in such manner, as
shall be determined by resolution of the board of directors or a duly authorized
committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
--------- ---------
officers, or any agent or agents, of the corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
13
<PAGE>
Section 4. Loans. The corporation may lend money to, or guarantee any
--------- -----
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
--------- -----------
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
--------- --------------
corporate seal which be in the form of a circle and shall have inscribed thereon
the name of the corporation ad the words "Corporate Seal, Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
--------- --------------------------------------
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder or record, in
--------- -------------------------------
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours of business
to inspect for any purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorized the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office of the State of Delaware or at its principal place business.
Section 9. Section Headings. Section headings in these bylaws are for
--------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
---------- -----------------------
these bylaws is or becomes inconsistent with any provision of the certificate of
incorporation, the General Corporation Law of the State of Delaware or any other
applicable law, the provision of these bylaws shall not be given any effect to
the extent of such inconsistency but shall otherwise be given full force and
effect.
14
<PAGE>
ARTICLE VIII
------------
AMENDMENTS
----------
These bylaws may be amended, altered, or repealed and new bylaws adopted at any
meeting of the stockholders by a majority vote.
15
<PAGE>
Exhibit 4.1
FOCAL COMMUNICATIONS CORPORATION
$270,000,000
12.125% SENIOR DISCOUNT NOTES DUE 2008
_____________
INDENTURE
Dated as of February 18, 1998
_____________
HARRIS TRUST AND SAVINGS BANK,
Trustee
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act of 1939, as
amended, and the Indenture, dated as of February 18, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
--------------- ---------
<S> <C>
(S)310(a)(1)......... 7.10
(a)(2)............... 7.10
(a)(3)............... N.A.
(a)(4)............... N.A.
(a)(5)............... 7.10
(b).................. 7.08; 7.10
(c).................. N.A.
(S)311(a)............ 7.11
(b).................. 7.11
(c).................. N.A.
(S)312(a)............ 7.06(a); 7.06(b)
(b).................. 7.06(c)
(c).................. 7.06(d)
(S)313(a)............ 7.06(e)
(b).................. 7.06(f)
(c).................. 7.06(e), 7.06(f)
(d).................. 7.06(g)
(S)314(a)............ 4.18; 4.19
(b).................. 4.18(b)
(c)(1)............... 10.03
(c)(2)............... 10.03
(c)(3)............... N.A.
(d).................. N.A.
(e).................. 10.04
(f).................. 4.19
(S)315(a)............ 7.01(b)
(b).................. 7.05
(c).................. 7.01(c)
(e).................. 6.10
(S)316(a)............ 2.10(c)
(a)(1)(A)............ 6.05
(a)(1)(B)............ 6.04
(a)(2)............... N.A.
(b).................. 6.07
(c).................. 9.05
(S)317(a)(1)......... 6.03(b)
(a)(2)............... 6.08
(b).................. 2.07(b)
(S)318(a)............ 10.01
</TABLE>
<PAGE>
_________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and Other Provisions
--------------------------------
of General Application
----------------------
SECTION 1.01. Definitions................................................. 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act........... 20
SECTION 1.03. Rules of Construction....................................... 21
SECTION 1.04. Form of Documents Delivered to Trustee...................... 21
SECTION 1.05. Acts of Holders............................................. 21
SECTION 1.06. Satisfaction and Discharge.................................. 22
ARTICLE II
The Notes
---------
SECTION 2.01. Form and Dating............................................. 23
SECTION 2.02. Form of Face of Note........................................ 24
SECTION 2.03. Form of Reverse of Note..................................... 28
SECTION 2.04. Form of Trustee's Certificate of Authentication............. 39
SECTION 2.05. Execution and Authentication................................ 39
SECTION 2.06. Note Registrar and Paying Agent............................. 40
SECTION 2.07. Paying Agent To Hold Money in Trust......................... 41
SECTION 2.08. Registration, Registration of Transfer and Exchange......... 41
SECTION 2.09. Replacement Notes........................................... 46
SECTION 2.10. Outstanding Notes........................................... 47
SECTION 2.11. Temporary Notes............................................. 48
SECTION 2.12. Cancellation................................................ 48
SECTION 2.13. Payment of Interest; Interest Rights Preserved.............. 48
SECTION 2.14. Authorized Denominations.................................... 49
SECTION 2.15. Computation of Interest..................................... 49
SECTION 2.16. Persons Deemed Owners....................................... 49
SECTION 2.17. CUSIP Numbers............................................... 49
SECTION 2.18. Holder Lists................................................ 49
ARTICLE III
Redemption
----------
SECTION 3.01. Notice to Trustee........................................... 50
SECTION 3.02. Selection of Notes To Be Redeemed........................... 50
SECTION 3.03. Notice of Redemption........................................ 50
SECTION 3.04. Effect of Notice of Redemption.............................. 51
SECTION 3.05. Deposit of Redemption Price................................. 51
SECTION 3.06. Notes Redeemed in Part...................................... 52
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
Covenants
---------
SECTION 4.01. Payment of Notes.................................................... 52
SECTION 4.02. Maintenance of Office or Agency..................................... 52
SECTION 4.03. Money for the Note Payments To Be Held in Trust..................... 53
SECTION 4.04. Corporate Existence................................................. 53
SECTION 4.05. Maintenance of Property............................................. 53
SECTION 4.06. Payment of Taxes and Other Claims................................... 53
SECTION 4.07. Repurchase at the Option of Holders upon a Change of Control........ 54
SECTION 4.08. Limitation on Asset Sales........................................... 57
SECTION 4.09. Limitation on Consolidated Indebtedness............................. 60
SECTION 4.10. Reserved............................................................ 63
SECTION 4.11. Limitation on Restricted Payments................................... 63
SECTION 4.12. Limitation on Liens................................................. 65
SECTION 4.13. Limitation on Sale and Leaseback Transactions....................... 66
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries....................................... 67
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries...................................... 68
SECTION 4.16. Transactions with Affiliates........................................ 68
SECTION 4.17. Restricted and Unrestricted Subsidiaries............................ 69
SECTION 4.18. Reports............................................................. 70
SECTION 4.19. Statement of Compliance; Notice of Default or Event of Default...... 70
ARTICLE V
Amalgamation, Consolidation, Merger,
Conveyance, Lease or Transfer
-----------------------------
SECTION 5.01. Merger, Consolidation or Sale of Assets............................. 71
SECTION 5.02. Successor Corporation Substituted................................... 72
ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default................................................... 72
SECTION 6.02. Acceleration........................................................ 73
SECTION 6.03. Other Remedies...................................................... 75
SECTION 6.04. Waiver of Past Defaults............................................. 75
SECTION 6.05. Control by Majority................................................. 75
SECTION 6.06. Limitation on Suits................................................. 76
SECTION 6.07. Rights of Holders To Receive Payment................................ 76
SECTION 6.08. Trustee May File Proofs of Claim.................................... 76
SECTION 6.09. Priorities.......................................................... 77
SECTION 6.10. Undertaking for Costs............................................... 77
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.11. Waiver of Stay or Extension Laws.................................... 78
SECTION 6.12. Trustee May Enforce Claims Without Possession of the Notes.......... 78
SECTION 6.13. Restoration of Rights and Remedies.................................. 78
SECTION 6.14. Rights and Remedies Cumulative...................................... 78
SECTION 6.15. Delay or Omission Not Waiver........................................ 78
ARTICLE VII
Trustee
-------
SECTION 7.01. Duties of Trustee................................................... 79
SECTION 7.02. Rights of Trustee................................................... 79
SECTION 7.03. Individual Rights of Trustee........................................ 80
SECTION 7.04. Trustee's Disclaimer................................................ 81
SECTION 7.05. Notice of Defaults.................................................. 81
SECTION 7.06. Preservation of Information; Reports by Trustee to Holders.......... 81
SECTION 7.07. Compensation and Indemnity.......................................... 82
SECTION 7.08. Replacement of Trustee.............................................. 83
SECTION 7.09. Successor Trustee by Merger......................................... 84
SECTION 7.10. Eligibility; Disqualification....................................... 85
SECTION 7.11. Preferential Collection of Claims Against Company................... 85
ARTICLE VIII
Defeasance
----------
SECTION 8.01. Company's Option To Effect Legal Defeasance or
Covenant Defeasance........................................... 86
SECTION 8.02. Legal Defeasance and Discharge...................................... 86
SECTION 8.03. Covenant Defeasance................................................. 86
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance..................... 87
SECTION 8.05. Deposited United States Dollars and U.S. Government
Obligations To Be Held in Trust; Miscellaneous Provisions..... 88
SECTION 8.06. Reinstatement....................................................... 89
ARTICLE IX
Amendments
----------
SECTION 9.01. Without Consent of Holders.......................................... 89
SECTION 9.02 With Consent of Holders............................................. 90
SECTION 9.03. Effect of Supplemental Indentures................................... 90
SECTION 9.04. Compliance with Trust Indenture Act................................. 91
SECTION 9.05. Revocation and Effect of Consents and Waivers....................... 91
SECTION 9.06. Notation on or Exchange of Notes.................................... 91
SECTION 9.07. Trustee To Execute Supplemental Indentures........................... 91
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Trust Indenture Act Controls............................... 92
SECTION 10.02. Notices.................................................... 92
SECTION 10.03. Certificate and Opinion as to Conditions Precedent......... 92
SECTION 10.04. Statements Required in Certificate or Opinion.............. 92
SECTION 10.05. Rules by Trustee, Paying Agent and Note Registrar.......... 93
SECTION 10.06. Payments on Business Days.................................. 93
SECTION 10.07. Governing Law; Jurisdiction................................ 93
SECTION 10.08. No Recourse Against Others................................. 93
SECTION 10.09. Successors................................................. 93
SECTION 10.10. Counterparts............................................... 93
SECTION 10.11. Table of Contents; Headings................................ 93
SECTION 10.12. Severability............................................... 93
SECTION 10.13. Further Instruments and Acts............................... 94
</TABLE>
ANNEX A FORM OF REGULATION S CERTIFICATE
ANNEX B FORM OF RESTRICTED SECURITIES CERTIFICATE
ANNEX C FORM OF UNRESTRICTED SECURITIES CERTIFICATE
ANNEX D FORM OF CLEARING SYSTEM CERTIFICATE
ANNEX E FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP
-iv-
<PAGE>
INDENTURE, dated as of February 18, 1998, between FOCAL COMMUNICATIONS
CORPORATION ("Company"), a Delaware corporation having its principal office at
200 N. LaSalle, Chicago, Illinois 60601, and Harris Trust and Savings Bank, an
Illinois banking corporation, as trustee hereunder (the "Trustee"), having its
corporate trust office at 311 West Monroe Street, Chicago, Illinois 60606.
RECITALS
WHEREAS, the Company has duly authorized the issuance of $270,000,000
aggregate principal amount of its 12.125% Senior Discount Notes due 2008
("Notes") of substantially the tenor and amount hereinafter set forth, and to
provide therefor the Company has duly authorized the execution and delivery of
this Indenture.
WHEREAS, all things necessary to make the Notes, when executed by the
Company and authenticated and delivered by the Trustee hereunder, duly issued by
the Company, the valid obligations of the Company, and to make this Indenture
(as defined herein) a valid instrument of the Company, in accordance with its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in
consideration of the premises and the purchase of the Notes by the Holders (as
defined herein) thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE I
Definitions and Other Provisions of General Application
-------------------------------------------------------
SECTION 1.1. Definitions. For all purposes of this Indenture, except
-----------
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accreted Value" means as of any date of determination (the "Specified
--------------
Date"), with respect to each $1,000 stated principal amount at maturity of Notes
the sum of (a) the Issue
<PAGE>
Price of each Note and (b) the amount of accrued but unpaid Deferred Interest on
such Note to such Specified Date such that:
(i) If the Specified Date is one of the following dates (each a
"Semiannual Accrual Date") the Accreted Value will be the amount set forth
opposite such date below:
<TABLE>
<CAPTION>
Semiannual Accrual Date Accreted Value
------------------------- --------------
<S> <C>
February 18, 1998........ $ 555.66
August 15, 1998.......... $ 588.77
February 15, 1999........ $ 624.46
August 15, 1999.......... $ 662.32
February 15, 2000........ $ 702.47
August 15, 2000.......... $ 745.06
February 15, 2001........ $ 790.23
August 15, 2001.......... $ 838.14
February 15, 2002........ $ 888.95
August 15, 2002.......... $ 942.84
February 15, 2003 $1,000.00
and thereafter...........
</TABLE>
(ii) If the Specified Date occurs before February 15, 2003, and
between two Semiannual Accrual Dates, the Accreted Value shall be the sum
of (A) the Accreted Value for the Semiannual Accrual Date immediately
preceding the Specified Date and (B) an amount equal to the Deferred
Interest accrued from such Semiannual Accrual Date to the Specified Date.
"Acquired Indebtedness" means, with respect to any specified Person,
---------------------
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person; provided that such
--------
Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such other Person merging
with or into or becoming a Subsidiary of such specified Person.
"Act" when used with respect to any Holder, has the meaning set forth
---
in Section 1.05(a).
2
<PAGE>
"Additional Interest" has the meaning set forth in the form of Note
-------------------
contained in Section 2.03. References herein to "interest" and "Current
Interest" on the Notes shall include any Additional Interest.
"Additional Interest Payment Date" has the meaning set forth in
--------------------------------
Section 2.13.
"Affiliate" means, as to any Person, any other Person which directly
---------
or indirectly controls, or is under common control with, or is controlled by,
such Person; provided that each Unrestricted Subsidiary shall be deemed to be an
--------
Affiliate of the Company and of each other Subsidiary of the Company; provided
--------
further that neither the Company nor any of its Restricted Subsidiaries shall be
- -------
deemed to be Affiliates of each other. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling," "under
common control with" and "controlled by"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of Voting Stock, by agreement or otherwise.
"Affiliate Transaction" has the meaning set forth in Section 4.16.
---------------------
"Agent Member" means any member of, or participant in, the Depositary.
------------
"Applicable Procedures" means, with respect to any transfer or
---------------------
involving a Global Note or beneficial interest therein, the rules and procedures
of the Depositary for such Note, Euroclear and Cedel, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Asset Sale" means any transfer, conveyance, sale, lease or other
----------
disposition by the Company or any of its Restricted Subsidiaries (including an
amalgamation, consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to any Person (other than the Company or any other
Restricted Subsidiary) in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary, but excluding a disposition by a
Restricted Subsidiary to the Company or a Significant Restricted Subsidiary or
by the Company to a Significant Restricted Subsidiary) of (i) shares of Capital
Stock or other ownership interests of a Subsidiary of the Company (other than as
permitted by Section 4.15 or pursuant to an amalgamation, merger or
consolidation of a Restricted Subsidiary into the Company or any Restricted
Subsidiary), (ii) substantially all of the assets of the Company or any
Restricted Subsidiary representing a division or line of business (other than as
part of a Permitted Investment) or (iii) other assets or rights of the Company
or any of its Restricted Subsidiaries outside of the ordinary course of business
and, in each case, that is not governed by Article V of this Indenture; provided
--------
that "Asset Sale" shall not include (i) sales or other dispositions of
inventory, receivables and other current assets in the ordinary course of
business or sales or other dispositions of equipment that has become worn-out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or a Restricted Subsidiary, (ii) contemporaneous
exchanges by the Company or any Restricted Subsidiary of Telecommunications
Assets for other Telecommunications Assets in the ordinary course of business;
provided that the applicable Telecommunications Assets received by the Company
- --------
or such Restricted Subsidiary have at least substantially equal Fair Market
Value to the Company or such Restricted Subsidiary (as evidenced by a Board
Resolution), and (iii) the sale or other disposition of any assets (a) with a
Fair Market
3
<PAGE>
Value (as certified in an Officers' Certificate) not in excess of $1,000,000 or
(b) that constitute Restricted Payments which are permitted under Section 4.11.
"Asset Sale Offer" has the meaning set forth in Section 4.08(c).
----------------
"Asset Sale Payment Date" has the meaning set forth in Section
-----------------------
4.08(d)(ii).
"Attributable Indebtedness" means, with respect to any Sale and
-------------------------
Leaseback Transaction of any Person, as at the time of determination, the
greater of (i) the capitalized amount in respect of such transaction that would
appear on the balance sheet of such Person in accordance with GAAP and (ii) the
present value (discounted at a rate consistent with accounting guidelines, as
determined in good faith by the responsible accounting officer of such Person)
of the payments during the remaining term of the lease (including any period for
which such lease has been extended or may, at the option of the lessor, be
extended) or until the earliest date on which the lessee may terminate such
lease without penalty or upon payment of a penalty (in which case the payments
during the remaining term shall include such penalty).
"Average Life" means, as of any date, with respect to any debt
------------
security or Disqualified Stock, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund or
mandatory redemption payment requirements) of such debt security or Disqualified
Stock multiplied in each case by (b) the amount of such principal or redemption
payment, by (ii) the sum of all such principal or redemption payments.
"Bankruptcy Law" has the meaning set forth in Section 6.01(f).
--------------
"Board of Directors" means the Board of Directors of the Company or
------------------
any committee thereof duly authorized to act on behalf of the Board of
Directors.
"Board Resolution" means a copy of a resolution, certified by the
----------------
Secretary of the Company to have been a duly adopted resolution of the Board of
Directors and to be in full force and effect on the date of such certification,
and delivered to the Trustee within 60 days of adoption thereof.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
------------
Friday that is not a day on which banking institutions in the City of New York,
New York or in the City of Chicago, Illinois are authorized or obligated by law,
executive order or regulation to close.
"Capital Lease Obligation" of any Person means the obligation to pay
------------------------
rent or other payment amounts under a lease of (or other Indebtedness
arrangement conveying the right to use) real or personal Property which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person prepared in accordance with GAAP, and
the maturity thereof shall be the date of the last payment of rent or any 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. The principal amount of
such obligation shall be the capitalized amount that would appear on the face of
a balance sheet of such Person in accordance with GAAP.
4
<PAGE>
"Capital Stock" in any Person means any and all shares, interests,
-------------
participation or other equivalents of an equity interest (however designated) in
such Person and any rights (other than Indebtedness convertible into an equity
interest), warrants or options to subscribe for or acquire an equity interest in
such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person,
-------------
the aggregate consideration received in respect of such sale by such Person in
the form of cash and Eligible Cash Equivalents.
"Cedel" means Cedel Bank, S.A. (or any successor securities clearing
-----
agency).
"Change of Control" shall be deemed to occur if (i) the sale,
-----------------
conveyance, transfer or lease of all or substantially all of the assets of the
Company to any "Person" or "group" (as such term is used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(i) under the Exchange Act), other than any Permitted Holder or any
Restricted Subsidiary, shall have occurred, (ii) any "Person" or "group" (as
such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(i) under the Exchange Act), other
than any Permitted Holder, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 50% of the total voting power of all
classes of the Voting Stock of the Company (including any warrants, options or
rights to acquire such Voting Stock), calculated on a fully diluted basis, (iii)
at any time after a Public Market shall exist, during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with (a) any directors whose election or
appointment by the Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors 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 and (b) any directors elected pursuant to the terms of any
shareholders' agreement among the Company's shareholders) cease for any reason
to constitute a majority of the Board of Directors then in office or (iv) the
merger, amalgamation or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company shall have occurred,
and 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 giving effect to such
transaction, at least a majority of the aggregate voting power of the Voting
Stock of the surviving corporation.
"Change of Control Offer" has the meaning set forth in Section
-----------------------
4.07(a).
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.07(b)(ii).
"Change of Control Purchase Price" has the meaning set forth in
--------------------------------
Section 4.07(a).
"Change of Control Redemption" has the meaning set forth in Section
----------------------------
4.07(e).
5
<PAGE>
"Change of Control Redemption Date" has the meaning set forth in
---------------------------------
Section 4.07(e).
"Change of Control Redemption Purchase Price" has the meaning set
-------------------------------------------
forth in Section 4.07(e).
"clearing agency" has the meaning set forth in Section 3(a)(23) of the
---------------
Exchange Act.
"Commission" means the United States Securities and Exchange
----------
Commission, as from time to time constituted, created under the Exchange Act,
or, if at any time after the execution of this Indenture such commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, the body performing such duties at such time.
"Common Stock" means Capital Stock other than Preferred Stock.
------------
"Company" means the party named as such in the preamble to this
-------
Indenture until a successor replaces it pursuant to the applicable provisions
hereof and, thereafter, means such successor.
"Company Order" means a written order signed in the name of the
-------------
Company by (i) its Chairman of the Board, President, Executive Vice President,
Chief Financial Officer or a Vice Chairman and (ii) a Vice President, its
Treasurer, an Assistant Treasurer, its Corporate Secretary or an Assistant
Secretary.
"Consolidated Cash Flow Available for Fixed Charges" for any period
--------------------------------------------------
means the Consolidated Net Income of the Company and its Restricted Subsidiaries
for such period increased, to the extent deducted in arriving at Consolidated
Net Income, by the sum of (i) Consolidated Interest Expense of the Company and
its Restricted Subsidiaries for such period, (ii) Consolidated Income Tax
Expense of the Company and its Restricted Subsidiaries for such period, (iii)
the consolidated depreciation and amortization expense of the Company and its
Restricted Subsidiaries for such period, (iv) any non-cash expense related to
the issuance to employees of the Company or any Restricted Subsidiary of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, (v) any
charge related to any premium or penalty paid in connection with redeeming or
retiring any Indebtedness prior to its stated maturity and (vi) any non-cash
expense related to a purchase accounting adjustment not requiring an accrual or
reserve and separately disclosed in the Company's consolidated statement of
operations and deficit, and decreased by the amount of any non-cash item that
increases such Consolidated Net Income, all as determined on a consolidated
basis in accordance with GAAP; provided that (a) there shall be excluded from
--------
the Consolidated Cash Flow Available for Fixed Charges (if positive) of any
Restricted Subsidiary (calculated separately for such Restricted Subsidiary in
the same manner as provided above for the Company) that is subject to a
restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restriction and (b) (1) if, during or after such period, the Company or any
of its Restricted Subsidiaries shall have made any disposition of any Person or
business, then Consolidated Cash Flow Available for Fixed Charges of the Company
and its Restricted Subsidiaries shall be computed so as to give pro forma effect
to such disposition and (2) if, during or after such period, the Company or any
of its Restricted Subsidiaries completes
6
<PAGE>
an acquisition of any Person or business which immediately after such
acquisition is a Subsidiary of such Person or whose assets are held directly by
the Company or a Restricted Subsidiary, then Consolidated Cash Flow Available
for Fixed Charges shall be computed so as to give pro forma effect to the
acquisition of such Person or business.
"Consolidated Income Tax Expense" for any period means the aggregate
-------------------------------
amount of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means for any period the interest
-----------------------------
expense included in a consolidated income statement (excluding interest income)
of the Company and its Restricted Subsidiaries for such period in accordance
with GAAP, including without limitation or duplication (or, to the extent not so
included, with the addition of), (i) the amortization of Indebtedness discount
(including original issue discount), (ii) any payments or fees with respect to
letters of credit, bankers' acceptances or similar facilities, (iii) fees with
respect to interest rate swap or similar agreements or foreign currency hedge,
exchange or similar agreements, (iv) Preferred Stock dividends of Restricted
Subsidiaries (other than dividends paid in shares of Preferred Stock that is not
Disqualified Stock) declared and paid or payable, (v) accrued Disqualified Stock
dividends of the Company and its Restricted Subsidiaries, whether or not
declared or paid, (vi) interest on Indebtedness guaranteed by the Company and
its Restricted Subsidiaries, (vii) the portion of any Capital Lease Obligation
accruing during such period that is allocable to interest expense in accordance
with GAAP, (viii) capitalized interest and (ix) commitment and other fees with
respect to senior credit facilities.
"Consolidated Net Income" of the Company means, for any period, the
-----------------------
aggregate net income (or net loss) of the Company and its Restricted
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP; provided that there shall be excluded therefrom, without duplication
--------
(i) all items classified as extraordinary or non-recurring, (ii) any net income
(or net loss) of any Person other than the Company and its Restricted
Subsidiaries, except to the extent of the amount of dividends or other
distributions actually paid to the Company or its Restricted Subsidiaries by
such other Person during such period, (iii) the net income (or net loss) of any
Person acquired by the Company or any of its Restricted Subsidiaries in a
pooling-of-interests transaction for any period prior to the date of the related
acquisition, (iv) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan, (v) net gains (or net losses) in respect of
Asset Sales by the Company or its Restricted Subsidiaries, (vi) the net income
(or net loss) of any Restricted Subsidiary to the extent that the payment of
dividends or other distributions to the Company is restricted by the terms of
its constituting documents or any agreement, instrument, contract, judgment,
order, decree, statute, rule, governmental regulation or otherwise, except for
any dividends or distributions actually paid by such Restricted Subsidiary to
the Company, (vii) with regard to a non-wholly owned Restricted Subsidiary, any
aggregate net income (or net loss) in excess of the Company's or such Restricted
Subsidiary's pro rata share of such non-wholly owned Restricted Subsidiary's net
income (or net loss) and (viii) the cumulative effect of changes in accounting
principles.
"Consolidated Net Worth" means, at any date of determination,
----------------------
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days
7
<PAGE>
prior to the date of such computation, and which shall not take account of
Unrestricted Subsidiaries), less any amounts attributable to Disqualified Stock
or any equity security convertible into or exchangeable for Indebtedness, the
cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries, each item to be determined in conformity with GAAP.
"Consolidated Tangible Assets" of any Person means the total amount of
----------------------------
assets (less applicable reserves and other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person and
its Restricted Subsidiaries after deducting therefrom all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, which in each case under GAAP would be included on such
consolidated balance sheet.
"Corporate Trust Office" means the principal office of the Trustee in
----------------------
the City of Chicago, Illinois where at any particular time its corporate trust
business shall be principally administered, which at the date hereof is located
at 311 West Monroe Street, Chicago, Illinois 60606.
Covenant Defeasance" has the meaning set forth in Section 8.0.
-------------------
"Current Interest" has the meaning set forth in Section 2.03.
----------------
"Current Interest Payment Date" means with respect to any installment
-----------------------------
of Current Interest on the Notes, the date specified in such Note as the fixed
date on which such installment of interest is due and payable.
"Default" means any event, act or condition, the occurrence of which
-------
is, or after notice or the passage of time or both would be, an Event of
Default.
"Defaulted Interest" has the meaning set forth in Section 2.13(b).
------------------
"Defeasance" has the meaning set forth in Section 8.02(a).
----------
"Deferred Interest" has the meaning set forth in Section 2.03.
-----------------
"Depositary" means, with respect to the Notes issuable or issued in
----------
whole or in part in the form of one or more Global Notes, The Depository Trust
Company for so long as it shall be a clearing agency registered under the
Exchange Act, or such successor as the Company shall designate from time to time
in an Officers' Certificate delivered to the Trustee.
"Disqualified Stock" means 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, or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness by the holder thereof at any time, in whole or in part, on or prior
to the Stated Maturity of the Notes.
8
<PAGE>
"Duff & Phelps" means Duff & Phelps Credit Rating Co., or, if Duff &
-------------
Phelps Credit Rating Co. shall cease rating the specified debt securities and
such ratings business with respect thereto shall have been transferred to a
successor Person, such successor Person; provided that if Duff & Phelps Credit
--------
Rating Co. ceases rating the specified debt securities and its rating business
with respect thereto shall not have been transferred to any successor Person or
such successor Person is Standard & Poor's or Moody's, then "Duff & Phelps"
shall mean any other "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act) (other than Standard & Poor's or
Moody's, as applicable, if either is such successor Person) that rates the
specified debt securities and that shall have been designated by the Company in
an Officers' Certificate.
"Eligible Cash Equivalents" 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, in each case with a term of not more than one year, (ii) investments in
time deposit accounts, term deposit accounts, certificates of deposit, money-
market deposits, bankers' acceptances and obligations maturing within one year
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 or any state thereof,
and which bank or trust company has, or the obligation of which bank or trust
company is guaranteed by a bank or trust company which has, capital, surplus and
undivided profits aggregating in excess of $150,000,000 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 180 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 with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to Standard & Poor's and (v) investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth, territory or province of the United
States of America or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's or "A-2" by Moody's.
"Euroclear" means the Euroclear Clearance System (or any successor
---------
securities clearing agency).
"Event of Default" has the meaning set forth in Section 6.01.
----------------
"Excess Proceeds" has the meaning set forth in Section 4.08(b).
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
9
<PAGE>
"Exchange Note" means any Note issued in exchange for an Original Note
-------------
or Original Notes pursuant to the Registered Exchange Offer or otherwise
registered under the Securities Act and any Successor Note thereto.
"Exchange Offer Registration Statement" has the meaning set forth in
-------------------------------------
the form of the Notes contained in Section 2.03.
"Fair Market Value" means, with respect to any asset or Property, the
-----------------
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy, as determined in good faith by the
Board of Directors.
"GAAP" means generally accepted principles in the United States,
----
consistently applied, which are in effect on the date of this Indenture.
"Global Note(s)" means the Note or Notes that evidences all or part of
--------------
the Notes and bears the legend set forth in Section 2.02.
"Guarantee" means any direct or indirect obligation, contingent or
---------
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to
---------- ------------ ---------
the foregoing); provided that the term "Guaranteed" and any meaning correlative
--------
thereto shall not include endorsements for collection or deposit.
"Holder" means (i) in the case of any certificated Note, the Person in
------
whose name such certificated Note is registered in the Note Register and (ii) in
the case of any Global Note, the Depositary.
"Incur" means, with respect to any Indebtedness or other obligation of
-----
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
---------- --------
"Incurrable" and "Incurring" shall have meanings correlative to the foregoing);
---------- ---------
provided that a change in GAAP that results in an obligation of such Person that
- --------
exists at such time becoming Indebtedness shall not be deemed an Incurrence of
such Indebtedness and that the accrual of interest shall not be deemed an
Incurrence of Indebtedness. Indebtedness otherwise Incurred by a Person before
it becomes a Subsidiary of the Company (whether by merger, amalgamation,
consolidation, acquisition or otherwise) shall be deemed to have been Incurred
by the Company at the time at which such Person becomes a Subsidiary of the
Company.
"Indebtedness" means, at any time (without duplication), with respect
------------
to any Person, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
money borrowed, (ii) any obligation of such Person evidenced by bonds,
debentures, notes, Guarantees or other similar instruments, including any such
obligations incurred in connection with the acquisition of Property, assets or
businesses, excluding trade accounts payable made in the ordinary course of
business, (iii) any reimbursement
10
<PAGE>
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
any obligation of such Person issued or assumed as the deferred purchase price
of Property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business, which in either case are
being contested in good faith), (v) any Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase price of Disqualified Stock of
such Person and, to the extent held by Persons other than such Person or its
Restricted Subsidiaries, the maximum fixed redemption or repurchase price of
Preferred Stock of such Person's Restricted Subsidiaries, at the time of
determination, (vii) any Attributable Indebtedness with respect to any Sale and
Leaseback Transaction to which such Person is a party, (viii) Indebtedness of
other Persons secured by a Lien to which the Property owned or held by such
first Person is subject, whether or not the obligation or obligations secured
thereby shall have been assumed (the amount of such Indebtedness being deemed to
be the lesser of the value of such property and assets or the amount of the
Indebtedness so secured) and (ix) any obligation of the type referred to in
clauses (i) through (viii) of this definition of another Person and all
dividends and distributions of another Person the payment of which, in either
case, such Person has Guaranteed or is responsible or liable for, directly or
indirectly, as obligor, Guarantor or otherwise. For purposes of the preceding
sentence, the maximum fixed repurchase price of any Disqualified Stock or
Preferred Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such stock as if such stock were repurchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Indenture; provided that, if such stock is not then permitted to be
--------
repurchased, the repurchase price shall be the book value of such stock. 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,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that the
--------
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Indenture" means this instrument as originally executed or as it may
---------
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument, and any such supplemental indenture,
respectively.
"Initial Purchasers" means Salomon Brothers Inc., Morgan Stanley & Co.
------------------
Incorporated and NationsBanc Montgomery Securities LLC.
"Investment" in any Person means any direct, indirect or contingent
----------
(i) advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all of
the business, assets or stock or other evidence of beneficial ownership of such
Person; provided that Investments shall exclude extensions of trade credit in
--------
the ordinary course of business. The amount of any Investment shall be the
original cost of such Investment, plus the cost of all additions thereto and
minus the amount of any portion of such Investment repaid to
11
<PAGE>
such Person in cash as a repayment of principal or a return of capital, as the
case may be, but without any other adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment.
In determining the amount of any Investment involving a transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such transfer.
"Issue Date" means the date on which the Notes are first authenticated
----------
and delivered under this Indenture.
"Issue Price" means $555.6578 per $1,000 stated principal amount at
-----------
maturity of the Notes.
"Lien" means, with respect to any Property or other asset, any
----
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien (statutory or other), charge, set-off
right, easement, encumbrance, preference, priority or other security or similar
agreement or preferential arrangement of any kind or nature whatsoever on or
with respect to such Property or other asset (including any conditional sale or
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Maturity" means, when used with respect to a Note, the date on which
--------
the principal of such Note becomes due and payable as provided therein or in
this Indenture, whether on the Stated Maturity of such Note, on the Change of
Control Payment Date or purchase date established pursuant to the terms of this
Indenture with regard to an Asset Sale Offer, as applicable, or by declaration
of acceleration, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc., or, if Moody's
-------
Investors Service, Inc. shall cease rating the specified debt securities and
such ratings business with respect thereto shall have been transferred to a
successor Person, such successor Person; provided that if Moody's Investors
--------
Service, Inc. ceases rating the specified debt securities and its ratings
business with respect thereto shall not have been transferred to any successor
Person or such successor Person is Duff & Phelps or Standard & Poor's, then
"Moody's" shall mean any other "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act) (other than Duff
& Phelps or Standard & Poor's, as applicable, if either is such successor
Person) that rates the specified debt securities and that shall have been
designated by the Company in an Officers' Certificate.
"Net Cash Proceeds" means (i) with respect to the sale of any Property
-----------------
or other assets by the Company or any of the Restricted Subsidiaries, Cash
Proceeds received net of (a) all reasonable out-of-pocket expenses of the
Company or such Restricted Subsidiary incurred in connection with such sale,
including, all legal, title and recording tax expenses, commissions and other
fees and expenses incurred (but excluding any finder's fee or broker's fee
payable to any Affiliate of the Company) and all U.S. federal, state,
provincial, foreign and local taxes arising in connection with such sale that
are paid or required to be accrued as a liability under GAAP by the Company or
its Restricted Subsidiaries, (b) all payments made or required to be made by the
Company or its Restricted Subsidiaries on any Indebtedness which is secured by
such Properties or other assets in accordance with the terms of any Lien upon or
with respect to such Properties or other assets or which must, by the terms of
such Lien, or in order to obtain a
12
<PAGE>
necessary consent to such transaction or by applicable law, be repaid in
connection with such sale, (c) all contractually required distributions and
other payments made to minority interest holders (but excluding distributions
and payments to Affiliates of the Company) in Restricted Subsidiaries as a
result of such transaction and (d) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reasonable
reserve against any liabilities associated with such assets and retained by the
Company or any Restricted Subsidiary thereof, as the case may be, after such
transaction, including liabilities under any indemnification obligations and
severance and other employee termination costs associated with such transaction,
in each case as determined by the Board of Directors, in its reasonable good
faith judgment evidenced by a Board Resolution; provided that, in the event that
--------
any consideration for a transaction (which would otherwise constitute Net Cash
Proceeds) is required to be held in escrow pending determination of whether a
purchase price adjustment or indemnification or other payment or similar
adjustment will be made, such consideration (or any portion thereof) shall
become Net Cash Proceeds only at such time as it is released to the Company or
the Restricted Subsidiaries from escrow; and provided, further, that any non-
-------- -------
cash consideration received in connection with any transaction, which is
subsequently converted to cash, shall be deemed to be Net Cash Proceeds at such
time, and shall thereafter be applied in accordance with this Indenture and (ii)
with respect to any sale, issuance, transfer or other disposition of Capital
Stock, the proceeds of such sale, issuance, transfer or other disposition in the
form of cash or cash equivalents, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees and reasonable out-of-pocket expenses of the Company
or any Subsidiary of the Company incurred in connection with such sale,
issuance, transfer or other disposition and net of taxes paid or payable as a
result thereof.
"Note Register" and "Note Registrar" have the respective meanings
------------- --------------
specified in Section 2.06(a).
"Notes" has the meaning set forth in the Recitals to this Indenture
-----
and more particularly means any of the Notes authenticated and delivered under
this Indenture, including the Original Notes and the Exchange Notes, as the
context may require.
"Offer Purchase Price" has the meaning set forth in Section 4.08(c).
--------------------
"Officer" means the Chairman of the Board of Directors, a Vice
-------
Chairman of the Board of Directors, the President, an Executive Vice President,
the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Corporate Secretary or an
Assistant Secretary.
"Officers' Certificate" means a certificate signed by (i) the
---------------------
President or the Chief Executive Officer and (ii) the Chief Accounting Officer,
Chief Financial Officer or the Treasurer, of the Company and delivered to the
Trustee, which shall comply with Section 10.04, to the extent applicable.
"Opinion of Counsel" means a written opinion from legal counsel (who
------------------
may be counsel to the Company or the Trustee) who is acceptable to the Trustee,
which opinion shall comply with the provisions of Section 10.04, to the extent
applicable.
13
<PAGE>
"Original Notes" means all Notes other than Exchange Notes.
--------------
"Paying Agent" means any Person authorized by the Company to make
------------
payments of principal, premium or interest with respect to the Notes on behalf
of the Company.
"Permanent Regulation S Global Note" has the meaning set forth in
----------------------------------
Section 2.08(g)(v).
"Permitted Holders" means Madison Dearborn Partnership L.P., Frontenac
-----------------
V.I.L.P. and Battery Ventures III, L.P., and Affiliates (other than the Company
and the Restricted Subsidiaries) of each of the foregoing.
"Permitted Investments" means (i) Eligible Cash Equivalents, (ii)
---------------------
Investments in any Person engaged in a Telecommunications Business as a result
of which such Person becomes a Restricted Subsidiary in compliance with this
Indenture, (iii) Investments pursuant to agreements or obligations of the
Company or a Restricted Subsidiary, in effect on the Issue Date, to make
Investments in clause (ii) above, (iv) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits, (v) Investments, Capital
Stock, bonds, notes, debentures or other debt or equity securities received as a
result of Asset Sales permitted under Section 4.08, (vi) Investments in
existence at the Issue Date, (vii) commission, payroll, travel and similar
advances made in the ordinary course of business to cover matters that are
expected at the time of such advances ultimately to be treated as expenses in
accordance with GAAP, (viii) loans or advances to employees and directors made
in the ordinary course of business at any time outstanding not to exceed in the
aggregate $5,000,000 and (ix) stock, obligations or securities received in
satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
---------------
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor, (ii) other Liens incidental to the conduct of the Company's or a
Restricted Subsidiary's business or the ownership of its Property and assets,
and which do not in the aggregate materially detract from the value of the
Company's and its Restricted Subsidiaries' Property or other assets when taken
as a whole, or materially impair the use thereof in the operation of its
business, (iii) Liens with respect to assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to secure Indebtedness owing to the Company, (iv)
Liens incurred or pledges and deposits made in the ordinary course of business
in connection with workers' compensation and unemployment insurance and other
types of social security, (v) statutory Liens of landlords, carriers,
warehousemen, mechanics, materialmen, repairmen and other types of statutory
obligations, (vi) deposits made to secure the performance of tenders, bids,
leases, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money), (vii) zoning restrictions, servitudes, easements, rights-of-
way, restrictions and other similar charges or encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially detract
from the value of the Property subject thereto or interfere with the ordinary
conduct of the business of the Company or its Restricted Subsidiaries, (viii)
Liens arising out of judgments or awards against the Company
14
<PAGE>
or any Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary is prosecuting an appeal or proceeding for review and the
Company or such Restricted Subsidiary is maintaining adequate reserves in
accordance with GAAP, (ix) any interest or title of a lessor in the Property
subject to any lease other than a Capital Lease, (x) leases or subleases granted
to others that do not materially interfere with the ordinary course of business
of the Company and its Restricted Subsidiaries, (xi) Liens encumbering Property
or other assets under construction arising from progress or partial payments by
a customer of the Company or its Restricted Subsidiaries relating to such
Property or other assets, (xii) Liens on Property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation becomes,
or becomes a part of, any Restricted Subsidiary; provided that such Liens do not
--------
extend to or cover any Property or other assets of the Company or any Restricted
Subsidiary other than the Property or other assets acquired, (xiii) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other Property relating to such letters of credit and the
products and proceeds thereof, (xiv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods, (xv) 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, (xvi) Liens on or sales of receivables and (xvii)
Liens in favor of the Trustee pursuant to this Indenture.
"Person" means any individual, corporation, limited liability company,
------
partnership, limited liability partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
----------------
evidencing all or a portion of the same Indebtedness as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.09 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Preferred Stock" of any Person means Capital Stock of such Person of
---------------
any class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"pro forma" means, with respect to any calculation made or required to
---------
be made pursuant to the terms hereof, a calculation in accordance with Article
11 of Regulation S-X promulgated under the Securities Act (to the extent
applicable), as interpreted in good faith by the Board of Directors, or
otherwise, a calculation made in good faith by the Board of Directors, as the
case may be.
"Property" means, with respect to any Person, any interest of such
--------
Person in any kind of property or other asset, whether real, personal or mixed,
or tangible or intangible, excluding Capital Stock of any other Person.
15
<PAGE>
"Public Equity Offering" means an underwritten primary public offering
----------------------
of the Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity
-------------
Offering has been consummated and (ii) at least 15% of the total issued and
outstanding Common Stock of the Company immediately prior to the consummation of
such Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Purchase Agreement" means the Purchase Agreement, dated as of
------------------
February 12, 1998, among the Company, Focal Communications Corporation of
Illinois, Focal Communications Corporation of New York and the Initial
Purchasers, as such agreement may be amended from time to time.
"Qualified Stock" of any Person means a class of Capital Stock other
---------------
than Disqualified Stock.
"Redemption Date" means, when used with respect to any Note or part
---------------
thereof to be redeemed hereunder, the date fixed for redemption of such Notes
pursuant to the terms of the Notes and this Indenture.
"Redemption Price" means, when used with respect to any Note or part
----------------
thereof to be redeemed hereunder, the price fixed for redemption of such Note
pursuant to the terms of the Notes and this Indenture, plus accrued and unpaid
Current Interest thereon, if any, to the Redemption Date.
"Registered Exchange Offer" has the meaning set forth in the form of
-------------------------
the Notes contained in Section 2.03.
"Registration Agreement" means the Exchange and Registration
----------------------
Agreement, dated as of February 18, 1998, between the Company and the Initial
Purchasers, as such agreement may be amended from time to time.
"Regular Record Date" means, for the interest payable on any Current
-------------------
Interest Payment Date, the date specified in Section 2.13(a).
"Regulation S" means Regulation S under the Securities Act (or any
------------
successor provision), as it may be amended from time to time.
"Regulation S Certificate" means a certificate substantially in the
------------------------
form set forth in Annex A hereof.
"Regulation S Global Note" has the meaning specified in Section
------------------------
2.01(c).
"Regulation S Notes" means all Notes offered and sold outside the
------------------
United States in reliance on Regulation S. Such term includes the Regulation S
Global Note.
16
<PAGE>
"Restricted Global Note" has the meaning specified in Section 2.01(c).
----------------------
"Restricted Notes" means all Notes offered and sold to "qualified
----------------
institutional buyers" (as defined in Rule 144A) in reliance on Rule 144A. Such
term includes the Restricted Global Note.
"Restricted Notes Certificate" means a certificate substantially in
----------------------------
the form set forth in Annex B hereof.
"Restricted Payment" means (i) a dividend or other distribution
------------------
declared or paid on the Capital Stock of the Company or to the Company's
stockholders (in their capacity as such), or declared or paid to any Person
other than the Company or a Restricted Subsidiary on the Capital Stock of any
Restricted Subsidiary, in each case, other than dividends, distributions or
payments made solely in Qualified Stock of the Company or such Restricted
Subsidiary and other than pro rata dividends or other distributions made by a
Restricted Subsidiary that is not a Significant Restricted Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
Restricted Subsidiary that is an entity other than a corporation), (ii) a
payment made by the Company or any of its Restricted Subsidiaries (other than to
the Company or any Restricted Subsidiary) to purchase, redeem, acquire or retire
any Capital Stock of the Company or (iii) a payment made by the Company or any
of its Restricted Subsidiaries (other than a payment made solely in Qualified
Stock of the Company) to redeem, repurchase, defease (including an in-substance
or legal defeasance) or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled maturity,
scheduled sinking fund or mandatory redemption payment, Indebtedness of the
Company which is subordinate (whether pursuant to its terms or by operation of
law) in right of payment to the Notes and which was scheduled to mature on or
after the maturity of the Notes (other than permitted refinancings thereof) or
(iv) an Investment in any Person, including an Unrestricted Subsidiary or the
designation of a Subsidiary as an Unrestricted Subsidiary, other than (a) a
Permitted Investment, (b) an Investment by the Company in a Restricted
Subsidiary engaged in a Telecommunications Business or (c) an Investment by a
Restricted Subsidiary in the Company or in a Restricted Subsidiary engaged in a
Telecommunications Business.
"Restricted Period" means the period of 40 consecutive days beginning
-----------------
on and including the later of (i) the day on which Notes are first offered to
persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (ii) the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Company that has
---------------------
not been designated as an Unrestricted Subsidiary pursuant to Section 4.17.
"Rule 144" means Rule 144 under the Securities Act (or any successor
--------
provision), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
---------
provision), as it may be amended from time to time.
"Rule 144A Notes" means the Notes purchased by the Initial Purchasers
---------------
from the Company pursuant to the Purchase Agreement, other than the Regulation S
Notes.
17
<PAGE>
"Sale and Leaseback Transaction" means, with respect to any Person,
------------------------------
any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"SEC Reports" has the meaning set forth in Section 4.18(a).
-----------
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Securities Act Legend" means a legend substantially in the form of
---------------------
legend required in the form of Note set forth in Section 2.02 to be placed upon
each Regulation S Note and each Restricted Note.
"Senior Indebtedness" means all Indebtedness of the Company which is
-------------------
not, expressly by its terms, subordinate or junior in right of payment to the
Notes.
"Shelf Registration Statement" has the meaning set forth in the form
----------------------------
of the Notes contained in Section 2.03.
"Significant Restricted Subsidiary" means any Restricted Subsidiary of
---------------------------------
which the Company owns, directly or indirectly, 80% or more of all of the
outstanding Capital Stock or other ownership interests (other than any
director's qualifying shares).
"Special Record Date" means a date fixed by the Trustee pursuant to
-------------------
Section 2.13(b)(i) for the payment of Defaulted Interest.
"Standard & Poor's" means Standard & Poor's Ratings Group, a division
-----------------
of McGraw Hill Corporation, or, if Standard & Poor's Ratings Group shall cease
rating the specified debt securities and such ratings business with respect
thereto shall have been transferred to a successor Person, such successor
Person; provided that if Standard & Poor's Ratings Group ceases rating the
--------
specified debt securities and its ratings business with respect thereto shall
not have been transferred to any successor Person or such successor Person is
Duff & Phelps or Moody's, then "Standard & Poor's" shall mean any other
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act) (other than Duff & Phelps or Moody's, as applicable,
if either is such successor Person) that rates the specified debt securities and
that shall have been designated by the Company in an Officers' Certificate.
"Stated Maturity" means, with respect to any security, the date
---------------
specified in such security as the fixed date on which the 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), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
18
<PAGE>
"Step-Up" has the meaning set forth in the form of the Note contained
-------
in Section 2.03.
"Subordinated Indebtedness" means Indebtedness of the Company as to
-------------------------
which the payment of principal (and premium, if any) and interest and other
payment obligations in respect of such Indebtedness shall be subordinate to the
prior payment in full of the Notes to at least the following extent: (i) no
payments of principal (or premium, if any) or interest on or otherwise due in
respect of such Indebtedness may be permitted for so long as any Default in the
payment of principal (or premium, if any) or interest on the Notes exists, (ii)
in the event that any other Default exists, upon notice by Holders of 25% or
more of the aggregate stated principal amount at maturity of the outstanding
Notes to the Trustee, the Trustee shall have the right to give notice to the
Company and the holders of such Indebtedness (or trustees or agents therefor) of
a payment blockage, and thereafter no payments of principal (or premium, if any)
or interest on or otherwise due in respect of such Indebtedness may be made for
a period of 179 days from the date of such notice, and (iii) such Indebtedness
may not (a) provide for payments of principal of such Indebtedness at the stated
maturity thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Indebtedness upon an event of default thereunder), in each
case prior to the final Stated Maturity of the Notes or (b) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Indebtedness at the option of the holder thereof prior to
the final Stated Maturity of the Notes, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to an offer to purchase made by the Company) which is conditioned upon a change
of control of the Company pursuant to provisions substantially similar to those
described under Section 4.07(a) through Section 4.07(d) (and which shall provide
that such Indebtedness will not be repurchased pursuant to such provisions prior
to the Company's repurchase of the Notes required to be repurchased by the
Company pursuant to the provisions described under Section 4.07(a) through
Section 4.07(d)).
"Subsidiary" means, with respect to any Person, (i) any corporation
----------
more than 50% of the outstanding shares of Voting Stock of which is owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such
Person, (ii) any general partnership, joint venture or similar entity, more than
50% of the outstanding partnership or similar interests of which are owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such Person
and (iii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner.
"Successor Note" of any particular Note means every Note issued after,
--------------
and evidencing all or a portion of the same Indebtedness as that evidenced by,
such particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.09 hereof in exchange for or in lieu
of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Note.
"Surviving Entity" has the meaning set forth in Section 5.01.
----------------
19
<PAGE>
"Telecommunications Assets" means all assets, rights (contractual or
-------------------------
otherwise) and properties, real or personal, whether tangible or intangible,
used or intended for use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting,
---------------------------
or providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products, or (iii) evaluating, owning, operating,
participating in or pursuing any other business that is primarily related to
those identified in the foregoing clauses (i) or (ii) above (in the case of this
clause (iii), however, in a manner consistent with the Company's manner of
business on the Issue Date), and shall, in any event, include all businesses in
which the Company or any of its Subsidiaries are engaged on the Issue Date or
have entered into agreements to engage in or to acquire a company to engage in
or contemplate engaging in, as expressly set forth in the final offering
memorandum relating to the offering of the Original Notes by the Initial
Purchasers; provided that the determination of what constitutes a
--------
Telecommunications Business shall be made in good faith by the Board of
Directors.
"Temporary Notes" has the meaning set forth in Section 2.11(a).
---------------
"Temporary Regulation S Global Notes" has the meaning set forth in
-----------------------------------
Section 2.01(c).
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
-------------------
effect on the date of this Indenture except as required by Section 9.04;
provided, that in the event the Trust Indenture Act of 1939 is amended after
- --------
such date, "Trust Indenture Act" means, to the extent required by any such
-------------------
amendment, the Trust Indenture Act of 1939, as so amended.
"Trust Officer" means any officer assigned to the Corporate Trust
-------------
Division (or any successor thereto), including any Vice President, Assistant
Vice President, Trust Officer, any Assistant Secretary, any trust officer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Indenture.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and,
thereafter, means such successor.
"Unrestricted Notes Certificate" means a certificate substantially in
------------------------------
the form set forth in Annex C hereof.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
-----------------------
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to Section 4.17.
"U.S. Government Obligations" means (i) securities that are (a) direct
---------------------------
obligations of the United States of America for the payment of which the full
faith and credit of the United
20
<PAGE>
States of America is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and (ii)
depository receipts issued by a bank (as defined in Section 3(a)(2) of the
Securities Act) as custodian with respect to any U.S. Government Obligation
which is specified in clause (i) above and held by such bank for the account of
the holder of such depository receipt, or with respect to any specific payment
of principal or interest on any U.S. Government Obligation which is so specified
and held, provided that (except as required by law) such custodian is not
--------
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of principal or interest of
the U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, securities of any
------------
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
----------------------------------
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests (other than any director's qualifying shares) of which shall
at the time be owned by such Person or by one or more other Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more other
Wholly Owned Restricted Subsidiaries of such Person.
SECTION 1.2. Incorporation by Reference of Trust Indenture Act. (a)
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture Act, the
provision is incorporated by reference in and made a part of this Indenture. The
following Trust Indenture Act terms incorporated by reference in this Indenture
have the following meanings:
(i) "indenture securities" means the Notes;
(ii) "indenture security holder" means a Holder;
(iii) "indenture to be qualified" means this Indenture;
(iv) "indenture trustee" or "institutional trustee" means the
Trustee; and
(v) "obligor" on the indenture securities means the Company or other
obligor on the Notes, if any.
(b) All other Trust Indenture Act terms used or incorporated by
reference in this Indenture that are defined by the Trust Indenture Act, defined
by Trust Indenture Act reference to another statute or defined by Commission
rule have the meanings assigned to them therein.
SECTION 1.3. Rules of Construction. Unless the context otherwise
---------------------
requires:
21
<PAGE>
(a) words "herein", "hereof" and "hereunder", and other words of
similar import, refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(b) Section number and article number references are to sections
or articles of this Indenture, unless the context indicates otherwise;
(c) "or" is not exclusive;
(d) "including" means including without limitation;
(e) all references herein to "interest" and "Current Interest"
on the Notes shall include Additional Interest; and
(f) all dollar amounts are expressed in United States dollars.
SECTION 1.4. Form of Documents Delivered to Trustee. (a) In any case
--------------------------------------
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
(b) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.5. Acts of Holders. (a) Any request, demand, authorization,
---------------
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are received by the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
---
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 7.01) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by an acknowledgment of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than such signer's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of the signer's authority. The fact and date of the execution
of any such instrument or writing, or
22
<PAGE>
the authority of the person executing the same, may also be proved in any other
manner which the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
SECTION 1.6. Satisfaction and Discharge. (a) This Indenture shall
--------------------------
cease to be of further effect (except as to the rights of Holders under Sections
2.09, 2.11, 4.02, 4.03 and 4.04) and the Trustee, on receipt of a Company Order
requesting such action, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when (i) either (A) all
outstanding Notes have been delivered to the Trustee for cancellation or (B) all
such Notes not theretofore delivered to the Trustee for cancellation (1) have
become due and payable, (2) will become due and payable at their Stated Maturity
within one year or (3) are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company, in the case of (1), (2) or (3) above, has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose,
an amount in United States dollars sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to, but not
including, the date of such deposit (in the case of Notes which have become due
and payable) or to, but not including, the Stated Maturity or Redemption Date,
as the case may be, together with irrevocable instructions from the Company in
form and substance satisfactory to the Trustee directing the Trustee to apply
such funds to the payment thereof; (ii) the Company has paid or caused to be
paid all other sums payable hereunder by the Company; and (iii) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Section 1.06, the obligations of the Company to the Trustee under Section
7.07, and, if funds shall have been deposited with the Trustee in trust for the
Holders pursuant to this Section 1.06, the obligations of the Trustee under this
Section 1.06 and Section 4.03 shall survive.
(b) All money deposited with the Trustee pursuant to this Section
1.06 shall be held in trust and applied by it, in accordance with the provisions
of the Notes and this Indenture, to the payment, either directly or through any
Paying Agent, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money has been deposited with
the Trustee. If the Trustee or Paying Agent is unable to apply any money in
accordance with this Section 1.06 by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to this Section 1.06 until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
this Section 1.06; provided that, if the Company has made any payment of
--------
interest on or principal, or premium, if any, on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the cash held by the
Trustee or Paying Agent.
23
<PAGE>
ARTICLE II
The Notes
---------
SECTION 2.1. Form and Dating. (a) The Notes and the certificate of
---------------
authentication of the Trustee thereon shall be substantially in the form
contained in this Article II, with such appropriate insertions, substitutions
and other variations as are required or permitted under this Indenture. Upon
issuance, any such Note shall be duly executed by the Company and authenticated
by the Trustee as hereinafter provided.
(b) The Notes may have such letters, numbers or other marks of
identification and such legends and endorsements, stamped, printed, lithographed
or engraved thereon, (i) as may be required to comply with this Indenture, any
law or any rule of any securities exchange on which the Notes may be listed, or
any agreement to which the Company is subject and (ii) as may be necessary to
conform to customary usage. Each Note shall be dated the date of its
authentication by the Trustee.
(c) Upon their original issuance, Rule 144A Notes shall be issued in
the form of one or more Global Notes registered in the name of the Depositary or
its nominee and deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee, for credit by the
Depositary to the respective accounts of beneficial owners of the Notes
represented thereby (or such other accounts as they may direct). Such Global
Notes, together with their Successor Notes which are Global Notes other than the
Regulation S Global Note, are collectively herein called the "Restricted Global
-----------------
Note". Upon their original issuance, Regulation S Notes shall be issued in the
- ----
form of one or more temporary Global Notes registered in the name of the
Depositary or its nominee and deposited with the Trustee as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee, for
credit to the Agent Member accounts at the Depositary of Euroclear and/or CEDEL
for further credit by Euroclear and CEDEL, as the case may be, to the respective
accounts of the beneficial owners of the Notes represented thereby (or such
other accounts as they may direct) at Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System or CEDEL (the "Temporary
---------
Regulation S Global Notes"). Interests in the Temporary Regulation S Global
- -------------------------
Notes may only be held by the Agent Members of the Depositary for Euroclear and
CEDEL. Such Temporary Regulation S Global Notes, together with their Successor
Notes which are Global Notes (including Permanent Regulation S Global Notes, as
defined in Section 2.08(g)(v)) other than the Restricted Global Note are
collectively herein called the "Regulation S Global Note".
------------------------
(d) Agent Members shall have no rights under this Indenture with
respect to any Global Note held on their behalf by the Depositary or its nominee
or by the Trustee, as custodian for the Depositary, or under such Global Note,
and the Depositary may be treated by the Company, the Trustee and any agent of
the Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of such Depositary governing the exercise of
the rights of a holder of a beneficial ownership interest in any Global Note.
24
<PAGE>
(e) Except as provided in Section 2.08(i)(ii), owners of beneficial
ownership interests in Global Notes will not be entitled to receive physical
delivery of certificated Notes.
SECTION 2.2. Form of Face of Note. If a Global Note to be held by
--------------------
The Depository Trust Company or its nominee, then insert--UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[If Restricted Notes or Regulation S Notes, then insert- THIS NOTE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER BY PURCHASING THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY
AND THE INITIAL PURCHASERS OF THIS NOTE THAT THIS NOTE MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY (OR SUCH
EARLIER DATE PROVIDED FOR IN RULE 144(K) UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THERETO) OF THE ISSUANCE HEREOF (OR A PREDECESSOR NOTE
HERETO) OR (Y) IF LATER, BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT
ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER
CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), AND, IF SUCH TRANSFER IS
BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE PRIOR TO THE
EXPIRATION OF THE "40-DAY RESTRICTED PERIOD"
25
<PAGE>
(WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT),
A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED
BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE) THAT IS ACQUIRING THIS NOTE
FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT OR ANY OTHER APPLICABLE SECURITIES LAWS, AND A CERTIFICATE IN THE FORM
ATTACHED TO THIS NOTE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT
TRANSFER THIS NOTE PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF THE
"40-DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S
UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS NOTE
AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND
OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY
TRANSFER BY IT OF THIS NOTE COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER
HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE
COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144(A) OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING
THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S.
PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING
THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER) REGULATION S UNDER THE
SECURITIES ACT.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES
FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE IS $555.6578 PER $1,000 STATED
PRINCIPAL AMOUNT AT MATURITY. THE ISSUE DATE OF THIS NOTE IS FEBRUARY 18, 1998
AND THE YIELD TO MATURITY IS 12.125%. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT FOR
UNITED STATES FEDERAL INCOME TAX PURPOSES PER $1,000 STATED PRINCIPAL AMOUNT AT
MATURITY IS $1050.5922 PLUS ALL CURRENT INTEREST (AS DEFINED HEREIN). FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES, A SIGNIFICANT AMOUNT OF ORIGINAL ISSUE
DISCOUNT, TAXABLE AS ORDINARY INCOME, WILL BE RECOGNIZED BY A HOLDER OF NOTES AS
SUCH DEFERRED INTEREST (AS DEFINED HEREIN) ACCRUES FORM THE ISSUE DATE.
26
<PAGE>
12.125% SENIOR DISCOUNT NOTE DUE FEBRUARY 15, 2008
CUSIP NO. [ ]
No. $
Focal Communications Corporation, a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
-------
indenture referred to on the reverse of this Note) for value received, hereby
promises to pay to _______________, or registered assigns, the stated principal
amount at maturity of ________ dollars ($__________) [if this Note is a Global
Note, then insert: (which stated principal amount at maturity may from time to
time be increased or decreased to such other stated principal amounts at
maturity (which shall not exceed $__________ at any time) by adjustments made to
the Schedule annexed hereto by the Trustee hereinafter referred to in accordance
with the indenture referred to on the reverse of this Note)] on February 15,
2008.
Current Interest Payment Dates: February 15 and August 15, commencing
on August 15, 2003.
Regular Record Dates: February 1 and August 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
27
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse of this Note or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
FOCAL COMMUNICATIONS
CORPORATION
by ________________________________
Name:
Title:
Attest:
____________________________
28
<PAGE>
SECTION 2.3. Form of Reverse of Note.
-----------------------
1. Indenture.
---------
This Note is one of a duly authorized issue of Notes of the Company
designated as its 12.125% Senior Discount Notes due February 15, 2008 (the
"Notes"), issued under an indenture, dated as of February 18, 1998 (herein, as
amended from time to time, called the "Indenture"), between the Company and
Harris Trust and Savings Bank, as trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture). The Notes are limited
in aggregate stated principal amount at maturity to $270,000,000. Reference is
hereby made to the Indenture and all indentures supplemental thereto for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holder of this Note and of the
terms upon which this Note is, and is to be, authenticated and delivered. All
terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
2. Stated Amount at Maturity and Interest.
--------------------------------------
The Company will pay the stated principal amount at maturity of this
Note on February 15, 2008.
This Note will bear interest on the Issue Price at a rate of 12.125%
per annum computed on a semiannual bond equivalent basis from the Issue Date.
In the period prior to February 15, 2003, interest at a rate of 12.125% per
annum will accrue on the Issue Price but will not be payable in cash ("Deferred
Interest"). Deferred Interest will be paid at maturity of this Note and will
constitute a part of the stated amount at maturity of this Note. From February
15, 2003, interest (including Additional Interest, as described below) at a rate
of 12.125% per annum ("Current Interest") on the stated principal amount at
maturity of this Note will be payable in cash semiannually (to the Holder of
record at the close of business on the February 1 and August 1, as the case may
be, immediately preceding the applicable Current Interest Payment Date) on each
Current Interest Payment Date, commencing on August 15, 2003, in each case, even
if this Note is canceled on registration of transfer or registration of exchange
after such record date.
[If Original Notes, then insert--If (i) the Company has not filed a
registration statement (the "Exchange Offer Registration Statement") under the
-------------------------------------
Securities Act of 1933, as amended (the "Securities Act"), registering a
--------------
security substantially identical to this Note (except that such Note will not
contain terms with respect to transfer restrictions) pursuant to an exchange
offer (the "Registered Exchange Offer") on or prior to April 3, 1998 or (ii) the
-------------------------
Exchange Offer Registration Statement relating to the Registered Exchange Offer
has not become or been declared effective prior to August 17, 1998, or (iii)
neither the Registered Exchange Offer has been consummated nor a registration
statement registering this Note for resale (a "Shelf Registration Statement")
----------------------------
has been declared effective prior to September 16, 1998 or (iv) after the Shelf
Registration Statement has been declared effective, such Shelf Registration
Statement thereafter ceases to be effective or usable (subject to certain
exceptions set forth in the Registration Agreement) in connection with resales
of this Note or notes issued in exchange for this Note pursuant to the
Registered Exchange Offer ("Exchange Notes") in accordance with
--------------
29
<PAGE>
and during the periods specified in the Registration Agreement without being
succeeded promptly by an additional registration statement filed and declared
effective, in the case of each of the immediately preceding clauses (i) through
(iv) upon the terms and conditions set forth in the Registration Agreement (each
such event referred to in such clauses (i) through (iv), a "Registration
------------
Default"), then interest will accrue on this Note and the Exchange Notes (in
- -------
addition to the stated interest on this Note and the Exchange Notes) (the "Step-
-----
Up") and be payable in cash semiannually in arrears on February 15 and August 15
- --
of each year, beginning on the February 15 or August 15 immediately following a
Registration Default (such interest to be payable to the Holder of record as of
the February 1 and August 1, as the case may be, immediately preceding February
15 or August 15), at a rate per annum equal to 0.5% on the Accreted Value
(determined daily) of this Note and the Exchange Notes, during the 90-day period
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 and
shall increase by a rate per annum equal to 0.5% on the Accreted Value
(determined daily) of this Note and the Exchange Notes at the end of each
subsequent 90-day period, but in no event shall such rate exceed 1.5% per annum
on the Accreted Value (determined daily) of this Note and the Exchange Notes,
in the aggregate regardless of the number of Registration Defaults. Interest
accruing as a result of the Step-Up is referred to herein as "Additional
----------
Interest". The amount of accrued Additional Interest shall be determined on the
- --------
basis of the number of days actually elapsed.]
[If Exchange Notes, then insert--If after a shelf registration
statement registering this Note for resale (a "Shelf Registration Statement")
----------------------------
has been declared effective, such Shelf Registration Statement thereafter ceases
to be effective or usable (subject to certain exceptions set forth in the
Registration Agreement) in connection with resales of this Note in accordance
with and during the periods specified in the Registration Agreement without
being succeeded promptly by an additional registration statement filed and
declared effective, upon the terms and conditions set forth in the Registration
Agreement (a "Registration Default"), then interest will accrue on this Note (in
--------------------
addition to the stated interest on this Note) (the "Step-Up") and be payable in
-------
cash semiannually in arrears on February 15 and August 15 of each year,
beginning on the February 15 or August 15 immediately following a Registration
Default (such interest to be payable to the Holder of record as of the February
1 and August 1, as the case may be, immediately preceding such February 15 or
August 15), at a rate per annum equal to 0.5% on the Accreted Value (determined
daily) of this Note, during the 90-day period from and including the date on
which such Registration Default shall occur to but excluding the date on which
such Registration Default has been cured and shall increase by a rate per annum
equal to 0.5% on the Accreted Value (determined daily) of this Note at the end
of each subsequent 90-day period, but in no event shall such rate exceed 1.5%
per annum on the Accreted Value (determined daily) of this Note, in the
aggregate regardless of the number of Registration Defaults. Interest accruing
as a result of the Step-Up is referred to herein as "Additional Interest". The
-------------------
amount of accrued Additional Interest shall be determined on the basis of the
number of days actually elapsed.]
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum equal to the interest rate payable on this Note.
30
<PAGE>
Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice of which
shall be given to the Holder of this Note not less than 10 calendar days prior
to such Special Record Date.
3. Method of Payment.
------------------
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. Payments in respect of
Notes represented by Global Notes (including principal, premium, interest and
Defaulted Interest, if any) will be made by wire transfer of immediately
available funds to the accounts specified by the nominee for the Depositary.
With respect to certificated Notes, the Paying Agent will make all payments of
principal, premium, interest and Defaulted Interest, if any, by wire transfer of
immediately available funds to the United States dollar accounts maintained by
the Holders entitled thereto with banks in the United States, or, if no such
account is designated by the relevant Holder to the Trustee or the Paying Agent
at least 30 days prior to the relevant due date for payment (or such other date
as the Trustee may accept in its discretion), by mailing a check to the
registered address of such Holder. If a payment date is a date other than a
Business Day at a place of payment, payment may be made at that place on the
next succeeding day that is a Business Day and no interest shall accrue for the
intervening period.
4. Paying Agent and Note Registrar.
--------------------------------
Initially, the Trustee will act as authenticating agent, Paying Agent
and Note Registrar. The Trustee may be removed by action of the Holders of not
less than a majority in stated principal amount at maturity of the outstanding
Notes, or by the Company or certain bona fide Holders of Notes upon the
occurrence of certain events. The Company may change any Paying Agent or Note
Registrar with notice in writing to the Trustee. The Company, any Subsidiary or
any Affiliate of either of them may act as Paying Agent or Note Registrar.
5. Optional Redemption.
--------------------
This Note is subject to redemption upon not less than 30 nor more than
60 days' prior written notice to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in stated principal amounts at
maturity of $1,000 or integral multiples thereof, at any time on or after
February 15, 2003, and prior to maturity, as a whole or in part, at the election
of the Company, at the following Redemption Prices (expressed as percentages of
the stated principal amount at maturity) plus accrued and unpaid Current
Interest, if any, thereon to but excluding the Redemption Date, (subject to the
right of Holders on the relevant Regular Record Date to receive Current Interest
due on a Current Interest Payment Date that is on or prior to the date of
redemption) if redeemed during the periods indicated below:
31
<PAGE>
<TABLE>
<CAPTION>
From and Including To and Including Redemption Price
------------------ ---------------- ----------------
<S> <C> <C>
February 15, 2003 February 14, 2004 106.063%
February 15, 2004 February 14, 2005 104.042%
February 15, 2005 February 14, 2006 102.021%
February 15, 2006 100%
and thereafter
</TABLE>
This Note will be redeemable at any time and from time to time prior
to February 15, 2001 in the event that the Company receives Net Cash Proceeds
from the sale of its Capital Stock (other than Disqualified Stock) in one or
more Public Equity Offerings, in which case the Company may, at its option, use
all or a portion of any such Net Cash Proceeds to redeem up to 35% of the
aggregate Issue Price of the Notes; provided, that at least 65% of the original
aggregate stated principal amount at maturity of the Notes remains outstanding
after each such redemption. Such redemption must occur on a date of redemption
within 90 days of such sale and upon not less than 30 nor more than 60 days'
prior written notice, in stated principal amounts at maturity of $1,000 or
integral multiples thereof at a redemption price equal to 112.125% of the
Accreted Value of the Notes to be redeemed plus Additional Interest, if any, to
but excluding the date of redemption.
If, after giving effect to the offer by the Company to repurchase all
or any part of each Holder's Notes made upon the occurrence of a Change of
Control as set forth in Section 7 hereto, at least 95% of the original aggregate
stated principal amount at maturity of the Notes has been redeemed or
repurchased pursuant to the Indenture, the Company shall have the right to
redeem the balance of the Notes at a redemption price equal to 101% of the
Accreted Value thereof plus accrued and unpaid Current Interest, if any, thereon
to but excluding the date of redemption. The Company may exercise this right by
giving the Holders notice of such redemption within 30 days following the
payment date with respect to the Company's earlier repurchase offer.
6. No Sinking Fund.
----------------
The Notes do not have the benefit of any sinking fund obligations.
7. Repurchase of Notes at the Option of Holders upon a Change of
-------------------------------------------------------------
Control.
- --------
Upon the occurrence of a Change of Control, each Holder will have the
right to require the Company to repurchase all or any part (equal to $1,000
stated principal amount at maturity or an integral multiple thereof) of such
Holder's Notes at a purchase price ("Change of Control Purchase Price") equal to
--------------------------------
101% of the Accreted Value thereof plus accrued and unpaid Current Interest, if
any, thereon to but excluding the payment date for the Change of Control
Purchase Price.
32
<PAGE>
Within 30 days following any Change of Control, the Company or the
Trustee (at the expense of the Company) shall mail a notice to each Holder
regarding the Company's offer to repurchase all or any part of such Holder's
Notes. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the offer described in the notice. Unless the Company defaults in the payment
of the Change of Control Purchase Price with respect thereto, all Notes or
portions thereof accepted for payment pursuant to the offer described in the
notice will cease to accrue interest from and after the payment date for the
Change of Control Purchase Price.
8. Repurchase of Notes at the Option of Holders upon an Asset Sale.
----------------------------------------------------------------
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds
calculated as of any date exceeds $5,000,000, the Company shall, within 30 days
of such date, make an offer to purchase (an "Asset Sale Offer") on a pro rata
----------------
basis (a) Notes at a purchase price (the "Offer Purchase Price") in cash equal
--------------------
to 100% of the Accreted Value thereof, plus accrued and unpaid Current Interest
thereon, if any, to but excluding the purchase date and (b) to the extent
required by the terms thereof, any other indebtedness of the Company that is
pari passu with the Notes. The pro rata amount of such Excess Proceeds to be
used to purchase Notes shall be in an amount equal to the aggregate amount of
such Excess Proceeds multiplied by the quotient obtained by dividing the
Accreted Value of the outstanding Notes by the sum of such Accreted Value and
the principal amount of such other Indebtedness. In the event the aggregate
Offer Purchase Price of the outstanding Notes tendered pursuant to an Asset Sale
Offer is in excess of the Excess Proceeds to be used to purchase such Notes,
such Excess Proceeds shall be applied to purchase such Notes on a pro rated
basis in stated principal amounts at maturity of $1,000 or an integral multiple
thereof.
Within 30 days of the date the amount of Excess Proceeds exceeds
$5,000,000, the Company or the Trustee (at the expense of the Company) shall
mail to each Holder a written notice regarding the Asset Sale Offer. The Holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Asset
Sale Offer. Unless the Company defaults in the payment of the Offer Purchase
Price with respect thereto, all Notes or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrue interest from and after
the purchase date.
9. Denominations; Transfer; Exchange.
----------------------------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 stated principal amount at maturity and any integral
multiple thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
33
<PAGE>
10. Persons Deemed Owners.
----------------------
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee, the Paying Agent and the Note Registrar may deem and
treat the Person in whose name this Note is registered as the owner hereof for
all purposes, whether or not this Note be overdue, and none of the Company, the
Trustee, the Paying Agent or the Note Registrar shall be affected by notice to
the contrary.
11. Unclaimed Money.
----------------
Subject to certain notice provisions, the Trustee and the Paying Agent
shall pay to the Company upon written request any money held by them for the
payment of principal, premium, if any, or interest that remains unclaimed for
two years. After payment to the Company, Holders entitled to such money must
look only to the Company for payment as general creditors, and all
responsibility and liability of the Trustee and the Paying Agent with respect to
such money shall cease.
12. Discharge Prior to Redemption or Maturity.
------------------------------------------
If the Company deposits with the Trustee United States dollars or U.S.
Government Obligations sufficient to pay the principal, premium, if any, and
accrued interest on the Notes to redemption or maturity, the Company will, with
the exceptions of certain sections thereof, be discharged from the Indenture and
the Notes, including certain covenants set forth in the Indenture.
13. Amendment; Waiver.
------------------
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate stated principal amount at maturity of the Notes at
the time outstanding. The Indenture also contains provisions permitting the
Holders of not less than a majority in aggregate stated principal amount at
maturity of the Notes at the time outstanding, on behalf of the Holders of all
the Notes, to waive certain past defaults under the Indenture and their
consequences.
14. Restrictive Covenants.
----------------------
The Indenture contains certain covenants which, among other things,
restrict the ability of the Company and Restricted Subsidiaries to incur
additional indebtedness (and, in the case of Restricted Subsidiaries, issue
preferred stock), pay dividends or make distributions in respect of the
Company's or Restricted Subsidiaries' capital stock, make other restricted
payments, enter into sale and leaseback transactions, incur liens, cause
encumbrances or restrictions to exist on the ability of Restricted Subsidiaries
to pay dividends or make distributions in respect of their capital stock, issue
and sell capital stock of Restricted Subsidiaries, enter into transactions with
affiliates, sell assets, or amalgamate, consolidate, merge or sell or otherwise
dispose of all or substantially all of their property and assets.
34
<PAGE>
15. Defaults and Remedies.
----------------------
With the exception of certain Events of Defaults specified below, if
an Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% of the aggregate stated principal amount at maturity of the
outstanding Notes may declare the Accreted Value of, and any accrued and unpaid
Current Interest on, all Notes then outstanding to be immediately due and
payable. If a bankruptcy or insolvency default with respect to the Company or a
Restricted Subsidiary occurs and is continuing, the Notes immediately become due
and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of not less than a majority in stated 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.
16. No Recourse Against Others.
---------------------------
No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any covenant,
agreement or other obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its past, present or future status as a
controlling Person, director, officer, employee, incorporator or stockholder of
the Company. Each Holder by accepting a Note waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for the issuance of the Notes.
17. Governing Law.
--------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture. Requests may be made to:
Focal Communications Corporation
200 N. LaSalle
Chicago, Illinois 60601
Attention: Chief Financial Officer
18. Ranking.
--------
The Notes are senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future senior indebtedness of
the Company, and will rank senior in right of payment to all existing and future
subordinated Indebtedness of the Company. Holders of secured Indebtedness of
the Company, however, will have claims that are
35
<PAGE>
prior to the claims of the Holders with respect to the assets securing such
other indebtedness except to the extent the Notes are equally and ratably
secured by such assets.
36
<PAGE>
____________________________________________________________
CERTIFICATE OF TRANSFER
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of Focal Communications Corporation. The agent may substitute another
to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Note.
37
<PAGE>
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act of 1933 (the "Securities Act") after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by Focal Communications Corporation or any
Affiliate, the undersigned confirms that such Notes are being transferred in
accordance with the terms of such Notes:
CHECK ONE BOX BELOW
(1) [_] to Focal Communications Corporation; or
(2) [_] pursuant to an effective registration statement under the
Securities Act; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
-----------------------------
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A under the Securities Act, in
each case pursuant to and in compliance with Rule 144A under the
Securities Act; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act;
(5) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act; or
(6) [_] to an institution that is an "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring this Note for investment purposes and not for
distribution in violation of the Securities Act or any other
applicable securities laws.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Notes evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (3),
(4), (5) or (6) is checked, the Trustee may require, prior to registering
any such transfer of the Notes, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act, such as the exemption provided by Rule 144 under the Securities Act.
38
<PAGE>
______________________
Signature
Signature Guarantee:
_________________________ ___________________________
[Signature must be guaranteed Signature
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit
unions) with membership in
an approved guarantee
medallion program pursuant
to Securities and Exchange
Commission Rule 17Ad-15]
____________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
---------
institutional buyer" within the meaning of Rule 144A under the Securities Act,
- -------------------
and is aware that the sale to it is being made in reliance on Rule 144A under
the Securities Act and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
under the Securities Act or has determined not to request such information and
that it is aware that the transferor is relying upon the foregoing
representations of the undersigned in order to claim the exemption from
registration provided by Rule 144A under the Securities Act.
Dated: ________________ ________________________________________
NOTICE: To be executed by an executive officer
39
<PAGE>
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been
made:
<TABLE>
<CAPTION>
Stated Principal Amount at
Amount of decrease in Amount of increase in Maturity of this Global
Stated Principal Amount at Stated Principal Amount at Note following such Signature of authorized
Date of Maturity Maturity decrease or signatory of Trustee or
Exchange of this Global Note of this Global Note increase Notes Custodian
- -------- -------------------------- -------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
</TABLE>
40
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.07 or 4.08 of the Indenture, check the box:
[__]
If you want to elect to have only part of this Note purchased by
the Company pursuant to Section 4.07 or 4.08 of the Indenture, state the
amount in stated principal amount at maturity ($1,000 or an integral
multiple thereof): $
Date: _______________ Your Signature: __________________
(Sign exactly as your name
appears on the other side of this Note)
Signature Guarantee: _______________________________________
Signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan
associations and credit unions) with membership in an
approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
SECTION 2.4. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
Harris Trust and Savings Bank, as Trustee, certifies that this is one of
the Notes referred to in the within-mentioned Indenture.
Date:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
by______________________
Authorized Signatory
SECTION 2.5. Execution and Authentication. (a) The aggregate
----------------------------
stated principal amount at maturity of Notes outstanding at any time shall
not exceed $270,000,000 except as provided in Section 2.09. The Notes shall
be executed on behalf of the Company by its Chief Executive Officer, Chief
Financial Officer or, its President or any Executive Vice President and
shall be attested by the Company's Corporate Secretary or one of its
Assistant Secretaries, in each case by manual or facsimile signature.
41
<PAGE>
(b) The Notes shall be authenticated by manual signature of an
authorized officer of the Trustee and shall not be valid for any purpose
unless so authenticated.
(c) In case any officer of the Company whose signature shall
have been placed upon any of the Notes shall cease to be such officer of
the Company before authentication of such Notes by the Trustee and the
issuance and delivery thereof, such Notes may, nevertheless, be
authenticated by the Trustee and issued and delivered with the same force
and effect as though such Person had not ceased to be such officer of the
Company.
(d) Notwithstanding any other provision hereof, the Trustee
shall authenticate and deliver Notes only upon receipt by the Trustee of an
Officers' Certificate complying with Section 10.04 with respect to
satisfaction of all conditions precedent contained in this Indenture to
authentication and delivery of such Notes.
(e) Upon compliance by the Company with the provisions of
paragraph (d) of this Section 2.05, the Trustee shall authenticate and
deliver: (1) Original Notes for original issue in an aggregate stated
principal amount at maturity of $270,000,000 and (2) Exchange Notes for
issue only in a Registered Exchange Offer pursuant to the Registration
Agreement, for a like stated principal amount at maturity of Original
Notes, in each case upon receipt of a Company Order. Such Company Order
shall specify the amount of the Notes to be authenticated and the date on
which the original issue of Notes is to be authenticated and whether the
Notes are to be Original Notes or Exchange Notes.
(f) A Note shall not be valid or entitled to any benefit under
this Indenture or obligatory for any purpose unless executed by the Company
and authenticated by the manual signature of the Trustee as provided
herein. The signature of an authorized officer of the Trustee shall be
conclusive evidence, and the only evidence, that such Note has been
authenticated and delivered under this Indenture.
(g) The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Notes. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. Any
authenticating agent of the Trustee shall have the same rights hereunder as
any Note Registrar or Paying Agent. The Trustee, at its Corporate Trust
Office, is initially appointed authenticating agent hereunder.
SECTION 2.6. Note Registrar and Paying Agent. (a) The Company
-------------------------------
shall maintain, pursuant to Section 4.02, an office or agency where the
Notes may be presented for registration of transfer or for exchange, an
office or agency where Notes may be presented for payment and an office or
agency where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall cause to be kept
at such office a register (the register maintained in such office being
herein sometimes referred to as the "Note Register") in which, subject to
-------------
42
<PAGE>
such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Notes and of transfers of Notes entitled to be
registered or transferred as provided herein. The Trustee, at its Corporate
Trust Office, is initially appointed "Note Registrar" for the purpose of
--------------
registering Notes and transfers of Notes as herein provided. The Company
may, upon written notice to the Trustee, change the designation of the
Trustee as Note Registrar and appoint another Person to act as Note
Registrar for purposes of this Indenture. If any Person other than the
Trustee acts as Note Registrar, the Trustee shall have the right at any
time, upon reasonable notice, to inspect or examine the Note Register and
to make such inquiries of the Note Registrar as the Trustee shall in its
discretion deem necessary or desirable in performing its duties hereunder.
(b) The Company shall enter into an appropriate agency agreement
with any Person designated by the Company as Note Registrar or Paying Agent
that is not a party to this Indenture, which agreement shall incorporate
the provisions of the Trust Indenture Act and shall implement the
provisions of this Indenture that relate to such Note Registrar or Paying
Agent. Prior to the designation of any such Person, the Company shall, by
written notice (which notice shall include the name and address of such
Person), inform the Trustee of such designation. If the Company fails to
maintain a Note Registrar or Paying Agent, the Trustee shall act as such.
The Trustee, at its Corporate Trust Office, is initially appointed Paying
Agent hereunder.
(c) Upon surrender for registration of transfer of any Note at
an office or agency of the Company designated for such purpose, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name
of the designated transferee or transferees, one or more new Original Notes
or Exchange Notes, as the case may be, of any authorized denomination or
denominations, of like tenor and aggregate stated principal amount at
maturity, all as requested by the transferor.
SECTION 2.7. Paying Agent To Hold Money in Trust. (a) The
-----------------------------------
Company will pay principal, premium, if any, and interest in money of the
United States that at the time of payment is legal tender for payment of
public and private debts. On or prior to 10:00 a.m. on each due date of the
principal, premium, or any payment of interest (including Defaulted
Interest) with respect to any Note represented by a Global Note, the
Company (through the Paying Agent) shall make payment of a sum sufficient
to pay such principal, premium or interest when so becoming due in United
States dollars by wire transfer of immediately available funds to accounts
specified by the Depositary. With respect to certificated Notes, the
Company (through the Paying Agent) will make all payments of principal,
premium, interest and Defaulted Interest, if any, by wire transfer of
immediately available funds in United States dollars to the United States
dollar accounts maintained by the Holders entitled thereto with banks in
the United States on or prior to 10:00 a.m. on each due date for payment,
or, if no such account is designated by any Holder to the Trustee or the
Paying Agent at least 30 days prior to the relevant due date for payment
(or such other date as the Trustee may accept in its discretion), by
mailing a check on such due date for payment to the registered address of
the relevant Holder. If a payment date is a date other than a Business Day
at a place
43
<PAGE>
of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening
period.
(b) The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that such Paying Agent shall hold in trust for
the benefit of Holders or the Trustee all money held by such Paying Agent
for the payment of principal, premium or interest with respect to the
Notes, shall notify the Trustee of any default by the Company in making any
such payment and at any time during the continuance of any such default,
upon the written request of the Trustee, shall forthwith pay to the Trustee
all sums held in trust by such Paying Agent.
(c) The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any funds disbursed
by such Paying Agent. Upon complying with this Section 2.07(c), the Paying
Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.8. Registration, Registration of Transfer and
------------------------------------------
Exchange. (a) At the option of the Holder, and subject to the other
--------
provisions of this Section 2.08, Notes may be exchanged for other Notes of
any authorized denominations and of a like tenor and aggregate stated
principal amount at maturity, upon surrender of the Notes to be exchanged
at an office or agency maintained by the Company for such purpose pursuant
to Section 4.02. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Notes which the Holder making the exchange is entitled to receive.
(b) All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Company, evidencing
the same debt, and (subject to the provisions in the Original Notes and the
Exchange Notes regarding the payment of Additional Interest) entitled to
the same benefits under this Indenture, as the Notes surrendered upon such
registration of transfer or exchange.
(c) Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Trustee
or the Note Registrar) be duly endorsed, or be accompanied by a duly
executed instrument of transfer in form satisfactory to the Company, the
Trustee and the Note Registrar, by the Holder thereof or such Holder's
attorney duly authorized in writing.
(d) No service charge shall be made to the Holder for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Sections 2.11, 3.06 or
9.06 or in accordance with any offer pursuant to Sections 4.07 or 4.08.
(e) Any holder of beneficial ownership interests in a Global
Note shall, by acceptance of such Global Note, agree that transfers of
beneficial ownership interests in such Global Note may be effected through
a book-entry system maintained by the
44
<PAGE>
Holder of such Global Note (or its agent) and the ownership of a beneficial
ownership interest in the Global Note shall be reflected in a book-entry.
(f) The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening
of business 15 calendar days before the day of the mailing of a notice of
redemption of Notes selected for redemption under Section 3.02 and ending
at the close of business on the day of such mailing, or (ii) to register
the transfer of or exchange any Note so selected for redemption in whole or
in part, except the unredeemed portion of any Note being redeemed in part.
(g) Certain Transfers and Exchanges. Notwithstanding any other
-------------------------------
provision of this Indenture or the Notes, transfers and exchanges of Notes
and beneficial ownership interests in a Global Note of the kinds specified
in this Section 2.08(g) shall be made only in accordance with this Section
2.08(g).
(i) Restricted Global Note to Regulation S Global Note. If the
--------------------------------------------------
owner of a beneficial ownership interest in the Restricted Global Note
wishes at any time to transfer such interest to a Person who wishes to
acquire the same in the form of a beneficial ownership interest in the
Regulation S Global Note, such transfer may be effected only in
accordance with the provisions of this clause (g)(i) and clause (g)(v)
below and subject to the Applicable Procedures. Upon receipt by the
Trustee, as Note Registrar, of (A) an order given by the Depositary or
its authorized representative directing that a beneficial ownership
interest in the Regulation S Global Note in a specified stated
principal amount at maturity be credited to a specified Agent Member's
account and that a beneficial ownership interest in the Restricted
Global Note in an equal stated principal amount at maturity be debited
from another specified Agent Member's account and (B) a Regulation S
Certificate, in form satisfactory to the Trustee and duly executed by
the owner of such beneficial ownership interest in the Restricted
Global Note or his attorney duly authorized in writing, then the
Trustee, as Note Registrar but subject to clause (g)(v) below, shall
reduce the stated principal amount at maturity of the Restricted
Global Note and increase the stated principal amount at maturity of
the Regulation S Global Note by such specified stated principal amount
at maturity as provided in Section 2.08(i)(iii).
(ii) Regulation S Global Note to Restricted Global Note. If the
--------------------------------------------------
owner of a beneficial ownership interest in the Regulation S Global
Note wishes at any time to transfer such interest to a Person who
wishes to acquire the same in the form of a beneficial ownership
interest in the Restricted Global Note, such transfer may be effected
only in accordance with this clause (g)(ii) and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Note Registrar,
of (A) an order given by the Depositary or its authorized
representative directing that a beneficial ownership interest in the
Restricted Global Note in a specified stated principal amount at
maturity be credited to a specified Agent Member's account and that a
beneficial ownership interest in the Regulation S Global Note in an
equal stated principal amount at maturity be debited from another
specified
45
<PAGE>
Agent Member's account and (B) if such transfer is to occur during the
Restricted Period, a Restricted Notes Certificate, in form
satisfactory to the Trustee and duly executed by the owner of such
beneficial ownership interest in the Regulation S Global Note or his
attorney duly authorized in writing, then the Trustee, as Note
Registrar, shall reduce the stated principal amount at maturity of the
Regulation S Global Note and increase the stated principal amount at
maturity of the Restricted Global Note by such specified stated
principal amount at maturity as provided in Section 2.08(i)(iii).
(iii) Non-Global Note to Non-Global Note. A Note that is not a
----------------------------------
Global Note may be transferred, in whole or in part, to a Person who
takes delivery in the form of another Note that is not a Global Note
as provided in Section 2.08(a) hereof; provided that, if the Note to
--------
be transferred in whole or in part is a Restricted Note, or is a
Regulation S Note and the transfer is to occur during the Restricted
Period, then the Trustee shall have received (A) a Restricted Notes
Certificate (or the completion of the Certificate of Transfer on the
Note), in form satisfactory to the Trustee and duly executed by the
transferor Holder or his attorney duly authorized in writing, in which
case the transferee shall take delivery in the form of a Restricted
Note, or (B) a Regulation S Certificate (or the completion of the
Certificate of Transfer on the Note), in form satisfactory to the
Trustee and duly executed by the transferor Holder or his attorney
duly authorized in writing, in which case the transferee shall take
delivery in the form of a Regulation S Note (subject in each case to
Section 2.08(h) hereof).
(iv) Exchanges between Global Note and Non-Global Note. A
-------------------------------------------------
beneficial ownership interest in a Global Note may be exchanged for a
Note that is not a Global Note as provided in Section 2.08(i)(ii);
provided that, if such interest is a beneficial ownership interest in
--------
the Restricted Global Note, or if such interest is a beneficial
ownership interest in the Regulation S Global Note and such exchange
is to occur during the Restricted Period, then such interest shall be
exchanged for a Restricted Note (subject in each case to Section
2.08(h)).
(v) Exchanges between Temporary Regulation S Global Notes and
---------------------------------------------------------
Permanent Regulation S Global Notes. Following the termination of the
-----------------------------------
Restricted Period (which termination the Company shall notify the
Trustee of pursuant to Section 4.18(c) hereof), beneficial ownership
interests in the Temporary Regulation S Global Note may be exchanged
for equivalent beneficial ownership interests in a permanent Global
Note (a "Permanent Regulation S Global Note") in fully registered
----------------------------------
form, pursuant to the Applicable Trustee of a certificate
substantially in the form of Annex D hereto to the effect that
Euroclear or CEDEL, as the case may be, has received a certificate
substantially in the form of Annex E hereto from the owner of such
beneficial ownership interest in such Temporary Regulation S Global
Note. The delivery to the Trustee by Euroclear or CEDEL of the
certificate or certificates in the form of Annex D referred to above
may be relied upon by the Company and the Trustee as conclusive
evidence that the certificate or certificates referred to therein has
or have been
46
<PAGE>
delivered to Euroclear or CEDEL pursuant to the terms of this
Indenture. Upon receipt by the Trustee, as Note Registrar, of (A) such
a certificate substantially in the form of Annex D hereto and (B) an
order given by the Depositary or its authorized representative
directing that the Temporary Regulation S Global Note be reduced by,
and the Permanent Regulation S Global Note be increased by, the
aggregate stated principal amount at maturity of the beneficial
ownership interest in the Temporary Regulation S Global Note to be so
exchanged and to credit or cause to be credited in the account of the
Agent Member specified in such instructions a beneficial ownership
interest in the Permanent Regulation S Global Note equal to the
reduction in the aggregate stated principal amount at maturity of the
Temporary Regulation S Global Note, then the Trustee, as Note
Registrar, shall reduce the stated principal amount at maturity of the
Temporary Regulation S Global Note and increase the stated principal
amount at maturity of the Permanent Regulation S Global Note by such
specified stated principal amount at maturity as provided in Section
2.08(i)(iii). The Company shall use its best efforts to cause the
Depositary to ensure that, until the expiration of the Restricted
Period, beneficial ownership interests in the Regulation S Global Note
may be held only in or through accounts maintained at the Depositary
by Euroclear or Cedel (or by Agent Members acting for the account
thereof), and no person shall be entitled to effect any transfer or
exchange that would result in any such interest being held otherwise
than in or through such an account.
(vi) Notwithstanding any other provisions of this Indenture
(other than the provisions set forth in Section 2.08(i)(iii)), a
Global Note may not be transferred as a whole except 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 Depositary or a nominee
of such successor Depositary.
(h) Securities Act Legends. Rule 144A Notes and their
-----------------------
Successor Notes, and Regulation S Notes and their Successor Notes, shall
each bear a Securities Act Legend, subject to the following:
(i) subject to the following clauses of this Section 2.08(h),
a new Note which is issued in exchange for another Note or any portion
thereof, upon transfer or otherwise, shall bear a Securities Act
Legend if such other Note bore a Securities Act Legend;
(ii) Exchange Notes shall not bear a Securities Act Legend;
(iii) at any time after the Notes may be freely transferred
without registration under the Securities Act or without being subject
to transfer restrictions pursuant to the Securities Act, a new Note
which does not bear a Securities Act Legend may be issued in exchange
for or in lieu of a Note or any portion thereof which bears such a
legend if the Trustee has received an Unrestricted Note Certificate,
in form satisfactory to the Trustee and duly executed by the Holder of
such legended Note or his attorney duly authorized in
47
<PAGE>
writing, and after such date and receipt of such Unrestricted Note
Certificate, the Trustee shall authenticate and deliver such a new
Note in exchange for or in lieu of such other legended Note as
provided in this Article II;
(iv) a new Note which does not bear a Securities Act Legend may
be issued in exchange for or in lieu of a Note or any portion thereof
which bears such a legend if, in the Company's judgment, placing such
a legend upon such new Note is not necessary to ensure compliance with
the registration requirements of the Securities Act, and the Trustee,
at the direction of the Company, shall authenticate and deliver such a
new Note as provided in this Article II; and
(v) notwithstanding the foregoing provisions of this Section
2.08(h), a Successor Note of a Note that does not bear a particular
form of Securities Act Legend shall not bear such form of legend
unless the Company has reasonable cause to believe that such Successor
Note is a "restricted security" within the meaning of Rule 144, in
which case the Trustee, at the direction of the Company, shall
authenticate and deliver a new Note bearing a Securities Act Legend in
exchange for such Successor Note as provided in this Article II.
(i) The provisions of clauses (i), (ii), (iii), (iv) and (v)
below shall apply only to Global Notes:
(i) Each Global Note authenticated under this Indenture shall
be registered in the name of the Depositary or a nominee thereof and
delivered to the Depositary or a nominee thereof or custodian
therefor, and each such Global Note shall constitute a single Note for
all purposes of this Indenture.
(ii) Notwithstanding any other provision in this Indenture, no
Global Note may be exchanged in whole or in part for Notes registered,
and no transfer of a Global Note in whole or in part may be
registered, in the name of any Person other than the Depositary or a
nominee thereof unless (i) the Depositary notifies the Company that it
is unwilling or unable to continue as a depositary for such Global
Note or if at any time the Depositary ceases to be a clearing agency
registered under the Exchange Act, and in either case a successor
depositary is not appointed by the Company within 90 days, (ii) the
Company executes and delivers to the Trustee a notice that such Global
Note shall be so transferable, registrable and exchangeable, and such
transfer shall be registrable or (iii) there shall have occurred and
be continuing a Default with respect to the Notes represented by such
Global Note.
(iii) If any Global Note is to be exchanged for other Notes or
canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Note Registrar, for
exchange or cancellation as provided in this Article II. If any Global
Note is to be exchanged for other Notes or canceled in part, or if
another Note is to be exchanged in whole or in part for a beneficial
ownership interest in any Global Note, then either (A) such Global
Note shall be so surrendered for exchange or cancellation as provided
in this Article II or
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(B) the stated principal amount at maturity thereof shall be reduced
by an amount equal to the portion thereof to be so exchanged for other
Notes or canceled, or increased by an amount equal to the stated
principal amount at maturity of such other Note to be so exchanged for
a beneficial ownership interest therein, as the case may be, by means
of an appropriate adjustment made on the records of the Trustee, as
Note Registrar, whereupon the Trustee, in accordance with the
Applicable Procedures, shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon
any such surrender or adjustment of a Global Note, the Trustee shall,
subject to Section 2.08(i)(ii) and as otherwise provided in this
Article II, authenticate and deliver any Notes issuable in exchange
for such Global Note (or any portion thereof) to or upon the order of,
and registered in such names as may be directed by, the Depositary or
its authorized representative. Upon the request of the Trustee in
connection with the occurrence of any of the events specified in
Section 2.08(i)(ii), the Company shall promptly make available to the
Trustee a reasonable supply of Notes that are not in the form of
Global Notes. The Trustee shall be entitled to rely upon any order,
direction or request of the Depositary or its authorized agent which
is given or made pursuant to this Article II if such order, direction
or request is given or made in accordance with the Applicable
Procedures.
(iv) Every Note authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Note or any
portion thereof, whether pursuant to this Section, Section 2.09, 3.06,
4.07, 4.08 or 9.06 or otherwise, shall be authenticated and delivered
in the form of, and shall be, a Global Note, unless such Note is
registered in the name of a Person other than the Depositary or a
nominee thereof.
(v) None of the Company, the Trustee, any agent of the
Trustee, any Paying Agent or the Note Registrar will have any
responsibility or liability for any aspect of the Depositary's records
(or the records of the Agent Members) relating to or payments made on
account of beneficial ownership interests in a Global Note or for
maintaining, supervising or reviewing any records of the Depositary
relating to such beneficial ownership interests.
SECTION 2.9. Replacement Notes. (a) If any mutilated Note is
-----------------
surrendered to the Trustee, the Company shall execute and upon its written
request the Trustee shall authenticate and deliver, in exchange for any
such mutilated Note, a new Note containing identical provisions and of like
stated principal amount at maturity, bearing a number not contemporaneously
outstanding.
(b) If there shall be delivered to the Company and the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any
Note and (ii) such security or indemnity as may be required by them to save
either of them and any agent of each of them harmless, then, in the absence
of notice to the Company or the Trustee that such Note has been acquired by
a bona fide purchaser, the Company shall execute and upon its request the
Trustee shall authenticate and deliver, in lieu of any such
49
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destroyed, lost or stolen Note, a new Note containing identical provisions
and of like stated principal amount at maturity, bearing a number not
contemporaneously outstanding.
(c) In case any such mutilated, destroyed, lost or stolen Note
has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Note, pay such Note.
(d) Upon the issuance of any new Note under this Section 2.09,
the Company may require the payment by the Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
(e) Every new Note issued pursuant to this Section 2.09 in lieu
of any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Note shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
(f) The provisions of this Section 2.09 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Notes.
SECTION 2.10. Outstanding Notes. (a) Notes outstanding at any
-----------------
time are all Notes authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section 2.10 as not outstanding. A Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds such Note.
(b) If a Note is replaced pursuant to Section 2.09, it ceases to
be outstanding unless the Trustee and the Company receive proof
satisfactory to them that such replaced Note is held by a bona fide
purchaser.
(c) In determining whether the Holders of the required stated
principal amount at maturity of Notes have concurred in any direction,
waiver or consent or any amendment, modification or other change to this
Indenture, Notes held or beneficially owned by the Company or a Restricted
Subsidiary or by an Affiliate of the Company or a Restricted Subsidiary or
by agents of any of the foregoing shall be disregarded, except that for the
purposes of determining whether the Trustee shall be protected in relying
on any such direction, waiver or consent or any amendment, modification or
other change to this Indenture, only Notes which a Trust Officer knows are
so owned shall be so disregarded. Notes so owned which have been pledged in
good faith shall not be disregarded if the pledgee establishes to the
satisfaction of the Trustee such pledgee's right so to act with respect to
the Notes and that the pledgee is not the Company, a Restricted Subsidiary
or an Affiliate of either of them or any of their agents.
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SECTION 2.11. Temporary Notes. (a) Pending the preparation of
---------------
definitive Notes, the Company may execute, and the Trustee shall
authenticate, temporary notes ("Temporary Notes") which are printed or
otherwise produced, of like tenor of the definitive Notes in lieu of which
they are issued and with such appropriate insertions, omissions,
substitutions and other variations.
(b) If Temporary Notes are issued, the Company shall cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the Temporary Notes shall be exchangeable
for definitive Notes upon surrender of the Temporary Notes to the Trustee,
without charge to the Holder. Until so exchanged, Temporary Notes will
evidence the same debt and will be entitled to the same benefits under this
Indenture as the definitive Notes in lieu of which they have been issued.
SECTION 2.12. Cancellation. The Company at any time may
------------
deliver Notes to the Trustee for cancellation. The Note Registrar and the
Paying Agent shall forward to the Trustee for cancellation any Notes
surrendered to them for registration of transfer, exchange, purchase or
payment. The Trustee shall cancel all Notes surrendered for registration of
transfer, exchange, purchase, payment or cancellation and shall destroy
such canceled Notes unless the Company shall by Company Order otherwise
direct. The Company may not issue new Notes to replace Notes that have been
delivered to the Trustee for cancellation.
SECTION 2.13. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
(a) Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Current Interest Payment Date or on any February 15 or
August 15 on which Additional Interest is due (an "Additional Interest
Payment Date") shall be paid to the Person in whose name such Note is
registered at the close of business on the Regular Record Date for such
interest payment, which shall be the February 1 or August 1 (whether or not
a Business Day), as the case may be, immediately preceding such Current
Interest Payment Date or any Additional Interest Payment Date.
(b) Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Current Interest Payment Date
or any Additional Interest Payment Date (herein called "Defaulted
---------
Interest") shall forthwith cease to be payable to the Holder on the
--------
relevant Regular Record Date, and, except as hereinafter provided, such
Defaulted Interest, and any interest payable on such Defaulted Interest,
may be paid by the Company as provided in clause (i) below:
(i) The Company may elect to make payment of any Defaulted
Interest, and any interest payable on such Defaulted Interest, to the
Persons in whose names the Notes are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on the Notes and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount in United States dollars equal to the aggregate
amount
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proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit prior
to the date of the proposed payment, such United States dollars when
deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as provided in this clause. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 calendar days and
not less than 10 calendar days prior to the date of the proposed
payment and not less than 10 calendar days after the receipt by a
Trust Officer of the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be sent, first class mail, postage
prepaid, to each Holder at such Holder's address as it appears in the
Note Register, not less than 10 calendar days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid,
such Defaulted Interest shall be paid to the Persons in whose names
the Notes are registered at the close of business on such Special
Record Date in the manner contemplated by Section 2.07(a).
(c) Subject to the foregoing provisions of this Section 2.13,
each Note delivered under this Indenture upon registration of transfer of,
or in exchange for, or in lieu of, any other Note, shall carry the rights
to interest accrued and unpaid, and to accrue, which were carried by such
other Note.
SECTION 2.14. Authorized Denominations. The Notes shall be
------------------------
issuable in minimum denominations of $1,000 stated principal amount at
maturity and any integral multiple thereof.
SECTION 2.15. Computation of Interest. Interest on the Notes
-----------------------
be computed on the basis of a 360-day year of twelve 30-day months;
provided that Additional Interest shall be computed on the basis of a 365-
or 366-day year, as the case may be, and the number of days actually
elapsed from and including the date Additional Interest commences to accrue
to but excluding the date on which Additional Interest ceases to accrue.
SECTION 2.16. Persons Deemed Owners. Prior to the due
---------------------
presentation for registration of transfer of any Note, the Company, the
Trustee, the Paying Agent and the Note Registrar may deem and treat the
Person in whose name the Note is registered as the owner of such Note for
the purpose of receiving payment of the principal of, premium, if any, and
(subject to Section 2.13) interest on such Note and for all other purposes
whatsoever, whether or not such Note is overdue, and none of the Company,
the Trustee, the Paying Agent or the Note Registrar shall be affected by
notice to the contrary.
SECTION 2.17. CUSIP Numbers. The Company, in issuing the Notes,
-------------
may use "CUSIP" and "ISIN" numbers for each series of Notes and, if so, the
Trustee
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shall use the relevant CUSIP and ISIN numbers in any notices to Holders as
a convenience to such Holders; provided that any such notice may state that
--------
no representation is made as to the correctness or accuracy of the CUSIP
and ISIN numbers printed in the notice or on the Notes and that reliance
may be placed only on the other identification numbers printed on the
Notes. The Company shall promptly notify the Trustee of any change in any
CUSIP or ISIN numbers used.
SECTION 2.18. Holder Lists. The Trustee shall preserve in as
------------
current a form as possible the most recent list available to it of the
names and addresses of Holders and shall otherwise comply with Trust
Indenture Act ((S)) 312(a). If the Trustee is not the Note Registrar, the
Company shall furnish to the Trustee as of each Regular Record Date and at
such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Holders, including the aggregate stated principal amount at
maturity of Notes held by each Holder.
ARTICLE III
Redemption
----------
SECTION 3.01. Notice to Trustee. If the Company elects to redeem
-----------------
Notes pursuant to paragraph 5 of the Notes, it shall notify the Trustee in
writing of the Redemption Date and the stated principal amount at maturity
of Notes to be redeemed. The Company shall give each such notice to the
Trustee at least 60 calendar days prior to the Redemption Date unless the
Trustee consents in writing to a shorter period. Such notice shall be
accompanied by an Officers' Certificate and an Opinion of Counsel from the
Company to the effect that such redemption will comply with any conditions
to such redemption set forth herein and in the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed. Except as
---------------------------------
otherwise provided herein, if less than all the Notes are to be redeemed at
any time, the Trustee shall select the Notes to be redeemed pro rata, by
lot or such other basis as it shall deem fair and appropriate; provided
that the Trustee may select for redemption in part only Notes in
denominations larger than $1,000 stated principal amount at maturity. In
selecting Notes to be redeemed pursuant to this Section 3.02, the Trustee
shall make such adjustments, reallocations and eliminations as it shall
deem proper so that the stated principal amount at maturity of each Note to
be redeemed shall be $1,000 stated principal amount at maturity or an
integral multiple thereof, by increasing, decreasing or eliminating any
amount less than $1,000 stated principal amount at maturity which would be
allocable to any Holder. The Trustee in its discretion may determine the
particular Notes (if there are more than one) registered in the name of any
Holder which are to be redeemed, in whole or in part. Provisions of this
Indenture that apply to Notes called for redemption also apply to portions
of Notes called for redemption. The Trustee shall notify the Company
promptly of the Notes or portions of Notes to be redeemed.
SECTION 3.03. Notice of Redemption. (a) At least 30 calendar
--------------------
days but not more than 60 calendar days before a Redemption Date, the
Company shall send
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a notice of redemption, first class mail, postage prepaid, to Holders of
Notes to be redeemed at the addresses of such Holders as they appear in the
Note Register.
(b) The notice shall identify the Notes to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price (and shall specify the portion of such
Redemption Price that constitutes the amount of accrued and unpaid
interest to be paid, if any);
(iii) the name and address of the Paying Agent;
(iv) that the Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(v) if any Note is being redeemed in part, the portion of the
stated principal amount at maturity of such Note to be redeemed and
that, after the Redemption Date, a new Note or Notes in stated
principal amounts at maturity equal to the unredeemed portion will be
issued, or, if such Note is a Global Note, such Global Note, with a
notation adjusting the stated principal amount at maturity thereof to
be equal to the unredeemed portion, will be returned to the Holder
thereof;
(vi) if fewer than all the outstanding Notes are to be redeemed,
the identification and stated principal amounts at maturity of the
particular Notes to be redeemed;
(vii) that, unless the Company defaults in making the redemption
payment, interest on the Notes (or portions thereof) called for
redemption shall cease and such Notes (or portions thereof) shall
cease to accrue interest on and after the Redemption Date;
(viii) the paragraph of the Notes pursuant to which the Notes are
being called for redemption;
(ix) the CUSIP or ISIN if applicable; and
(x) any other information necessary to enable Holders to comply
with the notice of redemption.
(c) At the Company's request, the Trustee shall give the notice
of redemption in the Company's name and at the Company's expense. In such
event, the Company shall provide the Trustee with the information required
by this Section 3.03 in a timely manner.
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SECTION 3.04. Effect of Notice of Redemption. Once notice of
------------------------------
redemption is mailed, Notes called for redemption shall become due and
payable on the Redemption Date and at the Redemption Price stated in such
notice. Upon surrender to the Paying Agent, such Notes shall be paid at
the Redemption Price stated in such notice. Failure to give notice or any
defect in the notice to any Holder shall not affect the validity of the
notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. (a) Prior to 10:00
---------------------------
a.m., New York City time, on each Redemption Date, the Company shall
deposit with the Paying Agent (or, if the Company, one of its Subsidiaries
or any of their Affiliates is the Paying Agent, the Paying Agent shall
segregate and hold in trust for the benefit of the Holders) an amount of
United States dollars in immediately available funds, sufficient to pay the
Redemption Price on all Notes to be redeemed on that date other than Notes
or portions of Notes called for redemption on such date which have been
delivered by the Company to the Trustee for cancellation. The Paying Agent
shall make payment of the funds so deposited or segregated in the manner
contemplated by Section 2.07(a).
(b) So long as the Company complies with the preceding paragraph
and the other provisions of this Article III, interest on the Notes to be
redeemed on the applicable Redemption Date shall cease to accrue from and
after such date and such Notes or portions thereof shall be deemed not to
be entitled to any benefit under this Indenture except to receive payment
of the Redemption Price on the Redemption Date. If any Note called for
redemption shall not be so paid upon surrender for redemption, then, from
the Redemption Date until such principal, premium, if any, and accrued but
unpaid interest is paid, interest shall be paid on the unpaid principal and
premium, if any, and, to the extent permitted by law, on any accrued but
unpaid interest thereon, in each case at the rate prescribed therefor by
such Notes.
SECTION 3.06. Notes Redeemed in Part. Upon surrender and
----------------------
cancellation of a Note (other than a Global Note) that is redeemed in part,
the Company shall issue and the Trustee shall authenticate and deliver to
the surrendering Holder (at the Company's expense) a new Note equal in
stated principal amount at maturity to the unredeemed portion of the Note
surrendered and canceled; provided that each such Note shall be equal to
--------
$1,000 stated principal amount at maturity or an integral multiple thereof.
ARTICLE IV
Covenants
---------
SECTION 4.01. Payment of Notes. (a) The Company shall make all
----------------
payments in respect of Accreted Value, Offer Purchase Price, stated
principal amount at maturity, Redemption Price, Change of Control Purchase
Price, Change of Control Redemption Purchase Price, accrued and unpaid
Current Interest, and Defaulted Interest, if any, on the Notes in United
States dollars in immediately available funds on the dates and in the
manner provided in the Notes and in this Indenture. Principal, premium and
55
<PAGE>
interest shall be considered paid on the date due if, on such date, the
Trustee or the Paying Agent (other than the Company, a Subsidiary of the
Company or any of their respective Affiliates) holds in accordance with
this Indenture United States dollars in immediately available funds
designated for and sufficient to pay all principal, premium and interest
then due.
(b) The Company shall pay interest on overdue amounts (other
than Current Interest) due hereunder and interest on overdue installments
of interest, to the extent lawful, at a rate per annum equal to the
interest rate payable on the Notes.
SECTION 4.02. Maintenance of Office or Agency. (a) The
-------------------------------
Company shall maintain an office in the Borough of Manhattan, the City of
New York, or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the office of Harris Trust Company of
New York, an affiliate of the Trustee located in the Borough of Manhattan,
the City of New York, and the Company hereby appoints the Trustee its agent
to receive all presentations, surrenders, notices and demands through such
affiliated office of the Trustee.
(b) The Company may also from time to time designate one or more
other offices or agencies (in or outside of the City of New York) where the
Notes may be presented or surrendered for any or all of such purposes, and
may from time to time rescind such designations; provided that no such
--------
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York, for
such purposes. The Company shall give prompt written notice to the Trustee
of any such designation and any change in the location of any such other
office or agency.
SECTION 4.03. Money for the Note Payments To Be Held in Trust.
-----------------------------------------------
(a) If the Company, any Subsidiary of the Company or any of their
respective Affiliates shall at any time act as Paying Agent with respect to
the Notes, such Paying Agent shall, on or before each due date of the
principal of (and premium, if any) or interest on any of the Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto
United States dollars in immediately available funds designated for and
sufficient to pay the principal (and premium, if any) or interest so
becoming due until such funds shall be paid to such Persons or otherwise
disposed of as herein provided, and shall promptly notify the Trustee of
its action or failure so to act.
(b) Whenever the Company shall have one or more Paying Agents
with respect to the Notes, it shall, prior to or on each due date of the
principal of (and premium, if any) or interest on any of the Notes, deposit
with a Paying Agent United States dollars in immediately available funds
designated for and sufficient to pay the
56
<PAGE>
principal (and premium, if any) or interest so becoming due, such funds to
be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the
Paying Agent shall promptly notify the Trustee of the Company's action or
failure so to act.
SECTION 4.04. Corporate Existence. Subject to the provisions of
-------------------
Article IV and Article V hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each of its Restricted Subsidiaries; provided that the Company
--------
and any such Restricted Subsidiary shall not be required to preserve any
such right or franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business
of the Company.
SECTION 4.05. Maintenance of Property. The Company shall cause
-----------------------
all Property used or useful in the conduct of its business or the business
of any of its Restricted Subsidiaries and material to the Company and its
Restricted Subsidiaries taken as a whole to be maintained and kept in good
condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as, in the judgment
of the Company, may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times; provided that nothing in this Section 4.05 shall prevent the Company
--------
from discontinuing the operation or maintenance of any of such Property if
such discontinuance is, in the judgment of management of the Company,
desirable in the conduct of its business or the business of any of its
Restricted Subsidiaries.
SECTION 4.06. Payment of Taxes and Other Claims. The Company
---------------------------------
shall pay or discharge or cause to be paid or discharged, before the same
shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Restricted Subsidiaries or upon the income, profits or Property of the
Company or any of its Restricted Subsidiaries and (b) all material lawful
claims for labor, materials and supplies which, if unpaid, might become a
Lien (other than a Permitted Lien) upon the Property of the Company or any
of its Restricted Subsidiaries; provided that the Company shall not be
--------
required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings upon stay of
execution or the enforcement thereof and for which adequate reserves in
accordance with GAAP or other appropriate provision has been made.
SECTION 4.07. Repurchase at the Option of Holders upon a Change
-------------------------------------------------
of Control. (a) Upon the occurrence of a Change of Control, each Holder
----------
will have the right to require the Company to repurchase all or any part
(equal to $1,000 stated principal amount at maturity or an integral
multiple thereof) of such Holder's Notes pursuant to the offer described in
Section 4.07(b) (the "Change of Control Offer") at a purchase price (the
-----------------------
"Change of Control Purchase Price") equal to 101% of the Accreted
--------------------------------
57
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Value thereof plus accrued and unpaid Current Interest, if any, thereon to
but excluding any Change of Control Payment Date.
(b) Within 30 calendar days of the date of any Change of
Control, the Company, or the Trustee at the request and expense of the
Company, shall send to each Holder by first class mail, postage prepaid, a
notice prepared by the Company stating:
(i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section 4.07, and that
all Notes or portions thereof that are timely tendered will be
accepted for payment;
(ii) the Change of Control Purchase Price, and the date Notes
are to be purchased pursuant to the Change of Control Offer (the
"Change of Control Payment Date"), which date shall be a date
------------------------------
occurring no earlier than 30 calendar days nor later than 60 calendar
days subsequent to the date such notice is mailed;
(iii) that any Notes or portions thereof not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the
Change of Control Purchase Price with respect thereto, all Notes or
portions thereof accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest from and after the Change
of Control Payment Date;
(v) that any Holder electing to have any Notes or portions
thereof purchased pursuant to a Change of Control Offer will be
required to surrender such Notes, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of such Notes completed, to
the Paying Agent at the address set forth in the notice, prior to the
close of business on the third Business Day preceding the Change of
Control Payment Date;
(vi) that any Holder shall be entitled to withdraw such
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter,
setting forth the name of the Holder, the stated principal amount at
maturity of Notes delivered for purchase, and a statement that such
Holder is withdrawing such Holder's election to have such Notes or
portions thereof purchased pursuant to the Change of Control Offer;
(vii) that any Holder electing to have Notes purchased pursuant
to the Change of Control Offer must specify the stated principal
amount at maturity that is being tendered for purchase, which amount
must be $1,000 stated principal amount at maturity or an integral
multiple thereof;
(viii) that any Holder whose Notes are being purchased only in
part will be issued new Notes equal in stated principal amount at
maturity to the unpurchased portion of the Note or Notes surrendered,
which unpurchased portion must be
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equal to $1,000 stated principal amount at maturity or an integral
multiple thereof, or, if such Note is a Global Note, such Global Note,
with a notation adjusting the stated principal amount at maturity
thereof to be equal to the unpurchased portion, will be returned to
the Holder thereof;
(ix) that, if after giving effect to the Change of Control
Offer, at least 95% of the original aggregate stated principal amount
at maturity of the Notes has been redeemed or repurchased, the Company
shall have the right to redeem the balance of the Notes at the Change
of Control Redemption Purchase Price; and
(x) any other information necessary to enable any Holder to
tender Notes and to have such Notes purchased pursuant to this Section
4.07(b).
(c) On the Change of Control Payment Date, the Company shall (i)
accept for payment any Notes or portions thereof properly tendered pursuant
to the Change of Control Offer; (ii) irrevocably deposit with the Paying
Agent (or, if the Company, one of its Subsidiaries or any of their
Affiliates is the Paying Agent, the Paying Agent shall segregate and hold
in trust for the benefit of the Holders), by 10:00 a.m., New York City
time, on such date, in United States dollars in immediately available
funds, an amount equal to the Change of Control Purchase Price in respect
of all Notes or portions thereof so accepted other than Notes or portions
of Notes called for redemption on such date which have been delivered by
the Company to the Trustee for cancellation; and (iii) deliver, or cause to
be delivered, to the Trustee the Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof tendered to the
Paying Agent and accepted for payment. The Paying Agent shall make payment
of the funds so deposited or segregated in the manner contemplated by
Section 2.07(a).
(d) Upon surrender and cancellation of a Note (other than a
Global Note) that is purchased in part pursuant to the Change of Control
Offer, the Company shall execute and the Trustee shall promptly
authenticate and deliver to the surrendering Holder of such Note, a new
Note equal in stated principal amount at maturity to the unpurchased
portion of such surrendered Note; provided that each such new Note shall be
--------
equal to $1,000 stated principal amount at maturity or an integral multiple
thereof.
(e) If after giving effect to a Change of Control Offer at least
95% of the original aggregate stated principal amount at maturity of the
Notes has been redeemed or repurchased, the Company shall have the right to
redeem the balance of the Notes at a redemption price (the "Change of
---------
Control Redemption Purchase Price") equal to 101% of the Accreted Value
---------------------------------
thereof plus accrued and unpaid Current Interest, if any, thereon to but
excluding the date of redemption (the "Change of Control Redemption Date")
---------------------------------
by sending (or, at the request and expense of the Company, having the
Trustee send) the Holders by first class mail, postage prepaid, a notice
prepared by the Company of such
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redemption within 30 calendar days of the Change of Control Payment Date
with respect to such Change of Control Offer (the "Change of Control
-----------------
Redemption") stating:
----------
(i) that a Change of Control Offer has been consummated and
after giving effect thereto at least 95% of the original aggregate
stated principal amount at maturity of the Notes has been redeemed or
repurchased;
(ii) that the Company is exercising its right, pursuant to
this Section 4.07(e), to redeem the balance of the outstanding Notes;
(iii) the Change of Control Redemption Date with respect to
such Notes, which date shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed;
(iv) that, unless the Company defaults in the payment of the
Change of Control Redemption Purchase Price with respect to such
Notes, all such Notes shall cease to accrue interest from and after
such Change of Control Redemption Date;
(v) that all Holders are required to surrender such Notes to
the Paying Agent at the address specified in the notice prior to the
close of business on the third Business Day preceding the Change of
Control Redemption Date to collect the Change of Control Redemption
Purchase Price; and
(vi) such other matters as are required by Section 3.03.
(f) On the Change of Control Redemption Date, the Company shall:
(i) accept for payment Notes or portions thereon properly
tendered pursuant to the Change of Control Redemption;
(ii) deposit with the Paying Agent (or, if the Company, one of
its Subsidiaries or any of their Affiliates is the Paying Agent, the
Paying Agent shall segregate and hold in trust for the benefit of the
Holders), by 10:00 a.m., New York City time, on such date, in United
States dollars in immediately available funds, an amount equal to the
Change of Control Redemption Purchase Price in respect of all Notes or
portions thereof to be redeemed on that date; and
(iii) deliver, or cause to be delivered, to the Trustee the
Notes so accepted together with an Officer's Certificate listing the
Notes tendered to the Paying Agent and accepted for payment.
The Paying Agent shall make payment of the funds so deposited or segregated
in the manner contemplated by Section 2.07(a).
(g) To the extent such laws and regulations are applicable, the
Company shall comply with the requirements of Section 14(e) under the
Exchange Act and any
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other securities laws or regulations in connection with the repurchase of
Notes pursuant to a Change of Control Offer or a Change of Control
Redemption.
SECTION 4.08. Limitation on Asset Sales. (a) The Company shall
-------------------------
not, and shall not permit any of its Restricted Subsidiaries, directly or
indirectly, to, consummate any Asset Sale, unless:
(i) the Company or such Restricted Subsidiary, as the case may
be, receives consideration for such Asset Sale at least equal to the
Fair Market Value (as evidenced by a Board Resolution delivered to the
Trustee) of the Property or other assets sold or otherwise disposed
of;
(ii) at least 75% of the consideration received in respect of
such Asset Sale by the Company or such Restricted Subsidiary, as the
case may be, for such Property or other assets consists of (A) Cash
Proceeds or Telecommunications Assets; or (B) the assumption of
Indebtedness of the Company or such Restricted Subsidiary (other than
Indebtedness that is subordinated by its terms to the Notes) and the
release of the Company or the Restricted Subsidiary, as the case may
be, from all liability on the Indebtedness assumed; or (C) publicly-
traded shares of Capital Stock (other than Preferred Stock and
Disqualified Stock) traded in the United States of any Person engaged
in a Telecommunications Business; and
(iii) the Company or any Restricted Subsidiary, as the case may
be, uses the Net Cash Proceeds from such Asset Sale in the manner set
forth in Section 4.08(b).
(b) Within 360 calendar days after the closing of any Asset
Sale, the Company or any Restricted Subsidiary, as the case may be, may, at
its option, do any one or more of the following:
(i) reinvest an amount equal to the Net Cash Proceeds, or any
portion thereof, from such Asset Sale in Telecommunications Assets or
in Capital Stock of any Person engaged in the Telecommunications
Business;
(ii) apply an amount equal to such Net Cash Proceeds (or
remaining Net Cash Proceeds) (A) to the permanent reduction of senior
secured Indebtedness of the Company (other than Indebtedness to a
Restricted Subsidiary unless the proceeds thereof are used by such
Restricted Subsidiary in a manner contemplated by clauses (i) through
(iii) of this paragraph) or other Indebtedness of the Company (other
than Indebtedness to a Restricted Subsidiary unless the proceeds
thereof are used by such Restricted Subsidiary in a manner
contemplated by clauses (i) through (iii) of this paragraph) that is
senior to the Notes or to the permanent reduction of Indebtedness, or
to the redemption of Preferred Stock, of any Restricted Subsidiary
(other than Indebtedness to, or Preferred Stock owned by, the Company
or another Restricted Subsidiary unless the proceeds thereof are used
by the Company or such Restricted Subsidiary in a manner contemplated
by clauses (i) through (iii) of this paragraph) or (B) to the extent
none of the
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Company or any of its Restricted Subsidiaries has any Indebtedness
outstanding of the type referred to in the immediately preceding
clause (A) (other than Indebtedness under senior secured revolving
credit facilities), to the repayment of outstanding Indebtedness under
any such revolving credit facility; provided, however, that neither
-------- -------
the Company nor any Restricted Subsidiary shall be required to
permanently reduce the commitments under any such revolving credit
facility by an amount equal to the outstanding Indebtedness thereunder
so repaid or prepaid; or
(iii) apply an amount equal to such Net Cash Proceeds (or
remaining Net Cash Proceeds) to prepay, whether in whole or in part,
Indebtedness that is pari passu with the Notes and that matures prior
to February 15, 2008.
Net Cash Proceeds from any Asset Sale that are not used as described in
clauses (i) through (iii) above within 360 calendar days of the closing of
such Asset Sale shall constitute "Excess Proceeds."
---------------
(c) If on any date the aggregate amount of Excess Proceeds
calculated as of such date exceeds $5,000,000 on, the Company shall use the
then-existing Excess Proceeds to make an offer, as described in Section
4.08(d) (an "Asset Sale Offer"), to purchase on a pro rata basis (i) Notes
----------------
at a purchase price (the "Offer Purchase Price") in cash in United States
--------------------
dollars in immediately available funds equal to 100% of the Accreted Value
thereof, plus accrued and unpaid Current Interest thereon, if any, to but
excluding the Asset Sale Payment Date (as defined in Section 4.08(d)(ii))
and (ii) to the extent required by the terms thereof, any other
Indebtedness of the Company that is pari passu with the Notes. The pro
rata amount of such Excess Proceeds to be used to purchase Notes shall be
in an amount equal to the aggregate amount of such Excess Proceeds
multiplied by the quotient obtained by dividing the Accreted Value of the
outstanding Notes by the sum of such Accreted Value and the principal
amount of such other Indebtedness.
(d) Within 30 calendar days of the date on which the aggregate
amount of Excess Proceeds exceeds $5,000,000, the Company, or the Trustee
at the request and expense of the Company, shall send to each Holder by
first class mail, postage prepaid, a notice prepared by the Company
stating:
(i) that an Asset Sale Offer is being made pursuant to this
Section 4.08, and that all Notes or portions thereof that are timely
tendered will be accepted for payment, subject to proration in the
event the amount of Excess Proceeds to be applied to repurchase Notes
is less than the aggregate Offer Purchase Price of all Notes timely
tendered pursuant to the Asset Sale Offer;
(ii) the Offer Purchase Price, the amount of Excess Proceeds
that are available to be applied to purchase tendered Notes, and the
date Notes or portions thereof are to be purchased pursuant to the
Asset Sale Offer (the "Asset Sale Payment Date"), which date shall be
-----------------------
a date no earlier than 30 calendar days nor later than 60 calendar
days subsequent to the date such notice is mailed;
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<PAGE>
(iii) that any Notes or portions thereof not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the
Offer Purchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest from and after such Asset Sale Payment Date;
(v) that any Holder electing to have any Notes or portions
thereof purchased pursuant to the Asset Sale Offer will be required to
surrender such Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of such Notes completed, to the Paying
Agent at the address specified in the notice, prior to the close of
business on the third Business Day preceding the Asset Sale Payment
Date;
(vi) that any Holder shall be entitled to withdraw such
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Asset Sale Payment
Date, a telegram, telex, facsimile transmission or letter, setting
forth the name of the Holder, the stated principal amount at maturity
of Notes delivered for purchase, and a statement that such Holder is
withdrawing such Holder's election to have such Notes or portions
thereof purchased pursuant to the Asset Sale Offer;
(vii) that any Holder electing to have Notes purchased pursuant
to the Asset Sale Offer must specify the stated principal amount at
maturity that is being tendered for purchase, which amount must be
equal to $1,000 stated principal amount at maturity or an integral
multiple thereof;
(viii) that any Holder whose Notes are being purchased only in
part will be issued new Notes equal in stated principal amount at
maturity to the unpurchased portion of the Note or Notes surrendered,
which unpurchased portion will be equal to $1,000 stated principal
amount at maturity or an integral multiple thereof, or, if such Note
is a Global Note, such Global Note, with a notation adjusting the
stated principal amount at maturity thereof to be equal to the
unredeemed portion, will be returned to the Holder thereof; and
(ix) any other information necessary to enable any Holder to
tender Notes and to have such Notes purchased pursuant to this Section
4.08.
(e) To the extent that the aggregate Offer Purchase Price of all
Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds relating thereto (such shortfall constituting a "Deficiency"),
----------
upon completion of such Asset Sale Offer (including payment of the Offer
Purchase Price for accepted Notes), the Company may use such Deficiency for
general corporate purposes and such Deficiency shall not thereafter
constitute Excess Proceeds for any purpose.
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(f) In the event the aggregate Accreted Value of the outstanding
Notes tendered pursuant to an Asset Sale Offer is in excess of the Excess
Proceeds to be used to purchase such Notes as indicated in the notice
required by Section 4.08(d), the Trustee shall select the Notes to be
purchased by such Excess Proceeds on a pro rata basis, with such
adjustments as may be deemed appropriate by the Trustee, so that only Notes
in stated principal amounts at maturity of $1,000 or an integral multiple
thereof shall be purchased. Any amount remaining after giving effect to
such purchase shall constitute a Deficiency and shall be applied as
provided in Section 4.08(e).
(g) On the Asset Sale Payment Date, the Company shall (i) accept
for payment any Notes or portions thereof properly tendered and selected
for purchase pursuant to the Asset Sale Offer and Section 4.08(f); (ii)
irrevocably deposit with the Paying Agent (or, if the Company, one of its
Subsidiaries or any of their Affiliates is the Paying Agent, the Paying
Agent shall segregate and hold in trust for the benefit of the Holders), by
10:00 a.m., New York City time, on such date, in United States dollars in
immediately available funds, an amount equal to the Offer Purchase Price in
respect of all Notes or portions thereof so accepted other than Notes or
portions of Notes called for redemption on such date which have been
delivered by the Company to the Trustee for cancellation; and (iii)
deliver, or cause to be delivered, to the Trustee the Notes so accepted
together with an Officers' Certificate listing the Notes or portions
thereof tendered to the Company and accepted for payment. The Paying Agent
shall make payment of the funds so deposited or segregated in the manner
contemplated by Section 2.07(a). The Company shall publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the
Asset Sale Payment Date.
(h) Upon surrender and cancellation of a Note (other than a
Global Note) that is purchased in part, the Company shall execute and the
Trustee shall promptly authenticate and deliver to the surrendering Holder
of such Note a new Note equal in stated principal amount at maturity to the
unpurchased portion of such surrendered Note; provided that each such new
--------
Note shall be in a stated principal amount at maturity of $1,000 or an
integral multiple thereof.
(i) Upon completion of an Asset Sale Offer (including payment of
the Offer Purchase Price for accepted Notes), the amount of Excess Proceeds
for the purposes of the Notes and this Indenture shall be reset to zero.
(j) To the extent such laws and regulations are applicable, the
Company shall comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws or regulations in connection
with the repurchase of Notes pursuant to an Asset Sale Offer.
SECTION 4.09. Limitation on Consolidated Indebtedness. (a) The
---------------------------------------
Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness after the Issue Date unless,
after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the net proceeds therefrom, the ratio of (A) the
aggregate consolidated principal amount of Indebtedness of the Company
(including, in the case of the Notes, only the Accreted Value thereof)
64
<PAGE>
outstanding as of the most recent available quarterly or annual balance
sheet, after giving pro forma effect to the Incurrence of such Indebtedness
and any other Indebtedness Incurred since such balance sheet date and the
receipt and application of the proceeds thereof, to (B) Consolidated Cash
Flow Available for Fixed Charges for the four full fiscal quarters
immediately preceding the Incurrence of such Indebtedness for which
consolidated financial statements of the Company are available, determined
on a pro forma basis as if any such Indebtedness had been Incurred and the
proceeds thereof had been applied at the beginning of such four fiscal
quarters, would be less than 6.0 to 1.0 for such four-quarter periods.
(b) Notwithstanding the foregoing limitation, the Company and
its Restricted Subsidiaries may Incur each and all of the following:
(i) Senior Indebtedness in an aggregate principal amount
outstanding at any one time not to exceed $100,000,000, and any
renewal, extension, refinancing or refunding thereof in an amount
which, together with any principal amount remaining outstanding or
available pursuant to this clause (i) does not exceed the aggregate
principal amount outstanding or available under all such Senior
Indebtedness immediately prior to such renewal, extension, refinancing
or refunding, less, in any case, any amount of such Indebtedness
permanently repaid under Section 4.08;
(ii) Indebtedness (including Guarantees) 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 acquisitions by way of any Capital Lease Obligation and
acquisitions of Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the Fair Market Value of the equipment,
inventory or network assets so acquired) by the Company or a
Restricted Subsidiary after the Issue Date;
(iii) Indebtedness owed by the Company to any Significant
Restricted Subsidiary or Indebtedness owed by a Restricted Subsidiary
to the Company or to a Significant Restricted Subsidiary; provided
--------
that upon either (A) the transfer or other disposition by a
Significant Restricted Subsidiary or the Company of any Indebtedness
so permitted to a Person other than the Company or a Significant
Restricted Subsidiary or (B) the issuance (other than directors'
qualifying shares), sale, transfer or other disposition of shares of
Capital Stock (including by amalgamation, consolidation or merger) of
a Significant Restricted Subsidiary (such that upon such sale,
transfer or other disposition such Restricted Subsidiary would no
longer meet the definition of a Significant Restricted Subsidiary) to
a Person other than the Company or a Significant Restricted
Subsidiary, the provisions of this clause (iii) shall no longer be
applicable to such Indebtedness and such Indebtedness shall be deemed
to have been Incurred at the time of such transfer or other
disposition;
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(iv) Indebtedness Incurred to renew, extend, refinance or
refund (including successive extensions, renewals, refinancing and
refundings), whether in whole or in part (each, a "refinancing") (A)
the Notes, (B) Indebtedness outstanding at the date of this Indenture,
(C) Indebtedness Incurred pursuant to clause (ii) of this Section
4.09(b) or (D) Indebtedness Incurred pursuant to Section 4.09(a), in
an aggregate principal amount not to exceed the aggregate principal
amount of the Indebtedness so refinanced plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness so refinanced or the amount
of any premium reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the expenses of the Company and its
Restricted Subsidiaries incurred in connection with such refinancing;
provided that Indebtedness the proceeds of which are used to refinance
--------
the Notes or Indebtedness which is pari passu with the Notes or
Indebtedness which is subordinate in right of payment to the Notes
shall only be permitted under this clause (iv) if (Y) in the case of
any refinancing of the Notes or Indebtedness which is pari passu with
the Notes, the refinancing Indebtedness is made pari passu to the
Notes or constitutes Subordinated Indebtedness, and, in the case of
any refinancing of Subordinated Indebtedness, the refinancing
Indebtedness constitutes Subordinated Indebtedness and (Z) in any
case, the refinancing Indebtedness by its terms, or by the terms of
any agreement or instrument pursuant to which such Indebtedness is
issued, (1) does not provide for payments of principal of such
Indebtedness at stated maturity or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof by the Company (including any redemption,
retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of the
acceleration of any payment with respect to such Indebtedness upon any
event of default thereunder), in each case prior to the time the same
are required by the terms of the Indebtedness being refinanced and (2)
does not permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company) of such Indebtedness at the
option of the holder thereof prior to the time the same are required
by the terms of the Indebtedness being refinanced, other than a
redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to an offer to purchase made by the
Company) which is conditioned upon a change of control pursuant to
provisions substantially similar to those described in Section 4.07(a)
through (d);
(vi) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) in
respect of guarantees or letters of credit Incurred in the ordinary
course of business or (C) arising from customary agreements providing
for indemnification, adjustment of purchase price or similar
obligations, or from guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of
its Restricted Subsidiaries pursuant to such agreements, in the case
of this clause (C) Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person
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acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition);
(vi) Indebtedness outstanding under the Notes and this
Indenture;
(vii) Subordinated Indebtedness in an aggregate principal amount
outstanding at any one time not to exceed $100,000,000, less, in any
case, any amount of such Indebtedness permanently repaid as provided
under Section 4.08;
(viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times (A) the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution 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 (X)
such capital contribution or Net Cash Proceeds have not been used
pursuant to Section 4.11(a)(iii)(C) or Section 4.11(b)(ii) or (vi) to
make a Restricted Payment and (Y) if such capital contribution or Net
Cash Proceeds are used to consummate a transaction pursuant to which
the Company Incurs Acquired Indebtedness, the amount of such Net Cash
Proceed exceeds one-half of the amount of Acquired Indebtedness so
Incurred and (B) 80% of the fair market value of property (other than
cash and cash equivalents) received by the Company after the Issue
Date from the sale of its Capital Stock (other than Disqualified
Stock) to a Person that is not a Subsidiary of the Company, to the
extent (X) such capital contribution or Net Cash Proceeds have not
been used pursuant to Section 4.11(a)(iii)(C) or Section 4.11(b)(ii)
to make a Restricted Payment and (Y) if such capital contribution or
Capital Stock is used to consummate a transaction pursuant to which
the Company Incurs Acquired Indebtedness, 80% of the fair market value
of the property received exceeds one-half of the amount of Acquired
Indebtedness so Incurred provided, in the case of each of clause (A)
and (B), that any such Indebtedness Incurred pursuant to this clause
(viii) does not mature prior to the Stated Maturity of the Notes and
has an Average Life longer than the Notes;
(ix) Acquired Indebtedness;
(x) Indebtedness of the Company to the extent the net proceeds
thereof are promptly (A) used to repurchase Notes tendered as a result
of a Change of Control Offer or (B) deposited to defease the Notes as
provided under Article VIII; and
(xi) Indebtedness not otherwise permitted to be Incurred
pursuant to clauses (i) through (x) above, which, together with any
other outstanding Indebtedness Incurred pursuant to this clause (xi),
will not exceed $5,000,000 aggregate principal amount at any one time
outstanding.
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.09, (i) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise
included in the determination of such particular
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amount shall not be included and (ii) any Liens granted pursuant to the
equal and ratable provisions referred to in Section 4.12 shall not be
treated as Indebtedness. For purposes of determining compliance with this
Section 4.09, in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses; provided, however, that the Company
-------- -------
may allocate portions of such Indebtedness between or among such clauses.
SECTION 4.10. Reserved.
--------
SECTION 4.11. Limitation on Restricted Payments. (a) The
---------------------------------
Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time
of and after giving effect to such proposed Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect, on a pro forma basis, to such
Restricted Payment and the Incurrence of any Indebtedness the net
proceeds of which are used to finance such Restricted Payment, the
Company could Incur at least $1.00 of additional Indebtedness pursuant
to Section 4.09(a); and
(iii) after giving effect to such Restricted Payment on a pro
forma basis, the aggregate amount expended (the amount so expended, if
other than cash, to be determined in good faith by a majority of the
disinterested members of the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) or declared
for all Restricted Payments after the Issue Date does not exceed the
sum of (A) 50% of the Consolidated Net Income of the Company (or, if
Consolidated Net Income shall be a deficit, minus 100% of such
deficit) for the period (taken as one accounting period) beginning on
the last day of the fiscal quarter immediately preceding the Issue
Date and ending on the last day of the fiscal quarter for which the
Company's financial statements are available immediately preceding the
date of such Restricted Payment, plus (B) 100% of the net reduction in
Investments, subsequent to the Issue Date, in any Person, resulting
from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of Property (but only to the
extent such interest, dividends, repayments or other transfers of
Property are not included in the calculation of Consolidated Net
Income), in each case to the Company or any Restricted Subsidiary from
any Person (including from Unrestricted Subsidiaries) or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investment"),
not to exceed in the case of any Person the amount of Investments
previously made subsequent to the Issue Date by the Company or any
Restricted Subsidiary in such Person and which was treated as a
Restricted Payment, plus (C) the aggregate Net Cash Proceeds received
after the Issue Date (X) as capital contributions to the
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Company, (Y) from the issuance (other than to a Subsidiary of the
Company) of Capital Stock (other than Disqualified Stock) of the
Company and warrants, rights or options on Capital Stock (other than
Disqualified Stock) of the Company, or (Z) from the conversion of
Indebtedness of the Company into Capital Stock (other than
Disqualified Stock and other than by a Subsidiary of the Company) of
the Company after the date of this Indenture, except, in the case of
this clause (C), to the extent such Net Cash Proceeds are used to
Incur Indebtedness pursuant to Section 4.09(b)(vii) or to make
Restricted Payments under Section 4.11(b)(ii) or (vi).
(b) The foregoing limitations shall not prevent the Company
from:
(i) paying a dividend on its Capital Stock at any time within
60 days after the declaration thereof if, on the declaration date, the
Company could have paid such dividend in compliance with Section
4.11(a);
(ii) retiring (A) any Capital Stock of the Company or (B) any
Indebtedness of the Company that is subordinate in right of payment to
the Notes, in exchange for, or out of the proceeds of the
substantially concurrent sale of Qualified Stock of the Company;
(iii) retiring any Indebtedness of the Company subordinated in
right of payment to the Notes in exchange for, or out of the proceeds
of, the substantially concurrent Incurrence of Indebtedness of the
Company (other than Indebtedness to a Subsidiary of the Company),
provided that such new Indebtedness (A) is subordinated in right of
payment to the Notes at least to the same extent as the Indebtedness
being refinanced, (B) has an Average Life longer than the Notes, and
(C) has no scheduled principal payments due in any amount earlier than
the equivalent amount of principal under the Indebtedness so retired;
(iv) retiring any Capital Stock or options to acquire Capital
Stock of the Company held by any directors, officers or employees of
the Company or any Restricted Subsidiary upon the termination of such
Person's tenure as a director or employee, as the case may be;
provided that the aggregate price paid for all such retired Capital
--------
Stock or options shall not exceed $5,000,000 in the aggregate;
(v) retiring any Capital Stock of the Company to the extent
necessary (as determined in good faith by a majority of the
disinterested members of the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) 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 agency;
(vi) Investments in a Person the primary business of which is
related, ancillary or complimentary to the business of the Company and
its Restricted Subsidiaries on the date of such Investments; provided,
that the aggregate amount
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of Investments made pursuant to this clause (vi) does not exceed the
sum of (A) $20,000,000 and (B) the amount of Net Cash Proceeds
received by the Company after the Issue Date as a capital contribution
or from the sale of its Capital Stock (other than Disqualified Stock)
to a Person who is not a Subsidiary of the Company, except to the
extent such Net Cash Proceeds are used to Incur Indebtedness pursuant
to Section 4.09(b)(vi) or to make Restricted Payments pursuant to
Section 4.11(a)(iii)(C) or clause (ii) or clause (vi) of this Section
4.11(b), plus (C) the net reduction in Investments made pursuant to
this clause (vi) resulting from distributions on or repayments of such
Investments from the Net Cash Proceeds from the sale of any such
Investment (except in each case to the extent any such payment or
proceeds are included in the calculation of Consolidated Net Income)
or from such Person becoming a Restricted Subsidiary (valued in each
case as provided in the definition of "Investment"), provided that the
net reduction in any Investment shall not exceed the amount of such
Investment;
(vii) the declaration or payment of dividends on the Common
Stock of the Company (so long as such dividends are paid to the
holders of all classes of Common Stock (following a Public Equity
Offering of such Common Stock of up to 6% per annum of the Net Cash
Proceeds received by the Company in such Public Equity Offering;
(viii) payments or distributions to dissenting stockholders
pursuant to applicable law to the extent required in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of
the Company; and
(ix) making Investments not otherwise permitted in an aggregate
amount not to exceed $2,000,000 at any one time outstanding.
(c) In determining the amount of Restricted Payments permissible
under this Section 4.11, amounts expended pursuant to clauses (ii) and
(iii) of Section 4.11(b) hereof shall not be included as Restricted
Payments.
(d) Not later than the date of making any Restricted Payment
(including any Restricted Payment permitted to be made pursuant to Section
4.11(b) or Section 4.11(c)), the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the required calculations were computed,
which calculations may be based upon the Company's latest available
financial statements.
SECTION 4.12. Limitation on Liens. (a) The Company may not,
-------------------
and may not permit any Restricted Subsidiary to, directly or indirectly,
Incur or suffer to exist any Lien on or with respect to any Property or
other assets or interests therein now owned or hereafter acquired or any
income or profits therefrom or any interest thereon to secure any
Indebtedness without making, or causing such Restricted Subsidiary to
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make, effective provision for securing the Notes equally and ratably with
such Indebtedness, provided that no Indebtedness of the Company which is
--------
subordinate in right of payment to the Notes may be so secured.
(b) The foregoing restrictions shall not apply to:
(i) Liens existing on the date of this Indenture and securing
Indebtedness outstanding on the date of this Indenture;
(ii) Liens Incurred on or after the Issue Date pursuant to
Section 4.09(b)(i);
(iii) Liens in favor of the Company or any Significant
Restricted Subsidiary;
(iv) Liens on Property of the Company or a Restricted
Subsidiary acquired, constructed or constituting improvements made
after the Issue Date to secure Indebtedness Incurred pursuant to
Section 4.09(b)(ii) which is otherwise permitted under this Indenture,
provided that (A) the principal amount of any Indebtedness secured by
--------
any such Lien does not exceed 100% of such purchase price or cost of
construction or improvement of the Property subject to such Lien, (B)
such Lien attaches to such Property prior to, at the time of or within
180 days after the engineering, acquisition, installation,
development, improvement, completion of construction or commencement
of operation of such Property and (C) such Lien does not extend to or
cover any Property other than the specific item of Property (or
portion thereof) acquired, engineered, constructed, installed,
developed or constituting the improvements made with the proceeds of
such Indebtedness;
(v) Liens to secure Acquired Indebtedness, provided that (A)
--------
such Lien attaches to the acquired asset prior to the time of the
acquisition of such asset and (B) such Lien does not extend to or
cover any other Property;
(vi) Liens to secure Indebtedness Incurred to extend, renew,
refinance or refund (or successive extensions, renewals, refinancings
or refundings), in whole or in part, Indebtedness secured by any Lien
referred to in clauses (i), (ii), (iv) and (v) of this paragraph so
long as such Lien does not extend to any other Property and the
principal amount of Indebtedness so secured is not increased except as
otherwise permitted under Section 4.09(b)(iv);
(vii) Liens not otherwise permitted by the foregoing clauses (i)
through (vi) in an aggregate amount not to exceed 5% of the Company's
Consolidated Tangible Assets as of the date on which any such Lien
arises;
(viii) Liens granted after the Issue Date pursuant to Section
4.12(a) to secure the Notes; and
(ix) Permitted Liens.
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SECTION 4.13. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, assume, Guarantee or
otherwise become liable with respect to any Sale and Leaseback Transaction
(other than a Sale and Leaseback Transaction between the Company or a
Restricted Subsidiary on the one hand and a Restricted Subsidiary or the
Company on the other hand), unless (a) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such
Sale and Leaseback Transaction at least equal to the Fair Market Value (as
evidenced by a Board Resolution) of the Property subject to such
transaction, (b) the Attributable Indebtedness of the Company or such
Restricted Subsidiary with respect thereto is included as Indebtedness and
would be permitted by Section 4.09, (c) the Company or such Restricted
Subsidiary would be permitted to create a Lien on such Property without
securing the Notes by Section 4.12 and (d) the Net Cash Proceeds from such
transaction are applied in accordance with Section 4.08.
SECTION 4.14. Limitation on Dividends and Other Payment
-----------------------------------------
Restrictions Affecting Subsidiaries. (a) The Company will not, and will
-----------------------------------
not permit any Restricted Subsidiary to, directly or indirectly, cause or
suffer to exist or become effective, or enter into, any encumbrance or
restriction (other than pursuant to law or regulation) on the ability of
any Restricted Subsidiary (i) to pay dividends or make any other
distributions in respect of its Capital Stock or pay any Indebtedness or
other obligation owed to the Company or any Restricted Subsidiary, (ii) to
make loans or advances to the Company or any Restricted Subsidiary or (iii)
to transfer any of its Property to the Company or any other Restricted
Subsidiary, except:
(A) any encumbrance or restriction existing as of the Issue Date;
(B) any encumbrance or restriction pursuant to an agreement
relating to an acquisition of Property, so long as the encumbrances or
restrictions in any such agreement relate solely to the Property so
acquired;
(C) any encumbrance or restriction relating to any Indebtedness
of any Restricted Subsidiary existing on the date on which such
Restricted Subsidiary is acquired by the Company or another Restricted
Subsidiary (other than any such Indebtedness Incurred by such
Restricted Subsidiary in connection with or in anticipation of such
acquisition);
(D) any encumbrance or restriction pursuant to an agreement
effecting a permitted refinancing of Indebtedness issued pursuant to
an agreement referred to in the foregoing clauses (A) through (C), so
long as the encumbrances and restrictions contained in any such
refinancing agreement are not materially more restrictive than the
encumbrances and restrictions contained in such agreements;
(E) in the case of clause (iii) above only, customary provisions
(X) that restrict the subletting, assignment or transfer of any
Property or other asset that is a lease, license, conveyance or
contract or similar Property or other asset, (Y) existing by virtue of
any transfer of, agreement to transfer, option or right
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with respect to, or Lien on, any Property or other assets of the
Company or any Restricted Subsidiary not otherwise prohibited by this
Indenture or (Z) arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of Property
or other assets of the Company or any Restricted Subsidiary in any
manner material to the Company or any Restricted Subsidiary;
(F) in the case of clause (iii) above only, restrictions
contained in any security agreement (including a Capital Lease
Obligation) securing Indebtedness of the Company or a Restricted
Subsidiary otherwise permitted under this Indenture, but only to the
extent such restrictions restrict the transfer of the Property subject
to such security agreement;
(G) any encumbrance or restriction pursuant to a Senior
Indebtedness which is permitted to be outstanding under clause (i) of
Section 4.09(b);
(H) in the case of clause (iii) above only, any encumbrance or
restriction pursuant to an agreement for Indebtedness that is
permitted to be outstanding under clause (ii) of Section 4.09(b); and
(I) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock
or assets of such Restricted Subsidiary, provided that the
consummation of such transaction would not result in a Default, that
such restriction terminates if such transaction is not consummated and
that the consummation or abandonment of such transaction occurs within
one year of the date such agreement was entered into.
(b) The foregoing limitations shall not prevent the Company or
any Restricted Subsidiary from (i) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted under Section 4.12 or (ii)
restricting the sale or other disposition of Property or other assets of
the Company or any of its Restricted Subsidiaries that secure Indebtedness
of the Company or any of its Restricted Subsidiaries otherwise permitted
under Section 4.09.
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock
------------------------------------------------
of Restricted Subsidiaries. The Company will not sell, and will not permit
--------------------------
any Restricted Subsidiary, directly or indirectly, to issue or sell, any
shares of Capital Stock of a Restricted Subsidiary (including options,
warrants or other rights to purchase shares of such Capital Stock) except
(a) to the Company or a Wholly Owned Restricted Subsidiary; (b) issuance of
directors' qualifying shares or sales to foreign nationals of shares of
Capital Stock of foreign Restricted Subsidiaries, to the extent required by
applicable law; (c) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
to such issuance or sale would have been permitted to be made under Section
4.11 if made on the date of such issuance or sale; (d) issuances or sales
of Common Stock (other than Disqualified Stock) of a
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Restricted Subsidiary, provided that the Company or such Restricted
Subsidiary applies the Net Cash Proceeds, if any, of any such sale in
accordance with Section 4.08.
SECTION 4.16. Transactions with Affiliates. The Company will
----------------------------
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, sell, lease, transfer, or otherwise dispose of, any of its
Properties or assets to, or purchase any Property or other assets from, or
enter into any contract, agreement, understanding, loan, advance or
Guarantee with or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (a) such Affiliate Transaction or
---------------------
series of related Affiliate Transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary than those that
could have been obtained in a comparable arm's-length transaction by the
Company or such Restricted Subsidiary with a Person that is not an
Affiliate (or, in the event that there are no comparable transactions
involving Persons who are not Affiliates of the Company or the relevant
Restricted Subsidiary to apply for comparative purposes, is otherwise on
terms that, taken as a whole, the Company has determined to be fair to the
Company or the relevant Restricted Subsidiary) and (b) the Company delivers
to the Trustee (i) with respect to any Affiliate Transaction involving
aggregate payments or, in the case of assets or Property, a Fair Market
Value in excess of $1,000,000, a certificate of the chief executive,
operating or financial officer of the Company evidencing such officer's
determination that such Affiliate Transaction or series of related
Affiliate Transactions complies with clause (a) above and is in the best
interests of the Company or such Restricted Subsidiary, (ii) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate payments or, in the case of assets or Property, a Fair
Market Value in excess of $5,000,000, a Board Resolution certifying that
such Affiliate Transaction or series of related Affiliate Transactions
complies with clause (a) above and that such Affiliate Transaction or
series of related Affiliate Transactions has been approved by a majority of
the disinterested members of the Board of Directors who have determined
that such Affiliate Transaction or series of related Affiliate Transactions
is in the best interest of the Company or such Restricted Subsidiary and
(iii) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments or, in the case of any
assets or Property, a Fair Market Value in excess of $10,000,000, a written
opinion stating that the transaction complies with clause (a) above from a
financial point of view from an investment banking firm of national
standing in the United States which, in the good faith judgment of the
Board of Directors, is independent with respect to the Company and its
Subsidiaries and qualified to perform such task; provided that the
following shall not be deemed Affiliate Transactions:
(A) any employment, non-competition, confidentiality or similar
agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business;
(B) any agreement or arrangement with respect to the compensation
of a director or officer of the Company or any Restricted Subsidiary
approved by a majority of the disinterested members of the Board of
Directors;
(C) transactions permitted by Section 4.11;
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(D) transactions pursuant to any agreement or arrangement
existing on the Issue Date, including any renewal, replacement,
extension, amendment or other modification thereof, provided such
modifications are not materially more adverse to the Company or the
Restricted Subsidiaries;
(E) issuances of Capital Stock of the Company to any Affiliates;
and
(F) the sale of telecommunications services to any Affiliate on
an arm's length basis which is undertaken in the ordinary course of
the Company's business.
SECTION 4.17. Restricted and Unrestricted Subsidiaries. (a)
----------------------------------------
The Company may designate a Subsidiary (including a newly formed or newly
acquired Subsidiary) of the Company or any of its Restricted Subsidiaries
as an Unrestricted Subsidiary if such Subsidiary does not have any
obligations which, if in default, would result in a cross default on
Indebtedness of the Company or a Restricted Subsidiary (other than
Indebtedness to the Company or a Significant Restricted Subsidiary), and
(i) such Subsidiary has total assets of $1,000 or less, (ii) such
Subsidiary has assets of more than $1,000 and an Investment in such
Subsidiary in an amount equal to the Fair Market Value of such Subsidiary
would then be permitted under Section 4.11(a) or (iii) such designation is
effective immediately upon such Person becoming a Subsidiary. Unless so
designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company shall be classified as a Restricted Subsidiary
thereof.
(b) The Company may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that (i) no default or Event of Default
shall have occurred and be continuing at the time of or after giving effect
to such designation and (ii) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately after such designation
would, if Incurred at such time, have been permitted to be Incurred (and
shall be deemed to have been Incurred) for all purposes of the Indenture.
(c) The designation of a Subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Restricted
Subsidiary in compliance with paragraph (b) hereof shall be made by the
Board of Directors pursuant to a Board Resolution and shall be effective as
of the date specified in such Board Resolution.
SECTION 4.18. Reports. (a) For so long as any Notes remain
-------
outstanding, the Company shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities
Act. The Company will file with the Trustee within 15 days after it files
them with the Commission copies of the annual reports on Form 10-K and the
information, documents, and other reports that the Company is required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act as well as quarterly reports ("SEC Reports"). In the event the Company
-----------
shall cease to be required to file SEC Reports pursuant to either of such
Sections of the Exchange Act, the Company will nevertheless continue to
file such reports with the Commission (unless the Commission will not
accept such a filing) and the Trustee. The
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Company will furnish copies of the SEC Reports to the Holders of Notes at
the time the Company is required to file the same with the Trustee.
(b) From and after qualification of this Indenture under the
Trust Indenture Act, the Company shall provide the information, documents,
reports, summaries and certificates required by Section 314(a) of the Trust
Indenture Act.
(c) The Company shall notify the Trustee when the Restricted
Period terminates.
SECTION 4.19. Statement of Compliance; Notice of Default or
---------------------------------------------
Event of Default. (a) The Company shall deliver to the Trustee on or
----------------
before a date not more than 90 days after the end of each fiscal year of
the Company ending after the date hereof, a statement regarding compliance
with this Indenture.
(b) The Company shall deliver to the Trustee, within 30 days
after any executive officer of the Company becomes aware of the occurrence
of any event which constitutes, or with the giving of notice or the lapse
of time or both would constitute, a Default or Event of Default, a
statement describing such Default or Event of Default, its status and what
action the Company is taking or proposes to take with respect thereto.
(c) The Trustee may withhold from Holders notice of any
continuing Default or Event of Default (other than relating to the payment
of principal or interest) if the Trustee determines that withholding such
notice is in the Holders' interest.
ARTICLE V
Amalgamation, Consolidation, Merger, Conveyance, Lease or Transfer
------------------------------------------------------------------
SECTION 5.01. Merger, Consolidation or Sale of Assets. The
---------------------------------------
Company will not, in any transaction or series of related transactions,
amalgamate or consolidate with, or merge with or into, any other Person
(other than a merger of a Restricted Subsidiary into the Company in which
the Company is the surviving corporation), or sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of the
Property and assets of the Company and its Restricted Subsidiaries taken as
a whole to any other Person, unless:
(a) either (i) the Company shall be the surviving corporation or
(ii) the corporation (if other than the Company) formed by such
amalgamation or consolidation or into which the Company is merged, or the
Person which acquires, by sale, assignment, conveyance, transfer, lease or
disposition, all or substantially all of the Property and assets of the
Company and the Restricted Subsidiaries taken as a whole (such corporation
or Person, the "Surviving Entity"), shall be a corporation organized and
----------------
validly existing under the laws of the United States of America, any
political subdivision thereof, any state thereof or the District of
Columbia, and shall expressly assume, by a supplemental indenture, the due
and punctual payment of the principal of (and premium, if any) and
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interest on all the Notes and the performance of the Company's covenants
and obligations under this Indenture;
(b) immediately after giving effect to such transaction or series
of related transactions on a pro forma basis (including any Indebtedness
Incurred in connection with or in respect of such transaction or series of
related transactions), no Default shall have occurred and be continuing;
(c) immediately after giving effect to such transaction or series
of related transactions on a pro forma basis (including any Indebtedness
incurred in connection with or in respect of, and any Indebtedness to be
repaid in connection with or as a result of, such transaction or series of
related transactions), the Company (or the Surviving Entity, if the Company
is not the surviving corporation) (i) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (ii) would be permitted to Incur
at least $1 of additional Indebtedness pursuant to Section 4.09(a);
provided that this clause (c)(ii) shall not apply to (X) a consolidation,
merger or sale of all (but not less than all) of the assets of the Company
if all Liens and Indebtedness of the company or the Surviving Entity, as
the case may be, and its Restricted Subsidiaries outstanding immediately
after such transaction would, if Incurred at such time, have been permitted
to be Incurred (and all such Liens and Indebtedness, other than Liens and
Indebtedness of the Company and its Restricted Subsidiaries outstanding
immediately prior to the transaction, shall be deemed to have been
Incurred) for all purposes of the Indenture or (Y) a consolidation, merger,
sale of all or substantially all of the assets of the Company if
immediately after giving effect to such transaction or series of related
transactions on a pro forma basis (including any Indebtedness incurred in
connection with or in respect of, and any Indebtedness to be repaid in
connection with or as a result of, such transaction or series of related
transactions) the Company's (or the Surviving Entity's) leverage ration
computed pursuant to Section 4.09(a) would be equal to or less than the
leverage ratio of the Company immediately prior to such transaction.
(d) if, as a result of any such transaction, Property of the
Company would become subject to a Lien prohibited by the provisions of this
Indenture described under Section 4.12, the Company or the Surviving Entity
to the Company shall have secured the Notes as required thereby; and
(e) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
paragraph (c)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with.
SECTION 5.02. Successor Corporation Substituted. Upon any
---------------------------------
amalgamation or consolidation with, or merger by the Company with or into,
any other corporation, or any sale, assignment, transfer, lease, conveyance
or other disposition of all or substantially all of the Property and assets
of the Company and its Restricted Subsidiaries taken as a whole in
accordance with Section 5.01, the successor corporation
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formed by such amalgamation or consolidation or into which the Company is
merged, or the Person to which such sale, conveyance, assignment, transfer,
lease, conveyance or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person has
been named as the Company herein; and thereafter the predecessor
corporation, except in the case of a lease referred to above, shall be
relieved of all obligations and covenants under this Indenture and the
Notes.
ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. "Event of Default", wherever
----------------- ----------------
used herein with respect to the Notes, means any one of the following
events (whatever the reason for such event, and whether it shall be
voluntary or involuntary, or be effected by operation of law, pursuant to
any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment in full of interest (including
Additional Interest, if any) on any Note when the same becomes due and
payable, and the continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if
any, on) any Note at its maturity, upon optional redemption, including a
Change of Control Redemption Offer, required repurchase (including pursuant
to a Change of Control Offer or an Asset Sale Offer) or otherwise, or the
failure to make an offer to purchase any Note as required under this
Indenture;
(c) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty addressed in clauses (a) or (b) above) and continuance of such
Default or breach for a period of 60 days after written notice thereof has
been given to the Company by the Trustee or to the Company and the Trustee
by Holders of at least 25% of the aggregate stated principal amount at
maturity of the outstanding Notes specifying such Default and stating that
such notice is a "Notice of Default" delivered in connection with this
Indenture;
(d) (i) any principal payment in excess of $1,000,000 with
respect to Indebtedness of the Company or any restricted Subsidiary is not
paid when due within the applicable grace period, if any, or (ii)
Indebtedness of the Company or any Restricted Subsidiary is accelerated by
the Holders thereof and the principal amount of such accelerated
Indebtedness exceeds $5,000,000;
(e) a final judgment or final judgments for the payment of money
(other than to the extent covered by insurance as to which the insurance
company has acknowledged coverage and other than to the extent covered by
an indemnity given by an insurance company) is entered against the Company
or any Restricted Subsidiary of
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the Company in an aggregate amount in excess of $10,000,000 by a court or
courts of competent jurisdiction, which judgment is not discharged, waived,
appealed, stayed, bonded or satisfied for a period of 60 consecutive days;
(f) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Company or any Restricted Subsidiary bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company under the United States Bankruptcy Code or any other federal or
state law or the law of any other jurisdiction relating to bankruptcy,
insolvency, winding up, liquidation, reorganization or relief of debtors
("Bankruptcy Law"), or appointing a receiver, liquidator, assignee,
--------------
trustee, sequestrator (or other similar official) of the Company or any
Restricted Subsidiary or of any substantial part of its Property, or
ordering the winding up or liquidation of its affairs, and the continuance
of any such decree or order unstayed and in effect for a period of 60
consecutive calendar days; provided that if the entry of such order or
--------
decree is appealed and dismissed on appeal or otherwise has ceased to be in
effect then the Event of Default hereunder by reason of the entry of such
order or decree shall be deemed to have been cured and the related
acceleration shall be deemed rescinded; or
(g) the institution by the Company or any Restricted Subsidiary
of proceedings to be adjudicated bankrupt or insolvent, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under any Bankruptcy Law or the consent by it to
the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or any Restricted Subsidiary or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due.
SECTION 6.02. Acceleration. (a) If any Event of Default (other
------------
than an Event of Default specified in Section 6.01(f) or Section 6.01(g))
occurs and is continuing, then and in every such case, the Trustee by a
notice in writing to the Company may, and at the direction of the Holders
of not less than 25% of the out standing aggregate stated principal amount
at maturity of the Notes by a notice in writing to the Company and the
Trustee shall, declare the Accreted Value of, and any accrued and unpaid
Current Interest on, all Notes then outstanding to be immediately due and
payable. Upon any such declaration, such Accreted Value of, and any
accrued and unpaid Current Interest on, all Notes then outstanding will
become and be immediately due and payable.
(b) If an Event of Default specified in Section 6.01(f) or
Section 6.01(g) occurs, the Accreted Value of, and any accrued and unpaid
Current Interest on, all Notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder of Notes.
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(c) Upon payment of the Accreted Value of, and any accrued and
unpaid Current Interest on, the Notes in accordance with clause (a) or (b)
above, and any interest on any overdue principal, premium and interest (in
each case to the extent that payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of
the principal of, premium, if any, and interest on the Notes shall
terminate.
(d) In the event of a declaration of acceleration because an
Event of Default set forth in Section 6.01(d) has occurred and is
continuing, such declaration of acceleration shall be automatically
rescinded and annulled if the event of default triggering such Event of
Default pursuant to Section 6.01(d) shall be remedied, or cured, or waived
by the holders of the relevant Indebtedness, within 60 calendar days after
such event of default; provided no judgment or decree for the payment of
--------
the money due on the Notes has been obtained by the Trustee as provided
hereinafter in this Article VI.
(e) At any time after a declaration of acceleration with respect
to the Notes has been made and before a judgment or decree for payment of
the money due has been obtained by the Trustee as provided hereinafter in
this Article VI, the Holders of not less than a majority in stated
principal amount at maturity of the outstanding Notes, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if,
(i) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on all Notes;
(B) the principal of (and premium, if any, on) any Notes
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Notes;
(C) to the extent that payment of such interest is lawful,
interest on the Defaulted Interest at the rate prescribed
therefor in the Notes and this Indenture;
(D) all moneys paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel and all other amounts due
to the Trustee pursuant to Section 7.07; and
(ii) all Events of Default with respect to the Notes, other
than the nonpayment of the principal of Notes which have become due
solely by such declaration of acceleration, have been cured or waived
by the Holders as provided herein.
(f) No such rescission shall affect any subsequent Default or
impair any right consequent thereon.
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SECTION 6.03. Other Remedies. (a) The Company covenants that
--------------
if an Event of Default specified in Section 6.01(a) or Section 6.01(b)
occurs the Company shall, upon demand of the Trustee, pay to the Trustee,
for the benefit of the Holders, the whole amount then due and payable on
the Notes for principal (and premium, if any) and interest and, to the
extent that payment of such interest shall be legally enforceable, interest
upon the overdue principal (and premium, if any) and upon Defaulted
Interest, at the rate or rates prescribed therefor in such Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel
and all other amounts due to the Trustee pursuant to Section 7.07.
(b) If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust,
may, and, subject to Section 6.05, at the direction of the Holders of not
less than a majority of the outstanding aggregate stated principal amount
at maturity of the Notes by a notice in writing to the Trustee, shall,
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and
may enforce the same against the Company or any other obligor upon such
Notes and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the Property and assets of the Company or any
other obligor upon such Notes, wherever situated.
(c) If an Event of Default with respect to the Notes occurs and
is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect
and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 6.04. Waiver of Past Defaults. The Holders of not less
-----------------------
than a majority in stated principal amount at maturity of the outstanding
Notes may, on behalf of the Holders of all the Notes, waive any past
Default and its consequences under this Article VI, except a Default (a) in
the payment of the principal (or premium, if any) or interest on, any Note,
or (b) in respect of a covenant or provision hereof which under Section
9.02(a) cannot be modified or amended without the consent of the Holder of
each outstanding Note affected.
SECTION 6.05. Control by Majority. The Holders of not less than
-------------------
a majority in stated principal amount at maturity of the outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided that
--------
(a) such direction shall not be in conflict with any rule of law
or with this Indenture or unduly prejudicial to the rights of other
Holders (it being understood that, subject to Section 7.01, the
Trustee shall have no duty to ascertain whether
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or not the actions or forebearances specified in or pursuant to such
direction are unduly prejudicial to such Holders) and would not
subject the Trustee to personal liability, and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits. No Holder of Notes shall
-------------------
have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Notes;
(b) the Holders of not less than 25% in stated principal amount
at maturity of the outstanding Notes shall have made written request
to the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered and, if requested,
provided to the Trustee security or indemnity satisfactory to the
Trustee in its reasonable discretion against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 30 calendar days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of not
less than a majority in stated principal amount at maturity of the
outstanding Notes;
in any event, it being understood and intended that no one or more Holders
of Notes shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holders of Notes, or to obtain or to seek
to obtain priority or preference over any other of such Holders or to
enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all Holders of Notes.
SECTION 6.07. Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of (premium, if any) and interest on
the Notes held by such Holder, on or after the respective due dates
expressed in the Notes or the Redemption Dates or purchase dates provided
for therein, or to bring suit for the enforcement of any such payment on or
after such respective dates, shall be absolute and unconditional and shall
not be impaired or affected without the consent of such Holder.
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SECTION 6.08. Trustee May File Proofs of Claim. In case of the
--------------------------------
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceedings, or any voluntary or involuntary case under Bankruptcy Law, as
now or hereafter constituted, relative to the Company or any other obligor
upon the Notes or the Property and assets of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the
principal of such Notes shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in
such proceeding or otherwise, (a) to file and prove a claim for the whole
amount of principal (and premium, if any) and interest owing and unpaid in
respect of the Notes, to file such other papers or documents and to take
such other actions, including participating as a member or otherwise in any
official committee of creditors appointed in the matter, as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all
other amounts due to the Trustee pursuant to Section 7.07) and of the
Holders allowed in such judicial proceeding, and (b) to collect and receive
any moneys or other Property payable or deliverable on any such claims and
to distribute the same; and any receiver, assignee, trustee, custodian,
liquidator, sequestrator (or other similar official) in any such proceeding
is hereby authorized by each Holder to make such payments to the Trustee,
and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it
for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07. Nothing contained herein shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.09. Priorities. (a) Any money collected by the
----------
Trustee pursuant to this Article VI shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Notes and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
(i) FIRST: To the payment of all amounts due the Trustee under
Section 7.07;
(ii) SECOND: To the payment of the amounts then due and unpaid
for principal (and premium, if any) and interest on the Notes,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for the principal (and premium,
if any) and interest, respectively; and
(iii) THIRD: To the Company.
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(b) The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.09. At least 15 calendar
days before such record date, the Trustee at the expense of the Company
shall send to each Holder by first class mail, postage prepaid, a notice
prepared by the Company that states such record date, the payment date and
amount to be paid.
SECTION 6.10. Undertaking for Costs. All parties to this
---------------------
Indenture agree, and each Holder of any Note by such Holder's acceptance
thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 6.10 shall not
apply to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in
stated principal amount at maturity of the outstanding Notes, or to any
suit instituted by any Holder for the enforcement of the payment of the
principal (or premium, if any) or interest on any Note on or after its
Stated Maturity.
SECTION 6.11. Waiver of Stay or Extension Laws. The Company (to
--------------------------------
the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of
this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and shall
not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power
as though no such law had been enacted.
SECTION 6.12. Trustee May Enforce Claims Without Possession of
------------------------------------------------
the Notes. All rights of action and claims under this Indenture or the
---------
Notes may be prosecuted and enforced by the Trustee without the possession
of any of the Notes or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought
in its own name, as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, be for the ratable benefit of the Holders of the Notes.
SECTION 6.13. Restoration of Rights and Remedies. If the
----------------------------------
Trustee or any Holder of Notes has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case the Company,
the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former
positions
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hereunder, and thereafter all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
SECTION 6.14. Rights and Remedies Cumulative. Except as
------------------------------
otherwise provided in Section 2.09, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion
or employment of any other appropriate right or remedy.
SECTION 6.15. Delay or Omission Not Waiver. No delay or
----------------------------
omission of the Trustee or of any Holder of any Note to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article VI or
by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
ARTICLE VII
Trustee
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SECTION 7.01. Duties of Trustee. (a) If an Event of Default
-----------------
has occurred and is continuing, the Trustee shall exercise the rights and
powers vested in it by this Indenture and shall use the same degree of care
in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default of
which a Trust Officer has actual knowledge: (i) the Trustee undertakes to
perform such duties and only such duties as are specifically set forth in
this Indenture and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and (ii) in the absence of bad faith on
its part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; provided that in the case of any such
--------
certificates or opinions that by any provision of this Indenture are
specifically required to be furnished to the Trustee, the Trustee shall
examine such certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct; provided that: (i) this paragraph (c) shall not limit the
--------
effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be
liable for any error of judgment made in good faith by a
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Trust Officer unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and (iii) the Trustee shall not be liable
with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 6.05.
(d) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk of
liability is not reasonably assured to it.
(f) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VII and to the provisions of the
Trust Indenture Act.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on
-----------------
any document believed by it to be genuine and to have been signed or
presented by the proper Person.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on any Officers' Certificate or Opinion of Counsel.
(c) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within
its rights or powers; provided that the Trustee's conduct does not
--------
constitute willful misconduct or gross negligence.
(d) Before the Trustee acts or refrains from acting, it may
consult with counsel and the written advice of such counsel or any Opinion
of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney.
(f) The Trustee shall not be liable for any action it takes or
omits to take in good faith in accordance with the direction of the Holders
of not less than a majority of the aggregate outstanding stated principal
amount at maturity of Notes relating to the
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time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture.
(g) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee security reasonable to it or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
(h) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any willful
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder.
(i) The Trustee shall not be charged with knowledge of any
Default or Event of Default unless it shall have received written notice
thereof from the Company or the Holder of a Note or unless a Trust Officer
shall have actual knowledge thereof.
(j) The Trustee shall not be required to give any bond or surety
in respect of the performance of its powers and duties hereunder.
(k) The permissive rights to the Trustee to do things enumerated
in this Indenture shall not be construed as a duty.
SECTION 7.03. Individual Rights of Trustee. The Trustee, any
----------------------------
Paying Agent or Note Registrar, in its individual or any other capacity,
may become the owner or pledgee of Notes and may otherwise deal with the
Company, its Restricted Subsidiaries or its Affiliates with the same rights
it would have if it were not Trustee, Paying Agent or Note Registrar
hereunder, as the case may be; provided that the Trustee must in any event
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
--------------------
responsible for and makes no representation as to the validity or adequacy
of this Indenture or the Notes, it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be
responsible (a) for any statement of the Company in this Indenture,
including the recitals contained herein, or in any document issued in
connection with the sale of the Notes or in the Notes other than the
Trustee's certificate of authentication or (b) for compliance by the
Company with the Registration Agreement.
SECTION 7.05. Notice of Defaults. Within 90 calendar days after
------------------
the occurrence of any Default hereunder known to a Trust Officer with
respect to the Notes, the Trustee shall transmit by mail to all Holders, as
their names and addresses appear in the Note Register, notice of such
Default hereunder known to the Trustee, unless such Default shall have been
cured or waived; provided that, except in the case of a Default in the
payment of the principal (or premium, if any) or interest on any Note, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the
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executive committee or a trust committee of directors and/or Trust Officers
of the Trustee in good faith determine that the withholding of such notice
is in the interest of the Holders.
SECTION 7.06. Preservation of Information; Reports by Trustee to
--------------------------------------------------
Holders. (a) The Company shall furnish or cause to be furnished to the
-------
Trustee:
(i) semiannually, not less than ten calendar days prior to each
February 15 and August 15, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of
the Regular Record Date immediately preceding such February 15 and
August 15, and
(ii) at such other times as the Trustee may request in writing,
within 30 calendar days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 calendar days prior to the time such list is furnished;
provided that if and so long as the Trustee shall be the Note Registrar for
the Notes, no such list need be furnished with respect to the Notes.
(b) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.06(a)
and the names and addresses of Holders received by the Trustee in its
capacity as Note Registrar, if so acting. The Trustee may destroy any list
furnished to it as provided in Section 7.06(a) upon receipt of a new list
so furnished.
(c) Holders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Holders with respect to their rights under
this Indenture or under the Notes.
(d) Each Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
this Section 7.06, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under this Section 7.06.
(e) Within 60 calendar days after April 15 of each year
commencing with the year 1998, the Trustee shall transmit by mail to all
Holders of Notes, a brief report dated as of such April 15 if and to the
extent required under Section 313(a) of the Trust Indenture Act.
(f) The Trustee shall comply with Sections 313(b) and 313(c) of
the Trust Indenture Act.
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(g) A copy of each report described in Section 7.06(e) or
referred to in Section 7.06(f) shall, at the time of its transmission to
Holders, be filed by the Trustee with each securities exchange, if any,
upon which the Notes are then listed, with the Commission and also with the
Company. The Company shall promptly notify the Trustee of any securities
exchange upon which the Notes are listed.
SECTION 7.07. Compensation and Indemnity. (a) The Company
--------------------------
shall pay to the Trustee from time to time reasonable compensation for its
services. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it, including costs
of collection, in addition to the compensation for its services. Such
expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents and counsel. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust.
(b) The Company shall indemnify the Trustee for, and hold it
harmless against, any and all loss, liability or expense (including
reasonable attorneys' fees) arising out of or incurred by it in connection
with the acceptance or administration of the trust created by this
Indenture and the performance of its duties hereunder, except as set forth
in Section 7.07(c). The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder.
The Company shall defend any such claim and the Trustee shall cooperate in
the defense of such claim. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
(c) The Company need not reimburse any expense or indemnify
against any loss, liability or expense incurred by the Trustee through the
Trustee's own willful misconduct, negligence or bad faith.
(d) To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee other than money or property held
in trust to pay the principal, premium (if any), and interest on,
particular Notes.
(e) The Company's payment obligations pursuant to this Section
7.07 shall survive the resignation or removal of the Trustee and discharge
of this Indenture. Subject to any other rights available to the Trustee
under applicable Bankruptcy Law, when the Trustee incurs expenses after the
occurrence of a Default specified in Section 6.01(f) or Section 6.01(g)
hereof, the expenses are intended to constitute expenses of administration
under bankruptcy law.
SECTION 7.08. Replacement of Trustee. (a) No resignation or
----------------------
removal of the Trustee and no appointment of a successor Trustee pursuant
to this Article VII shall become effective until the acceptance of
appointment by the successor Trustee under this Section 7.08.
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(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 calendar
days after the giving of such notice of resignation, the resigning Trustee
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in stated principal amount at maturity
of the outstanding Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Note for at least
six months, unless the Trustee's duty to resign is stayed in
accordance with the provisions of Section 310(b) of the Trust
Indenture Act; or
(ii) the Trustee shall cease to be eligible under Section 7.10
and shall fail to resign after written request therefor by the Company
or by any such Holder; or
(iii) the Trustee shall become incapable of acting or a decree or
order for relief by a court having jurisdiction in the premises shall
have been entered in respect of the Trustee in an involuntary case
under Bankruptcy Law, as now or hereafter constituted; or a decree or
order by a court having jurisdiction in the premises shall have been
entered for the appointment of a receiver, custodian, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Trustee or of its Property and assets or affairs, or any public
officer shall take charge or control of the Trustee or of its Property
and assets or affairs for the purpose of rehabilitation, conservation,
winding up or liquidation; or
(iv) the Trustee shall commence a voluntary case under
Bankruptcy Law, as now or hereafter constituted, or shall consent to
the appointment of or taking possession by a receiver, custodian,
liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trustee or its Property and assets or affairs, or
shall make an assignment for the benefit of creditors, or shall admit
in writing its inability to pay its debts generally as they become
due, or shall take corporate action in furtherance of any such action;
then, in any such case, (A) the Company by a Board Resolution may remove
the Trustee with respect to the Notes, or (B) subject to Section 6.10, any
Holder who has been a bona fide Holder of a Note for at least six months
may, on behalf of such Holder and all others similarly situated, petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee for the Notes.
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(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any
cause, the Company, by or pursuant to a Board Resolution, shall promptly
appoint a successor Trustee. If, within one year after such resignation,
removal or incapacity, or the occurrence of such vacancy, a successor
Trustee shall be appointed by the Holders of not less than a majority in
stated principal amount at maturity of the outstanding Notes by written
notice to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in
accordance with this Section 7.08, become the successor Trustee and to that
extent replace any successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the
Holders and shall have accepted appointment in the manner hereinafter
provided, any Holder that has been a bona fide Holder of a Note for at
least six months may, subject to Section 6.10, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by
mailing written notice of such resignation, removal and appointment by
first class mail, postage prepaid, to the Holders as their names and
addresses appear in the Note Register. Each notice shall include the name
of the successor Trustee with respect to the Notes and the address of its
Corporate Trust Office.
(g) In the event of an appointment hereunder of a successor
Trustee, each such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee but,
on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee, and shall duly assign, transfer and deliver to such
successor Trustee all Property and money held by such former Trustee
hereunder, subject to its Lien, if any, provided for in Section 7.07.
(h) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting
in and confirming to such successor Trustee all such rights, powers and
trusts referred to in Section 7.08(g).
(i) No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article VII and under the Trust Indenture Act.
SECTION 7.09. Successor Trustee by Merger. Any corporation into
---------------------------
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of
the Trustee, shall be the successor of the Trustee hereunder;
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provided that such corporation shall be otherwise qualified and eligible
under this Article VII and under the Trust Indenture Act, without the
execution or filing of any paper or any further act on the part of any of
the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In the
event that any Notes shall not have been authenticated by such predecessor
Trustee, any such successor Trustee may authenticate and deliver such
Notes, in either its own name or that of its predecessor Trustee, with the
full force and effect which this Indenture provides for the certificate of
authentication of the Trustee.
SECTION 7.10. Eligibility; Disqualification. (a) There shall
------------------------------
at all times be a Trustee hereunder which shall be
(i) a corporation organized and doing business under the laws of
the United States of America, any State or Territory thereof or the
District of Columbia, authorized under such laws to exercise corporate
trust powers, and subject to supervision or examination by Federal,
State, Territorial or District of Columbia authority,
(ii) or a corporation or other Person organized and doing
business under the laws of a foreign government that is permitted to
act as Trustee pursuant to a rule, regulation or order of the
Commission, authorized under such laws to exercise corporate trust
powers, and subject to supervision or examination by authority of such
foreign government or a political subdivision thereof substantially
equivalent to supervision or examination applicable to United States
institutional trustees,
in either case having a combined capital and surplus of at least
$25,000,000.
(b) If such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section
7.10, the combined capital and surplus of such corporation shall be deemed
to be its combined capital and surplus as set forth in its most recent
report of condition so published. Neither the Company nor any Affiliate of
the Company nor any Restricted Subsidiary shall serve as Trustee hereunder.
If at any time the Trustee shall cease to be eligible to serve as Trustee
hereunder pursuant to the provisions of this Section 7.10, it shall resign
immediately in the manner and with the effect specified in this Article
VII.
(c) If the Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act,
the Trustee and the Company shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act. Nothing herein
shall prevent the Trustee from filing with the Commission the application
referred to in the penultimate paragraph of Section 310(b) of the Trust
Indenture Act.
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SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject
to Section 311(a) of the Trust Indenture Act to the extent indicated
therein.
ARTICLE VIII
Defeasance
----------
SECTION 8.01. Company's Option To Effect Legal Defeasance or
----------------------------------------------
Covenant Defeasance. The Company may elect, at its option, at any time, to
-------------------
have Section 8.02 or Section 8.03 applied to the outstanding Notes (in
whole and not in part) upon compliance with the conditions set forth below
in this Article VIII. Such election shall be evidenced by a Board
Resolution delivered to the Trustee.
SECTION 8.02. Legal Defeasance and Discharge. (a) Upon the
------------------------------
Company's exercise of its option to have this Section 8.02 applied to the
outstanding Notes (in whole and not in part), the Company shall be deemed
to have been discharged from its obligations with respect to such Notes as
provided in this Section 8.02 on and after the date the conditions set
forth in Section 8.04 are satisfied (hereinafter called "Defeasance"). For
----------
this purpose, such Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by such Notes
and to have satisfied all its other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), subject to the following which shall survive until otherwise
terminated or discharged hereunder:
(i) the rights of Holders of such Notes to receive, solely from
the trust fund described in Section 8.04 and as more fully set forth
in such Section 8.04, payments in respect of the principal of
(premium, if any) and interest on such Notes (but not the Change of
Control Purchase Price or the Offer Purchase Price) when payments are
due, and any rights of Holders of such Notes with respect to such
amounts,
(ii) the Company's obligations with respect to such Notes under
Section
2.08, 2.09, 2.12, 4.02 and 4.03,
(iii) the rights, powers, trusts, obligations and immunities of
the Trustee under this Indenture,
(iv) Article III hereof, and
(v) this Article VIII.
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(b) Subject to compliance with this Article VIII, the Company
may exercise its option to have this Section 8.02 applied to the
outstanding Notes (in whole and not in part) notwithstanding the prior
exercise of its option to have Section 8.03 applied to such Notes.
SECTION 8.03. Covenant Defeasance. Upon the Company's exercise
-------------------
of its option to have this Section 8.03 applied to the outstanding Notes
(in whole and not in part), (a) the Company shall be released from its
obligations under Section 5.01(d) and (e) hereof, Sections 4.05 through
4.18 (except to the extent required by the Trust Indenture Act), inclusive,
and any covenant added to this Indenture subsequent to the Issue Date
pursuant to Section 9.01, and (b) the occurrence of any event specified in
Section 6.01(c), with respect to any of Section 5.01(d) and (e), Sections
4.05 through 4.18 (except to the extent required by the Trust Indenture
Act), inclusive, and any covenant added to this Indenture subsequent to the
Issue Date pursuant to Section 9.01, shall be deemed not to be or result in
an Event of Default, in each case with respect to such Notes as provided in
this Section 8.03 on and after the date the conditions set forth in Section
8.04 are satisfied (hereinafter called "Covenant Defeasance"). For this
-------------------
purpose, such Covenant Defeasance means that, with respect to such Notes,
the Company may omit to comply with and shall have no liability in respect
of any term, condition or limitation set forth in any such specified
Section (to the extent so specified in the case of Section 6.01(c)),
whether directly or indirectly by reason of any reference elsewhere herein
to any such Section or by reason of any reference in any such Section to
any other provision herein or in any other document, but the remainder of
this Indenture and such Notes shall be unaffected thereby.
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to the application of Section 8.02 or
Section 8.03 to the outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of
making the following payments on the outstanding Notes, specifically
pledged as security for such Notes, and dedicated solely to the benefit of
the Holders of such Notes, (i) United States dollars in an amount, or (ii)
U.S. Government Obligations which through the scheduled payment of
principal and interest thereon in accordance with their terms will provide,
not later than one day before the due date of any payment in respect of the
outstanding Notes, United States dollars in an amount, or (iii) a
combination thereof, in each case sufficient, in the opinion of an
internationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee to pay and discharge,
the principal of and interest on such Notes on the respective Stated
Maturities or Redemption Dates thereof, in accordance with the terms of
this Indenture and such Notes.
(b) In the event of an election to have Section 8.02 apply to
the outstanding Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel reasonably acceptable to the Trustee stating that (i)(A)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or
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(B) since the date of this Indenture, there has been a change in the
applicable United States federal income tax law, in either case (A) or (B)
to the effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders of such Notes will not recognize gain or loss for United
States federal income tax purposes as a result of the deposit, Defeasance
and discharge to be effected with respect to such Notes and will be subject
to United States federal income tax in the same manner and at the same
times as would have been the case if the Defeasance had not occurred and
(ii) the Company's deposit will not result in the trust created thereby or
the Trustee being subject to regulation under the Investment Company Act of
1940, as amended.
(c) In the event of an election to have Section 8.03 apply to
the outstanding Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel reasonably acceptable to the Trustee stating that (i)
the Holders of such Notes will not recognize gain or loss for United States
federal income tax purposes as a result of the deposit and Covenant
Defeasance to be effected with respect to such Notes and will be subject to
United States federal income tax in the same manner and at the same times
as would have been the case if the Covenant Defeasance had not occurred and
(ii) the Company's deposit will not result in the trust created thereby or
the Trustee being subject to regulation under the Investment Company Act of
1940, as amended.
(d) No Default or Event of Default with respect to the
outstanding Notes shall have occurred and be continuing at the time of such
deposit after giving effect thereto or at any time on or prior to the 91st
calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st calendar
day).
(e) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust
Indenture Act (assuming for the purpose of this clause (e) that all Notes
are in default within the meaning of the Trust Indenture Act).
(f) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is bound.
(g) If the Notes are to be redeemed prior to Stated Maturity,
notice of such redemption shall have been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee shall have been
made.
(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 8.05. Deposited United States Dollars and U.S.
----------------------------------------
Government Obligations To Be Held in Trust; Miscellaneous Provisions. (a)
--------------------------------------------------------------------
All United States dollars and U.S. Government Obligations (including the
proceeds thereof) deposited or deemed to be deposited with the Trustee
pursuant to Section 8.04 in respect of the
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outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Notes, of all sums due and to become due
thereon in respect of principal and any premium and interest, but money so
held in trust need not be segregated from other funds except to the extent
required by law. The Company shall pay and indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 8.04 or principal of
and interest received in respect thereof other than any such tax, fee or
other charge which by law is for the account of the Holders of outstanding
Notes.
(b) Anything in this Article VIII to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time
to time upon Company Order any United States dollars or U.S. Government
Obligations held by it as provided in Section 8.04 which, in the opinion of
an internationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are
in excess of the amount that would then be required to be deposited to
effect the Defeasance or Covenant Defeasance, as the case may be, with
respect to the outstanding Notes.
(c) The Trustee and the Paying Agent shall pay to the Company
upon written request any money held by them for the payment of principal
(premium, if any), or interest that remains unclaimed for two years;
provided that the Trustee or such Paying Agent before being required to
--------
make any payment may cause to be published at the expense of the Company
once in a newspaper of general circulation in the City of New York or mail
to each Holder entitled to such money at such Holder's address (as set
forth in the Note Register) notice that such money remains unclaimed and
that after a date specified therein (which shall be at least 30 calendar
days from the date of such publication or mailing) any unclaimed balance of
such money then remaining will be repaid to the Company. After payment to
the Company, Holders entitled to such money must look only to the Company
for payment as general creditors, and all responsibility and liability of
the Trustee and such Paying Agent with respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
-------------
unable to apply any money in accordance with this Article VIII with respect
to any Notes by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations under this Indenture and such Notes from
which the Company has been discharged or released pursuant to Sections 8.02
or 8.03 shall be revived and reinstated as though no deposit had occurred
pursuant to this Article VIII with respect to such Notes, until such time
as the Trustee or Paying Agent is permitted to apply all money held in
trust pursuant to Section 8.05 with respect to such Notes in accordance
with this Article VIII; provided that if the Company makes any payment of
principal of or any premium or interest on any such Note following such
reinstatement of its obligations, the Company shall be subrogated to the
rights (if any) of the Holders of such Notes to receive such payment from
the money so held in trust.
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ARTICLE IX
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company and the
--------------------------
Trustee may, at any time, and from time to time, without notice to or
consent of any Holder of Notes, enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Company
in accordance with the terms of this Indenture and the assumption by
such successor of the covenants of the Company herein and in the
Notes;
(b) to add to the covenants of the Company, for the benefit of
the Holders of all of the Notes, or to surrender any right or power
herein conferred upon the Company;
(c) to add any additional Events of Default;
(d) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee;
(e) to secure the Notes;
(f) to cure any ambiguity herein, or to correct or supplement
any provision hereof which may be inconsistent with any other
provision hereof or to add any other provisions with respect to
matters or questions arising under this Indenture; provided that such
--------
actions shall not adversely affect the interests of the Holders of
Notes in any material respect; or
(g) to comply with the requirements of the Commission or any
other regulatory authority in order to effect or maintain the
qualification of this Indenture under the Trust Indenture Act.
SECTION 9.02. With Consent of Holders. (a) With the consent of
-----------------------
the Holders of not less than a majority in stated principal amount at
maturity of the outstanding Notes, by Act of said Holders delivered to the
Company and the Trustee, the Company and the Trustee may enter into one or
more indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of
the Holders; provided that no such supplemental indenture shall, without
--------
the consent of the Holder of each outstanding Note,
(i) change the Stated Maturity of the principal of, or the due
date of any installment of interest on, any Note, or alter the
redemption provisions thereof, or reduce the principal amount thereof
(or premium, if any), or the interest
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thereon, that would be due and payable upon Maturity thereof, or
change the place of payment where, or the coin or currency in which,
any Note or any premium or interest thereon is payable;
(ii) reduce the percentage in stated principal amount at
maturity of the outstanding Notes;
(iii) subordinate in right of payment, or otherwise subordinate,
the Notes to any other Indebtedness;
(iv) impair the right to institute suit for the enforcement of
any payment with respect to the Notes;
(v) make any change that would result in the Company being
required to make any deduction or withholding from any payment made
under or with respect to the Notes; or
(vi) modify any of the provisions of this Section 9.02, except
to increase any percentage set forth herein or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each outstanding Note affected
thereby.
(b) It shall not be necessary for any Act of Holders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the
substance thereof.
SECTION 9.03. Effect of Supplemental Indentures. Upon the
---------------------------------
execution of any supplemental indenture under this Article IX, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 9.04. Compliance with Trust Indenture Act. Every
-----------------------------------
amendment or supplement to this Indenture or the Notes shall comply with
the Trust Indenture Act as then in effect.
SECTION 9.05. Revocation and Effect of Consents and Waivers.
---------------------------------------------
(a) A consent to an amendment, supplement or a waiver by a Holder of a
Note shall bind the Holder and every subsequent Holder of such Note or
portion of such Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent or waiver is not made on
such Note; provided that any such Holder or subsequent Holder may revoke
--------
the consent or waiver as to such Holder's Note or portion of such Note if
the Trustee receives the notice of revocation at least one Business Day
prior to the date the amendment, supplement or waiver becomes effective.
After an amendment, supplement or waiver becomes effective pursuant to this
Article IX, it shall bind every Holder.
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(b) The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to give their
consent or take any other action described above or required or permitted
to be taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any
consent previously given or to take any such action, whether or not such
Persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 120 calendar days after such
record date.
SECTION 9.06. Notation on or Exchange of Notes. If a
--------------------------------
supplemental indenture changes the terms of a Note, the Trustee may require
the Holder thereof to deliver such Note to the Trustee. The Trustee may
place an appropriate notation on such Note regarding the changed terms and
return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for such Note shall issue and the
Trustee shall authenticate a new Note that reflects the changed terms.
Failure to make the appropriate notation or to issue a new Note shall not
affect the validity of such supplement.
SECTION 9.07. Trustee To Execute Supplemental Indentures. The
------------------------------------------
Trustee shall execute any supplemental indenture authorized pursuant to
this Article IX if such supplemental indenture does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does,
the Trustee may, but shall not be required to, execute such supplemental
indenture. In executing any supplemental indenture, the Trustee shall
receive and shall be (subject to Section 7.01) fully protected in relying
upon an Officers' Certificate and an Opinion of Counsel, which shall not be
at the expense of the Trustee, stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture.
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Trust Indenture Act Controls. If and to the
----------------------------
extent that any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by, or with another provision (an "incorporated
------------
provision") included in this Indenture by operation of Sections 310 to 318,
---------
inclusive, of the Trust Indenture Act, such imposed duties or incorporated
provision shall control. If any provisions of this Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
Indenture as so modified or with such exclusion shall apply.
SECTION 10.02. Notices. (a) Any notice or communication shall
-------
be in writing and delivered in person or mailed by first-class mail,
postage prepaid, addressed as follows. If to the Company: 200 N. LaSalle,
Chicago, Illinois 60601, Attention: Chief Financial Officer; with a copy to
Ross & Hardies, 150 North Michigan Avenue, Suite 2500, Chicago, Illinois
60601-7567, Attention: David Guin, if to the Trustee: Harris
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Trust and Savings Bank, 311 West Monroe Street, Chicago, Illinois 60606,
Attention: Indenture Trust Division.
(b) The Company or the Trustee, by notice to the other, may
designate additional or different addresses for subsequent notices or
communications. Any notice or communication mailed to a Holder shall be
sent to the Holder by first-class mail, postage prepaid, at the Holder's
address as it appears in the Note Register and shall be duly given if so
sent within the time prescribed. Failure to mail a notice or communication
to a Holder or any defect in it shall not affect its sufficiency with
respect to other Holders. If a notice or communication is mailed to the
Company, the Trustee or a Holder in the manner provided above, it is duly
given, whether or not the addressee receives it. In case by reason of the
suspension of regular mail service or by reason of any other cause it shall
be impracticable to give notice by mail to Holders, then such notification
as shall be made with the approval of the Trustee shall constitute a
sufficient notification for every purpose hereunder.
SECTION 10.03. Certificate and Opinion as to Conditions
----------------------------------------
Precedent. Upon any request or application by the Company to the Trustee
---------
to take or refrain from taking any action under this Indenture, the Company
shall furnish to the Trustee: (a) an Officers' Certificate stating that,
in the opinion of the signers, all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied
with; and (b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 10.04. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture (other than pursuant to Section
4.19) shall include: (a) a statement that the individual making such
certificate or opinion has read such covenant or condition; (b) a brief
statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or
opinion are based; (c) a statement that, in the opinion of such individual,
such person has made such examination or investigation as is necessary to
enable such person to express an informed opinion as to whether or not such
covenant or condition has been complied with; and (d) a statement as to
whether or not, in the opinion of such individual, such covenant or
condition has been complied with; provided that, with respect to matters of
--------
fact, an Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
SECTION 10.05. Rules by Trustee, Paying Agent and Note
---------------------------------------
Registrar. The Trustee may make reasonable rules for action by or a
---------
meeting of Holders, and any Note Registrar and Paying Agent may make
reasonable rules for their functions; provided that no such rule shall
conflict with the terms of this Indenture or the Trust Indenture Act.
SECTION 10.06. Payments on Business Days. If a payment
-------------------------
hereunder is scheduled to be made on a date that is not a Business Day,
payment shall be made on the next succeeding day that is a Business Day,
and no interest shall accrue with respect
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to that payment during the intervening period. If a regular record date
is a date that is not a Business Day, such record date shall not be
affected.
SECTION 10.07. Governing Law; Jurisdiction. THIS INDENTURE AND
---------------------------
THE NOTES SHALL 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 LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY. EACH OF THE PARTIES HERETO AGREE
TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE.
SECTION 10.08. No Recourse Against Others. No controlling
--------------------------
Person, director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any covenant, agreement or
other obligations of the Company under the Notes or this Indenture or for
any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its past, present or future status as a
controlling Person, director, officer, employee, incorporator or
stockholder of the Company. By accepting a Note, each Holder waives and
releases all such liability (but only such liability) as part of the
consideration for issuance of such Note to such Holder.
SECTION 10.09. Successors. All agreements of the Company in this
----------
Indenture and the Notes shall bind its successors and assigns whether so
expressed or not. All agreements of the Trustee in this Indenture shall
bind its successors and assigns whether so expressed or not.
SECTION 10.10. Counterparts. This Indenture may be executed in
------------
any number of counterparts and by the parties thereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 10.11. Table of Contents; Headings. The table of
---------------------------
contents, cross-reference table and headings of the Articles and Sections
of this Indenture have been inserted for convenience of reference only, are
not intended to be considered a part hereof and shall not modify or
restrict any of the terms or provisions hereof.
SECTION 10.12. Severability. In case any provision in this
------------
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
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SECTION 10.13. Further Instruments and Acts. Upon request of
----------------------------
the Trustee, the Company will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry
out more effectively the purposes of this Indenture.
[Remainder of Page Intentionally Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed all as of the day and year first above written.
FOCAL COMMUNICATIONS CORPORATION
By: \s\ Robert C. Taylor, Jr.
-------------------------
Name: Robert C. Taylor, Jr.
Title: President
HARRIS TRUST AND SAVINGS BANK,
as Trustee,
By \s\ C. Potter
-------------
Name: C. Potter
Title: Assistant Vice President
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ANNEX A
Form of Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to (S) 2.08(g)(i) and (iii)
of the Indenture)
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Re: 12.125% Senior Discount Notes due 2008
of Focal Communications Corporation (the "Notes")
------------------------------------------------
Reference is made to the Indenture, dated as of February 18, 1998
(the "Indenture"), between Focal Communications Corporation (the "Company")
and Harris Trust and Savings Bank, as Trustee. Terms used herein and
defined in the Indenture or in Regulation S or Rule 144 under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), are used herein
as so defined.
This certificate relates to $_____________ stated principal
amount at maturity of Notes, which are evidenced by the following
certificates (the "Specified Notes"):
CUSIP No(s). _____________________________________
CERTIFICATE No(s).________________________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial
owner of the Specified Notes or (ii) it is acting on behalf of all the
beneficial owners of the Specified Notes and is duly authorized by them to
do so. Such beneficial owner or owners are referred to herein collectively
as the "Owner". If the Specified Notes are represented by a Global Note,
they are held through the Depositary or an Agent Member in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Notes are not
represented by a Global Note, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Notes be transferred
to a person (the "Transferee") who will take delivery in the form of a
Regulation S Note. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is
1
<PAGE>
being effected pursuant to an effective registration statement under the
Securities Act, it is being effected in accordance with Rule 904 or Rule
144 under the Securities Act and with all applicable securities laws of the
states of the United States and other jurisdictions. Accordingly, the
Owner hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
-------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Notes, an
affiliate of the Company or any such distributor or a person
acting on behalf of any of the foregoing;
(B) the offer of the Specified Notes was not made to a
person in the United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and
any person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated
by the Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner
nor any person acting on its behalf knows that the
transaction has been prearranged with a buyer in the United
States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other remuneration in respect of the
Specified Notes, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(c)(1) have
been satisfied; and
(F) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected
-------------------
pursuant to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule
144) has elapsed since the Specified Notes were last acquired
from the Company or from an affiliate of the Company, whichever
is later, and is being effected in
2
<PAGE>
accordance with the applicable amount, manner of sale and notice
requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Notes were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the
preceding three months has not been, an affiliate of the Company.
The Owner also hereby certifies that, if the transfer is
occurring during the period of 40 consecutive days beginning on and
including the later of (A) the day on which the Notes were first offered to
persons other than distributors (as defined in Regulation S of the
Securities Act) in reliance on Regulation S and (B) the original issuance
date of the Notes (the "Restricted Period"), the Transferee shall hold the
Specified Notes in the form of a Global Note held only in or through
accounts maintained at the Depositary by Euroclear or Cedel (or by Agent
Members acting for the account thereof) until the expiration of the
Restricted Period.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated:
______________________________
(Print the name of the Undersigned, as such term
is defined in the second paragraph of this
certificate.)
By __________________________
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
3
<PAGE>
ANNEX B
Form of Restricted Notes Certificate
RESTRICTED NOTES CERTIFICATE
(For transfers pursuant to (S) 2.08(g)(ii)
and (iii) of the Indenture)
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Re: 12.125% Senior Discount Notes due 2008
of Focal Communications Corporation (the "Notes")
-------------------------------------------------
Reference is made to the Indenture, dated as of February 18,
1998 (the "Indenture"), between Focal Communications Corporation (the
"Company") and Harris Trust and Savings Bank, as Trustee. Terms used
herein and defined in the Indenture or in Regulation S or Rule 144 under
the U.S. Securities Act of 1933, as amended (the "Securities Act"), are
used herein as so defined.
This certificate relates to $________ stated principal amount at
maturity of Notes, which are evidenced by the following certificates (the
"Specified Notes"):
CUSIP No(s). _____________________________
CERTIFICATE No(s). _______________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial
owner of the Specified Notes or (ii) it is acting on behalf of all the
beneficial owners of the Specified Notes and is duly authorized by them to
do so. Such beneficial owner or owners are referred to herein collectively
as the "Owner". If the Specified Notes are represented by a Global Note,
they are held through the Depositary or an Agent Member in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Notes are not
represented by a Global Note, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Notes be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Note. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an
effective registration statement under the Securities Act, it is being
effected in accordance with Rule 144A, Rule 144 or to an Institutional
1
<PAGE>
Accredited Investor under Rule 501(a)(1), (2), (3) or (7) under the
Securities Act and in compliance with all applicable securities laws of the
states of the United States and other jurisdictions. Accordingly, the
Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
--------------------
accordance with Rule 144A:
(A) the Specified Notes are being transferred to a person
that the Owner and any person acting on its behalf reasonably
believe is a "qualified institutional buyer" within the meaning
of Rule 144A, acquiring for its own account or for the account of
a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the
Owner may be relying on Rule 144A in connection with the
transfer; and
(2) Rule 144 Transfers. If the transfer is being effected
-------------------
pursuant to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule
144) has elapsed since the Specified Notes were last acquired
from the Company or from an affiliate of the Company, whichever
is later, and is being effected in accordance with the applicable
amount, manner of sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Notes were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the
preceding three months has not been, an affiliate of the Company.
(3) Institutional Accredited Investor Transfers. If the transfer
-------------------------------------------
is being effected to an Institutional Accredited Investor as defined
under Rule 501(a)(1), (2), (3) or (7), the Specified Notes are being
transferred to such an Institutional Accredited Investor as therein so
defined who is purchasing for investment purposes and not for
distribution.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated: _____________________________
(Print the name of the Undersigned, as such term
is defined in the second paragraph of this
certificate.)
2
<PAGE>
By:_________________________
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
3
<PAGE>
ANNEX C
Form of Unrestricted Notes Certificate
UNRESTRICTED NOTES CERTIFICATE
(For removal of Securities Act Legends pursuant to
(S) 2.08(h)(iii) of the Indenture)
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Re: 12.125% Senior Discount Notes due 2008
of Focal Communications Corporation ("the Notes")
-------------------------------------------------
Reference is made to the Indenture, dated as of February 18, 1998
(the "Indenture"), between Focal Communications Corporation (the "Company")
and Harris Trust and Savings Bank, as Trustee. Terms used herein and
defined in the Indenture or in Regulation S or Rule 144 under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), are used herein
as so defined.
This certificate relates to $________ stated principal amount at
maturity of Notes, which are evidenced by the following certificates (the
"Specified Notes"):
CUSIP No(s).____________________________
CERTIFICATE No(s).______________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial
owner of the Specified Notes or (ii) it is acting on behalf of all the
beneficial owners of the Specified Notes and is duly authorized by them to
do so. Such beneficial owner or owners are referred to herein collectively
as the "Owner". If the Specified Notes are represented by a Global Note,
they are held through the Depositary or an Agent Member in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Notes are not
represented by a Global Note, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Notes be exchanged for
Notes bearing no Securities Act Legend pursuant to Section 2.08(h)(iii) of
the Indenture. In connection with such exchange, the Owner hereby
certifies that the exchange is occurring after a holding period of at least
two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Notes were last acquired from the Company
1
<PAGE>
or from an affiliate of the Company, whichever is later, and the Owner is
not, and during the preceding three months has not been, an affiliate of
the Company. The Owner also acknowledges that any future transfers of the
Specified Notes must comply with all applicable securities laws of the
states of the United States and other jurisdictions.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated:
______________________________
(Print the name of the Undersigned, as such term
is defined in the second paragraph of this
certificate.)
By:________________________
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated).
2
<PAGE>
ANNEX D
FORM OF CLEARING SYSTEM CERTIFICATE
Re: Focal Communications Corporation
12.125% Senior Discount Notes due 2008
(the "Notes")
Reference is hereby made to the Indenture dated as of February
18, 1998 (the "Indenture"), between Focal Communications Corporation (the
"Company") and Harris Trust and Savings Bank (the "Trustee"). Capitalized
terms not defined in this Certificate shall have the meanings given to them
in the Indenture.
This is to certify that, as of the date hereof, with respect to
$_________ stated principal amount at maturity of Notes, except as set
forth below, we have received in writing by tested telex or by electronic
transmission, from our Agent Members entitled to a portion of such stated
principal amount at maturity, certifications with respect to such portion
substantially to the effect set forth in the Indenture.
We further certify (i) that we are not making available herewith
for exchange any portion of the Temporary Regulation S Global Note excepted
in such certifications and (ii) that as of the date hereof we have not
received any notification from any of our Agent Members to the effect that
the statements made by such Agent Members with respect to any portion of
the part submitted herewith for exchange are no longer true and cannot be
relied upon as the date hereof.
We understand that this certification is required in connection
with certain securities laws of the United States. In connection
therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certification is
1
<PAGE>
or would be relevant, we irrevocably authorize you to produce this
certification to any interested party in such proceedings.
Dated: ___________,
Yours faithfully,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
Brussels office, as operator of the
Euroclear System
By:_________________________
Name:
Title:
or
CEDEL S.A.
By:_________________________
Name:
Title:
2
<PAGE>
ANNEX E
FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP
Re: Focal Communications Corporation
12.125% Senior Discount Notes due 2008
(the "Notes")
Reference is hereby made to the Indenture dated as of February
18,1998 (the "Indenture"), between Focal Communications Corporation (the
"Company") and Harris Trust and Savings Bank (the "Trustee"). Capitalized
terms not defined in this Certificate shall have the meanings given to them
in the Indenture.
This is to certify that, as of the date hereof, the above-
captioned Notes held by you for our account are beneficially owned by (a)
non-U.S. person(s) or (b) U.S. person(s) who purchased the Notes in
transactions which did not require registration under the Securities Act of
1933, as amended (the "Act"). As used in this paragraph the term "U.S.
person" has the meaning given to it by Regulation S under the Act.
We undertake to advise you promptly by tested telex on or prior
to the date on which you intend to submit your certification relating to
the Notes held by you for our account in accordance with your operating
procedures if any applicable statement herein is not correct on such date,
and in the absence of any such notification it may be assumed that this
certification applies as of such date.
We understand that this certification is required in connection
with certain securities laws of the United States. In connection
therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certification is or would be
relevant, we irrevocably authorize you to produce this certification to any
interested party in such proceedings.
Dated: ,
By: _________________________________
As, or as agent for, the
beneficial owner(s) of the
Notes to which this
certificate relates.
<PAGE>
Exhibit 4.2
FOCAL COMMUNICATIONS CORPORATION
12.125% SENIOR DISCOUNT NOTE DUE 2008
CUSIP NO. 344155AA4
No. 1 $270,000,000
Focal Communications Corporation, a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
-------
indenture referred to on the reverse of this Note) for value received, hereby
promises to pay to Cede & Co., or registered assigns, the stated principal
amount at maturity of Two Hundred and Seventy Million Dollars ($270,000,000)
(which stated principal amount at maturity may from time to time be increased or
decreased to such other stated principal amounts at maturity (which shall not
exceed $270,000,000 at any time) by adjustments made to the Schedule annexed
hereto by the Trustee hereinafter referred to in accordance with the indenture
referred to on the reverse of this Note) on February 15, 2008.
Current Interest Payment Dates: February 15 and August 15, commencing
on August 15, 2003.
Regular Record Dates: February 1 and August 1.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). THE HOLDER BY PURCHASING THIS NOTE AGREES FOR THE
BENEFIT OF THE COMPANY AND THE INITIAL PURCHASERS OF THIS NOTE THAT THIS NOTE
MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND
ANNIVERSARY (OR SUCH EARLIER DATE PROVIDED FOR IN RULE 144(K) UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO) OF THE ISSUANCE HEREOF (OR A
PREDECESSOR NOTE HERETO) OR (Y) IF LATER, BY ANY HOLDER THAT WAS AN AFFILIATE OF
THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH
TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
<PAGE>
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED
IN THE INDENTURE PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD"
(WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT),
A CERTIFICATE, WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE, IS
DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE) THAT IS
ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT OR ANY OTHER APPLICABLE SECURITIES LAWS, AND A
CERTIFICATE IN THE FORM ATTACHED TO THIS NOTE IS DELIVERED BY THE TRANSFEREE TO
THE COMPANY AND THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE
INDENTURE MAY NOT TRANSFER THIS NOTE PURSUANT TO THIS CLAUSE (4) PRIOR TO THE
EXPIRATION OF THE "40-DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE
903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN
INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS NOTE AGREES IT WILL FURNISH TO
THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE
COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144(A) OR (2) AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS NOTE FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE
THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE
REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER) REGULATION S UNDER THE
SECURITIES ACT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
---
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO
2
<PAGE>
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON
THE REVERSE HEREOF.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES
FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE IS $555.6578 PER $1,000 STATED
PRINCIPAL AMOUNT AT MATURITY. THE ISSUE DATE OF THIS NOTE IS FEBRUARY 18, 1998
AND THE YIELD TO MATURITY IS 12.125%. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT FOR
UNITED STATES FEDERAL INCOME TAX PURPOSES PER $1,000 STATED PRINCIPAL AMOUNT AT
MATURITY IS $1050.5922 PLUS ALL CURRENT INTEREST (AS DEFINED HEREIN). FOR
UNITED STATES FEDERAL INCOME TAX PURPOSES, A SIGNIFICANT AMOUNT OF ORIGINAL
ISSUE DISCOUNT, TAXABLE AS ORDINARY INCOME, WILL BE RECOGNIZED BY A HOLDER OF
NOTES AS SUCH DEFERRED INTEREST (AS DEFINED HEREIN) ACCRUES FORM THE ISSUE DATE.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse of this Note or be valid or obligatory for any purpose.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: February 18, 1998
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
------------------------------------
Name: Robert C. Taylor, Jr.
Title: Chief Executive Officer
Attest:
/s/ Joseph A. Beatty
----------------------------------------
4
<PAGE>
(REVERSE OF NOTE)
12.125% Senior Discount Note Due 2008
1. Indenture.
---------
This Note is one of a duly authorized issue of Notes of the Company
designated as its 12.125% Senior Discount Notes due February 15, 2008 (the
"Notes"), issued under an indenture, dated as of February 18, 1998 (herein, as
-----
amended from time to time, called the "Indenture"), between the Company and
---------
Harris Trust and Savings Bank, as trustee (herein called the "Trustee", which
-------
term includes any successor trustee under the Indenture). The Notes are limited
in aggregate stated principal amount at maturity to $270,000,000. Reference is
hereby made to the Indenture and all indentures supplemental thereto for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holder of this Note and of the
terms upon which this Note is, and is to be, authenticated and delivered. All
terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
2. Stated Amount at Maturity and Interest.
--------------------------------------
The Company will pay the stated principal amount at maturity of this
Note on February 15, 2008.
This Note will bear interest on the Issue Price at a rate of 12.125%
per annum computed on a semiannual bond equivalent basis from the Issue Date.
In the period prior to February 15, 2003, interest at a rate of 12.125% per
annum will accrue on the Issue Price but will not be payable in cash ("Deferred
Interest"). Deferred Interest will be paid at maturity of this Note and will
constitute a part of the stated amount at maturity of this Note. From February
15, 2003, interest (including Additional Interest, as described below) at a rate
of 12.125% per annum ("Current Interest") on the stated principal amount at
maturity of this Note will be payable in cash semiannually (to the Holder of
record at the close of business on the February 1 and August 1, as the case may
be, immediately preceding the applicable Current Interest Payment Date) on each
Current Interest Payment Date, commencing on August 15, 2003, in each case, even
if this Note is canceled on registration of transfer or registration of exchange
after such record date.
If (i) the Company has not filed a registration statement (the
"Exchange Offer Registration Statement") under the Securities Act of 1933, as
-------------------------------------
amended (the "Securities Act"), registering a security substantially identical
--------------
to this Note (except that such Note will not contain terms with respect to
transfer restrictions) pursuant to an exchange offer (the "Registered Exchange
-------------------
Offer") on or prior to April 3, 1998 or (ii) the Exchange Offer Registration
- -----
Statement relating to the Registered Exchange Offer has not become or been
declared effective prior to August 17, 1998, or (iii) neither the Registered
Exchange Offer has been consummated nor a registration statement registering
this Note for resale (a "Shelf Registration Statement") has been
----------------------------
5
<PAGE>
declared effective prior to September 16, 1998 or (iv) after the Shelf
Registration Statement has been declared effective, such Shelf Registration
Statement thereafter ceases to be effective or usable (subject to certain
exceptions set forth in the Registration Agreement) in connection with resales
of this Note or notes issued in exchange for this Note pursuant to the
Registered Exchange Offer ("Exchange Notes") in accordance with and during the
--------------
periods specified in the Registration Agreement without being succeeded promptly
by an additional registration statement filed and declared effective, in the
case of each of the immediately preceding clauses (i) through (iv) upon the
terms and conditions set forth in the Registration Agreement (each such event
referred to in such clauses (i) through (iv), a "Registration Default"), then
--------------------
interest will accrue on this Note and the Exchange Notes (in addition to the
stated interest on this Note and the Exchange Notes) (the "Step-Up") and be
-------
payable in cash semiannually in arrears on February 15 and August 15 of each
year, beginning on the February 15 or August 15 immediately succeeding a
Registration Default (such interest to be payable to the Holder of record as of
the February 1 and August 1, as the case may be, immediately preceding such
February 15 or August 15), at a rate per annum equal to 0.5% on the Accreted
Value (determined daily) of this Note and the Exchange Notes, during the 90-day
period 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 and shall increase by a rate per annum equal to 0.5% on the Accreted Value
(determined daily) of this Note and the Exchange Notes at the end of each
subsequent 90-day period, but in no event shall such rate exceed 1.5% per annum
on the Accreted Value (determined daily) of this Note and the Exchange Notes,
in the aggregate regardless of the number of Registration Defaults. Interest
accruing as a result of the Step-Up is referred to herein as "Additional
----------
Interest". The amount of accrued Additional Interest shall be determined on the
- --------
basis of the number of days actually elapsed.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum equal to the interest rate payable on this Note.
Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice of which
shall be given to the Holder of this Note not less than 10 calendar days prior
to such Special Record Date.
3. Method of Payment.
------------------
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. Payments in respect of
Notes represented by Global Notes (including principal, premium, interest and
Defaulted Interest, if any) will be made by wire transfer of immediately
available funds to the accounts specified by the nominee for the Depositary.
With respect to certificated Notes, the Paying Agent will make all payments of
principal, premium,
6
<PAGE>
interest and Defaulted Interest, if any, by wire transfer of immediately
available funds to the United States dollar accounts maintained by the Holders
entitled thereto with banks in the United States, or, if no such account is
designated by the relevant Holder to the Trustee or the Paying Agent at least 30
days prior to the relevant due date for payment (or such other date as the
Trustee may accept in its discretion), by mailing a check to the registered
address of such Holder. If a payment date is a date other than a Business Day
at a place of payment, payment may be made at that place on the next succeeding
day that is a Business Day and no interest shall accrue for the intervening
period.
4. Paying Agent and Note Registrar.
--------------------------------
Initially, the Trustee will act as authenticating agent, Paying Agent
and Note Registrar. The Trustee may be removed by action of the Holders of not
less than a majority in stated principal amount at maturity of the outstanding
Notes, or by the Company or certain bona fide Holders of Notes upon the
occurrence of certain events. The Company may change any Paying Agent or Note
Registrar with notice in writing to the Trustee. The Company, any Subsidiary or
any Affiliate of either of them may act as Paying Agent or Note Registrar.
5. Optional Redemption.
--------------------
This Note is subject to redemption upon not less than 30 nor more than
60 days' prior written notice to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in stated principal amounts at
maturity of $1,000 or integral multiples thereof, at any time on or after
February 15, 2003, and prior to maturity, as a whole or in part, at the election
of the Company, at the following Redemption Prices (expressed as percentages of
the stated principal amount at maturity) plus accrued and unpaid Current
Interest, if any, thereon to but excluding the Redemption Date, (subject to the
right of Holders on the relevant Regular Record Date to receive Current Interest
due on a Current Interest Payment Date that is on or prior to the date of
redemption) if redeemed during the periods indicated below:
<TABLE>
<CAPTION>
From and Including To and Including Redemption Price
------------------ ----------------- -----------------
<S> <C> <C>
February 15, 2003 February 14, 2004 106.063%
February 15, 2004 February 14, 2005 104.042%
February 15, 2005 February 14, 2006 102.021%
February 15, 2006 and 100%
thereafter
</TABLE>
This Note will be redeemable at any time and from time to time prior
to February 15, 2001 in the event that the Company receives Net Cash Proceeds
from the sale of its Capital Stock (other than Disqualified Stock) in one or
more Public Equity Offerings, in which case the Company may, at its option, use
all or a portion of any such Net Cash Proceeds
7
<PAGE>
to redeem up to 35% of the aggregate Issue Price of the Notes; provided, that at
--------
least 65% of the original aggregate stated principal amount at maturity of the
Notes remains outstanding after each such redemption. Such redemption must
occur on a date of redemption within 90 days of such sale and upon not less than
30 nor more than 60 days' prior written notice, in stated principal amounts at
maturity of $1,000 or integral multiples thereof at a redemption price equal to
112.125% of the Accreted Value of the Notes to be redeemed plus Additional
Interest, if any, to but excluding the date of redemption.
If, after giving effect to the offer by the Company to repurchase all
or any part of each Holder's Notes made upon the occurrence of a Change of
Control as set forth in Section 7 hereto, at least 95% of the original aggregate
stated principal amount at maturity of the Notes has been redeemed or
repurchased pursuant to the Indenture, the Company shall have the right to
redeem the balance of the Notes at a redemption price equal to 101% of the
Accreted Value thereof plus accrued and unpaid Current Interest, if any, thereon
to but excluding the date of redemption. The Company may exercise this right by
giving the Holders notice of such redemption within 30 days following the
payment date with respect to the Company's earlier repurchase offer.
6. No Sinking Fund.
----------------
The Notes do not have the benefit of any sinking fund obligations.
7. Repurchase of Notes at the Option of Holders upon a Change of
-------------------------------------------------------------
Control.
- --------
Upon the occurrence of a Change of Control, each Holder will have the
right to require the Company to repurchase all or any part (equal to $1,000
stated principal amount at maturity or an integral multiple thereof) of such
Holder's Notes at a purchase price ("Change of Control Purchase Price") equal to
--------------------------------
101% of the Accreted Value thereof plus accrued and unpaid Current Interest, if
any, thereon to but excluding the payment date for the Change of Control
Purchase Price.
Within 30 days following any Change of Control, the Company or the
Trustee (at the expense of the Company) shall mail a notice to each Holder
regarding the Company's offer to repurchase all or any part of such Holder's
Notes. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the offer described in the notice. Unless the Company defaults in the payment
of the Change of Control Purchase Price with respect thereto, all Notes or
portions thereof accepted for payment pursuant to the offer described in the
notice will cease to accrue interest from and after the payment date for the
Change of Control Purchase Price.
8
<PAGE>
8. Repurchase of Notes at the Option of Holders upon an Asset Sale.
----------------------------------------------------------------
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds
calculated as of any date exceeds $5,000,000, the Company shall, within 30 days
of such date, make an offer to purchase (an "Asset Sale Offer") on a pro rata
----------------
basis (a) Notes at a purchase price (the "Offer Purchase Price") in cash equal
--------------------
to 100% of the Accreted Value thereof, plus accrued and unpaid Current Interest
thereon, if any, to but excluding the purchase date and (b) to the extent
required by the terms thereof, any other indebtedness of the Company that is
pari passu with the Notes. The pro rata amount of such Excess Proceeds to be
used to purchase Notes shall be in an amount equal to the aggregate amount of
such Excess Proceeds multiplied by the quotient obtained by dividing the
Accreted Value of the outstanding Notes by the sum of such Accreted Value and
the principal amount of such other Indebtedness. In the event the aggregate
Offer Purchase Price of the outstanding Notes tendered pursuant to an Asset Sale
Offer is in excess of the Excess Proceeds to be used to purchase such Notes,
such Excess Proceeds shall be applied to purchase such Notes on a pro rated
basis in stated principal amounts at maturity of $1,000 or an integral multiple
thereof.
Within 30 days of the date the amount of Excess Proceeds exceeds
$5,000,000, the Company or the Trustee (at the expense of the Company) shall
mail to each Holder a written notice regarding the Asset Sale Offer. The Holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Asset
Sale Offer. Unless the Company defaults in the payment of the Offer Purchase
Price with respect thereto, all Notes or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrue interest from and after
the purchase date.
9. Denominations; Transfer; Exchange.
----------------------------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 stated principal amount at maturity and any integral
multiple thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
10. Persons Deemed Owners.
----------------------
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee, the Paying Agent and the Note Registrar may deem and
treat the Person in whose name this Note is registered as the owner hereof for
all purposes, whether or not this Note be overdue, and none of the Company, the
Trustee, the Paying Agent or the Note Registrar shall be affected by notice to
the contrary.
9
<PAGE>
11. Unclaimed Money.
----------------
Subject to certain notice provisions, the Trustee and the Paying Agent
shall pay to the Company upon written request any money held by them for the
payment of principal, premium, if any, or interest that remains unclaimed for
two years. After payment to the Company, Holders entitled to such money must
look only to the Company for payment as general creditors, and all
responsibility and liability of the Trustee and the Paying Agent with respect to
such money shall cease.
12. Discharge Prior to Redemption or Maturity.
------------------------------------------
If the Company deposits with the Trustee United States dollars or U.S.
Government Obligations sufficient to pay the principal, premium, if any, and
accrued interest on the Notes to redemption or maturity, the Company will, with
the exceptions of certain sections thereof, be discharged from the Indenture and
the Notes, including certain covenants set forth in the Indenture.
13. Amendment; Waiver.
------------------
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate stated principal amount at maturity of the Notes at
the time outstanding. The Indenture also contains provisions permitting the
Holders of not less than a majority in aggregate stated principal amount at
maturity of the Notes at the time outstanding, on behalf of the Holders of all
the Notes, to waive certain past defaults under the Indenture and their
consequences.
14. Restrictive Covenants.
----------------------
The Indenture contains certain covenants which, among other things,
restrict the ability of the Company and Restricted Subsidiaries to incur
additional indebtedness (and, in the case of Restricted Subsidiaries, issue
preferred stock), pay dividends or make distributions in respect of the
Company's or Restricted Subsidiaries' capital stock, make other restricted
payments, enter into sale and leaseback transactions, incur liens, cause
encumbrances or restrictions to exist on the ability of Restricted Subsidiaries
to pay dividends or make distributions in respect of their capital stock, issue
and sell capital stock of Restricted Subsidiaries, enter into transactions with
affiliates, sell assets, or amalgamate, consolidate, merge or sell or otherwise
dispose of all or substantially all of their property and assets.
15. Defaults and Remedies.
----------------------
With the exception of certain Events of Defaults specified below, if
an Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% of the
10
<PAGE>
aggregate stated principal amount at maturity of the outstanding Notes may
declare the Accreted Value of, and any accrued and unpaid Current Interest on,
all Notes then outstanding to be immediately due and payable. If a bankruptcy
or insolvency default with respect to the Company or a Restricted Subsidiary
occurs and is continuing, the Notes immediately become due and payable. Holders
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of not less
than a majority in stated 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.
16. No Recourse Against Others.
---------------------------
No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any covenant,
agreement or other obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its past, present or future status as a
controlling Person, director, officer, employee, incorporator or stockholder of
the Company. Each Holder by accepting a Note waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for the issuance of the Notes.
17. Governing Law.
--------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture. Requests may be made to:
Focal Communications Corporation
200 N. LaSalle
Chicago, Illinois 60601
Attention: Chief Financial Officer
18. Ranking.
--------
The Notes are senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future senior indebtedness of
the Company, and will rank senior in right of payment to all existing and future
subordinated Indebtedness of the Company. Holders of secured Indebtedness of
the Company, however, will have claims that are
11
<PAGE>
prior to the claims of the Holders with respect to the assets securing such
other indebtedness except to the extent the Notes are equally and ratably
secured by such assets.
____________________________________________________________
CERTIFICATE OF TRANSFER
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of Focal Communications Corporation. The agent may substitute another
to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Note.
12
<PAGE>
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act of 1933 (the "Securities Act") after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by Focal Communications Corporation or any
Affiliate, the undersigned confirms that such Notes are being transferred in
accordance with the terms of such Notes:
CHECK ONE BOX BELOW
(1) [_] to Focal Communications Corporation; or
(2) [_] pursuant to an effective registration statement under the
Securities Act; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
-----------------------------
defined in Rule 144A under the Securities Act) that purchases for
its own account or for the account of a qualified institutional
buyer to whom notice is given that such transfer is being made in
reliance on Rule 144A under the Securities Act, in each case
pursuant to and in compliance with Rule 144A under the Securities
Act; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act;
(5) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act; or
(6) [_] to an institution that is an "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring this Note for investment purposes and not for
distribution in violation of the Securities Act or any other
applicable securities laws.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Notes evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (3),
-------- -------
(4), (5) or (6) is checked, the Trustee may require, prior to registering
any such transfer of the Notes, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act, such as the exemption provided by Rule 144 under the Securities Act.
13
<PAGE>
______________________
Signature
Signature Guarantee:
_________________________ ___________________________
[Signature must be guaranteed Signature
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit
unions) with membership in
an approved guarantee
medallion program pursuant
to Securities and Exchange
Commission Rule 17Ad-15]
____________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
---------
institutional buyer" within the meaning of Rule 144A under the Securities Act,
- -------------------
and is aware that the sale to it is being made in reliance on Rule 144A under
the Securities Act and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
under the Securities Act or has determined not to request such information and
that it is aware that the transferor is relying upon the foregoing
representations of the undersigned in order to claim the exemption from
registration provided by Rule 144A under the Securities Act.
Dated: ________________ ____________________________________________
NOTICE: To be executed by an executive officer
14
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have
been made:
<TABLE>
<CAPTION>
Stated Principal Amount
at
Amount of decrease in Amount of increase in Maturity of this Global
Stated Principal Amount at Stated Principal Amount at Note following such Signature of authorized
Date of Maturity Maturity decrease or signatory of Trustee or
Exchange of this Global Note of this Global Note increase Notes Custodian
- ---------- --------------------------- --------------------------- ------------------------- ------------------------
___ <C>
<S> <C> <C> <C>
</TABLE>
15
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.07 or 4.08 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, state the amount
in stated principal amount at maturity ($1,000 or an integral multiple
thereof): $
Date: _______________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee: _______________________________________
Signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan
associations and credit unions) with membership in an
approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.
16
<PAGE>
Harris Trust and Savings Bank, as Trustee, certifies that this is one of
the Notes referred to in the within-mentioned Indenture.
Date: February 18, 1998
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: /s/ C. Potter
-------------------------
Name: C. Potter
Title: A.V.P.
17
<PAGE>
Exhibit 4.3
FOCAL COMMUNICATIONS CORPORATION
12.125% Senior Discount Notes due 2008
EXCHANGE AND REGISTRATION AGREEMENT
New York, New York
February 18, 1998
Salomon Brothers Inc
Morgan Stanley & Co. Incorporated
NationsBanc Montgomery Securities LLC
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Focal Communications Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell (the "Initial Placement") to you (the
"Initial Purchasers"), upon the terms set forth in a Purchase Agreement, dated
February 12, 1998 (the "Purchase Agreement") among the Initial Purchasers and
the Company, its 12.125% Senior Discount Notes due 2008 (the "Notes"). As an
inducement to the Initial Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to your obligations thereunder, the Company agrees
with you, (i) for your benefit and (ii) for the benefit of the holders from time
to time of the Notes and the Transfer Restricted Notes (as defined herein)
(including you) (each of the foregoing a "Holder" and together the "Holders"),
as follows:
1. Definitions. Capitalized terms used herein without definition
-----------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
<PAGE>
"Accreted Value" means, as of any date (the "Specified Date"), with
--------------
respect to each $1,000 stated amount at maturity of Notes the sum of (a) the
Issue Price of each Note and (b) the amount of accrued but unpaid Deferred
Interest on such Notes to the Specified Date such that:
(i) If the Specified Date is one of the following dates (each a
"Semiannual Accrual Date") the Accreted Value will be the amount
set forth opposite such date below:
<TABLE>
<CAPTION>
SEMIANNUAL ACCRUAL DATE ACCRETED VALUE
----------------------- --------------
<S> <C>
Issue Date................ 555.66
, 1998................. 588.77
, 1999................. 624.46
, 1999................. 662.32
, 2000................. 702.47
, 2000................. 745.06
, 2001................. 790.23
, 2001................. 838.14
, 2002................. 888.95
, 2002................. 942.84
, 2003 and thereafter.. $1,000.00
</TABLE>
(ii) If the Specified Date occurs before February 15, 2003, and
between two Semiannual Accrual Dates, the Accreted Value shall be
the sum of (A) the Accreted Value for the Semiannual Accrual Date
immediately preceding such Specified Date and (B) an amount equal
to the Deferred Interest accrued from such Semiannual Accrual
Date to such Specified Date.
"Act" means the Securities Act of 1933, as amended, and the rules
---
and regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
------------
2
<PAGE>
"Commission" means the Securities and Exchange Commission.
----------
"Company" has the meaning set forth in the preamble hereto.
-------
"Deferred Interest" refers to interest which will accrue on the
-----------------
Issue Price at a rate of 12.125% per annum in the period prior to February 15,
2003.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 90-day period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration
-------------------------------------
statement of the Company on an appropriate form under the Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
-----------------
Purchasers) which is a broker-dealer, electing to exchange Notes acquired for
its own account as a result of market-making activities or other trading
activities, for New Notes.
"Final Memorandum" has the meaning set forth in the Purchase
----------------
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
------
"Indenture" means the Indenture relating to the Notes, dated as of
---------
February 18, 1998, between the Company and Harris Trust and Savings Bank, as
trustee, as the same may be amended from time to time in accordance with the
terms thereof.
"Initial Placement" has the meaning set forth in the preamble
-----------------
hereto.
"Initial Purchasers" has the meaning set forth in the preambles
------------------
hereto.
"Issue Price" refers to the issue price of the Notes and equals
-----------
$555.6578 per $1,000 stated principal amount at maturity thereof.
"Majority Holders" means the Holders of a majority of the aggregate
-----------------
stated principal amount at maturity of notes registered under a Registration
Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten offering.
3
<PAGE>
"New Notes" means notes of the Company identical in all material
---------
respects to the Transfer Restricted Notes (except that the transfer restrictions
and registration rights provisions will be modified or eliminated, as
appropriate), to be issued under the Indenture or the New Note Indenture.
"New Note Indenture" means an indenture between the Company and the
------------------
New Note Trustee, identical in all material respects with the Indenture.
"New Note Trustee" means a bank or trust company reasonably
----------------
satisfactory to the Initial Purchasers, as trustee with respect to the New Notes
under the New Note Indenture; provided that initially the Trustee shall serve as
--------
trustee with respect to the New Notes under the New Note Indenture unless
prohibited from so acting by applicable laws.
"Notes" has the meaning set forth in the preamble hereto.
-----
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Transfer Restricted Notes or the New Notes,
covered by such Registration Statement, and all amendments and supplements to
the Prospectus, including post-effective amendments.
"Purchase Agreement" has the meaning set forth in the preambles
------------------
hereto.
"Registered Exchange Offer" means the proposed offer to the Holders
-------------------------
to issue and deliver to such Holders, in exchange for the Transfer Restricted
Notes, a like stated principal amount at maturity of the New Notes.
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Transfer
Restricted Notes or the New Notes pursuant to the provisions of this Agreement,
amendments and supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference therein.
"Restricted Holder" means (i) a holder that is an affiliate of the
-----------------
Company within the meaning of Rule 405 under the Securities Act or (ii) a holder
who has arrangements or understandings with any person to participate in the
Registered Exchange Offer for the purpose of distributing New Notes.
"Shelf Registration" means a registration effected pursuant to
------------------
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in Section
-------------------------
3(b) hereof.
4
<PAGE>
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Company pursuant to the provisions of Section 3 hereof which covers some
or all of the Transfer Restricted Notes or New Notes, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Transfer Restricted Note" means each Note until (i) the date on
------------------------
which such Note has been exchanged by a person other than a broker-dealer or a
Restricted Holder for a New Note in the Registered Exchange Offer that is freely
transferable under the Act, (ii) following the exchange by a broker-dealer in
the Registered Exchange Offer of such Note for a New Note, the date on which
such New Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the Prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Act and disposed of in accordance with the
Shelf Registration Statement, or (iv) the date on which such Note is distributed
to the public pursuant to Rule 144 under the Act or is saleable pursuant to Rule
144(k) under the Act.
"Trustee" means the trustee with respect to the Notes under the
-------
Indenture.
"Underwriter" means any underwriter of notes in connection with an
-----------
offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Notes by Exchanging
-------------------------------------------------------------
Dealers; Private Exchange. (a) The Company shall prepare and, not later than
- -------------------------
45 days following the Closing Date, shall file with the Commission, the Exchange
Offer Registration Statement with respect to the Registered Exchange Offer. The
Company shall use its reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Act within 180 days of the
Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Transfer Restricted Notes for New Notes (assuming that such
Holder is not a Restricted Holder) to trade such New Notes from and after their
receipt without any limitations or restrictions under the Act and without
material restrictions under the securities laws of at least two-thirds of the
several states of the United States.
(c) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
5
<PAGE>
(ii) keep the Registered Exchange Offer open for not less than 30
days after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Transfer Restricted Notes tendered
and not validly withdrawn pursuant to the Registered Exchange Offer;
provided that the Company shall only accept Transfer Restricted Notes of a
--------
Holder who has represented that any New Notes to be received by such Holder
will be acquired in the ordinary course of such Holder's business, such
Holder has no arrangements with any other person to participate in the
distribution of the New Notes, and such Holder is not an Affiliate of the
Company, or if such Holder is an Affiliate of the Company, that such Holder
will comply, to the extent applicable, with the registration and prospectus
delivery requirements of the Act;
(ii) deliver to the Trustee for cancelation or notation of
reduction in stated principal amount at maturity all Transfer Restricted
Notes so accepted for exchange; and
(iii) cause the Trustee or the New Note Trustee, as the case may
be, promptly to authenticate and deliver to each Holder of Transfer
Restricted Notes, New Notes equal in stated principal amount at maturity to
the Transfer Restricted Notes of such Holder so accepted for exchange.
(e) The Initial Purchasers and the Company acknowledge that,
pursuant to interpretations by the Commission's staff of Section 5 of the Act,
and in the absence of an applicable exemption therefrom, each Exchanging Dealer
is required to deliver a Prospectus in connection with a sale of any New Notes
received by such Exchanging Dealer pursuant to the Registered Exchange Offer in
exchange for Transfer Restricted Notes acquired for its own account as a result
of market-making activities or other trading activities. Accordingly, the
Company shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement; the information set
forth in Annex B hereto in the forepart of the Exchange Offer Registration
Statement in a section setting forth details of the Registered Exchange
Offer; the information set forth in Annex C hereto in the underwriting or
plan of distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement; and the information set forth in
Annex D hereto in the letter of transmittal delivered pursuant to the
Registered Exchange Offer; and
6
<PAGE>
(ii) use its reasonable best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the
Exchange Offer Registration Period for delivery by Exchanging Dealers in
connection with sales of New Notes received pursuant to the Registered
Exchange Offer, as contemplated by Section 4(h) below.
The Company shall be deemed not to have used its reasonable best
efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in
Holders of notes covered thereby not being able to offer and sell such
notes during that period, unless (i) such action is required by applicable
law or (ii) such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long as
the Company promptly thereafter complies with the requirements of Section
4(k) hereof, if applicable.
(f) In the event that any Initial Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Transfer Restricted Notes constituting any portion of an allotment
remaining unsold after 30 days following the date hereof, at the request of such
Initial Purchaser, the Company shall issue and deliver to such Initial Purchaser
or the party purchasing New Notes registered under a Shelf Registration
Statement as contemplated by Section 3 hereof from such Initial Purchaser, in
exchange for such Transfer Restricted Notes, a like stated principal amount at
maturity of New Notes. The Company shall seek to cause the CUSIP Service Bureau
to issue the same CUSIP number for such New Notes as for New Notes issued
pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
------------------
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof; (ii) for any
other reason the Exchange Offer Registration Statement is not declared effective
within 180 days after the Closing Date; (iii) the Registered Exchange Offer is
not consummated (it being understood that, for purposes of this clause (iii) and
clause (iii) of Section 5 hereof, "consummated" shall mean that the Company has
offered the New Notes in exchange for surrender of the Transfer Restricted Notes
pursuant to the Registered Exchange Offer, kept the Registered Exchange Offer
open for the period required by Section 2(c)(ii) hereof and fulfilled all of its
other obligations hereunder in connection with the Registered Exchange Offer)
within 210 days of the Closing Date; (iv) any Initial Purchaser so requests with
respect to Transfer Restricted Notes constituting any portion of an allotment
remaining unsold after 30 days following the date hereof; (v) any Holder (other
than an Initial Purchaser or a Restricted Holder) does not receive freely
tradeable New Notes in the Registered Exchange Offer; or (vi) in the case of any
Initial Purchaser that participates in the Registered Exchange Offer or acquires
New Notes pursuant to Section 2(f) hereof, such Initial Purchaser does not
receive freely tradeable New Notes in exchange for Transfer Restricted Notes
constituting any portion of an allotment remaining unsold after 30 days
following the date hereof (it being understood that, for purposes of this
Section 3, (x) the requirement that a Holder deliver a Prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the Act in
connection
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<PAGE>
with sales of New Notes acquired in exchange for such Transfer Restricted Notes
shall result in such New Notes being not "freely tradeable" but (y) the
requirement that an Exchanging Dealer deliver a Prospectus in connection with
sales of New Notes acquired in the Registered Exchange Offer in exchange for
Transfer Restricted Notes acquired as a result of market-making activities or
other trading activities shall not result in such New Notes being not "freely
tradeable"), the following provisions shall apply:
(a) The Company shall, at its cost, as promptly as practicable (but in
no event more than 45 days after so required or requested pursuant to this
Section 3), file with the Commission and thereafter shall use its reasonable
best efforts to cause to be declared effective under the Act a Shelf
Registration Statement relating to the offer and sale of the Transfer Restricted
Notes or the New Notes, as applicable, by the Holders from time to time in
accordance with the methods of distribution elected by such Holders and set
forth in such Shelf Registration Statement; provided, that with respect to New
--------
Notes received by an Initial Purchaser in exchange for Transfer Restricted Notes
constituting any portion of an allotment remaining unsold after 30 days
following the date hereof, the Company may, if permitted by current
interpretations by the Commission's staff, file a post-effective amendment to
the Exchange Offer Registration Statement containing the information required by
Regulation S-K Items 507 and/or 508, as applicable, in satisfaction of its
obligations under this paragraph (a) with respect thereto, and any such Exchange
Offer Registration Statement, as so amended, shall be referred to herein as, and
governed by the provisions herein applicable to, a Shelf Registration Statement.
(b) The Company shall use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of two
years (or any shorter period under Rule 144(k) under the Securities Act) from
the date the Shelf Registration Statement is declared effective by the
Commission (or until one year after such effective date if such Shelf
Registration Statement is filed at the request of an Initial Purchaser) or such
shorter period that will terminate when all the Transfer Restricted Notes or New
Notes, as applicable, covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company shall be deemed not
to have used its reasonable best efforts to keep the Shelf Registration
Statement effective during the requisite period if it voluntarily takes any
action that would result in Holders of notes covered thereby not being able to
offer and sell such notes during that period, unless (i) such action is required
by applicable law, or (ii) such action is taken by the Company in good faith and
for valid business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long as the
Company promptly thereafter complies with the requirements of Section 4(k)
hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
-----------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you and to each Holder, prior to the
filing thereof with the Commission, a copy of any Shelf Registration Statement
and any Exchange Offer
8
<PAGE>
Registration Statement, and each amendment thereof and each amendment or
supplement, if any, to the Prospectus included therein and shall use its best
efforts to reflect in each such document, when so filed with the Commission,
such comments as you or any Holder reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement
and any amendment thereto and any Prospectus forming part thereof and any
amendment or supplement thereto complies in all material respects with the Act
and the rules and regulations thereunder, (ii) any Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of notes covered thereby, and, if requested
by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or any
post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of notes covered thereby, and, in the case
of an Exchange Offer Registration Statement, any Exchanging Dealer which has
provided in writing to the Company a telephone or facsimile number and address
for notices, and, if requested by you or any such Holder or Exchanging Dealer,
confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the notes included
therein for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of
any changes in the Registration Statement or the Prospectus so that, as of
such date, the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light
9
<PAGE>
of the circumstances under which they were made) not misleading (which
advice shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company shall use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of notes included within
the coverage of any Shelf Registration Statement, without charge, at least one
copy of such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of notes included within the coverage of any Shelf Registration
Statement, without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of notes in connection with the offering
and sale of the notes covered by the Prospectus or any amendment or supplement
thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, any documents incorporated by reference therein, and,
if the Exchanging Dealer so requests in writing, all exhibits (including those
incorporated by reference).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies of
the Prospectus included in such Exchange Offer Registration Statement and any
amendment or supplement thereto as such Exchanging Dealer may reasonably request
for delivery by such Exchanging Dealer in connection with a sale of New Notes
received by it pursuant to the Registered Exchange Offer; and the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
any such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
notes pursuant to any Registration Statement, the Company shall register or
qualify or cooperate with the Holders of notes included therein and their
respective counsel in connection with the registration or qualification of such
notes for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing and do any and
all other acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the notes covered by such Registration Statement;
provided, however, that the Company will not be required to qualify generally to
- -------- -------
do business in any jurisdiction where it is not then so qualified
10
<PAGE>
or to take any action which would subject it to general service of process or to
taxation in any such jurisdiction where it is not then so subject.
(j) The Company shall cooperate with the Holders of Transfer
Restricted Notes to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Notes to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as Holders may request at least two business days
prior to sales of notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
4(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to the
related Prospectus or file any other required document so that, as thereafter
delivered to purchasers of the notes included therein, the Prospectus will not
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the Transfer
Restricted Notes or New Notes, as the case may be, registered under such
Registration Statement, and provide the applicable trustee with printed
certificates for such Transfer Restricted Notes or New Notes, in a form eligible
for deposit with The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its note holders as soon as practicable after the effective date of
the applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture or the New Note Indenture,
as the case may be, to be qualified under the Trust Indenture Act in a timely
manner.
(o) The Company may require each Holder of notes to be sold pursuant
to any Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of such notes as the Company may from
time to time reasonably require for inclusion in such Registration Statement,
and may exclude from any such registration the notes of any such holder who
fails to furnish such information within 10 days after such request; provided
that such Shelf Registration Statement is declared effective by the Commission
within 60 days after such 10-day period.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority Holders
reasonably request in writing should be included therein and shall make all
required filings of such Prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such Prospectus supplement
or post-effective amendment.
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<PAGE>
(q) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements (including underwriting agreements) and take all
other appropriate actions in order to expedite or facilitate the registration or
the disposition of the Transfer Restricted Notes, and in connection therewith,
if an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those set forth
in Section 7 (or such other provisions and procedures acceptable to the Company
and the Majority Holders and the Managing Underwriters, if any, with respect to
all parties to be indemnified pursuant to Section 7).
(r) In the case of any Shelf Registration Statement, the Company shall
(i) subject to the requesting Holder entering into a reasonable confidentiality
agreement, make reasonably available for inspection by the Holders of notes to
be registered thereunder, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney, accountant or other
agent retained by the Holders or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries; (ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by the Holders or any such
underwriter, attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence examinations;
provided, however, that any information provided pursuant to clause (i) or
- -------- -------
clause (ii) hereof that is designated in writing by the Company, in good faith,
as confidential at the time of delivery of such information shall be kept
confidential by the Holders or any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public generally
or through a third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders of notes
registered thereunder and the underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in primary underwritten
offerings and covering matters including, but not limited to, those set forth in
the Purchase Agreement; (iv) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the Managing Underwriters, if any) addressed to
each selling Holder and the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders and underwriters;
(v) obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each selling Holder of notes registered thereunder and
the underwriters, if any, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings; and (vi) deliver such documents and certificates as may
be reasonably requested by the Majority Holders and the Managing Underwriters,
if any, including those to evidence compliance with Section 4(k) and with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 4(r) shall be performed at (A) the
effectiveness of such Registration
12
<PAGE>
Statement and each post-effective amendment thereto and (B) each closing under
any underwriting or similar agreement as and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by any Initial
Purchaser, and any attorney, accountant or other agent retained by such Initial
Purchaser, all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries; (ii) cause the
Company's officers, directors and employees to supply all relevant information
reasonably requested by such Initial Purchaser or any such attorney, accountant
or agent in connection with any such Registration Statement as is customary for
similar due diligence examinations; provided, however, that any information
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provided pursuant to clause (i) or (ii) hereof that is designated in writing by
the Company, in good faith, as confidential at the time of delivery of such
information shall be kept confidential by such Initial Purchaser or any such
attorney, accountant or agent, unless such disclosure is made in connection with
a court proceeding or required by law, or such information becomes available to
the public generally or through a third party without an accompanying obligation
of confidentiality; (iii) make such representations and warranties to such
Initial Purchaser, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings and covering matters
including, but not limited to, those set forth in the Purchase Agreement; (iv)
obtain opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to such
Initial Purchaser and its counsel, addressed to such Initial Purchaser, covering
such matters as are customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such Initial
Purchaser or its counsel; (v) obtain "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to such Initial Purchaser, in customary form
and covering matters of the type customarily covered in "cold comfort" letters
in connection with primary underwritten offerings, or if requested by such
Initial Purchaser or its counsel in lieu of a "cold comfort" letter, an agreed-
upon procedures letter under Statement on Auditing Standards No. 35, covering
matters requested by such Initial Purchaser or its counsel; and (vi) deliver
such documents and certificates as may be reasonably requested by such Initial
Purchaser or its counsel, including those to evidence compliance with Section
4(k) and with conditions customarily contained in underwriting agreements. The
foregoing actions set forth in clauses (iii), (iv), (v), and (vi) of this
Section 4(s) shall be performed at the close of the Registered Exchange Offer
and the effective date of any post-effective amendment to the Exchange Offer
Registration Statement.
5. Additional Interest Under Certain Circumstances. In the event
-----------------------------------------------
that (i) the Exchange Offer Registration Statement has not been filed with the
Commission on or prior to the 45th day following the date hereof; (ii) the
Exchange Offer Registration Statement has not been declared effective prior to
the 180th day following the date hereof; (iii) either the Registered Exchange
Offer has not been consummated or the Shelf Registration Statement has not been
declared effective on or prior to the 210th day following the date hereof; or
(iv) after the Shelf
13
<PAGE>
Registration Statement has been declared effective, such Registration Statement
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Notes or New Notes in accordance with and during the periods
specified in Section 3(b) hereof (because either (A) any event occurs as a
result of which the related prospectus forming part of such Registration
Statement would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading or (B) it shall be
necessary to amend such Registration Statement or supplement the related
prospectus, to comply with the Securities Act or the Exchange Act or the
respective rules thereunder) without, in the case of (A) or (B), being succeeded
promptly by an amendment or supplement to the Registration Statement or related
prospectus or additional registration statement filed and declared effective
(each such event referred to in clauses (i) through (iv) a "Registration
Default"), interest ("Additional Interest") will accrue on the Transfer
Restricted Notes and the New Notes (in addition to the stated interest on the
Transfer Restricted Notes and the New Notes) 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. Additional Interest will be
payable in cash semiannually in arrears on the February 15 and August 15 of each
year, beginning on February 15 or August 15 immediately succeeding a
Registration Default, at a rate per annum equal to 0.50% on the Accreted Value
of the Transfer Restricted Notes and the New Notes (determined daily) during the
90-day period immediately following the occurrence of any Registration Default
increasing by a rate per annum equal to 0.50% on the Accreted Value of the
Transfer Restricted Notes and the New Notes (determined daily) at the end of
each subsequent 90-day period. In no event shall such rate per annum exceed
1.50% on the Accreted Value of the Transfer Restricted Notes and the New Notes
(determined daily) in the aggregate regardless of the number of Registration
Defaults.
6. Registration Expenses. The Company shall bear all expenses
---------------------
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith. Notwithstanding the
foregoing, the holders of the notes being registered shall pay all agency or
brokerage fees and commissions and underwriting discounts and commissions
attributable to the sale of such notes and the fees and disbursements of any
counsel or other advisors or experts retained by such holders (severally or
jointly), other than the counsel and experts specifically referred to above,
transfer taxes on resale of any of the notes by such holders and any advertising
expenses incurred by or on behalf of such holders in connection with any offers
they may make.
7. Indemnification and Contribution. (a) In connection with any
--------------------------------
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of notes covered thereby (including each Initial Purchaser and, with
respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of either
the Act or the Exchange Act against any and all losses, claims, damages or
14
<PAGE>
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
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Company will not be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder specifically for inclusion therein.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined herein) of, as provided in Section 7(d), any underwriters of notes
registered under a Shelf Registration Statement, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the Initial Purchaser and the selling Holders
provided in this Section 7(a) and shall, if requested by any Holder, enter into
an underwriting agreement reflecting such agreement, as provided in Section 4(q)
hereof.
(b) Each Holder of notes covered by a Registration Statement
(including each Initial Purchaser and, with respect to any Prospectus delivery
as contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees
to indemnify and hold harmless (i) the Company, (ii) each of its directors,
officers, employees and agents, and (iii) each person who controls the Company
within the meaning of either the Act or the Exchange Act to the same extent as
the foregoing indemnity from the Company to each such Holder, but only with
reference to written information relating to such Holder furnished to the
Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any such Holder may otherwise have.
In addition, the Company may require, as a condition to including any
notes in any Shelf Registration Statement filed pursuant to this Agreement and
to entering into any underwriting agreement with respect thereto, that the
Company shall have received an undertaking reasonably satisfactory to it from
the holder of such notes and from each underwriter named in any such
underwriting agreement agreeing to indemnify the persons named above in this
Section 7(b) on substantially the same basis as that of the indemnification
provided in this Section 7(b).
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect
15
<PAGE>
thereof is to be made against the indemnifying party under this Section 7,
notify the indemnifying party in writing of the commencement thereof; but the
failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
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satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel limited, however, to the reasonable fees,
costs and expenses of one counsel and one local counsel if (i) the use of
counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
-------- -------
no case shall any Initial Purchaser or any subsequent Holder of any Note or New
Note be responsible, in the aggregate, for any amount in excess of the purchase
discount or commission applicable to such Note, or in the case of a New Note,
applicable to the Note which was exchangeable into such New Note, as set forth
on the cover page of the Final Memorandum, nor shall any
16
<PAGE>
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the notes purchased by such underwriter under the
Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the sum of (x) the total net proceeds from the Initial Placement (before
deducting expenses) as set forth on the cover page of the Final Memorandum and
(y) the total amount of additional interest which the Company was not required
to pay as a result of registering the notes covered by the Registration
Statement which resulted in such Losses. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and benefits
received by any other Holder shall be deemed to be equal to the value of
receiving Transfer Restricted Notes or New Notes, as applicable, registered
under the Act. Benefits received by any underwriter shall be deemed to be equal
to the total underwriting discounts and commissions, as set forth on the cover
page of the Prospectus forming a part of the Registration Statement which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the indemnifying party, on the one hand, or by the indemnified party, on the
other hand. The parties agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7, each person
who controls a Holder within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of such Holder shall have the
same rights to contribution as such Holder, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, and each
director, officer, employee and agent of the Company shall have the same rights
to contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred to
in Section 7 hereof, and will survive the sale by a Holder of notes covered by a
Registration Statement.
8. Miscellaneous. (a) No Inconsistent Agreements. The Company has
------------- --------------------------
not, as of the date hereof, entered into, nor shall it, on or after the date
hereof, enter into, any agreement with respect to its notes that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof (other than agreements which the parties thereto have waived
such conflicting or inconsistent provisions with respect to this Agreement and
the Notes).
17
<PAGE>
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Holders of at least a majority of the then outstanding aggregate
stated amount at maturity of Transfer Restricted Notes (or, after the
consummation of any Exchange Offer in accordance with Section 2 hereof, of New
Notes); provided that, with respect to any matter that directly or indirectly
--------
affects the rights of any Initial Purchaser hereunder, the Company shall obtain
the written consent of each such Initial Purchaser against which such amendment,
qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver or
consent to departure from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose notes are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by the Majority Holders, determined on the
basis of notes being sold rather than registered under such Registration
Statement.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 8(c),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Note Registrar (as defined in the Indenture)
under the Indenture, with a copy in like manner to Salomon Brothers Inc;
(2) if to you, initially at the respective addresses set forth in the
Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
The Initial Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the successors and assigns of each of the parties, including,
without the need for an express assignment or any consent by the Company
thereto, subsequent Holders of Transfer Restricted Notes and/or New Notes. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Transfer Restricted Notes and/or New Notes and any such Holder may specifically
enforce the provisions of this Agreement as if an original party hereto.
18
<PAGE>
(e) Counterparts. This agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of New York without regards to
principles of conflicts of law.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or approval
------------------------------
of Holders of a specified percentage of stated amount at maturity of Transfer
Restricted Notes or New Notes is required hereunder, Transfer Restricted Notes
or New Notes, as applicable, held by the Company shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
[Remainder of Page Intentionally Blank]
19
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
----------------------------------------
Name: Robert C. Taylor, Jr.
Title: Chief Executive Officer
The foregoing Agreement is
hereby accepted as of the
date first written above
SALOMON BROTHERS INC
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
By: SALOMON BROTHERS INC
By: /s/ Stephen M. Winningham
---------------------------------------
Name: Stephen M. Winningham
Title: Managing Director
20
<PAGE>
ANNEX A
Each broker-dealer that receives New Notes 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. The Letter of
Transmittal states 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 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
Notes received in exchange for Transfer Restricted Notes where such New Notes
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 (as defined herein) and ending on the close of business 90 days
after the Expiration Date, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See "Plan of Distribution."
21
<PAGE>
ANNEX B
Each broker-dealer that receives New Notes for its own account in
exchange for Transfer Restricted Notes, where such Transfer Restricted Notes
were acquired by such broker-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 Notes. See "Plan of Distribution."
22
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
--------------------
Each broker-dealer that receives New Notes 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. 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 Notes received in exchange for Transfer
Restricted Notes where such Transfer Restricted Notes 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 90
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. In addition, until ____________, 199__, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus./1/
The Company will not receive any proceeds from any sale of New Notes
by broker-dealers. New Notes 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
________________________
1/ In addition, the legend required by Item 502(e)of Regulation S-K will
- -
appear on the back cover page of the Exchange Offer prospectus and, if
applicable, any additional information required by Items 507 and/or 508 of
Regulation S-K.
23
<PAGE>
ANNEX C
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 and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes 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 may be deemed to be an
"underwriter" within the meaning of the Act and any profit of any such resale of
New Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Act. The Letter of Transmittal
states 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 Act.
For a period of 90 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 the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Act.
24
<PAGE>
ANNEX D
Rider A
- -------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND
10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:_________________________________________________________________
Address:______________________________________________________________
______________________________________________________________________
Rider B
- -------
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes
for its own account in exchange for Transfer Restricted Notes, it represents
that the Transfer Restricted Notes to be exchanged for New Notes were acquired
by it as a result of market-making activities or other trading activities and
25
<PAGE>
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
26
<PAGE>
Exhibit 4.5
STOCK PURCHASE AGREEMENT
BY AND AMONG
FOCAL COMMUNICATIONS CORPORATION
AND
MADISON DEARBORN CAPITAL PARTNERS, L.P.
FRONTENAC VI, L.P.
BATTERY VENTURES III, L.P.
BRIAN F. ADDY
JOHN R. BARNICLE
JOSEPH BEATTY
ROBERT C. TAYLOR, JR.
NOVEMBER 27, 1996
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Authorization and Closings........................................... 2
1A. Authorization of the Class A Common........................... 2
1B. Purchase and Sale of the Class A Common....................... 2
1C. The Initial Closing........................................... 2
1D. The Subsequent Closings....................................... 3
2. Conditions to the Initial Closing.................................... 4
2A. Representations and Warranties; Covenants..................... 4
2B. Amendment of Certificate of Incorporation..................... 4
2C. Amendment of the Company's Bylaws............................. 4
2D. Stockholders Agreement........................................ 4
2E. Executive Stock Agreements.................................... 4
2F. Registration Agreement........................................ 4
2G. Vesting Agreements............................................ 4
2H. Interconnection Agreement and Achievement of Common Carrier
Status....................................................... 4
2I. Sale of Class A Common to Each Investor....................... 5
2J. Securities Law Compliance..................................... 5
2K. Opinion of the Company's Counsel.............................. 5
2L. Proceedings................................................... 5
2M. Expenses...................................................... 5
2N. Compliance with Applicable Laws............................... 5
2O. Initial Closing Documents..................................... 6
2P. Waiver........................................................ 6
3. Conditions to Each Subsequent Closing................................. 6
3A. Authorized by Initial and/or Subsequent Business Plan(s)...... 7
3B. Representations and Warranties................................ 7
3C. No Default.................................................... 7
3D. No Material Adverse Change.................................... 7
3E. Proceedings................................................... 8
3F. Opinion of the Company's Counsel.............................. 8
3G. Expenses...................................................... 8
3H. Subsequent Closing Documents.................................. 8
3I. Waiver........................................................ 8
4. Covenants............................................................. 9
4A. Financial Statements and Other Information.................... 9
4B. Inspection of Property........................................ 11
4C. Restrictions.................................................. 12
4D. Affirmative Covenants......................................... 15
4E. Compliance with Agreements.................................... 16
4F. Current Public Information.................................... 16
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4G. Amendment of Vesting Agreements or Executive Stock
Agreements................................................... 16
4H. Intellectual Property Rights.................................. 16
4I. Public Disclosures............................................ 16
4J. First Refusal Rights.......................................... 17
5. Investors' Put Right................................................. 18
5A. Put Right..................................................... 18
5B. Company Obligation............................................ 18
5C. Repurchase Price.............................................. 18
5D. Repurchase Closing............................................ 19
6. Transfer of Restricted Securities.................................... 19
6A. General Provisions............................................ 19
6B. Opinion Delivery.............................................. 19
6C. Rule 144A..................................................... 19
6D. Legend Removal................................................ 20
7. Representations and Warranties of the Company........................ 20
7A. Organization, Corporate Power and Licenses.................... 20
7B. Capital Stock and Related Matters............................. 20
7C. Authorization; No Breach...................................... 21
7D. Conduct of Business; Absence of Liabilities................... 21
7E. Assets........................................................ 21
7F. No Subsidiaries............................................... 21
7G. Contracts and Commitments..................................... 21
7H. Intellectual Property Rights.................................. 22
7I. Litigation, etc............................................... 22
7J. Brokerage..................................................... 23
7K. Governmental Consent, etc..................................... 23
7L. Compliance with Laws.......................................... 23
7M. Affiliated Transactions....................................... 23
7N. Projections and Pro Forma Financial Statements................ 23
7O. Disclosure.................................................... 24
Section 8. Representations and Warranties of the Institutional
Investors.................................................... 24
8A. Assets........................................................ 24
8B. Initial Business Plan......................................... 24
8C. Authorization................................................. 24
9. Miscellaneous Provisions.............................................. 25
9A. Expenses...................................................... 25
9B. Remedies...................................................... 25
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
9C. Investor's Investment Representations......................... 26
9D. Consent to Amendments......................................... 26
9E. Survival of Representations and Warranties.................... 26
9F. Successors and Assigns........................................ 26
9G. Capital and Surplus; Special Reserves......................... 27
9H. Severability.................................................. 27
9I. Counterparts.................................................. 27
9J. Descriptive Headings; Interpretation.......................... 27
9K. Governing Law................................................. 27
9L. Notices....................................................... 28
9M. Understanding among the Investors............................. 28
9N. No Strict Construction........................................ 28
</TABLE>
Appendix A - Index of Definitions
Appendix B - Schedule of Investors
Appendix C - Original Offering Memorandum
Exhibits:
Exhibit 1 - The Initial Business Plan
Exhibit 2 - Restated Certificate of Incorporation
Exhibit 3 - Form of Executive Note
Exhibit 4 - Form of Executive Investor Stock Pledge Agreement
Exhibit 5 - Bylaws Amendment
Exhibit 6 - Stockholders Agreement
Exhibit 7 - Form of Executive Stock Agreement and Employment Agreement
Exhibit 8 - Registration Agreement
Exhibit 9 - Form of Vesting Agreement
Exhibit 10 - Interconnection Agreement
Exhibit 11 - Opinion of Bischoff, Kenney & Niehaus (Initial Closing)
Exhibit 12 - Opinion of Bischoff, Kenney & Niehaus (Subsequent Closings)
Exhibit 13 - Form of Nondisclosure and Noncompetition Agreement
-iii-
<PAGE>
Disclosure Schedules
Licenses Schedule
Capitalization Schedule
Liabilities Schedule
Assets Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Consents Schedule
Affiliated Transactions Schedule
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of November
---------
27, 1996, by and among Focal Communications Corporation, a Delaware corporation
(the "Company"), Madison Dearborn Capital Partners, L.P., a Delaware limited
-------
partnership ("MDCP"), Frontenac VI, L.P., a Delaware limited partnership
----
("Frontenac"), Battery Ventures III, L.P., a Delaware limited partnership ("BV",
--------- --
and collectively with MDCP and Frontenac, the "Institutional Investors"), and
-----------------------
Robert C. Taylor, Jr. ("Taylor"), John R. Barnicle ("Barnicle"), Brian F. Addy
------ --------
("Addy") and Joseph Beatty ("Beatty", and, collectively with Taylor, Barnicle
---- ------
and Addy, the "Executive Investors"). The Institutional Investors and the
-------------------
Executive Investors are referred to herein collectively as the "Investors" and
---------
individually as an "Investor." Capitalized terms used herein are defined in the
--------
Index of Definitions attached hereto as Appendix A, which is hereby made a part
----------
of this Agreement.
The Company has submitted a business plan in form and substance set
forth in Exhibit 1 attached hereto (the "Initial Business Plan"), which
--------- ---------------------
contains, among other information, a financial model, with underlying
assumptions, containing a plan to establish the Company's business in the
Chicago metropolitan statistical area ("MSA"). Pursuant to such Initial
---
Business Plan, the Company will require a certain level of capital to establish
itself in the Chicago MSA, such amount having been determined to be $8 million,
$4 million of which the Company will need at the time of the Initial Closing.
Thus, pursuant to the terms and subject to the conditions set forth
herein, this Agreement contemplates an initial transaction in which the
Investors will buy from the Company, and the Company will sell to the Investors,
79,384.62 shares of the Company's Class A Common Stock, par value $.01 per
share (the "Class A Common") for an aggregate purchase price of $4 million, and
--------------
subsequent transactions in which the Investors will make pro rata contributions
to the capital of the Company of up to an additional $21.8 million in the
aggregate (for a total investment, including the $4 million initial purchase, of
up to $25.8 million). Attached as Appendix C hereto is the original offering
----------
memorandum of the Company, which is included for reference purposes only and
shall in no way be construed as a Subsequent Business Plan (as defined below) or
a proposal therefor, nor considered to obligate any party hereto to approve any
Subsequent Business Plan.
1
<PAGE>
Additionally, this Agreement contemplates that after the Initial
Closing hereunder (as defined below), Frontenac's designee(s) (or, if none,
Frontenac) may purchase up to 230.77 shares of Class A Common for a total
initial purchase price of up to $11,627.91, and MDCP's designee(s) (or, if
none, MDCP) may purchase up to 384.61 shares of Class A Common for a total
initial purchase price of $19,379.84 upon entering into a written counterpart to
this Agreement agreeing to be bound by the provisions of such purchases hereof.
All such additional purchasers shall be considered Investors and all such
purchased Class A Common shall be considered Investor Stock; provided that any
--------
such additional purchaser may prepay its capital contribution commitment to the
Company pursuant to this Agreement at the time of purchase (in the amount of
$325 per share, less the purchase price paid for such shares), upon which
prepayment such additional purchaser shall be under no further obligation to
make subsequent capital contributions hereunder.
NOW, THEREFORE, in consideration of the mutual promises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. AUTHORIZATION AND CLOSINGS.
--------------------------
1.1A. Authorization of the Class A Common. The Company shall
-----------------------------------
authorize the issuance and sale to the Investors of 80,000 shares of its Class A
Common, having the rights and preferences set forth in the Restated Certificate
of Incorporation attached hereto as Exhibit 2.
---------
1.1B. Purchase and Sale of the Class A Common. At the Initial
---------------------------------------
Closing (as defined below), subject to the terms and conditions set forth
herein, the Company shall sell to each Investor and each Investor shall purchase
from the Company the number of shares of Class A Common set forth opposite such
Investor's name on the "Schedule of Investors," which is attached hereto as
---------------------
Appendix B. The aggregate purchase price to be paid at the Initial Closing by
- ----------
each Investor, which is set forth opposite such Investor's name on the Schedule
of Investors, is referred to herein as that Investor's "Initial Contribution."
--------------------
The sale of the Class A Common to each Investor at the Initial Closing shall
constitute a separate sale hereunder.
1.1C. The Initial Closing. The closing of the separate initial
-------------------
purchases and sales of the Class A Common (the "Initial Closing") shall take
---------------
place at the offices of Kirkland & Ellis at 8:30 a.m. on November 27, 1996, or
at such other place or on such other date as may be mutually agreeable to the
Company and the Investors (the "Initial Closing Date"), but in no event shall
--------------------
the Initial Closing Date be later than November 30, 1996. At the Initial
Closing, the Company shall deliver to each Investor stock certificates
evidencing the Class A Common to be purchased by such Investor, registered in
such Investor's name, upon such Investor's delivery to the Company of either of
the following:
(i) in the case of an Institutional Investor, a cashier's or
certified check or wire transfer of immediately available funds to an
account designated by the Company (collectively, "Cash"), in the aggregate
----
amount of such Institutional Investor's Initial Contribution, or
-2-
<PAGE>
(ii) in the case of an Executive Investor, canceled Company
notes (as well as documentation acceptable in good faith to the
Institutional Investors sufficient to demonstrate such amounts were loaned
to the Company) in the aggregate amount of $6,000, together with Cash, or
if so specified opposite such Executive Investor's name on the Schedule of
Investors, a combination of Cash and a ninety-day promissory note in the
form of Exhibit 3 attached hereto (such Executive Investor's "Note") in the
--------- ----
proportion specified opposite such Executive Investor's name on the
Schedule of Purchasers, in an aggregate amount equal to such Executive
Investor's Initial Contribution minus $6,000. Each Executive Investor's
-----
Note (including any such Notes issued at Subsequent Closings, as defined
below) shall be secured by a pledge of all Company securities owned by such
Executive Investor (including any such securities acquired hereafter at any
time that such Note is outstanding, but excluding shares of Class C Common
pledged to an Institutional Investor pursuant to a Vesting Agreement), and
in connection therewith, such Executive Investor will enter into a pledge
agreement in the form of Exhibit 4 attached hereto (the "Executive Investor
--------- ------------------
Stock Pledge Agreement").
----------------------
1.1D. The Subsequent Closings. Each of the subsequent closings
------------------------
hereunder (the "Subsequent Closings") shall, subject to the terms and conditions
-------------------
set forth below, occur (i) if the Specified Contribution of each Investor at
such Subsequent Closing, together with the Initial Contribution and the
aggregate Specified Contributions of each such Investor at all prior Subsequent
Closings, will not exceed 80/258 times the maximum commitment set forth opposite
-----
each such Investor's name on the Schedule of Investors (each such Investor's
"Maximum Commitment"), at a time and place determined by the Company's president
------------------
and set forth in a written notice given to each Investor at least 10 days (or,
if BV does not have immediately available funds sufficient to satisfy its
obligation at such Subsequent Closing, 15 days) prior to the applicable
Subsequent Closing, or (ii) otherwise, at a time and place determined by the
Company's board of directors (the "Board") and set forth in a written notice
-----
sent to each Investor at least 30 days prior to the applicable Subsequent
Closing. Such notice shall set forth the aggregate amount to be contributed by
the Investors at such Subsequent Closing and the pro rata portion thereof (based
on the Investors' respective Initial Contributions) to be contributed by each
Investor (each Investor's "Specified Contribution" for such Subsequent Closing);
----------------------
provided that the aggregate amount of each Investors' Specified Contribution at
- --------
any Subsequent Closing shall not, together with the Initial Contribution and the
aggregate Specified Contributions of each such Investor at all prior Subsequent
Closings, exceed each such Investor's Maximum Commitment. At each Subsequent
Closing, each Investor shall deliver to the Company either of the following:
(i) in the case of an Institutional Investor, Cash in the
aggregate amount of such Institutional Investor's Specified Contribution
for such Subsequent Closing, or
(ii) in the case of an Executive Investor, Cash or, at the
election of such Executive Investor, Cash and a ninety-day Note, in an
aggregate amount equal to such Executive Investor's Specified Contribution
for such Subsequent Closing.
SECTION 2. CONDITIONS TO THE INITIAL CLOSING. The obligation of
---------------------------------
each Investor to purchase and pay for the Class A Common at the Initial Closing
is subject to the satisfaction as of the Initial Closing of the following
conditions:
-3-
<PAGE>
2.1A. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties contained in Section 7 and 8 hereof shall be true and correct in
all material respects at and as of the Initial Closing as though then made,
except to the extent of changes caused by the transactions expressly
contemplated herein, and the Company shall have performed in all material
respects all of the covenants required to be performed by it hereunder prior to
the Initial Closing.
2.1B. Amendment of Certificate of Incorporation. The Company's
-----------------------------------------
Certificate of Incorporation shall have been amended to include the provisions
set forth in Exhibit 2 hereto (as so amended, the "Certificate of
--------- --------------
Incorporation"), shall be in full force and effect under the laws of Delaware as
- -------------
of the Initial Closing as so amended, and shall not have been further amended or
modified.
2.1C. Amendment of the Company's Bylaws. The Company's bylaws shall
---------------------------------
have been duly amended to include the provisions set forth in Exhibit 5 hereto
---------
(as so amended, the "Bylaws"), shall be in full force and effect under the laws
of Delaware as of the Initial Closing as so amended, and shall not have been
further amended or modified.
2.1D. Stockholders Agreement. The Company and the Investors shall
----------------------
have entered into a stockholders agreement in form and substance set forth in
Exhibit 6 attached hereto (the "Stockholders Agreement"), and the Stockholders
- --------- ----------------------
Agreement shall be in full force and effect as of the Initial Closing.
2.1E. Executive Stock Agreements. The Company shall have entered
--------------------------
into an executive stock agreement and employment agreement, in form and
substance substantially similar to Exhibit 7 attached hereto (the "Executive
--------- ---------
Stock Agreements"), with each Executive Investor, and each Executive Stock
- ----------------
Agreement shall not have been amended or modified and shall be in full force and
effect as of the Initial Closing.
2.1F. Registration Agreement. The Company and the Investors shall
----------------------
have entered into a registration agreement in form and substance as set forth in
Exhibit 8 attached hereto (the "Registration Agreement"), and the Registration
- --------- ----------------------
Agreement shall be in full force and effect as of the Initial Closing.
2.1G. Vesting Agreements. The Company and the Executive Investors
------------------
shall have entered into a vesting agreement, in form and substance substantially
similar to Exhibit 9 attached hereto (the "Vesting Agreements"), with each
--------- ------------------
Institutional Investor, and each Vesting Agreement shall be in full force and
effect as of the Initial Closing.
2.1H. Interconnection Agreement and Achievement of Common Carrier
-----------------------------------------------------------
Status. The Company shall have entered into an Interconnection Agreement under
- ------
Sections 251 and 252 of the Telecommunications Act of 1996, with Ameritech
Information Industrial Services, a division of Ameritech Services, Inc., on
behalf of Ameritech Illinois, in form and substance as set forth in Exhibit 10
----------
attached hereto (the "Interconnection Agreement"), and such Interconnection
-------------------------
Agreement shall be in full force and effect as of the Initial Closing. In
addition, the Company shall have been certified by the Illinois Commerce
Commission to provide
-4-
<PAGE>
facilities-based and resold, switched and dedicated, local exchange services in
the portions of MSA-1 served by Ameritech and Centel, and interexchange services
throughout Illinois ("Chicago Common Carrier Status"), and such certification
-----------------------------
shall not have been conditioned, restricted or withdrawn, and shall not be under
challenge, as of the Initial Closing.
2.1I. Sale of Class A Common to Each Investor. The Company shall
---------------------------------------
have simultaneously sold to each Investor the Class A Common to be purchased by
such Investor hereunder at the Initial Closing and shall have received payment
therefor in full as specified in paragraph 1C hereof.
2.1J. Securities Law Compliance. The Company shall have made all
-------------------------
filings under all applicable federal and state securities laws necessary to
consummate the issuance, in compliance with such laws, of the Class A Common to
be issued at the Initial Closing pursuant to this Agreement.
2.1K. Opinion of the Company's Counsel. Each Investor shall have
--------------------------------
received from Bischoff, Kenney, and Niehaus, counsel for the Company, an opinion
with respect to the matters set forth in Exhibit 11 attached hereto, which shall
----------
be addressed to each Investor, dated the Initial Closing Date, and in form and
substance satisfactory to each Investor.
2.1L. Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company in connection with the transactions to occur
at the Initial Closing shall be consummated at or prior to the Initial Closing
and all documents incident thereto shall be satisfactory in form and substance
to each Institutional Investor and the Institutional Investors' special counsel.
2.1M. Expenses. At the Initial Closing, the Company shall have (i)
--------
reimbursed the Institutional Investors for their out-of-pocket expenses,
including the fees and expenses of their special counsel and special
telecommunications counsel as provided in paragraph 9A hereof, to the extent
then known, (ii) paid the fees and expenses of the counsel for the Company
related to the transactions contemplated hereby, to the extent then known, and
(iii) reimbursed Beatty for his reasonable expenses incurred in relocating from
Charlotte, North Carolina to Chicago, Illinois, to the extent then known,
provided that such reimbursement to Beatty shall not exceed $25,000.
- --------
2.1N. Compliance with Applicable Laws. The purchase of Class A
-------------------------------
Common by each Investor hereunder at the Initial Closing shall not be prohibited
by any applicable law or governmental rule or regulation and shall not subject
such Investor to any penalty, liability or, in such Investor's reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental rule or regulation, and the purchase of the Class A Common by each
Investor hereunder shall be permitted by the laws, rules and regulations of the
jurisdictions and governmental authorities and agencies to which such Investor
is subject.
2.1O. Initial Closing Documents. The Company shall have delivered to
-------------------------
each Investor all of the following documents:
-5-
<PAGE>
(i) an Officer's Certificate, dated as of the Initial Closing
Date, stating that the conditions specified in paragraphs 1A, 2A-2C, 2E,
and 2H-2J, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by
the Board authorizing the execution, delivery and performance of this
Agreement, the Stockholders Agreement, the Executive Stock Agreements, the
Registration Agreement and each of the other agreements contemplated
hereby, the filing of the amendment to the Company's certificate of
incorporation referred to in paragraph 2B, the amendment to the Company's
bylaws referred to in paragraph 2C, the issuance and sale of the Class A
Common, and the consummation of all other transactions to occur as of the
Initial Closing as contemplated by this Agreement, and (b) the resolutions
duly adopted by the Company's stockholders adopting the amendment to the
certificate of incorporation referred to in paragraph 2B;
(iii) certified copies of the Certificate of Incorporation and
the Bylaws, each as in effect at the Initial Closing;
(iv) certified copies of the Executive Stock Agreements and the
Interconnection Agreement, each as in effect at the Initial Closing;
(v) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions to occur as of the Initial Closing hereunder (including,
without limitation, all blue sky law filings, waivers of all preemptive
rights and rights of first refusal, and certified orders of the Illinois
Commerce Commission certifying the Company for Chicago Common Carrier
Status and approving the Interconnection Agreement);
(vi) such other documents relating to the transactions
contemplated by this Agreement as any Institutional Investor or the
Institutional Investors' special counsel, or any Executive Investor or the
counsel for the Company, may reasonably request.
2.1P. Waiver. Any condition specified in this Section 2 may be
------
waived if such waiver is consented to by each Investor; provided that no such
--------
waiver shall be effective against any Investor unless it is set forth in a
writing executed by such Investor.
SECTION 3. CONDITIONS TO EACH SUBSEQUENT CLOSING. The obligation of
-------------------------------------
each Investor to make such Investor's Specified Contribution to the capital of
the Company at each Subsequent Closing is subject to the satisfaction as of such
Subsequent Closing of
(i) if the Specified Contribution of each Investor at such
Subsequent Closing, together with the Initial Contribution and the
aggregate Specified Contributions of each such Investor at all prior
Subsequent Closings, will not exceed 80/258 times such Investor's Maximum
-----
Commitment, the following condition: As of the date of such Subsequent
Closing, there shall not have been any loss or invalidity of the
Interconnection Agreement or of any similar agreement entered into after
the date hereof, any change in
-6-
<PAGE>
the laws or regulations to which the Company is subject that negatively
affects the ability of the Company to conduct its business, nor any
conditioning, restriction, or withdrawal of Chicago Common Carrier Status
or of any similar certification granted after the date hereof; or
(ii) otherwise, all of the following conditions:
3.1A. Authorized by Initial and/or Subsequent Business Plan(s). The
--------------------------------------------------------
Specified Contributions of all Investors at such Subsequent Closing shall be
contemplated and authorized under the terms of the Initial Business Plan and/or
any Subsequent Business Plan(s). "Subsequent Business Plan" means a business
------------------------
proposal submitted by Management to the Board setting forth proposed business
activities of the Company during a specified period of time, projections of
income from such business activities, the capital contributions Management deems
necessary to support such business activities during such time, and a budget of
expected expenditures of such capital, where such proposal has been approved by
a majority of the Board and the holders of at least 67% of the Institutional
Investor Stock then outstanding. "Management" means the Executive Investors (so
----------
long as such individuals are employed by the Company) together with such other
employees of the Company or its Subsidiaries as may be designated by the
Executive Investors and approved by the Board.
3.1B. Representations and Warranties. The representations and
------------------------------
warranties contained in paragraphs 7A, 7B(ii), 7C, 7J, 7K, 7L, and 7O hereof
shall be true and correct in all material respects at and as of such Subsequent
Closing as though then made, except to the extent of changes caused by the
transactions expressly contemplated herein.
3.1C. No Default. The Company shall not be in default of any of its
----------
obligations to the Investors pursuant to this Agreement, the Stockholders
Agreement, the Registration Agreement, or any Executive Stock Agreement or
Vesting Agreement, and neither the Company nor any of its Subsidiaries (if any)
shall be in material default under any other material agreement to which it is a
party.
3.1D. No Material Adverse Change. The Investors shall not be
--------------------------
obligated to make their Specified Contributions at a Subsequent Closing if, in
the good faith judgment of all of the Institutional Investors then holding at
least 3% of the Company's outstanding Common Stock, a material adverse change
(other than a change specifically and expressly contemplated in a Subsequent
Business Plan approved prior to the date of such Subsequent Closing) has
occurred after the date hereof and prior to such Subsequent Closing in the
business, financial condition, operations, assets, or business prospects of the
Company or any Subsidiary. Material adverse change shall for the purposes of
this paragraph include, without limitation, the loss or invalidity of any
material contract or agreement to which the Company is a party where such loss
or invalidity negatively affects the ability of the Company to conduct its
business (including, but not limited to, the Interconnection Agreement and any
similar agreement entered into after the date hereof), or the conditioning,
restriction, or withdrawal of Chicago Common Carrier Status or any similar
certification granted after the date hereof.
-7-
<PAGE>
3.1E. Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company in connection with the transactions to occur
at the Subsequent Closing as contemplated by this Agreement shall be consummated
at or prior to the Subsequent Closing and all documents incident thereto shall
be reasonably satisfactory in form and substance to each Investor and the
Investors' special counsel.
3.1F. Opinion of the Company's Counsel. The Investors shall have
--------------------------------
received from Bischoff, Kenney, and Niehaus, counsel for the Company, an opinion
with respect to the matters set forth in Exhibit 12 attached hereto, which shall
----------
be addressed to the Investors, dated the date of the Subsequent Closing, and in
form and substance satisfactory to the holders of at least 67% of the
Institutional Investor Stock then outstanding.
3.1G. Expenses. At such Subsequent Closing, the Company shall have
--------
reimbursed the Institutional Investors for their out-of-pocket expenses,
including the fees and expenses of their special counsel and their special
telecommunications counsel as provided in paragraph 9A hereof, to the extent
then known, and shall have reimbursed the Executive Investors for all of the
fees and expenses of the Executive Investors' special counsel incurred in
connection with such Subsequent Closing, to the extent then known.
3.1H. Subsequent Closing Documents. The Company shall have delivered
----------------------------
to the Investors all of the following documents:
(i) an Officer's Certificate, dated the date of the Subsequent
Closing, stating that the conditions specified in paragraphs 3A through 3C,
inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Board requesting the capital contributions being made at such Subsequent
Closing; and
(iii) such other documents relating to the transactions to occur
at such Subsequent Closing as any Institutional Investor or the
Institutional Investors' special counsel may reasonably request.
3.1I. Waiver. Any condition specified in this Section 3 may be
------
waived if consented to by holders of at least 67% of the Institutional Investor
Stock; provided that the condition in 3G respecting the Company's payment of the
--------
fees and expenses for the Executive Investors' special counsel may not be waived
without the express written consent of a majority of the Executive Investors.
SECTION 4. COVENANTS.
---------
4.1A. Financial Statements and Other Information. The Company shall
------------------------------------------
deliver (a) to each Executive Investor, so long as such Executive Investor holds
any Investor Stock, the information set forth in subparagraph 4A(iii) below,
and (b) to each Institutional Investor, so long as such Institutional Investor
holds any Investor Stock, and to any subsequent holder of at least
-8-
<PAGE>
10% of the Investor Stock then outstanding (each such Institutional Investor and
each such subsequent 10% holder, a "Qualified Holder"), all the information
----------------
described in this paragraph 4A:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year: (a)
unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such monthly period and for
the period from the beginning of the fiscal year to the end of such month,
and unaudited consolidating and consolidated balance sheets of the Company
and its Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the Company's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied and shall be certified by the Company's
chief financial officer, and (b) a status report prepared by the Company's
chief financial officer, indicating whether the Company has met its
budgeted financial goals (including those specified in the Initial Business
Plan or in any Subsequent Business Plan), discussing the reasons for any
variation from such goals, and describing what actions the Company and its
Subsidiaries have taken and propose to take in order to meet budgeted
financial targets in the future;
(ii) within 45 days after the end of each quarterly accounting
period in each fiscal year, an Officer's Certificate stating that the
Company is not in default under this Agreement, the Stockholders Agreement,
the Registration Agreement, or any Executive Stock Agreement or Vesting
Agreement, and that neither the Company nor any of its Subsidiaries is in
default under any of its other material agreements or, if any such default
exists, specifying the nature and period of existence thereof and what
actions the Company and its Subsidiaries have taken and propose to take
with respect thereto;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
Company's annual budget and to the preceding fiscal year, all prepared in
accordance with generally accepted accounting principles, consistently
applied, and accompanied by (a) with respect to the consolidated portions
of such statements, an opinion containing no exceptions or qualifications
(except for qualifications regarding specified contingent liabilities) of
an independent accounting firm of recognized national standing acceptable
to the holders of at least 67% of the Institutional Investor Stock then
outstanding, (b) a certificate from such accounting firm, addressed to the
Board, stating that in the course of its examination nothing came to its
attention that caused it to believe that there was any default specified in
paragraph 4A(ii) in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any other material
agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any such default by the Company or any
Subsidiary exists, a certificate specifying the nature and period of
existence thereof, and (c) a copy of such firm's annual management letter
to the Board;
-9-
<PAGE>
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(v) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets, and within
30 days after any monthly period in which there is a material adverse
deviation from the annual budget, an Officer's Certificate explaining the
deviation and what actions the Company has taken and proposes to take with
respect thereto;
(vi) promptly (but in any event within five business days)
after the discovery or receipt of notice of any default under any material
agreement to which the Company or any of its Subsidiaries is a party, any
condition or event which is reasonably likely to result in any material
liability under any federal, state or local statute or regulation relating
to public health and safety, worker health and safety or pollution or
protection of the environment or any other material adverse change, event
or circumstance affecting the Company or any Subsidiary (including, without
limitation, the filing of any material litigation against the Company or
any Subsidiary or the existence of any dispute with any Person which
involves a reasonable likelihood of such litigation being commenced), an
Officer's Certificate specifying the nature and period of existence thereof
and what actions the Company and its Subsidiaries have taken and propose to
take with respect thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or (to its knowledge) any of its officers or
directors file with respect to the Company, with the Securities and
Exchange Commission or with any securities exchange on which any of its
securities are then listed, and copies of all press releases and other
statements made available generally by the Company to the public concerning
material developments in the Company's and its Subsidiaries' businesses;
and
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Qualified
Holder may reasonably request.
Each of the financial statements referred to in subparagraphs 4A(i) and (iii)
shall be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end adjustments for recurring
accruals (none of which would, alone or in the aggregate, be materially adverse
to
-10-
<PAGE>
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of this paragraph 4A shall cease
to be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Qualified Holder (and to each
Executive Investor then holding any Investor Stock) all reports and other
materials filed by the Company with the Securities and Exchange Commission
pursuant to the periodic reporting requirements of the Securities Exchange Act;
provided that so long as any Investor Stock remains outstanding, the Company
- --------
shall continue to deliver to each Qualified Holder the information specified in
subparagraphs 4A(ii), 4A(iii)(b), 4A(vi), and 4A(viii).
Except as otherwise required by law or judicial order or decree or requested by
any governmental agency or authority, or as specified in the immediately
following proviso, each Person entitled to receive information regarding the
Company and its Subsidiaries under paragraph 4A or 4B shall not disclose any
such information to any third party (other than such Person's advisors or
representatives); provided that such a Person may disclose such information (i)
--------
in connection with the sale or transfer of any Investor Stock if such Person's
transferee agrees in writing to be bound by the provisions hereof, or (ii) if
such information is available to the public other than by reason of such
Person's breach of this provision.
All holdings of Investor Stock or Institutional Investor Stock by Persons who
are Affiliates of each other shall be aggregated for purposes of meeting any
threshold tests under this Agreement.
4.1B. Inspection of Property. To the extent not otherwise prohibited
----------------------
by law or regulation, the Company shall permit any representatives designated by
any Qualified Holder, upon reasonable notice and during normal business hours
and at such other times as any such Qualified Holder may reasonably request to
(i) visit and inspect any of the properties of the Company and its Subsidiaries,
(ii) examine the corporate and financial records of the Company and its
Subsidiaries and make copies thereof or extracts therefrom and (iii) discuss the
affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by any
Qualified Holder to the Company's independent accountants shall constitute the
Company's permission to its independent accountants to participate in
discussions with such Persons.
4.1C. Restrictions. The Company shall not, without the prior written
------------
consent of the holders of at least 67% of the Institutional Investor Stock then
outstanding:
(i) directly or indirectly declare or pay any dividends or
make any distributions upon any of its capital stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities,
-11-
<PAGE>
and the exercise of first refusal rights under the Stockholders Agreement),
except for: (a) cancellations of the Company's Common Stock pursuant to any
of the Vesting Agreements, (b) repurchases of Investor Stock pursuant to
Section 5 or paragraph 9B(ii) of this Agreement, (c) repurchases of the
Company's capital stock from employees of the Company or its Subsidiaries
(or such employees' transferees) pursuant to the terms of the Executive
Stock Agreements contemplated by this Agreement, or (d) repurchases of
options to acquire the Company's capital stock or of capital stock issued
upon the exercise of such options, pursuant to the terms of any Permitted
Stock Option Plan that may be approved by the Board, as contemplated under
subparagraph 4C(xix) of this Agreement;
(iii) except upon conversion of Class C Common into Class B
Common pursuant to the Certificate of Incorporation, or as expressly
contemplated by this Agreement or the Executive Stock Agreement, authorize,
issue or enter into any agreement providing for the issuance (contingent or
otherwise) of (a) any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities convertible
into or exchangeable for capital stock or other equity securities, issued
in connection with the issuance of capital stock or other equity securities
or containing profit participation features), other than as may be
expressly specified in the Initial Business Plan or any Subsequent Business
Plan, or (b) any capital stock or other equity securities (or any
securities convertible into or exchangeable for any capital stock or other
equity securities);
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary established under the laws of a
jurisdiction of the United States or any of its territorial possessions),
except for (a) reasonable advances to employees or customers in the
ordinary course of business and (b) Investments having a stated maturity no
greater than one year from the date the Company makes such Investment in
(1) obligations of the United States government or any agency thereof or
obligations guaranteed by the United States government, (2) certificates of
deposit of commercial banks having combined capital and surplus of at least
$500 million or (3) commercial paper with a rating of at least "Prime-1" by
-------
Moody's Investors Service, Inc.;
(v) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a merger
between Wholly-Owned Subsidiaries);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 10% of the
consolidated assets of the Company and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Board in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business), or sell or permanently dispose of any of its
or any Subsidiary's Intellectual Property Rights;
-12-
<PAGE>
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into a limited liability company, a partnership or any
other non-corporate entity which is treated as a partnership for federal
income tax purposes), except as provided in paragraph 5(d) of the
Stockholders Agreement;
(viii) acquire, or permit any Subsidiary to acquire, any
interest in any company or business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
provision of local exchange telecommunications services or such other
business activities as may be identified in a Subsequent Business Plan;
(x) become subject to, or permit any of its Subsidiaries to
become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict (a) the right of any Subsidiary to make
loans or advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the
Stockholders Agreement, the Registration Agreement, the Certificate of
Incorporation or the Bylaws (including, without limitation, the provisions
of Section 5 hereof);
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Certificate of Incorporation or the Bylaws, or file
any resolution of the Board with the Delaware Secretary of State containing
any provisions which would adversely affect or otherwise impair the rights
or the relative preferences and priorities of the holders of the Class A
Common under the Certificate of Incorporation;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, employees or Affiliates or with any individual related
by blood, marriage or adoption to any such individual or with any entity in
which any such Person or individual owns a beneficial interest, except for
customary employment arrangements and benefit programs on reasonable terms
and except as otherwise expressly contemplated by this Agreement;
(xiii) establish or acquire (a) any Subsidiaries other than
Wholly-Owned Subsidiaries or (b) any Subsidiaries organized outside of the
United States and its territorial possessions;
(xiv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness
exceeding an aggregate principal amount of $100,000 outstanding at any time
on a consolidated basis (other than
-13-
<PAGE>
Indebtedness expressly specified in the Initial Business Plan or any
Subsequent Business Plan);
(xv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens other
than Permitted Liens;
(xvi) make any capital expenditures or permit any Subsidiary to
make any capital expenditures (including, without limitation, payments with
respect to capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied) exceeding $100,000 in
the aggregate on a consolidated basis during any twelve-month period (other
than capital expenditures expressly specified in the Initial Business Plan
or any Subsequent Business Plan);
(xvii) enter into any leases or other rental agreements
(excluding capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied) under which the amount
of the aggregate lease payments for all such agreements exceeds $100,000 on
a consolidated basis for any twelve-month period, provided that the Company
--------
shall be allowed to enter into any leasing arrangements that are necessary
to the conduct of its business purpose and expressly specified in the
Initial Business Plan or any Subsequent Business Plan (including, but not
limited to, leasing telecommunications networks);
(xviii) change its fiscal year;
(xix) adopt any new stock option plan or employee stock
ownership plan or issue any shares of Common Stock to its or its
Subsidiaries' employees other than a plan, the terms of which shall be
approved by a majority of the Board and the holders of at least 67% of the
Institutional Investor Stock then outstanding, under which during the four-
year period after the date hereof specified employees of the Company or its
Subsidiaries are granted options to acquire, for fair market value, up to
5% (by value) of the Company's common stock (a "Permitted Stock Option
----------------------
Plan");
----
(xx) issue or sell any shares of the capital stock, or rights
to acquire shares of the capital stock, of any Subsidiary to any Person
other than the Company or a Wholly-Owned Subsidiary; or
(xxi) use the proceeds from the sale of the Class A Common and
the subsequent capital contributions at the Subsequent Closings other than
for working capital and budgeted general corporate purposes or as
contemplated by the Initial Business Plan and any Subsequent Business Plan,
as applicable.
The restrictions of this paragraph 4C shall terminate upon the consummation of a
Public Offering.
4.1D. Affirmative Covenants. So long as any Investor Stock remains
---------------------
outstanding, the Company shall, and shall cause each Subsidiary (if any) to:
-14-
<PAGE>
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all material claims for labor,
materials or supplies which if unpaid would by law become a Lien upon any
of its property unless and to the extent that the same are being contested
in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(iii) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(iv) comply in all material respects with all applicable laws,
rules and regulations of the FCC and all other governmental authorities
material to the business of the Company and its Subsidiaries (including,
without limitation, all requirements for maintaining Chicago Common Carrier
Status or any similar certification granted after the date hereof);
(v) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for well-insured corporations of similar size
engaged in similar lines of business;
(vi) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with generally
accepted accounting principles, consistently applied; and
(vii) enter into and maintain nondisclosure and noncompete
agreements, in form and substance as set forth in Exhibit 13 hereto, with
----------
all Persons (other than the Executive Investors) who from time to time
become key employees of the Company or any of its Subsidiaries.
4.1E. Compliance with Agreements. The Company shall perform and
--------------------------
observe all of its obligations to the holders of Common Stock as set forth in
the Certificate of Incorporation and the Bylaws, the Stockholders Agreement, the
Vesting Agreements, the Executive Stock Agreements and the Registration
Agreement.
-15-
<PAGE>
4.1F. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
4.1G. Amendment of Vesting Agreements or Executive Stock Agreements.
-------------------------------------------------------------
The Company shall not amend, modify or fail to enforce any provision of any
Vesting Agreement or any Executive Stock Agreement without the prior written
consent of the holders of at least 67% of the Institutional Investor Stock then
outstanding.
4.1H. Intellectual Property Rights. The Company shall, and shall
----------------------------
cause each Subsidiary to, possess and maintain all material Intellectual
Property Rights necessary to the conduct of their respective businesses and own
all right, title and interest in and to, or have a valid license for, all such
Intellectual Property Rights. Neither the Company nor any Subsidiary shall take
any action, or fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which would infringe upon or misappropriate any rights of other Persons.
4.1I. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose any Institutional Investor's name or identity as an
investor in the Company in any press release or other public announcement or in
any document or material filed with any governmental entity, without the prior
written consent of such Institutional Investor, unless such disclosure is
required by applicable law or governmental regulations or by order of a court of
competent jurisdiction, in which case prior to making such disclosure the
Company shall give written notice to such Institutional Investor describing in
reasonable detail the proposed content of such disclosure and shall permit the
Institutional Investor to review and comment upon the form and substance of such
disclosure.
4.1J. First Refusal Rights.
--------------------
(i) Except for issuances of (a) shares of Class A Common pursuant
to this Agreement, shares of Class B Common pursuant to any of the Executive
Stock Agreements contemplated hereby, or shares of Class B Common upon
conversion of Class C Common into such Class B Common pursuant to the
Certificate of Incorporation, (b) options to acquire Common Stock pursuant to
the Permitted Stock Option Plan, or shares of Common Stock upon the exercise of
such options, or (c) any securities pursuant to a Public Offering, if the
Company authorizes the issuance or sale of any shares of Common Stock or any
securities containing
-16-
<PAGE>
options or rights to acquire any shares of Common Stock (other than as a pro
rata dividend on the outstanding Common Stock), the Company shall first offer to
sell to each holder of Investor Stock a portion of such stock or securities
equal to the quotient determined by dividing (1) the number of shares of
Investor Stock held by such holder by (2) the total number of shares of Investor
Stock then outstanding. Each holder of Investor Stock shall be entitled to
purchase such stock or securities at the most favorable price and on the most
favorable terms as such stock or securities are to be offered to any other
Persons; provided that if all Persons entitled to purchase or receive such stock
or securities are required to also purchase other securities of the Company, the
holders of Investor Stock exercising their rights pursuant to this paragraph
shall also be required to purchase the same strip of securities (on the same
terms and conditions) that such other Persons are required to purchase. The
purchase price for all stock and securities offered to the holders of the
Investor Stock shall be payable in cash.
(ii) In order to exercise its purchase rights hereunder, a holder of
Investor Stock must within 30 days after receipt of written notice from the
Company describing in reasonable detail the stock or securities being offered,
the purchase price thereof, the payment terms and such holder's percentage
allotment, deliver a written notice to the Company describing such holder's
election hereunder. If all of the securities offered to the holders of Investor
Stock are not fully subscribed by such holders, the remaining stock and
securities shall be reoffered by the Company to the holders purchasing their
full allotment upon the terms set forth in this paragraph, except that such
holders must exercise their purchase rights within five business days after
receipt of such reoffer.
(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of Investor Stock have not elected to purchase during the 180 days following
such expiration on terms and conditions no more favorable to the purchasers
thereof than those offered to such holders. Any stock or securities offered or
sold by the Company after such 180-day period must be reoffered to the holders
of Investor Stock pursuant to the terms of this paragraph.
(iv) The rights of the holders of Investor Stock under this
paragraph shall terminate upon the consummation of a Public Offering.
SECTION 5. INVESTORS' PUT RIGHT.
--------------------
5.1A. Put Right. At any time and from time to time on or after the
---------
seventh anniversary of the Initial Closing Date, but not after the consummation
of a Public Offering, each Institutional Investor shall have the right to
require the Company to repurchase all, but not less than all, of the
outstanding Investor Stock held by such Institutional Investor and its
Affiliates at the Repurchase Price (as defined below) by giving written notice
to the Company of such Institutional Investor's exercise of this right (the
"Exercise Notice"). Within 10 days after receipt of an Exercise Notice, the
---------------
Company shall give written notice (the "Repurchase Notice") to each other holder
-----------------
of Investor Stock, setting forth the identity of the Institutional Investor
tendering such Exercise Notice, the number of shares of Investor Stock to be
repurchased from such Investor, and a reasonable approximation of the fair
market value of the Company's assets (net of any Company liabilities senior in
liquidation preference to the Investor Stock) and of each
-17-
<PAGE>
share of Investor Stock at the time of such Repurchase Notice. Each Investor
shall be entitled to join in such repurchase and require the Company to purchase
all, but not less than all, of the Investor Stock held by such Investor and its
Affiliates at the same closing, at the same price, and on the same terms as the
Institutional Investor tendering the Exercise Notice by giving Exercise Notice
within 20 days after the date of the Repurchase Notice. Promptly (but in any
event within 3 business days after the end of this 20-day period), the Company
shall send each Investor written notice updating the information contained in
the Repurchase Notice (the "Revised Repurchase Notice"). The Revised Repurchase
-------------------------
Notice shall also set forth a time (which shall be not less than 5 nor more than
10 business days after the date of such notice) and place for a meeting between
the Company and the holders of a majority of the Investor Stock which the
Company has been requested to repurchase (the "Majority Holders").
----------------
5.1B. Company Obligation. The Company shall do everything within its
------------------
power under the law and the Certificate of Incorporation, including but not
limited to assuming or refinancing debt, recapitalizing the Company, or selling
the Company, to enable the Company to satisfy its repurchase obligations under
this Section 5.
5.1C. Repurchase Price. The repurchase price for each share of
----------------
Investor Stock repurchased by the Company under this Section 5 (the "Repurchase
----------
Price") shall be equal to the greater of (i) the initial purchase price of such
- -----
share hereunder and all amounts subsequently contributed to the capital of the
Company with respect to such share pursuant to this Agreement (as adjusted for
stock splits, stock dividends, combinations, or other reorganizations) or (ii)
the fair market value of such share (without any discount for lack of liquidity
or minority status) as of the date of the first Repurchase Notice.
The Company, the Majority Holders, and the holders of a majority of
the Executive Stock then outstanding shall attempt in good faith to agree on the
fair market value of the Investor Stock. If they are unable to reach such
agreement within 20 days after the meeting date set forth in the Revised
Repurchase Notice, the Company and the Majority Holders will each, within 10
days thereafter, appoint one investment banker or other appraiser experienced in
valuing companies like the Company, and the two Persons so appointed shall
within 10 days after their appointment appoint a third investment banker or
appraiser similarly experienced. The three investment bankers/appraisers shall
each appraise the fair market value of the Investor Stock (based on the highest
price reasonably obtainable for the Company in an orderly, arm's length sale to
a willing unaffiliated buyer), and the fair market value for purposes hereof
shall be the average of the two appraisals closest to each other. Such
determination shall be final and binding on all parties hereto. The cost of the
appraisal shall be borne by the Company.
5.1D. Repurchase Closing. At the closing of a Company repurchase
------------------
of Investor Stock pursuant to this Section 5 (the "Repurchase Closing"), each
------------------
Investor selling Investor Stock shall deliver to the Company all existing stock
certificates evidencing the Investor Stock held by such Investor, upon the
Company's delivery to each such selling Investor of Cash in an aggregate amount
equal to the Repurchase Price of such Investor Stock.
-18-
<PAGE>
SECTION 6. TRANSFER OF RESTRICTED SECURITIES.
---------------------------------
6.1A. General Provisions. Restricted Securities are transferable
------------------
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available, and (iii) subject to the
various conditions and prohibitions set forth in this Agreement, the
Stockholders Agreement, the Vesting Agreements, and the Executive Stock
Agreements, any other legally available means of transfer.
6.1B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 6A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of Kirkland & Ellis or other counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters to the
effect that such transfer of Restricted Securities may be effected without
registration of such Restricted Securities under the Securities Act. In
addition, if the holder of the Restricted Securities delivers to the Company an
opinion of Kirkland & Ellis or such other counsel that no subsequent transfer of
such Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in paragraph 9C below. If the Company is not required to
deliver new certificates for such Restricted Securities not bearing such legend,
the holder thereof shall not transfer the same until the prospective transferee
has confirmed to the Company in writing its agreement to be bound by the
conditions contained in this Section 6 and paragraph 9C.
6.1C. Rule 144A. Upon the request of any Investor, the Company shall
---------
promptly supply to such Investor or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
6.1D. Legend Removal. If any Restricted Securities become eligible
--------------
for sale pursuant to Rule 144(k), the Company shall, upon the request of the
holder of such Restricted Securities, remove the legend set forth in paragraph
9C from the certificates for such Restricted Securities.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a
---------------------------------------------
material inducement to the Investors to enter into this Agreement and purchase
the Class A Common hereunder, the Company hereby represents and warrants that:
7.1A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The
Company possesses all requisite corporate power and authority and, except as set
forth in the "Licenses Schedule" attached hereto, all material licenses, permits
-----------------
and authorizations necessary to own and operate its properties, to carry on its
businesses
-19-
<PAGE>
as now conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement. The copies of the Company's
charter documents and Bylaws which have been furnished to the Investors' special
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete.
7.1B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Initial Closing and immediately thereafter, the
authorized capital stock of the Company (collectively, the "Common Stock") shall
------------
consist of (a) 80,000 shares of Class A Common, of which 79,384.62 shall be
issued and outstanding; (b) 35,000 shares of Class B Common Stock, par value
$.01 per share ("Class B Common"), 20,000 shares of which shall be issued and
--------------
outstanding, and 14,711.54 shares of which shall be reserved for issuance upon
conversion of the Class C Common Stock, par value $.01 per share ("Class C
-------
Common"); and 15,000 shares of Class C Common, of which 14,711.54 shall be
- ------
issued and outstanding. Except as set forth on the attached "Capitalization
--------------
Schedule," as of the Initial Closing, the Company shall not have outstanding any
- --------
stock or securities, nor any options, warrants or other rights to acquire
capital stock or securities of the Company. As of the Initial Closing, all of
the outstanding shares of the Company's capital stock listed on the
Capitalization Schedule shall be validly issued, fully paid and nonassessable.
(ii) The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
capital stock, and the offer, sale and issuance of the Class A Common hereunder
or the Class B Common and Class C Common under the Executive Stock Agreements do
not require registration under the Securities Act or any applicable state
securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs, except for the Stockholders Agreement, the Vesting
Agreement, and the Executive Stock Agreements.
7.1C. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Stockholders Agreement, the Registration
Agreement, the Vesting Agreements, the Executive Stock Agreements, and all
other agreements contemplated hereby to which the Company is a party, the filing
of the amendment of the Company's Certificate of Incorporation referred to in
paragraph 2B above, and the amendment of the Company's Bylaws referred to in
paragraph 2C above have been duly authorized by the Company. This Agreement,
the Stockholders Agreement, the Executive Stock Agreements, the Vesting
Agreements, the Registration Agreement, the Certificate of Incorporation, and
all other agreements contemplated hereby to which the Company is a party each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms. The execution and delivery by the Company of this
Agreement, the Stockholders Agreement, the Executive Stock Agreements, the
Vesting Agreements, the Registration Agreement and all other agreements
contemplated hereby to which the Company is a party, the offering, sale and
issuance of the Class A Common hereunder and the Class B Common and Class C
Common under the Executive Stock Agreements, the filing of the amendments to
the Certificate of Incorporation referred to above and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a
-20-
<PAGE>
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to the charter or Bylaws of the Company, or any law, statute,
rule or regulation to which the Company or any Subsidiary is subject, or any
agreement, instrument, order, judgment or decree to which the Company is
subject.
7.1D. Conduct of Business; Absence of Liabilities. Prior to the
-------------------------------------------
Initial Closing, except as set forth on the attached "Liabilities Schedule," the
--------------------
Company has not conducted any business nor incurred any expenses, obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known to the Company and whether due or to become due and
regardless of when asserted).
7.1E. Assets. Except as set forth on the attached "Assets Schedule,"
------ ---------------
the Company does not own or lease any Assets, whether tangible or intangible
(excluding Intellectual Property Rights). The Company has good and marketable
title to, or a valid leasehold interest in, all assets listed on the Assets
Schedule, free and clear of all Liens.
7.1F. No Subsidiaries. The Company does not own or hold, and has
---------------
never owned or held, any rights to acquire any shares of stock or any other
security or interest in any other Person.
7.1G. Contracts and Commitments.
-------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule," neither the Company nor any
------------------
Subsidiary is a party to or bound by any written or oral contract of any kind,
including but not limited to any agreement, employee benefit plan, employment
contract, insurance contract, loan agreement, guarantee, lease, license,
warranty, or affirmative or restrictive covenant.
(ii) All of the contracts, agreements and instruments set forth on
the Contracts Schedule are valid, binding and enforceable in accordance with
their respective terms.
(iii) The Investors' special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate written description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
7.1H. Intellectual Property Rights. The attached "Intellectual
---------------------------- ------------
Property Schedule" contains a complete and accurate list of all (a) patented or
- -----------------
registered Intellectual Property Rights owned or used by the Company or any
Subsidiary, (b) pending patent applications and applications for registrations
of other Intellectual Property Rights filed by the Company or any Subsidiary,
(c) unregistered trade names and corporate names owned or used by the Company or
any Subsidiary and (d) unregistered trademarks and service marks. The
Intellectual Property
-21-
<PAGE>
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company or any Subsidiary to any third party with respect
to any Intellectual Property Rights and all licenses and other rights granted by
any third party to the Company or any Subsidiary with respect to any
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights. Except as set forth on the Intellectual Property Schedule: (a)
the Company or one of its Subsidiaries owns all right, title and interest to, or
has the right to use pursuant to a valid license, all Intellectual Property
Rights necessary for the operation of the businesses of the Company and its
Subsidiaries as presently proposed to be conducted, free and clear of all Liens,
(b) the Company and its Subsidiaries own all right, title and interest in and to
all of the Intellectual Property Rights listed on such schedule, free and clear
of all Liens, (c) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse, or unenforceability of any of such
Intellectual Property Rights, and there are no valid grounds for the same, and
(d) neither the Company nor any Subsidiary has received any notices of, and is
not aware of any facts which indicate the likelihood of, any infringement or
misappropriation by, or conflict with, any third party with respect to such
Intellectual Property Rights (including, without limitation, any demand or
request that the Company or any Subsidiary license any rights from a third
party).
7.1I. Litigation, etc. Except as set forth on the attached
---------------
"Litigation Schedule," there are no actions, suits, proceedings, orders,
-------------------
investigations or claims pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any Subsidiary (or to the best of
the Company's knowledge, pending or threatened against or affecting any of the
officers, directors or employees of the Company and its Subsidiaries with
respect to their businesses or proposed business activities), or pending or
threatened by the Company or any Subsidiary against any third party, at law or
in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, any actions,
suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement); neither the Company nor any Subsidiary is
subject to, to the best of the Company's knowledge, any governmental
investigations or inquiries (including, without limitation, inquiries as to the
qualification to hold or receive any license or permit); and, to the best of the
Company's knowledge, there is no basis for any of the foregoing. Neither the
Company nor any Subsidiary is subject to any judgment, order or decree of any
court or other governmental agency, and neither the Company nor any Subsidiary
has received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business.
7.1J. Brokerage. There are no claims for brokerage commissions,
---------
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company. The Company shall pay, and hold each Investor (excluding any
Executive Investor that had actual knowledge of such arrangement or agreement
prior to the date hereof) harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim.
7.1K. Governmental Consent, etc. Except as set forth on the attached
-------------------------
"Consents Schedule," no permit, consent, approval or authorization of, or
-----------------
declaration to or filing with, any
-22-
<PAGE>
governmental authority is required in connection with the execution, delivery
and performance by the Company of this Agreement or the other agreements
contemplated hereby, or the consummation by the Company of any other
transactions contemplated hereby or thereby.
7.1L. Compliance with Laws. The Company has not violated any law or
--------------------
any governmental regulation or requirement in any material respect.
7.1M. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," no officer, director, employee or Affiliate
--------------------------------
of the Company or any Subsid iary or any individual related by blood, marriage
or adoption to any such individual or any entity in which any such Person or
individual owns any beneficial interest, is a party to any agreement, contract,
commitment or transaction with the Company or has any material interest in any
material property owned or used by the Company.
7.1N. Projections and Pro Forma Financial Statements.
----------------------------------------------
(i) Included as part of the Initial Business Plan attached hereto
as Exhibit 1 is a true and complete copy of the latest projections of the
consolidated income and cash flows of the Company and its Subsidiaries for the
five consecutive 12-month periods commencing with and following the date hereof.
Such projections have been prepared on the basis of the assumptions set forth
therein, which the Company reasonably believes are fair and reasonable in light
of current and reasonably foreseeable business conditions.
(ii) The pro forma consolidated balance sheets of the Company and
its Subsidiaries as of the end of each of the five consecutive 12-month periods
commencing with and following the date hereof, included as part of the Initial
Business Plan attached hereto as Exhibit 1, is complete and correct in all
material respects and presents fairly in all material respects the consolidated
financial condition of the Company and its Subsidiaries as of such date as if
the transactions contemplated by this Agreement had occurred immediately prior
to such date, and such balance sheet contains all pro forma adjustments
necessary in order to fairly reflect such assumption.
7.1O. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, attachments, written statements, documents, certificates or other
items supplied to any Investor by or on behalf of the Company with respect to
the transactions contemplated hereby contain any untrue statement of a material
fact or omit a material fact necessary to make each statement contained herein
or therein not misleading; provided that with respect to the financial
--------
projections furnished to the Investors by the Company, the Company represents
and warrants only that such projections were based upon assumptions reasonably
believed by the Company to be reasonable and fair as of the date the projections
were prepared in the context of the Company's history and current and reasonably
foreseeable business conditions. There is no fact which the Company has not
disclosed to the Investors in writing and of which any of its officers,
directors or executive employees is aware and which would reasonably be expected
to have a material adverse effect upon the expected financial condition or
business prospects of the Company and its Subsidiaries taken as a whole.
-23-
<PAGE>
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE INSTITUTIONAL
---------------------------------------------------
INVESTORS. As a material inducement to the Company and the Executive Investors
- ---------
to enter into this Agreement and to engage in the transactions and enter into
the agreements contemplated hereby, each of the Institutional Investors
represents and warrants for itself, severally and not jointly, that:
8.1A. Assets. Such Institutional Investor has sufficient capital and
------
liquidity (including undrawn commitments) to fulfill its capital contribution
obligations under the Initial Business Plan and any Subsequent Business Plan,
pursuant to the terms and subject to the conditions set forth herein.
8.1B. Initial Business Plan. Such Institutional Investor is
---------------------
sophisticated in financial matters and sophisticated in the industry in which
the Company contemplates doing business and has had an opportunity to evaluate
the Initial Business Plan of the Company.
8.1C. Authorization. The execution, delivery and performance of this
-------------
Agreement and the other agreements contemplated hereby to which the such
Institutional Investor is a party by such Institutional Investor and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite action on the part of such Institutional
Investor and the partners thereof, and no other proceedings on its or their part
(other than giving notice of drawdowns on commitments) is necessary to authorize
the execution, delivery or performance of this Agreement. This Agreement
constitutes, and each of the other agreements contemplated hereby to which such
Institutional Investor is a party will when executed constitute, a valid and
binding obligation of such Institutional Investor, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and limitations on the availability of equitable remedies.
SECTION 9. MISCELLANEOUS PROVISIONS.
------------------------
9.1A. Expenses. The Company shall pay, and hold each Institutional
--------
Investor harmless against liability for the payment of, the out-of-pocket
expenses of the Institutional Investors, including the reasonable fees and
expenses of MDCP's special counsel, Kirkland & Ellis, and their special
telecommunications counsel, Skadden, Arps, Slate, Meagher & Flom, arising in
connection with (i) the performance of due diligence investigations concerning
the Company, the negotiation and execution of this Agreement, and the
consummation of the transac tions to occur at the Initial Closing or any
Subsequent Closing as contemplated hereby, (ii) any amendments or waivers
(whether or not the same become effective) under or in respect of this
Agreement, the agreements contemplated hereby or the Certificate of
Incorporation, (iii) the enforcement of the rights granted under this Agreement,
the agreements contemplated hereby and the Certificate of Incorporation, (iv)
any filing with any governmental agency with respect to such Institutional
Investor's investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions such
Institutional Investor, and (v) stamp and other taxes which may be payable by
the Institutional Investors in respect of the execution and delivery of this
Agreement or the issuance, delivery or acquisition of any Investor Stock.
-24-
<PAGE>
9.1B. Remedies.
--------
(i) Each holder of Investor Stock shall have all rights and
remedies set forth in this Agreement and the Certificate of Incorporation and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce (upon demonstration of irreparable harm)
such rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(ii) If at any Subsequent Closing, after all conditions to such
Subsequent Closing set forth in Section 3 hereof have been either satisfied or
waived pursuant to paragraph 3I, any Investor refuses to tender such Investor's
Specified Contribution for such Subsequent Closing, the Company shall have the
right, in addition to the remedies available under subparagraph 9B(i) above, to
repurchase all shares of Investor Stock held by such refusing Investor or its
Affiliates for an aggregate price equal to such Investor's Initial Contribution
and all Specified Contributions made by such Investor at prior Subsequent
Closings, each with respect to such repurchased shares. The Company shall have
the option to pay such repurchase price in the form of a promissory note with
the following terms: (a) principal equal to such Investor's Initial Contribution
and all prior Specified Contributions made by such Investor, each with respect
to such repurchased shares; (b) liquidation preference junior to all senior debt
obligations of the Company then or thereafter incurred, and to the Distribution
Preference of the holders of Class A Common under the Certificate of
Incorporation; (c) simple annual interest equal to the prime rate issued by
Citibank from time to time; and (d) all principal and accrued interest due and
payable on the first to occur of (1) the closing of a Public Offering, (2) a
Sale of the Company (as defined in the Stockholders Agreement), and (3) the
fifth anniversary of the issuance of such note; provided that such note shall
--------
not be repaid until the Distribution Preference of the holders of Class A Common
under the Certificate of Incorporation has been fully satisfied. If an
Investor's holdings of Investor Stock are repurchased pursuant to this
paragraph, such Investor and its Affiliates shall thereafter retain no further
right to enforce or benefit from the provisions of this Agreement or any other
agreement contemplated hereby to which such Investor is a party other than the
promissory note described above, and such Investor and its Affiliates shall
retain no further obligation under this Agreement to make Specified
Contributions at any Subsequent Closing.
9.1C. Investor's Investment Representations. Each Investor hereby
-------------------------------------
represents that it is acquiring the Restricted Securities purchased hereunder or
acquired pursuant hereto for its own account with the present intention of
holding such securities for purposes of investment, and that it has no intention
of selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided that nothing
--------
contained herein shall prevent any Investor and subsequent holders of Restricted
Securities from transferring such securities in compliance with the provisions
of Section 6 hereof. Each certificate or instrument representing Restricted
Securities shall be imprinted with a legend in substantially the following form:
-25-
<PAGE>
"The securities represented by this certificate were originally
issued on November 27, 1996, and have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Stock Purchase Agreement dated as of
November 27, 1996, as amended and modified from time to time,
between the issuer (the "Company") and certain investors. The
Company reserves the right to refuse the transfer of such
securities until such conditions have been fulfilled with respect
to such transfer. A copy of the Stock Purchase Agreement shall be
furnished by the Company to the holder hereof upon written
request and without charge."
9.1D. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of at least 67% of the Institutional Investor Stock, and the holders of
a majority of the Executive Stock, outstanding at the time such amendment or
waiver becomes effective. No course of dealing between the Company and the
holder of any Investor Stock or any delay by such holder in exercising any
rights hereunder or under the Certificate of Incorporation shall operate as a
waiver of any rights of such holder.
9.1E. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Investor or on its behalf.
9.1F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not; provided that a party's obligation to make Specified Contributions at
--------
Subsequent Closings shall be binding on such party's successors and assigns only
to the extent set forth in an express written assignment signed by such party.
In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Investor's benefit as an Investor
or holder of Investor Stock are also for the benefit of, and enforceable by, any
subsequent holder of such Investor Stock. Notwithstanding the foregoing, the
rights of the holders of the Investor Stock under this Agreement, the
Stockholders Agreement or the Registration Agreement shall not be exercisable by
or for the benefit of any subsequent holder of Investor Stock if, directly or
indirectly, the assignment of Investor Stock to such subsequent holder breached
any material provision of this Agreement or the Stockholders Agreement.
9.1G. Capital and Surplus; Special Reserves. The Company agrees that
-------------------------------------
the capital of the Company (as such term is used in Section 154 of the General
Corporation Law of Delaware) in respect of the shares of Class A Common issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement. The Company also agrees that it shall not create any special
reserves
-26-
<PAGE>
under Section 171 of the General Corporation Law of Delaware without the prior
written consent of the holders of at least 67% of the outstanding Institutional
Investor Stock.
9.1H. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.1I. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
9.1J. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
9.1K. Governing Law. The corporate law of the State of Delaware
-------------
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stockholders. All other issues and questions
concerning the construction, validity, enforcement and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of Illinois, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Illinois or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Illinois.
9.1L. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, one business day after they are sent to the recipient by
reputable overnight courier service (charges prepaid) or three business days
after they are mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Investor at the address indicated on the
Schedule of Investors with a copy to
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Emile Karafiol
and to the Company at the address indicated below:
-27-
<PAGE>
Focal Communications Corporation
300 W. Washington Blvd., Suite 1408
Chicago, Illinois 60606
Attention: President
with a copy to Bischoff, Kenney, and Niehaus
5630 North Main Street
Sylvania, Ohio 43560
Attention: Charles Niehaus
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9.1M. Understanding among the Investors. The determination of each
---------------------------------
Investor to purchase the Investor Stock pursuant to this Agreement has been made
by such Investor independently of any other Investor and independently of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company which may have been made or given by any other Investor or by any agent
or employee of any other Investor. In addition, it is acknowledged by each of
the other Investors that MDCP has not acted as an agent of such Investor in
connection with making its investment hereunder and that MDCP shall not be
acting as an agent of such Investor in connection with monitoring its investment
hereunder.
9.1N. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
* * * * *
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
/s/ Brian F. Addy MADISON DEARBORN CAPITAL PARTNERS, L.P.
- ----------------------------
Brian F. Addy By Madison Dearborn Partners, L.P., its
General Partner
By Madison Dearborn Partners, Inc., its
General Partner
/s/ John R. Barnicle By /s/ James N. Perry, Jr.
- ---------------------------- ----------------------------------
John R. Barnicle Its Vice President
----------------------------------
/s/ Joseph Beatty
- ----------------------------
Joseph Beatty FRONTENAC VI, L.P.
By Frontenac Company, its General Partner
/s/ Robert C. Taylor, Jr. By /s/ James E. Crawford III
- ---------------------------- ----------------------------------
Robert C. Taylor, Jr. Its General Partner
----------------------------------
BATTERY VENTURES III, L.P.
By Battery Partners III, L.P., its General
Partner
By /s/ Richard D. Frisbie
-----------------------------------
Its Managing Partner
-----------------------------------
FOCAL COMMUNICATIONS CORPORATION
By /s/ Robert C. Taylor, Jr.
-----------------------------------
Its President
-----------------------------------
-29-
<PAGE>
APPENDIX A
----------
INDEX OF DEFINITIONS
--------------------
For the purposes of this Agreement, the following terms have the
meanings set forth below:
"Addy" has the meaning set forth in the preamble.
----
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Agreement" has the meaning set forth in the preamble.
---------
"Barnicle" has the meaning set forth in the preamble.
--------
"Beatty" has the meaning set forth in the preamble.
------
"Board" has the meaning set forth in paragraph 1D.
-----
"BV" has the meaning set forth in the preamble.
--
"Bylaws" has the meaning set forth in paragraph 2C.
------
"Cash" has the meaning set forth in paragraph 1C.
----
"Certificate of Incorporation" has the meaning set forth in paragraph
----------------------------
2B.
"Chicago Common Carrier Status" has the meaning set forth in paragraph
-----------------------------
2H.
"Class A Common" has the meaning set forth in paragraph 1A.
--------------
"Class B Common" has the meaning set forth in paragraph 7B(i).
--------------
"Class C Common" has the meaning set forth in paragraph 7B(i).
--------------
"Common Stock" has the meaning set forth in paragraph 7B(i).
------------
"Company" has the meaning set forth in the preamble.
-------
"Executive Investor" has the meaning set forth in the preamble.
------------------
"Executive Stock" has the meaning ascribed to such term in the
---------------
Executive Stock Agreements.
-S1-
<PAGE>
"Executive Stock Agreements" has the meaning set forth in paragraph
--------------------------
2E.
"Exercise Notice" has the meaning set forth in paragraph 5A.
---------------
"Frontenac" has the meaning set forth in the preamble.
---------
"Indebtedness" means at a particular time, without duplication, (i)
------------
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (including, without
limitation, vendor Financing), (iv) any commitment by which a Person assures a
creditor against loss (including, without limitation, contingent reimbursement
obligations with respect to letters of credit), (v) any indebtedness guaranteed
in any manner by a Person (including, without limitation, guarantees in the form
of an agreement to repurchase or reimburse), (vi) any obligations under
capitalized leases with respect to which a Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations a Person assures a creditor against loss, (vii) any indebtedness
secured by a Lien on a Person's assets; and (viii) any unsatisfied obligation
for "withdrawal liability" to a "multiemployer plan" as such terms are defined
under ERISA.
"Initial Business Plan" has the meaning set forth in the preamble.
---------------------
"Initial Closing" has the meaning set forth in paragraph 1C.
---------------
"Initial Closing Date" has the meaning set forth in paragraph 1C.
--------------------
"Initial Contribution" has the meaning set forth in paragraph 1B.
--------------------
"Institutional Investor" has the meaning set forth in the preamble.
----------------------
"Institutional Investor Stock" means (i) the Class A Common issued to
----------------------------
the Institutional Investors hereunder, (ii) any securities repurchased by an
Institutional Investor pursuant to paragraph 3(e)(i) of any Executive Stock
Agreement, and (iii) any securities issued directly or indirectly with respect
to the foregoing securities by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular shares of Institutional Investor
Stock, such shares shall forever cease to be Institutional Investor Stock when
they have (a) been effectively registered under the Securities Act and disposed
of in accordance with the registration statement covering them, (b) been sold
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) been forfeited pursuant to the provisions of any Vesting
Agreement.
"Intellectual Property Rights" means all (i) patents, patent
----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documen-
-A2-
<PAGE>
tation thereof, (vi) trade secrets and other confidential information
(including, without limitation, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and customer
and supplier lists and information), (vii) other intellectual property rights
and (viii) copies and tangible embodiments thereof (in whatever form or medium).
"Interconnection Agreement" has the meaning set forth in paragraph 2H.
-------------------------
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Investor" has the meaning set forth in the preamble.
--------
"Investor Stock" means (i) the Class A Common issued hereunder, (ii)
--------------
any securities repurchased by an Institutional Investor pursuant to paragraph
3(e)(i) of an Executive Stock Agreement, and (iii) any securities issued
directly or indirectly with respect to the foregoing securities by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular shares of Investor Stock, such shares shall forever cease to be
Investor Stock when they have (a) been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) been sold pursuant to Rule 144 (or any similar provision then
in force) under the Securities Act, or (c) been forfeited pursuant to the
provisions of any Vesting Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
"Lien" means any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Majority Holders" has the meaning set forth in paragraph 5A.
----------------
"Management" has the meaning set forth in paragraph 3A.
----------
"Maximum Commitment" has the meaning set forth in paragraph 1D.
------------------
-A3-
<PAGE>
"MDCP" has the meaning set forth in the preamble.
----
"MSA"has the meaning set forth in the preamble.
---
"Note" has the meaning set forth in paragraph 1C(ii).
----
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"Permitted Lien" means:
--------------
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established in accordance with
generally accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security
obligations;
(iii) purchase money security interests in any property acquired
by the Company or any Subsidiary to the extent permitted by this Agreement;
(iv) interests or title of a lessor under any lease permitted
by this Agreement;
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due and
payable;
(vi) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value
of the assets of the Company and its Subsidiaries; and
(vii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement.
"Permitted Stock Option Plan" has the meaning set forth in paragraph
---------------------------
4C(xix).
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
-A4-
<PAGE>
"Public Offering" means any underwritten sale of the company's common
---------------
stock pursuant to an effective registration statement under the Securities Act
filed with the Securities and Exchange Commission on Form S-1 (or a successor
form adopted by the Securities and Exchange Commission); provided that the
--------
following shall not be considered a Public Offering: (i) any issuance of common
stock as consideration or financing for a merger or acquisition, and (ii) any
issuance of common stock or rights to acquire common stock to employees of the
Company or its Subsidiaries as part of an incentive or compensation plan.
"Qualified Holder" has the meaning set forth in paragraph 4A.
----------------
"Registration Agreement" has the meaning set forth in paragraph 2F.
----------------------
"Repurchase Closing" has the meaning set forth in paragraph 5D.
------------------
"Repurchase Notice" has the meaning set forth in paragraph 5A.
-----------------
"Repurchase Price" has the meaning set forth in paragraph 5C.
----------------
"Restricted Securities" means (i) the Class A Common issued hereunder,
---------------------
and (ii) any securities issued with respect to the securities referred to such
Class A Common by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) become eligible for sale pursuant to
Rule 144 (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certificates for them not bearing the
Securities Act legend set forth in paragraph 9C have been delivered by the
Company in accordance with paragraph 6B. Whenever any particular securities
cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Company, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in paragraph 9C.
"Revised Repurchase Notice" has the meaning set forth in paragraph 5A.
-------------------------
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Specified Contribution" has the meaning set forth in paragraph 1D.
----------------------
"Stockholders Agreement" has the meaning set forth in paragraph 2D.
----------------------
"Subsequent Business Plan" has the meaning set forth in paragraph 3A.
------------------------
-A5-
<PAGE>
"Subsequent Closings" has the meaning set forth in paragraph 1D.
-------------------
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Taylor" has the meaning set forth in the preamble.
------
"Vesting Agreement" has the meaning set forth in paragraph 2G.
-----------------
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
-A6-
<PAGE>
APPENDIX B
----------
SCHEDULE OF INVESTORS
---------------------
<TABLE>
<CAPTION>
Number of Initial Purchase Investor's
Names and Shares of Price for Maximum
Addresses Class A Common Class A Common Commitment
--------- -------------- ---------------- ------------
<S> <C> <C> <C>
Madison Dearborn Capital Partners, L.P. 46, 153.85 $2,325,581.40 $15,000,000
Three First National Plaza, Suite 1330
Chicago, Illinois 60670
Tel. (312) 732-5400
Fax (312) 732-4098
Attention: James N. Perry, Jr.
and Paul Finnegan
Frontenac VI, L.P. 21,538.46 $1,085,271.32 $ 7,000,000
135 South LaSalle Street, Suite 3800
Chicago, Illinois
Tel. (312) 368-0044
Fax (312) 368-9520
Attention: James Crawford
Battery Ventures III, L.P. 10, 769.23 $ 542, 635.66 $ 3,500,000
20 William Street, Suite 200
Wellesley, Massachusetts 02181
Tel. (617) 237-1001
Fax (617) 237-7788
Attention: Richard Frisbie
Brian F. Addy 230.77 $ 11, 627.91 $ 75,000
300 Washington Blvd., Suite 1408
Chicago, Illinois 60606
(312) 578-8400
John R. Barnicle 230.77 $ 11,627.91 $ 75,000
300 Washington Blvd., Suite 1408
Chicago, Illinois 60606
(312) 578-8400
Joseph Beatty 230.77 $ 11,627.91 $ 75,000
300 Washington Blvd., Suite 1408
Chicago, Illinois 60606
(312) 578-8400
Robert C. Taylor, Jr. 230.77 $ 11,627.91 $ 75,000
300 Washington Blvd., Suite 1408
Chicago, Illinois 60606
(312) 578-8400
--------------- ---------------- ------------
TOTAL 79,384.62 $4,000,000.02 $25,800,000
</TABLE>
-B1-
<PAGE>
Exhibit 4.6
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
FOCAL COMMUNICATIONS CORPORATION
--------------------------------
This Amendment No.1 to the Stock Purchase Agreement is dated as of January
23, 1998, and is made by and among Focal Communications Corporation (the
"Company") and Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P. (hereinafter collectively referred to as the
"Institutional Investors") and Robert C. Taylor, Jr., Joseph A. Beatty, John R.
Barnicle and Brian F. Addy (hereinafter collectively referred to as the
"Executive Investors").
Capitalized terms used but not herein defined shall, except as otherwise
provided herein, have the meanings ascribed to them by that certain Stock
Purchase Agreement dated November 27, 1996, by and among the Company, the
Institutional Investors, the Executive Investors, and others.
RECITALS:
1. The Company, the Institutional Investors, the Executive Investors, and
other shareholders of the Company are each individually parties to a Stock
Purchase Agreement dated November 27, 1996 (the "Agreement"). Pursuant to
Section 9D of the Agreement, provisions of the Agreement may be amended only if
the Company has obtained the written consent of the holders of at least 67% of
the Institutional Investor Stock and the holders of a majority of the Executive
Stock outstanding at the time such Amendment or waiver becomes effective.
2. The Company intends to issue certain notes (the "Offering", the notes
referred to as the "Offering Notes") which shall be underwritten by certain
underwriters (the "Underwriters"). An offering circular which describes the
terms of the notes has been drafted by the Company and reviewed by the
Institutional Investors and the Executive Investors.
3. As a condition precedent to the Offering, the Underwriters of the
Offering have required that the Investors effect certain amendments to the
Agreement.
4. The parties hereto desire to amend the Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises above and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. The recitals hereto are incorporated herein by reference and
specifically made a part of this Amendment No. 1;
2. The Agreement is amended as follows:
(a) Section 5 of the Agreement is amended and replaced in its entirety as
follows:
SECTION 5: INVESTORS' LIQUIDATION RIGHTS.
-----------------------------
5A. Liquidation Rights. At any time and from time to time on or after the
------------------
seventh anniversary of the Initial Closing Date, but not after the consummation
of a Public Offering, each Institutional Investor shall have the right (the
"Liquidation Right") to require the Company to voluntarily liquidate the assets
-----------------
of the Company, by converting such assets to cash or cash equivalent, and
marshalling the liabilities and remaining assets of the Company, as if the
Company had elected to voluntarily dissolve, pursuant to and in accordance with
the General Corporation Law of the State of Delaware and pursuant to and in
accordance with the Certificate of Incorporation by giving written notice to the
Company of such Institutional Investor's exercise of this right (the "Exercise
--------
Notice"). Promptly (but in any event, within three (3) business days) after the
- ------
Company has received the Exercise Notice, the Company shall give written notice
(the "Liquidation Notice") to each other holder of Investor Stock setting forth
------------------
the identity of the Institutional Investor tendering such Exercise Notice. Each
Investor shall be entitled to join in such Liquidation Right by giving written
notice (the "Joinder Notice") to the Company within twenty (20) days after the
--------------
date of the Exercise Notice. Upon receipt of the later of the Exercise Notice
or the Joinder Notice, the Company may elect to purchase (the "Repurchase
----------
Option") all, but not less than all, of the Investor Stock held by each Investor
- ------
exercising its Liquidation Right (and their respective Affiliates) at the
Repurchase Price (defined below). Within forty-five (45) days of receipt of the
later of an Exercise Notice or a Joinder Notice, the Board of Directors of the
Company shall provide written notice to the exercising Investor (the "Option
------
Notice") of its intention to exercise its Repurchase Option, or liquidate the
- ------
Company. The Option Notice shall also set forth a time (which shall not be less
than five (5) nor more than ten (10) business days after the date of such
notice) and place for a meeting (the "Meeting Date") between the Company and the
------------
holders of a majority of the Investor Stock which the Company has elected to
repurchase (the "Majority Holder") to determine the Repurchase Price. Should
---------------
the Company elect to liquidate the Company, the Company shall undertake to do
all things necessary to timely implement the elected liquidation process. Such
liquidation process shall be initiated not later than sixty (60) days from the
date of the later of the Exercise Notice or Joinder Notice. Procedures for the
liquidation shall be determined by the Board of Directors and shall comply with
the procedures for marshalling the assets and liabilities under and pursuant to
applicable provisions of the General Corporation Law of the State of Delaware.
Upon completion of such liquidation procedures and upon payment of the
distribution to all Institutional Investors under and pursuant to the
Certificate of Incorporation, the Board of Directors may elect to redeem and
cancel the Investor Stock held by the Investors and continue the corporate
charter of the Company or dissolve the Company.
<PAGE>
5B. Company Obligation. The Company shall do everything in its power
------------------
under the law and the Certificate of Incorporation, including but not limited to
assuming or refinancing debt, recapitalizing the Company, or selling the
Company, to enable the Company to satisfy its liquidation or repurchase
obligation under this Section 5.
5C. Repurchase Price. The repurchase price for each share of Investor
----------------
Stock repurchased by the Company under this Section 5 (the "Repurchase Price")
shall be equal to the greater of (i) the initial purchase price of such share
hereunder and all amounts subsequently contributed to the capital of the Company
with respect to such share pursuant to this Agreement (as adjusted for stock
splits, stock dividends, combinations, or other reorganizations) or (ii) the
fair market value of such share (without any discount for lack of liquidity or
minority status) as of the date of the Option Notice.
The Company, the Majority Holders, and the holders of a majority of
the Executive Stock then outstanding shall attempt in good faith to agree on the
fair market value of the Investor Stock. If they are unable to reach such
agreement within twenty (20) days after the Meeting Date, the Company and the
Majority Holders will each, within ten (10) days thereafter, appoint one
investment banker or other appraiser experienced in valuing companies like the
Company, and the two persons so appointed shall within ten (10) days after their
appointment appoint a third investment banker or appraiser similarly
experienced. The three investment bankers/appraisers shall each appraise the
fair market value of the Investor Stock (based on the highest price reasonably
obtainable for the Company in an orderly, arm's length sale to a willing
unaffiliated buyer), and the fair market value for purposes hereof shall be the
average of the two appraisals closest to each other. Such determination shall
be final and binding on all parties hereto. The cost of the appraisal shall be
borne by the Company.
5D. Repurchase Closing. At the closing of a Company repurchase of
------------------
Investor Stock pursuant to this Section 5 (the "Repurchase Closing"), each
------------------
Investor selling Investor Stock shall deliver to the Company all existing stock
certificates evidencing the Investor Stock held by such Investor, upon the
Company's delivery to each such selling Investor of Cash in an aggregate amount
equal to the Repurchase Price of such Investor Stock.
(b) Appendix A, Index of Definitions shall be amended such that the following
terms shall be removed from the Agreement: Revised Repurchase Notice.
3. Each Investor acknowledges that the Indenture relating to the Offering
Notes (the "Indenture") will restrict the Company's ability to pay dividends,
---------
make distributions, repurchase capital stock, and make other restricted
payments. Each Investor agrees that it will not cause the Company to take, and
the Company will not be required to take, any action that would cause a default
under the Indenture, that any claim of any Investor or its Affiliates as a
holder of Investor Stock against the Company and its subsidiaries will be
subordinated in right of payment to the Notes and that, so long as any Notes are
outstanding, no holder of Investor Stock shall be entitled to receive any
payments from the Company in respect of such Investor Stock except to the extent
such payment would be permitted under the Indenture.
<PAGE>
4. It is the intent of the parties hereto that each of the holders of the
Offering Notes shall be a third party beneficiary to the terms hereunder and
shall have the right to enforce such terms directly.
5. The parties hereto agree that the Agreement may not be further amended in a
manner adverse to the holders of the Offering Notes without the consent of the
holders of the majority of the outstanding Offering Notes.
6. This Amendment No. 1. to the Agreement shall become effective as of January
23, 1998.
7. This Amendment No. 1 may be executed in any number of counter parts, each
of which shall be an original and all of which taken together shall constitute
one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
-----------------------------
Its: President
----------------------------
<PAGE>
MADISON DEARBORN CAPITAL PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General Partner
By: Madison Dearborn Partners, Inc., its General Partner
By: /s/ James N. Perry, Jr.
--------------------------------------------------
Its: Vice President
-----------------------------------
FRONTENAC VI, L.P.
By: Frontenac Company, its General Partner
By: /s/ James E. Crawford III
--------------------------------------------------
Its: General Partner
-----------------------------------
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P., its General Partner
By: /s/ Richard D. Frisbie
--------------------------------------------------
Its: Managing Partner
------------------------------------
/s/ Robert C. Taylor, Jr.
---------------------------
Robert C. Taylor, Jr.
/s/ John R. Barnicle
---------------------------
John R. Barnicle
/s/ Joseph A. Beatty
---------------------------
Joseph A. Beatty
/s/ Brian F. Addy
---------------------------
Brian F. Addy
<PAGE>
Exhibit 4.7
EXECUTIVE INVESTOR STOCK PLEDGE AGREEMENT
-----------------------------------------
THIS STOCK PLEDGE AGREEMENT (this "Agreement") is made as of November
---------
27, 1996, by and between Brian F. Addy ("Pledgor"), and Focal Communications
-------
Corporation, a Delaware corporation (the "Company").
-------
The Company and Pledgor are parties to a Stock Purchase Agreement of
even date herewith, pursuant to which Pledgor purchased 230.77 shares of the
Company's Class A Common Stock, $.01 par value (the "Class A Common"), for an
--------------
aggregate purchase price of $11,627.91. The Company has allowed Pledgor to
purchase a portion of the Class A Common by delivery to the Company of a
promissory note (the "Note") in the aggregate principal amount of $5,627.91.
----
This Agreement provides the terms and conditions upon which the Note is secured
by a pledge to the Company of the Class A Common and all other Company
securities owned by the Pledgor as of the date hereof (collectively, the
"Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
partial payment for the Class A Common [[partial] payment of the Subsequent
Contribution], Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Agreement until such time as
there exists a default in the payment of principal or interest on the Note or
any other default under the Note or hereunder, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
1
<PAGE>
4. Receipt of Additional Stock; Stock Dividends; Distributions; etc.
----------------------------------------------------------------
If, while this Agreement is in effect, Pledgor becomes entitled to receive or
receives (i) any securities of the Company, or (ii) any other securities or
other property with respect to, in substitution of, or in exchange for any of
the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due, or if any other event of default
under the Note or this Agreement occurs (including the bankruptcy or insolvency
of Pledgor), the Company may exercise any and all of the rights, powers and
remedies of any owner of the Pledged Shares (including the right to vote the
shares and receive dividends and distributions with respect to such shares) and
shall have and may exercise without demand any and all the rights and remedies
granted to a secured party upon default under the Uniform Commercial Code of the
State of Illinois or otherwise available to the Company under applicable law.
Without limiting the foregoing, upon any default the Company is authorized to
sell, assign and deliver at its discretion, from time to time, all or any part
of the Pledged Shares at any private sale or public auction, on not less than
ten days written notice to Pledgor, at such price or prices and upon such terms
as the Company may deem advisable. Pledgor shall have no right to redeem the
Pledged Shares after any such sale or assignment. At any such sale or auction,
the Company may bid for, and become the purchaser of, the whole or any part of
the Pledged Shares offered for sale. In case of any such sale, after deducting
the costs, attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied to the principal of and accrued
interest on the Note; provided that after payment in full of the indebtedness
--------
evidenced by the Note, the balance of the proceeds of sale then remaining shall
be paid to Pledgor and Pledgor shall be entitled to the return of any of the
Pledged Shares remaining in the hands of the Company. Pledgor shall be liable
for any deficiency if the remaining proceeds are insufficient to pay the
indebtedness under the Note in full, including the fees of any attorneys
employed by the Company with respect to such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
-------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Agreement or in the enforcement thereof, shall become part of
the indebtedness secured hereunder and shall be paid by Pledgor or repaid from
the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
-----------------------------------------------------
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
-------------------------------------
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances (other than
may be created by the Stock Purchase
2
<PAGE>
Agreement or any of the other agreements contemplated thereby to which Pledgor
is a party), and Pledgor hereby covenants that, until such time as all of the
outstanding principal of and interest on the Note has been repaid (and without
limiting Pledgor's restrictions on transfer set forth in the Stock Purchase
Agreement and the other agreements contemplated thereby), Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights or a holder thereof, other than pursuant to this Agreement and the Stock
Purchase Agreement or any of the other agreements contemplated thereby to which
Pledgor is a party, or (ii) sell or otherwise transfer any Pledged Shares or any
interest therein (other than to the Company).
9. Further Assurances. Pledgor agrees that at any time and from
------------------
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and take
such further actions as the Company may reasonably request in order to effect
the purposes of this Agreement.
10. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any
------------------------------
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Agreement may be waived, altered, modified or amended except
by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall, together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the internal laws (and not
the laws of conflicts) of the State of Illinois.
* * * *
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
-------------------------
Its: President
---------
/s/ Brian F. Addy
------------------
Brian F. Addy
4
<PAGE>
Exhibit 4.8
EXECUTIVE INVESTOR STOCK PLEDGE AGREEMENT
-----------------------------------------
THIS STOCK PLEDGE AGREEMENT (this "Agreement") is made as of November
---------
27, 1996, by and between John R. Barnicle ("Pledgor"), and Focal Communications
-------
Corporation, a Delaware corporation (the "Company").
-------
The Company and Pledgor are parties to a Stock Purchase Agreement of
even date herewith, pursuant to which Pledgor purchased 230.77 shares of the
Company's Class A Common Stock, $.01 par value (the "Class A Common"), for an
--------------
aggregate purchase price of $11,627.91. The Company has allowed Pledgor to
purchase a portion of the Class A Common by delivery to the Company of a
promissory note (the "Note") in the aggregate principal amount of $5,627.91.
----
This Agreement provides the terms and conditions upon which the Note is secured
by a pledge to the Company of the Class A Common and all other Company
securities owned by the Pledgor as of the date hereof (collectively, the
"Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
partial payment for the Class A Common [[partial] payment of the Subsequent
Contribution], Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Agreement until such time as
there exists a default in the payment of principal or interest on the Note or
any other default under the Note or hereunder, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
1
<PAGE>
4. Receipt of Additional Stock; Stock Dividends; Distributions; etc.
----------------------------------------------------------------
If, while this Agreement is in effect, Pledgor becomes entitled to receive or
receives (i) any securities of the Company, or (ii) any other securities or
other property with respect to, in substitution of, or in exchange for any of
the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due, or if any other event of default
under the Note or this Agreement occurs (including the bankruptcy or insolvency
of Pledgor), the Company may exercise any and all of the rights, powers and
remedies of any owner of the Pledged Shares (including the right to vote the
shares and receive dividends and distributions with respect to such shares) and
shall have and may exercise without demand any and all the rights and remedies
granted to a secured party upon default under the Uniform Commercial Code of the
State of Illinois or otherwise available to the Company under applicable law.
Without limiting the foregoing, upon any default the Company is authorized to
sell, assign and deliver at its discretion, from time to time, all or any part
of the Pledged Shares at any private sale or public auction, on not less than
ten days written notice to Pledgor, at such price or prices and upon such terms
as the Company may deem advisable. Pledgor shall have no right to redeem the
Pledged Shares after any such sale or assignment. At any such sale or auction,
the Company may bid for, and become the purchaser of, the whole or any part of
the Pledged Shares offered for sale. In case of any such sale, after deducting
the costs, attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied to the principal of and accrued
interest on the Note; provided that after payment in full of the indebtedness
--------
evidenced by the Note, the balance of the proceeds of sale then remaining shall
be paid to Pledgor and Pledgor shall be entitled to the return of any of the
Pledged Shares remaining in the hands of the Company. Pledgor shall be liable
for any deficiency if the remaining proceeds are insufficient to pay the
indebtedness under the Note in full, including the fees of any attorneys
employed by the Company with respect to such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
-------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Agreement or in the enforcement thereof, shall become part of
the indebtedness secured hereunder and shall be paid by Pledgor or repaid from
the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
-----------------------------------------------------
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
-------------------------------------
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances (other than
may be created by the Stock Purchase
-2-
<PAGE>
Agreement or any of the other agreements contemplated thereby to which Pledgor
is a party), and Pledgor hereby covenants that, until such time as all of the
outstanding principal of and interest on the Note has been repaid (and without
limiting Pledgor's restrictions on transfer set forth in the Stock Purchase
Agreement and the other agreements contemplated thereby), Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights or a holder thereof, other than pursuant to this Agreement and the Stock
Purchase Agreement or any of the other agreements contemplated thereby to which
Pledgor is a party, or (ii) sell or otherwise transfer any Pledged Shares or any
interest therein (other than to the Company).
9. Further Assurances. Pledgor agrees that at any time and from
------------------
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and take
such further actions as the Company may reasonably request in order to effect
the purposes of this Agreement.
10. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any
------------------------------
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Agreement may be waived, altered, modified or amended except
by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall, together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the internal laws (and not
the laws of conflicts) of the State of Illinois.
* * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
-------------------------
Its: President
---------
/s/ John R. Barnicle
--------------------
John R. Barnicle
-4-
<PAGE>
Exhibit 4.9
EXECUTIVE INVESTOR STOCK PLEDGE AGREEMENT
-----------------------------------------
THIS STOCK PLEDGE AGREEMENT (this "Agreement") is made as of November
---------
27, 1996, by and between Joseph A. Beatty ("Pledgor"), and Focal Communications
-------
Corporation, a Delaware corporation (the "Company").
-------
The Company and Pledgor are parties to a Stock Purchase Agreement of
even date herewith, pursuant to which Pledgor purchased 230.77 shares of the
Company's Class A Common Stock, $.01 par value (the "Class A Common"), for an
--------------
aggregate purchase price of $11,627.91. The Company has allowed Pledgor to
purchase a portion of the Class A Common by delivery to the Company of a
promissory note (the "Note") in the aggregate principal amount of $5,627.91.
----
This Agreement provides the terms and conditions upon which the Note is secured
by a pledge to the Company of the Class A Common and all other Company
securities owned by the Pledgor as of the date hereof (collectively, the
"Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
partial payment for the Class A Common [[partial] payment of the Subsequent
Contribution], Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Agreement until such time as
there exists a default in the payment of principal or interest on the Note or
any other default under the Note or hereunder, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
1
<PAGE>
4. Receipt of Additional Stock; Stock Dividends; Distributions; etc.
----------------------------------------------------------------
If, while this Agreement is in effect, Pledgor becomes entitled to receive or
receives (i) any securities of the Company, or (ii) any other securities or
other property with respect to, in substitution of, or in exchange for any of
the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due, or if any other event of default
under the Note or this Agreement occurs (including the bankruptcy or insolvency
of Pledgor), the Company may exercise any and all of the rights, powers and
remedies of any owner of the Pledged Shares (including the right to vote the
shares and receive dividends and distributions with respect to such shares) and
shall have and may exercise without demand any and all the rights and remedies
granted to a secured party upon default under the Uniform Commercial Code of the
State of Illinois or otherwise available to the Company under applicable law.
Without limiting the foregoing, upon any default the Company is authorized to
sell, assign and deliver at its discretion, from time to time, all or any part
of the Pledged Shares at any private sale or public auction, on not less than
ten days written notice to Pledgor, at such price or prices and upon such terms
as the Company may deem advisable. Pledgor shall have no right to redeem the
Pledged Shares after any such sale or assignment. At any such sale or auction,
the Company may bid for, and become the purchaser of, the whole or any part of
the Pledged Shares offered for sale. In case of any such sale, after deducting
the costs, attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied to the principal of and accrued
interest on the Note; provided that after payment in full of the indebtedness
--------
evidenced by the Note, the balance of the proceeds of sale then remaining shall
be paid to Pledgor and Pledgor shall be entitled to the return of any of the
Pledged Shares remaining in the hands of the Company. Pledgor shall be liable
for any deficiency if the remaining proceeds are insufficient to pay the
indebtedness under the Note in full, including the fees of any attorneys
employed by the Company with respect to such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
-------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Agreement or in the enforcement thereof, shall become part of
the indebtedness secured hereunder and shall be paid by Pledgor or repaid from
the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
-----------------------------------------------------
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
-------------------------------------
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances (other than
may be created by the Stock Purchase
-2-
<PAGE>
Agreement or any of the other agreements contemplated thereby to which Pledgor
is a party), and Pledgor hereby covenants that, until such time as all of the
outstanding principal of and interest on the Note has been repaid (and without
limiting Pledgor's restrictions on transfer set forth in the Stock Purchase
Agreement and the other agreements contemplated thereby), Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights or a holder thereof, other than pursuant to this Agreement and the Stock
Purchase Agreement or any of the other agreements contemplated thereby to which
Pledgor is a party, or (ii) sell or otherwise transfer any Pledged Shares or any
interest therein (other than to the Company).
9. Further Assurances. Pledgor agrees that at any time and from
------------------
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and take
such further actions as the Company may reasonably request in order to effect
the purposes of this Agreement.
10. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any
------------------------------
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Agreement may be waived, altered, modified or amended except
by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall, together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the internal laws (and not
the laws of conflicts) of the State of Illinois.
* * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
------------------------
Its: President
---------
/s/ Joseph A. Beatty
--------------------
Joseph A. Beatty
-4-
<PAGE>
Exhibit 4.10
EXECUTIVE INVESTOR STOCK PLEDGE AGREEMENT
-----------------------------------------
THIS STOCK PLEDGE AGREEMENT (this "Agreement") is made as of November
---------
27, 1996, by and between Robert C. Taylor, Jr. ("Pledgor"), and Focal
-------
Communications Corporation, a Delaware corporation (the "Company").
-------
The Company and Pledgor are parties to a Stock Purchase Agreement of
even date herewith, pursuant to which Pledgor purchased 230.77 shares of the
Company's Class A Common Stock, $.01 par value (the "Class A Common"), for an
--------------
aggregate purchase price of $11,627.91. The Company has allowed Pledgor to
purchase a portion of the Class A Common by delivery to the Company of a
promissory note (the "Note") in the aggregate principal amount of $5,627.91.
----
This Agreement provides the terms and conditions upon which the Note is secured
by a pledge to the Company of the Class A Common and all other Company
securities owned by the Pledgor as of the date hereof (collectively, the
"Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
partial payment for the Class A Common [[partial] payment of the Subsequent
Contribution], Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Agreement until such time as
there exists a default in the payment of principal or interest on the Note or
any other default under the Note or hereunder, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
1
<PAGE>
4. Receipt of Additional Stock; Stock Dividends; Distributions; etc.
----------------------------------------------------------------
If, while this Agreement is in effect, Pledgor becomes entitled to receive or
receives (i) any securities of the Company, or (ii) any other securities or
other property with respect to, in substitution of, or in exchange for any of
the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due, or if any other event of default
under the Note or this Agreement occurs (including the bankruptcy or insolvency
of Pledgor), the Company may exercise any and all of the rights, powers and
remedies of any owner of the Pledged Shares (including the right to vote the
shares and receive dividends and distributions with respect to such shares) and
shall have and may exercise without demand any and all the rights and remedies
granted to a secured party upon default under the Uniform Commercial Code of the
State of Illinois or otherwise available to the Company under applicable law.
Without limiting the foregoing, upon any default the Company is authorized to
sell, assign and deliver at its discretion, from time to time, all or any part
of the Pledged Shares at any private sale or public auction, on not less than
ten days written notice to Pledgor, at such price or prices and upon such terms
as the Company may deem advisable. Pledgor shall have no right to redeem the
Pledged Shares after any such sale or assignment. At any such sale or auction,
the Company may bid for, and become the purchaser of, the whole or any part of
the Pledged Shares offered for sale. In case of any such sale, after deducting
the costs, attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied to the principal of and accrued
interest on the Note; provided that after payment in full of the indebtedness
--------
evidenced by the Note, the balance of the proceeds of sale then remaining shall
be paid to Pledgor and Pledgor shall be entitled to the return of any of the
Pledged Shares remaining in the hands of the Company. Pledgor shall be liable
for any deficiency if the remaining proceeds are insufficient to pay the
indebtedness under the Note in full, including the fees of any attorneys
employed by the Company with respect to such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
-------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Agreement or in the enforcement thereof, shall become part of
the indebtedness secured hereunder and shall be paid by Pledgor or repaid from
the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
-----------------------------------------------------
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
-------------------------------------
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances (other than
may be created by the Stock Purchase
-2-
<PAGE>
Agreement or any of the other agreements contemplated thereby to which Pledgor
is a party), and Pledgor hereby covenants that, until such time as all of the
outstanding principal of and interest on the Note has been repaid (and without
limiting Pledgor's restrictions on transfer set forth in the Stock Purchase
Agreement and the other agreements contemplated thereby), Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights or a holder thereof, other than pursuant to this Agreement and the Stock
Purchase Agreement or any of the other agreements contemplated thereby to which
Pledgor is a party, or (ii) sell or otherwise transfer any Pledged Shares or any
interest therein (other than to the Company).
9. Further Assurances. Pledgor agrees that at any time and from
------------------
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and take
such further actions as the Company may reasonably request in order to effect
the purposes of this Agreement.
10. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any
------------------------------
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Agreement may be waived, altered, modified or amended except
by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall, together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the internal laws (and not
the laws of conflicts) of the State of Illinois.
* * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Joseph A. Beatty
---------------------
Its: Secretary and Executive Vice President
--------------------------------------
/s/ Robert C. Taylor, Jr.
-------------------------
Robert C. Taylor, Jr.
-4-
<PAGE>
Exhibit 4.11
STOCKHOLDERS AGREEMENT
----------------------
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made as of November
---------
27, 1996, by and among Focal Communications Corporation, a Delaware corporation
(the "Company") and the stockholders listed on the signature page hereof (the
-------
"Stockholders"). Capitalized terms not otherwise defined in this Agreement are
------------
used herein with the meanings assigned to such terms in the Stock Purchase
Agreement of even date herewith, by and among the parties hereto (the "Stock
-----
Purchase Agreement").
- ------------------
The Company and the Stockholders desire to enter into this Agreement
for the purposes, among others, of (i) establishing the composition of the
Company's board of directors (the "Board"), (ii) assuring continuity in the
management and ownership of the Company, and (iii) limiting the manner and terms
by which the Common Stock may be transferred. The execution and delivery of
this Agreement is a condition to the Stockholders' purchase of Class A Common
pursuant to the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. BOARD OF DIRECTORS.
------------------
(a) Board Composition and Vacancies. From and after the Initial
-------------------------------
Closing under the Stock Purchase Agreement until the provisions of this
paragraph 1 cease to be effective pursuant to paragraph 1(e), each Stockholder
shall vote all shares of Common Stock owned by such Stockholder or over which
such Stockholder has voting control and shall take all other necessary or
desirable actions within such Stockholder's control (whether in such
Stockholder's capacity as a stockholder, director, member of a Board committee
or officer of the Company or otherwise, and including, without limitation,
attendance at meetings in person or by proxy for purposes of obtaining a quorum
and execution of written consents in lieu of meetings), and the Company shall
take all necessary or desirable actions within its control (including, without
limitation, calling special Board and stockholder meetings), so that:
(i) The authorized number of directors on the Board shall be
established and remain at seven directors.
(ii) The following individuals shall be elected to the Board:
1
<PAGE>
(A) two representatives (the "MDCP Directors") designated by
--------------
MDCP so long as MDCP and its Affiliates hold at least 50% of the
shares of Investor Stock initially purchased by MDCP under the Stock
Purchase Agreement, and thereafter one representative designated by
MDCP so long as MDCP and its Affiliates hold at least 10% of such
shares and at least 3% of the Company's outstanding common stock;
(B) one representative (the "Frontenac Director") designated by
------------------
Frontenac so long as Frontenac and its Affiliates hold at least 20% of
the shares of Investor Stock initially purchased by Frontenac under
the Stock Purchase Agreement and at least 3% of the Company's
outstanding common stock;
(C) one representative (the "BV Director") designated by BV so
-----------
long as BV and its Affiliates hold at least 50% of the shares of
Investor Stock initially issued to BV under the Stock Purchase
Agreement and at least 3% of the Company's outstanding common stock;
(D) two Executive Investors employed by the Company (the
"Management Directors") designated by holders of a majority of the
--------------------
outstanding shares of Investor Stock initially issued to the Executive
Investors under the Stock Purchase Agreement and held by Executive
Investors who are employed by the Company or its Subsidiaries at the
time of such designation or their Permitted Transferees ("Management
----------
Stock"); and
-----
(E) one representative (the "Outside Director") designated by
----------------
holders of a majority of the outstanding shares of Institutional
Investor Stock and reasonably acceptable to holders of a majority of
the outstanding shares of Management Stock, provided that such
--------
representative is not a member of the Company's management or an
employee or officer of the Company or any of its Subsidiaries.
The MDCP Directors, the Frontenac Director and the BV Director are referred
to herein collectively as the "Institutional Investor Directors."
--------------------------------
(iii) The composition of the board of directors of each of the
Company's Subsidiaries (a "Sub Board") shall be the same as that of the
---------
Board.
(iv) Committees of the Board or a Sub Board shall be created only
upon the approval of a majority of the members of the Board or the
applicable Sub Board that includes a majority of the Institutional Investor
Directors serving on such Board or Sub Board, and the composition of each
such committee (if any) shall be proportionately equivalent to that of the
Board to the extent practicable.
(v) Any director will be removed from the Board or a Sub Board, with
or without cause, at the written request of the holder or holders that
designated such person to be a director and under no other circumstances;
provided that if any Management
2
<PAGE>
Director ceases to be an employee of the Company and its Subsidiaries, he
shall be removed as a member of the Board and each Sub Board promptly after
his employment ceases.
(vi) In the event that any director ceases to serve as a member of
the Board or a Sub Board during his or her term of office, the resulting
vacancy on the Board or the Sub Board shall be filled by a representative
(or in the case of a vacant Management Directorship, an Executive Investor)
designated by the holder or holders that initially designated the departing
director.
(vii) If any party eligible to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1 fails to so
designate, the individual previously holding such directorship shall be
elected to such position, or if such individual has been removed as a
director or fails or declines to serve, the vacancy shall be filled with an
individual designated by holders of a majority of the Investor Stock then
outstanding; provided that the Stockholders shall vote to remove such
individual if the party which failed to designate such directorship so
directs.
(viii) If MDCP, Frontenac, or BV become ineligible, by virtue of the
terms of subparagraphs 1(a)(ii)(A), (B), or (C), respectively, to designate
a representative to fill a directorship pursuant to such subparagraph, the
vacancy shall, so long as at least 50% of the Investor Stock initially
issued under the Stock Purchase Agreement (including stock issued with
respect to such initially issued Investor Stock, whether by stock split,
stock dividend, or recapitalization) remains outstanding, be filled with an
individual designated by holders of a majority of the Investor Stock then
outstanding, and thereafter by holders of a majority of the Common Stock
then outstanding.
(b) Director Expenses; Indemnity Insurance; Exculpation. The
---------------------------------------------------
Company shall pay the reasonable out-of-pocket expenses incurred by each
director other than a Management Director in connection with attending the
meetings of the Board, any Sub Board and any committee thereof. So long as any
director designated under this Agreement serves on the Board and for 5 years
thereafter, the Company shall maintain directors and officers indemnity
insurance coverage satisfactory to the Board at the time such insurance is first
obtained and not thereafter reduced in amount or coverage, and the Company's
certificate of incorporation and bylaws shall provide for indemnification and
exculpation of directors to the fullest extent permitted under applicable law.
(c) Attendance Right. If at any time an Institutional Investor
----------------
fails for any reason, or becomes ineligible, to designate a representative to
fill a directorship pursuant to the terms of this paragraph 1, then so long as
such Institutional Investor together with its Affiliates holds at least 10% of
the shares of Investor Stock initially purchased by such Institutional Investor
under the Stock Purchase Agreement, the Company shall (i) permit a
representative of such Institutional Investor to attend as an observer (or in
the case of a telephonic conference, a listener) all meetings of the Board, any
Sub Board, or any committees thereof, (ii) provide such representative with all
written materials and other information (including, without limitation, copies
of meeting minutes and notices of future meetings) given to directors in
connection with
3
<PAGE>
such meetings at the same time such materials and information are given to the
directors, and (iii) pay the reasonable out-of-pocket expenses incurred by such
representative in connection with attending such meetings.
(d) Company Guidelines. Not later than the third meeting of the
------------------
Board after the date of this Agreement, the Board shall adopt a set of standards
of business conduct which shall establish reasonable and prudent policies and
guidelines for the Company and its Subsidiaries and their employees, including,
without limitation, with respect to the following matters: conflicts of
interest, ethical practices, trade regulation, payment and procurement policies,
legal compliance, employment discrimination, sexual harassment and environmental
management.
(e) Termination. The rights and requirements under this paragraph 1
-----------
shall terminate at the closing of the first to occur of (i) a Public Offering
and (ii) a Sale of the Company.
2. REPRESENTATIONS AND WARRANTIES. Each Stockholder represents and
------------------------------
warrants that (i) this Agreement has been duly authorized, executed and
delivered by such Stockholder and constitutes the valid and binding obligation
of such Stockholder, enforceable in accordance with its terms, and (ii) such
Stockholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with, conflicts with or violates any
provision of this Agreement. No holder of Investor Stock or other Common Stock
shall grant any proxy or become party to any voting trust or other agreement
which is inconsistent with, conflicts with or violates any provision of this
Agreement.
3. RESTRICTIONS ON TRANSFER.
------------------------
(a) Retention of Executive Stock. No Executive Investor shall sell,
----------------------------
transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation of law)
("Transfer") any interest in Executive Stock (as that term is defined in the
--------
Executive Stock Agreements), except in a Permitted Transfer, as defined in
paragraph 3(b) below, or pursuant to the provisions of (i) paragraph 3 of the
Executive Stock Agreement to which such Executive Investor is a party, (ii) the
forfeiture provisions of the Vesting Agreement to which such Executive Investor
is a party, or (iii) paragraphs 4(c) or 5(a) hereof; provided that following the
--------
consummation of a Public Offering, the above restrictions of this paragraph 3(a)
shall apply only to Executive Stock that is either (or both) Vested Class C
Common (as that term is defined in the Vesting Agreements) or Unvested Shares
(as that term is defined in the Executive Stock Agreements); and further
-----------
provided that no Executive Investor shall Transfer shares of Unvested Class C
- --------
Common (as that term is defined in the Vesting Agreements) to any Person, except
pursuant to the terms set forth in the Vesting Agreements.
(b) Permitted Transfers. "Permitted Transfer" means any Transfer of
------------------- ------------------
Common Stock (i) pursuant to applicable laws of descent and distribution, (ii)
among such Stockholder's Family Group (as defined below), or (iii) in the case
of a Stockholder that is not a natural person, to such Stockholder's Affiliates;
provided that the restrictions and conditions described in this Agreement, the
- --------
Stock Purchase Agreement, or any Executive Stock Agreement to which the
4
<PAGE>
transferor is a party shall continue to be applicable to such Common Stock after
any such Permitted Transfer, and the transferee(s) of such stock (the "Permitted
---------
Transferee(s)") shall have agreed in writing to be bound by the provisions of
- -------------
such agreements; and provided further that if any such stock is transferred
pursuant to clause (iii) of this paragraph 3(b), any transfer of control of such
Affiliate thereafter shall be deemed a Transfer of such stock for purposes of
this Agreement and will not be considered a Permitted Transfer unless such
deemed Transfer itself satisfies the requirements of this paragraph 3(b). A
Stockholder's "Family Group" means such Stockholder's spouse and descendants
------------
(whether natural or adopted) and any trust solely for the benefit of such
Stockholder and/or such Stockholder's spouse and/or descendants.
4. FIRST REFUSAL AND PARTICIPATION RIGHTS.
--------------------------------------
(a) Sale Notice. At least 60 days prior to any Transfer of Investor
-----------
Stock (other than a Permitted Transfer, a transfer pursuant to the repurchase
provisions in any of the Executive Stock Agreements, or a forfeiture pursuant to
the provisions of any Vesting Agreement), the Stockholder(s) desiring to making
such Transfer (the "Transferring Stockholder(s)") shall deliver a written notice
---------------------------
(the "Sale Notice") to the Company and the other Stockholders, specifying in
-----------
reasonable detail the identity of the prospective transferee(s), the number of
shares to be transferred and the terms and conditions of the Transfer.
(b) First Refusal.
-------------
(i) The Company shall notify the Transferring Stockholder and
each other Stockholder in writing, within 20 days after its receipt of the
Sale Notice, whether it desires to purchase any of the shares offered for
sale in the Sale Notice (the "Offered Shares") and, if so, how many Offered
--------------
Shares it desires to purchase (the "Company Notice"). Subject to
--------------
subparagraph 4(b)(vii) below, the Company shall have the right to purchase
all the Offered Shares which it elects to purchase in the Company Notice,
at the price and on the other terms (subject to subparagraph 4(b)(iii)
below) set forth in the Sale Notice. If the Company elects to purchase all
of the Offered Shares, the Company Notice shall also set forth the time and
place of the closing of such purchase (the "Closing"), which shall occur
-------
not more than 90 days after the Company's receipt of the Sale Notice.
(ii) Each Stockholder shall have the right to purchase its pro
rata portion (based upon the number of shares of Investor Stock held by
each Stockholder electing to purchase any of the Offered Shares) of the
Offered Shares not purchased by the Company under subparagraph 4(b)(i)
above or by other Stockholders under this subparagraph 4(b)(ii), at the
price and on the other terms (subject to subparagraph 4(b)(iii) below) set
forth in the Sale Notice, by so notifying the Company in writing 10 days
after receipt of the Company Notice (each, a "Stockholder Notice"). Each
------------------
Stockholder Notice shall specify the maximum number of shares which the
Stockholder sending such Stockholder Notice desires to purchase.
(iii) Notwithstanding any other provision hereof, in the event
that the sale price, or any portion thereof, for the Offered Shares
described in the Sale Notice is not payable in the form of cash or simple
promissory notes issued by the prospective
5
<PAGE>
purchaser described therein, the Company and any Stockholders electing to
purchase Offered Shares pursuant to subparagraphs 4(b)(i) or (ii) above
shall be required to pay only such portion, if any, of the sale price
described in the Sale Notice as consists of cash and simple promissory
notes (the latter to be issued by the Company or the Stockholder purchasing
such shares, as applicable), and delivery of such consideration to
the Transferring Stockholder shall be payment in full for the Offered
Shares.
(iv) If the Company does not elect to purchase all of the
Offered Shares, it shall notify all Stockholders in writing within 35 days
after the Company's receipt of the Sale Notice whether the Company and the
Stockholders have elected, in the aggregate, to purchase all of the Offered
Shares (the "Second Company Notice").
---------------------
(v) If the Company and the other Stockholders have elected
pursuant to subparagraph 4(b)(i) or (ii) above, in the aggregate, to
purchase all Offered Shares, the Second Company Notice shall set forth the
number of Offered Shares to be purchased by the Company and by each
Stockholder that elected to purchase Offered Shares and the time and place
of the Closing, which shall occur not less than 60 nor more than 90 days
after the Company's receipt of the Sale Notice.
(vi) At the Closing, the Company (if it elected to purchase any
Offered Shares) and each Stockholder electing to purchase Offered Shares
(if the Company did not elect to purchase all Offered Shares) shall deliver
to the Transferring Stockholder the cash and, if applicable, the promissory
notes constituting the purchase price for the Offered Shares to be
purchased by such purchaser, and the Transferring Stockholder shall deliver
to the Company and/or each purchasing Stockholder the certificate(s)
representing the Offered Shares being purchased by such purchaser.
(vii) If the Company and all Stockholders do not elect, in the
aggregate, to purchase all Offered Shares pursuant to subparagraphs 4(b)(i)
and (ii) above, all elections pursuant to subparagraphs 4(b)(i) or (ii) to
purchase Offered Shares shall be null and void (which fact shall be stated
in the Second Company Notice), and the Transferring Stockholder shall have
the right, subject to paragraph 4(c) below, to Transfer the Offered Shares
to the transferee described in the Sale Notice at the price and on the
other terms described therein, within 90 days after the date of the Sale
Notice. If after such 90-day period, the Offered Shares which the
Transferring Shareholder is entitled to transfer pursuant to this
subparagraph (vii) have not been so transferred, they shall thereafter
again be subject to this paragraph 4(b).
(c) Participation Rights.
--------------------
(i) Any Stockholder not electing to purchase any Offered Shares
pursuant to subparagraph 4(b)(ii) above may elect to participate in any
sale of Offered Shares pursuant to subparagraph 4(b)(vii) above (and only
in a sale pursuant to such subparagraph) by so stating in the Stockholder
Notice, provided that an Executive Investor may not sell any Vested Shares
--------
of Class B Common pursuant to this paragraph (c) unless the number of
Offered Shares is equal to at least 50% of the total number of shares of
6
<PAGE>
Institutional Investor Stock then outstanding, and provided further that an
Executive Investor may under no circumstances sell any Unvested Shares or
any other shares of Class C Common pursuant to this paragraph (c).
(ii) If any Stockholders have elected to participate in such
Transfer, and if no electing Executive Investors are eligible to sell any
Vested Shares of Class B Common in such Transfer (pursuant to the proviso
in paragraph 4(c)(i) above), the Transferring Stockholder(s) and such
electing Stockholders shall each be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of shares of
Investor Stock equal to the product of (i) the quotient determined by
dividing the number of shares of Investor Stock owned by such Person by the
number of shares of Investor Stock owned by all Stockholders participating
in such Transfer (including the Transferring Stockholder(s)), and (ii) the
number of Offered Shares specified in the Sale Notice.
(iii) In the event any electing Executive Investor is eligible
to sell Vested Shares of Class B Common in the Contemplated Transfer
(pursuant to the proviso in subparagraph 4(c)(i)) and wishes to do so, then
the Transferring Stockholder(s) and the electing Stockholders shall each be
entitled to sell in the contemplated Transfer, at the same price and on the
same terms, a number of shares of Investor Stock and Vested Shares of Class
B Common equal to the product of (i) the quotient determined by dividing
the number of shares of Investor Stock and Vested Shares of Class B Common
owned by such Person by the aggregate number of shares of Investor Stock
and Vested Shares of Class B Common owned by all Stockholders participating
in such Transfer (including the Transferring Stockholder(s)), times (ii)
-----
the number of Offered Shares specified in the Sale Notice; provided that an
--------
Executive Investor may not sell any Vested Shares of Class B Common in such
contemplated Transfer unless such Executive Investor is entitled to sell
and sells in such contemplated Transfer all Investor Stock held by such
Executive Investor at the time of the contemplated Transfer.
(iv) Each Transferring Stockholder shall use best efforts to
obtain the agreement of the prospective transferee(s) to the participation
of the participating Stockholder(s) in any contemplated Transfer, and no
Transferring Stockholder shall transfer any of its Offered Shares to any
prospective transferee unless (i) such prospective transferee agrees to the
participation of the participating Stockholder(s) in such Transfer, or (ii)
the Transferring Stockholder purchases from each participating Stockholder
the same number of shares (at the same price and on the same terms) that
such participating Stockholder would have been entitled to sell had the
prospective transferee so agreed.
(v) Each Stockholder transferring shares pursuant to this
paragraph 4(c) shall pay its pro rata share (based on the number of shares
of Common Stock to be transferred by such Stockholder) of the expenses
incurred by the Stockholders in connection with such transfer and shall be
obligated to join on a pro rata basis (based on the number of shares of
Common Stock to be sold) in any indemnification or other obligations that
the Transferring Stockholder agrees to provide in connection with such
transfer (other than any such obligations that relate specifically to a
particular Stockholder
7
<PAGE>
such as indemnification with respect to representations and warranties
given by a Stockholder regarding such Stockholder's title to and ownership
of shares); provided that no holder shall be obligated in connection with
such Transfer to agree to indemnify or hold harmless the transferee(s) with
respect to an amount in excess of the net cash proceeds paid to such holder
in connection with such Transfer.
5. SALE OF THE COMPANY.
-------------------
(a) Stockholder Obligation. If the holders of at least 67% of the
----------------------
Institutional Investor Stock then outstanding approve a Transfer of all or
substantially all of the outstanding stock or assets of the Company and its
Subsidiaries, including by way of merger or consolidation (a "Sale of the
-----------
Company," and as approved, an "Approved Sale"), each Stockholder shall vote for,
- ------- -------------
consent to and raise no objections against such Approved Sale. If the Approved
Sale is structured (i) as a merger or consolidation, each Stockholder shall
waive any dissenters rights, appraisal rights or similar rights in connection
with such merger or consolidation or (ii) as a sale of stock, each Stockholder
shall agree to sell all of such Stockholder's shares of Common Stock on the
terms and conditions approved by the Board and the holders of at least 67% of
the Institutional Investor Stock then outstanding. Each holder of Common Stock
shall take all necessary or desirable actions in connection with the
consummation of the Approved Sale as requested by the Company.
(b) Conditions to Obligation. The obligations of the Stockholders
------------------------
with respect to the Approved Sale of the Company are subject to the satisfaction
of the following conditions: (i) upon the consummation of the Approved Sale,
each holder of a class of Common Stock shall receive the same form of
consideration and the same amount of consideration for each share of such class
of Common Stock to be sold in such Approved Sale, and (ii) if any holders of a
class of Common Stock are given an option as to the form and amount of
consideration to be received, each holder of such class of Common Stock shall be
given the same option; provided that there shall be no difference between the
--------
form (or option as to form) and amount of consideration paid for each share of
Class A Common and Class B Common to be sold in such Approved Sale, other than
what is consistent with the Distribution Preference of the Class A Common
pursuant to the Certificate of Incorporation.
(c) Initial Public Offering. In the event that the holders of at
-----------------------
least 67% of the Institutional Investor Stock then outstanding approve an
initial Public Offering, the Stockholders shall take all necessary or desirable
actions in connection with the consummation of the Public Offering.
(d) Recapitalization. Prior to and in connection with an initial
----------------
Public Offering, or at any time upon the affirmative vote of holders of a
majority of the Class B Common then outstanding and holders of at least 67% of
the Institutional Investor Stock then outstanding, each Stockholder shall
consent to, vote for, and take all necessary or desirable actions in connection
with the consummation of, a recapitalization, reorganization and/or exchange of
the Class A Common and Class B Common into a single class of common stock (the
"Recapitalization"), so that each Stockholder receives in such Recapitalization
----------------
a number of shares of new common stock
8
<PAGE>
in proportion to the number of shares of Class A Common and Class B Common held
by such Stockholder immediately prior to the Recapitalization.
(e) Termination. The provisions of this paragraph 5 shall terminate
-----------
upon the completion of the first to occur of (i) a Public Offering or (ii) a
Sale of the Company.
6. RESTRICTIVE LEGEND. Each certificate evidencing Common Stock and
------------------
each certificate issued in exchange for or upon the transfer of any Common Stock
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"The securities represented by this certificate are subject to
restrictions on transfer and a voting agreement contained in a
Stockholders Agreement dated as of November 27, 1996, by and
among the issuer of such securities (the "Company") and
certain of the Company's stockholders, as amended and modified
from time to time. A copy of such Stockholders Agreement shall
be furnished without charge by the Company to the holder hereof
upon written request."
The Company shall imprint such legend on certificates evidencing Common Stock
outstanding as of the date hereof. The legend set forth above shall be removed
from the certificates evidencing any shares of Common Stock when all provisions
of this Agreement have ceased to apply to such share in accordance with the
terms hereof.
7. TRANSFEREES. Prior to transferring any Common Stock (other than
-----------
pursuant to a Public Offering or a Sale of the Company) to any Person, the
transferring Stockholder shall cause the prospective transferee to be bound by
this Agreement and to execute and deliver to the Company and the other
Stockholders a written counterpart of this Agreement.
8. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
-----------------------------------
Transfer of any Common Stock in violation of any provision of this Agreement
shall be null and void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Stockholder Shares as the owner
of such shares for any purpose.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company, the holders of at
least 67% of the Institutional Investor Stock then outstanding, and a majority
of the Executive Stock then outstanding. The failure of any party to enforce
any of the provisions of this Agreement shall in no way be construed as a waiver
of such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
10. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under
9
<PAGE>
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
any other provision of this Agreement in such jurisdiction or affect the
validity, legality or enforceability of any provision in any other jurisdiction,
but this Agreement shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein.
11. ENTIRE AGREEMENT. Except as otherwise expressly set forth
----------------
herein, this Agreement, those documents expressly referred to herein and other
documents of even date herewith embody the complete agreement and understanding
among the parties hereto with respect to the subject matter hereof and supersede
and preempt any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
12. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and the respective
successors and assigns of each of them, so long as they hold any Common Stock;
provided that the power of any party to designate a representative to fill a
directorship under subparagraphs 1(a)(ii)(A) through (D) shall be unassignable
and may not be exercised by any successor in interest to the Persons specified
in such subparagraphs.
13. COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
14. REMEDIES. The Company and the Stockholders shall be entitled to
--------
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company and any Stockholder may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive relief (without posting a bond or
other security) in order to enforce or prevent any violation of the provisions
of this Agreement.
15. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been given when personally delivered, one
business day after being sent by reputable overnight courier service (charges
prepaid), and three business days after being mailed first class mail (postage
prepaid and return receipt requested) to the Company at the address set forth
below, to any Stockholder at the address listed on the Schedule of Investors to
the Stock Purchase Agreement, to any subsequent holder of Common Stock subject
to this Agreement at such address as indicated by the Company's records, or at
such address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party. The Company's address
is:
Focal Communications Corporation
300 West Washington Blvd., Suite 1408
10
<PAGE>
Chicago, Illinois 60606
Attention: President
16. Governing Law. The corporate law of the State of Delaware shall
-------------
govern all issues and questions concerning the relative rights and obligations
of the Company and its stockholders. All other issues and questions concerning
the construction, validity, interpretation and enforceability of this Agreement
and the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Illinois.
17. Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief-executive office is located, the time
period shall automatically be extended to the business day immediately following
such Saturday, Sunday or legal holiday.
18. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * *
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
/s/ Brian F. Addy MADISON DEARBORN CAPITAL PARTNERS, L.P.
- -----------------
Brian F. Addy By Madison Dearborn Partners, L.P., its General
Partner
By Madison Dearborn Partners, Inc., its General
Partner
/s/ John R. Barnicle By /s/ James N. Perry, Jr.
- --------------------- ----------------------
John R. Barnicle Its Vice President
--------------
/s/ Joseph Beatty
- ------------------
Joseph Beatty FRONTENAC VI, L.P.
By Frontenac Company, its General Partner
/s/ Robert C. Taylor, Jr. By /s/ James E. Crawford III
- ------------------------- -------------------------
Robert C. Taylor, Jr. Its General Partner
---------------
BATTERY VENTURES III, L.P.
By Battery Partners III, L.P., its General
Partner
By /s/ Richard D. Frisbie
----------------------
Its Managing Partner
----------------
FOCAL COMMUNICATIONS CORPORATION
By /s/ Robert C. Taylor, Jr.
------------------------
Its President
---------
12
<PAGE>
Exhibit 4.12
EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT
--------------------------------------------------
THIS EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT (the
"Agreement") is made as of November 27, 1996, by and between Focal
Communications Corporation, a Delaware corporation (the "Company"), and Brian F.
-------
Addy ("Executive").
---------
The execution and delivery of this Agreement by the Company and
Executive are a condition to the purchase of shares of the Company's Class A
Common Stock, par value $.01 per share (the "Class A Common"), by certain
--------------
investors (the "Investors") pursuant to a stock purchase agreement of even date
---------
herewith by and among such Investors and the Company (as amended from time to
time pursuant to its terms, the "Stock Purchase Agreement"). Executive is a
------------------------
party to the Stock Purchase Agreement and desires that the purchase of Class A
Common pursuant thereto be consummated. Capitalized terms used but not defined
in this Agreement are used herein with the meanings assigned to such terms in
the Stock Purchase Agreement.
Executive holds beneficially and of record 25% of the Company's common
stock outstanding immediately prior to the closing hereunder (the "Existing
--------
Common Stock"). This Agreement contemplates a transaction where, pursuant to
- ------------
the terms and subject to the conditions set forth herein, Executive will
exchange all of his shares of Existing Common Stock for newly issued shares of
the Company's Class B Common Stock, par value $.01 per share (the "Class B
-------
Common") and newly issued shares of the Company's Class C Common Stock, par
- ------
value $.01 per share (the "Class C Common"). Such shares of Class B Common and
--------------
Class C Common are subject to certain terms and restrictions set forth in this
Agreement, in a stockholders agreement of even date herewith by and among the
Investors and the Company (as amended from time to time pursuant to its terms,
the "Stockholders Agreement"), and in several vesting agreements, each entered
----------------------
into between the Executive, the other Executive Investors, the Company, and one
Institutional Investor (as amended from time to time pursuant to their terms,
the "Vesting Agreements").
------------------
NOW, THEREFORE, in consideration of the above premises and the mutual
promises made herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EXCHANGE OF EXECUTIVE'S EXISTING COMMON STOCK.
---------------------------------------------
(a) Exchange of Existing Common Stock. At the Closing, pursuant to a
---------------------------------
recapitalization of the Company wherein all of the Company's Existing Common
Stock held by the Executive Investors will be converted into newly issued Class
B Common and Class C Common as set forth in the amended Certificate of
Incorporation, Executive shall exchange each
<PAGE>
of his shares of Existing Common Stock for 13 and 1/3 shares of Class B Common
and 9 and 60,577/75,000 shares of Class C Common.
(b) The Closing. The closing of the exchange and issuance of Class B
-----------
Common and Class C Common hereunder (the "Closing" for purposes of this
-------
Agreement) shall take place simultaneously with the Initial Closing under the
Stock Purchase Agreement. At the Closing, the Company shall deliver to Executive
certificates representing the shares of Class B Common and Class C Common to be
issued to Executive hereunder, registered in Executive's name, and Executive
shall deliver to the Company certificates representing 25% of the Company's
Existing Common Stock, which Existing Common Stock shall be immediately canceled
by the Company.
(c) Section 83(b) Election. Promptly but in any event within 30 days
----------------------
after the Closing, Executive shall make an effective election with the IRS under
Section 83(b) of the IRC with respect to the Class B Common and Class C Common
issued hereunder. A form of such election is attached to this Agreement as Annex
-----
A.
- -
(d) Representations and Warranties. In connection with the exchange
------------------------------
and issuance of Class B Common and Class C Common hereunder, Executive
represents and warrants to the Company that:
(i) The securities to be acquired by Executive pursuant to
this Agreement shall be acquired for Executive's own account and not with a
view to, or intention of, distribution thereof in violation of the
Securities Act of 1933 or any applicable state securities laws, and such
securities shall not be disposed of in contravention of such Act or laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of his investment in the Class B Common and Class C Common issued
hereunder.
(iii) Executive is able to bear the economic risk of his
investment in the Class B Common and Class C Common for an indefinite
period of time and is aware that transfer of such securities may not be
possible because (A) such transfer is subject to contractual restrictions
on sale set forth herein, in the Stockholders Agreement, and in the Vesting
Agreements, and (B) such securities have not been registered under the 1933
Act and, therefore, cannot be sold unless subsequently registered under the
1933 Act or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Class B Common and
-2-
<PAGE>
Class C Common issued hereunder and has had full access to such other
information concerning the Company as he has requested.
(v) This Agreement, the Stockholders Agreement, the Vesting
Agreements, the Stock Purchase Agreement, and the other agreements
contemplated thereby of even date therewith constitute the legal, valid and
binding obligations of Executive, enforceable in accordance with their
terms, and the execution, delivery and performance of such agreements by
Executive do not and shall not conflict with, violate or cause a breach of
any agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
2. VESTING.
-------
(a) Vesting. Except as otherwise provided herein, 20% of the Unvested
-------
Shares (as defined below) shall vest on the date of the Closing and 20% on each
of the first four anniversaries of such date, provided that except as otherwise
--------
expressly provided herein, Unvested Shares shall not vest after the date on
which Executive's employment by the Company is terminated. "Unvested Shares"
---------------
means the Class B Common and Class C Common issued hereunder (as well as any
Class B Common issued upon conversion of Class C Common issued hereunder), and
any securities issued with respect to such Class B Common or Class C Common
(including in connection with any stock dividend, merger, combination,
recapitalization, or other reorganization); provided that upon vesting pursuant
to this Agreement, such shares shall cease to be Unvested Shares and shall be
referred to as "Vested Shares."
-------------
(b) Acceleration upon a Qualified Sale of the Company. All Unvested
-------------------------------------------------
Shares shall become Vested Shares at the closing of a Qualified Sale of the
Company (as defined below) if Executive is employed by the Company or any of its
Subsidiaries on such closing date (or, if Executive is terminated by the Company
without Cause (as defined below), at any time during the 45-day period preceding
such closing date). "Qualified Sale of the Company" means a sale or transfer of
-----------------------------
all or substantially all of the outstanding stock or assets of the Company and
its subsidiaries, including by way of merger or consolidation, where more than
50% of the consideration for such stock or assets in such sale or transfer
consists of cash and/or publicly traded securities; provided that a Qualified
Sale of the Company shall not include a recapitalization, merger, or other
reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction.
(c) Acceleration upon a Qualified Reorganization. If, at any time
--------------------------------------------
after the closing of a Qualified Reorganization (as defined below), Executive is
terminated by the Company without Cause, there shall vest upon such termination
the number of Unvested Shares which were scheduled to vest within the 12 months
following such termination; and no additional shares shall vest thereafter,
except as otherwise provided in paragraph 2(f) below. "Qualified
---------
Reorganization" means (i) a sale or transfer of all or substantially all of the
- --------------
outstanding stock or assets of the Company and its subsidiaries, including by
way of merger or consolidation, where at least 50% of the consideration for such
stock or assets in such sale or transfer consists of
-3-
<PAGE>
securities that are not publicly traded (other than a recapitalization, merger,
or other reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction); or (ii) a merger of the Company with a
Controlled Entity (as defined below), where the holders of the Company's common
stock immediately prior to such merger receive in such merger with respect to
such common stock less than 50% of the equity of the acquiring or surviving
entity immediately after such transaction. "Controlled Entity" means any
-----------------
corporation, limited liability company, partnership or other business entity of
which (x) if a corporation, a majority of the total voting power of shares of
stock entitled to vote in the election of directors, managers or trustees
thereof is at the time controlled by MDCP, or collectively by MDCP and one of
Frontenac or BV, or (y) if a limited liability company, partnership,
association, or other business entity, a majority of the partnership or similar
ownership interest thereof is at the time controlled by MDCP, or collectively by
MDCP and one of Frontenac or BV.
(d) Acceleration upon a Public Offering. At the closing of the
-----------------------------------
Company's initial Public Offering (as defined in the Stock Purchase Agreement),
if Executive is then employed by the Company, there will vest the number of
Unvested Shares which were scheduled to vest within 12 months following such
closing (and the remaining Unvested Shares, if any, shall continue to vest 20%
on each anniversary of the Closing hereunder as long as Executive is employed by
the Company, so that the vesting schedule set forth in paragraph 2(a) above
shall have been effectively accelerated by one year).
(e) Acceleration upon Death or Disability. If Executive's employment
-------------------------------------
with the Company or any of its Subsidiaries terminates by reason of Executive's
death or Disability, there will vest a number of Unvested Shares equal to the
greater of (i) the quotient obtained by dividing (A) the number of Unvested
Shares minus the number of Vested Shares, each as existing at the time of such
-----
termination, by (B) two, and (ii) the number of Unvested Shares which were
scheduled to vest within 12 months following such termination. No additional
shares shall vest thereafter, except as otherwise provided in paragraph 2(f)
below. "Disability" means the Executive's inability, due to illness, accident,
----------
injury, physical or mental incapacity or other disability, to carry out
effectively his duties and obligations to the Company hereunder or to
participate effectively and actively in the management of the Company for a
period anticipated to last at least six months, as determined in the good faith
judgment of the Company's board of directors (the "Board").
-----
(f) Other Acceleration. Subject to paragraph 3(h) hereof, any
------------------
Unvested Shares which the Company (or its assignees pursuant to paragraph 3(e)
hereof) has not elected to repurchase in the Repurchase Notice provided for in
paragraph 3(b) below (including Unvested Shares originally included in the
Repurchase Notice, but for which the election to repurchase was rescinded,
pursuant to paragraph 3(d)(iii) below, by all of the Company and/or its
assignees having made such election) shall thereafter be deemed Vested Shares
for all purposes of this Agreement and the Stockholders Agreement.
3. COMPANY'S REPURCHASE OPTION.
---------------------------
-4-
<PAGE>
(a) The Repurchase Option. In the event Executive ceases to be
---------------------
employed by the Company and its Subsidiaries for any reason (the "Termination"),
-----------
the Executive Stock then in existence (whether held by Executive or one or more
of Executive's transferees) will be subject to repurchase by the Company
pursuant to the terms and conditions set forth in this paragraph 3 (the
"Repurchase Option"). "Executive Stock" means the Class B Common and Class C
----------------- ---------------
Common issued to Executive hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), the Class A Common purchased by
Executive under the Stock Purchase Agreement, any other shares of Common Stock
or other Company securities acquired by Executive at any time that this
Agreement is in effect, and any securities issued directly or indirectly with
respect to the aforementioned securities (including in connection with any stock
dividend, merger, combination, reorganization or recapitalization), provided
--------
that shares of Executive Stock shall cease to be Executive Stock when they have
been transferred (including to the Company and/or its assignees by virtue of
this Repurchase Option) in compliance with this Agreement, the Stock Purchase
Agreement and the Stockholders Agreement to any Person other than a Permitted
Transferee (as defined in the Stockholders Agreement). "Vested Executive Stock"
----------------------
means all Executive Stock other than Unvested Shares.
(b) Exercise of Repurchase Option. The Company (by action of the
-----------------------------
Board) may elect to purchase all or any portion of the Executive Stock
outstanding at the time of Termination by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 90
-----------------
days after the Termination. The Repurchase Notice shall set forth the number of
shares of Executive Stock of each class (including, if applicable, the number of
Unvested Shares and/or Vested Shares) to be acquired from each such holder. The
number of shares of Vested Executive Stock to be repurchased by the Company
shall first be satisfied to the extent possible from the shares of Vested
Executive Stock held by Executive at the time of delivery of the Repurchase
Notice. If the number of shares of Vested Executive Stock of any class then
held by Executive is less than the total number of shares of Vested Executive
Stock of such class that the Company has elected to purchase, the Company shall
purchase the remaining shares elected to be purchased from the other holder(s)
of Vested Executive Stock of such class, pro rata according to the number of
such shares held of record by each such other holder at the time of delivery of
the Repurchase Notice.
(c) Repurchase Price.
----------------
(i) The repurchase price (the "Repurchase Price") for Unvested
----------------
Shares repurchased hereunder shall be the Original Cost for such shares (as
adjusted for any stock split, stock dividend, recapitalization or other
reorganization). The "Original Cost" of shares of Class B Common and Class
-------------
C Common issued hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), and any shares issued with
respect to such shares, shall be equal to the par value of such shares.
The "Original Cost" of all other shares shall be the aggregate
-------------
consideration (if any) paid by Executive (or, if applicable, holder of
Executive Stock) in exchange for such shares; provided that if any of the
--------
consideration paid for such shares consisted of unvested shares of Class B
Common or Class C Common (or any shares issued with respect to such
shares), the amount of such consideration constituting unvested Class B
Common or Class C Common (or shares issued with respect to such shares)
shall be deemed to be the par
-5-
<PAGE>
value of such shares of unvested Class B Common or Class C Common (or
shares issued with respect to such shares).
(ii) The Repurchase Price for shares of Vested Executive Stock
repurchased hereunder shall be the fair market value of such shares on the
date of the Repurchase Notice (determined according to the method set forth
in paragraph 3(d) below); provided that if Executive's employment is
--------
terminated by the Company or any of its subsidiaries for Cause (as defined
below), the Repurchase Price for shares of Class A Common repurchased
hereunder shall be the lesser of (A) Executive's Original Cost paid for
------
such shares (as adjusted for any stock split, stock dividend,
recapitalization or other reorganization), and (B) the fair market value of
such shares on the date of the Repurchase Notice (determined according to
the method set forth in paragraph 3(d) below), and the Repurchase Price for
all other shares of Vested Executive Stock shall be the Original Cost of
such shares.
(iii) "Cause" means a finding by 2/3 of the Board members then
-----
serving (excluding Executive, if applicable), after Executive has been
given the opportunity for a formal hearing, of (A) Executive's theft or
embezzlement, or attempted theft or embezzlement, of money or property of
the Company, Executive's perpetration or attempted perpetration of fraud,
or Executive's participation in a fraud or attempted fraud, on the Company,
or Executive's unauthorized appropriation of, or attempt to misappropriate,
any tangible or intangible assets or property of the Company, (B) any act
or acts of disloyalty, misconduct or moral turpitude by Executive injurious
to the interest, property, operations, business or reputation of the
Company or Executive's conviction of a crime the commission of which
results in injury to the Company or (C) Executive's repeated refusal or
failure (other than by reason of Disability) to carry out reasonable
instructions by his superiors or the Board.
(d) Fair Market Value of Repurchased Shares.
---------------------------------------
(i) In the event that the fair market value of any shares of
Executive Stock (the "Valued Stock") is relevant to the determination of
------------
the Repurchase Price for such shares under paragraph 3(c) above, a majority
interest of the Company and/or any assignees of the Company's repurchase
rights pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be purchased by each) and the holders of a majority of
the Executive Stock to be repurchased shall attempt in good faith to agree
on the fair market value of the Valued Stock. Any agreement reached by
such Persons shall be final and binding on all parties hereto.
(ii) If such Persons are unable to reach such agreement within 20
days after the giving of Repurchase Notice, the fair market value of any
Valued Stock that is publicly traded shall be the average, over a period of
21 days consisting of the date of Termination and the 20 consecutive
business days prior to that date, of the average of the closing prices of
the sales of such Valued Stock on all securities exchanges on which such
Valued Stock may at that time be listed, or, if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest
asked prices on all such
-6-
<PAGE>
exchanges at the end of such day, or, if on any day the Valued Stock is not
so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day the
Valued Stock is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau Incorporated, or any
similar successor organization.
(iii) If such Persons are unable to reach agreement pursuant to
paragraph 3(d)(i) within 20 days after the giving of Repurchase Notice, and
to the extent any Valued Stock is not publicly traded:
(A) A majority interest of the Company and/or its
assignees pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be repurchased by each) and the holders of a majority of
the Valued Stock shall each, within 10 days thereafter, appoint one
investment banker or other appraiser experienced in valuing companies like
the Company (and if the Valued Stock includes any shares of Class C Common,
experienced in valuing arrangements of the type described in the Vesting
Agreements), and the two Persons so appointed shall within 10 days after
their appointment appoint a third investment banker or appraiser similarly
experienced.
(B) The three investment bankers/appraisers shall each
appraise the fair market value of the Company (based on the assumption of
an orderly, arm's length sale to a willing unaffiliated buyer). The three
investment bankers/appraisers shall then each appraise the fair market
value of the Valued Stock based on their estimation of the fair market
value of the Company divided by the total number of shares of the Company's
-------
common stock outstanding at the time of Termination (calculated on a fully
diluted basis); provided that the value of any Valued Stock that is
--------
Unvested Class C Common (as that term is defined in the Vesting Agreements)
shall reflect (x) the expected market value of such Unvested Class C Common
at such future time as it is expected to become Vested Class C Common (as
that term is defined in the Vesting Agreements), appropriately discounted
to its present value at Termination based upon the amount of time from
Termination until such Unvested Class C Common is expected to vest (if at
all) and (y) the risk that such Unvested Class C Common may never become
Vested Class C Common. To the extent that the Valued Stock represents
securities other than Company common stock, the investment
bankers/appraisers shall value such securities based on a similar appraisal
of the fair market value of the issuer of such securities. Each of the
three investment bankers/appraisers shall, within thirty days of their
retention, provide the written results of such appraisals to the Company
and/or its assignees pursuant to paragraph 3(e) and to each of the holders
of Valued Stock.
(C) For purposes of this paragraph 3, the fair market
value of such Valued Stock shall be the average of the two appraisals
closest to each other, and such determination shall be final and binding on
all parties hereto; provided that the Company (and/or any assignee pursuant
to paragraph 3(e)) may at any time within the five days after receiving
written notice of such determination rescind its prior exercise of the
Repurchase Option by giving written notice of such revocation to the holder
or holders
-7-
<PAGE>
of the Executive Stock to be repurchased, and upon such revocation the
revoking party will be treated as if it had never exercised such Repurchase
Option.
(D) The reasonable costs of such appraisal shall be borne
by the Company.
(e) Assignment by Company.
---------------------
(i) If any of the Executive Stock subject to repurchase
hereunder consists of Unvested Class C Common subject to the terms of a
Vesting Agreement, Vested Class C Common that became Vested Class C Common
pursuant to the terms of a Vesting Agreement, Class B Common that was
issued upon conversion of Vested Class C Common, or any securities issued
with respect to such shares (collectively, "Vesting Agreement Stock"), the
-----------------------
Company shall within 20 days after Termination give written notice to each
Institutional Investor that is party to a Vesting Agreement to which any of
the Vesting Agreement Stock relates (the "Vesting Agreement Stock
-----------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Vesting Agreement Stock relating to
the Vesting Agreement to which such Institutional Investor is party and
whether such shares of Vesting Agreement Stock are Vested Shares or
Unvested Shares. Each such notified Institutional Investor shall, subject
to the limitation set forth in paragraph 3(e)(iv) below, have the right to
require the Company to assign to such Institutional Investor all or any
portion of the Company's rights (including the right to exercise such
repurchase rights) under this paragraph 3 to repurchase the Vesting
Agreement Stock relating to the Vesting Agreement to which such
Institutional Investor is party, upon such Institutional Investor's giving
written notice to the Company within 20 days of the Vesting Agreement Stock
Repurchase Notice; provided that if any such Institutional Investor fails
--------
to exercise any of such assigned repurchase rights to repurchase, the
Company shall have the right once again to exercise (or assign) such
rights. The assignment of such repurchase rights pursuant to this paragraph
3(e)(i) shall not be considered a failure to exercise such rights that
under paragraph 4G of the Stock Purchase Agreement would require the
approval of the holders of at least 67% of the outstanding Institutional
Investor Stock.
(ii) If any of the Executive Stock subject to repurchase
hereunder consists of shares of Investor Stock, the Company shall within 20
days of Termination give written notice to each Executive Investor then
employed by the Company or its Subsidiaries (the "Executive Investor
------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Investor Stock. Each such notified
Executive Investor shall, subject to the limitation set forth in paragraph
3(e)(iv) below, have the right to require the Company to assign to such
Executive Investor all or any portion of the Company's rights (including
the right to exercise such repurchase rights) under this paragraph 3 to
repurchase such Investor Stock, upon such Executive Investor's giving
written notice to the Company within 20 days of the Executive Investor
Repurchase Notice (provided that if the total such Investor Stock elected
--------
to be purchased by the other Executive Investors exceeds the total amount
of such Investor Stock available for repurchase, the right to purchase such
Investor Stock shall be allocated among the
-8-
<PAGE>
electing Executive Investors on the basis of the number of shares of
Investor Stock held by each such electing Executive Investor immediately
prior to the Termination). If any Executive Investor fails to exercise any
such assigned rights to repurchase, the Company shall have the right once
again to exercise (or assign) such rights. Each purchasing Executive
Investor shall succeed to Executive's rights and obligations under the
Stock Purchase Agreement and the other agreements of even date therewith in
proportion to the number of shares of Investor Stock purchased pursuant to
this paragraph. The assignment of such repurchase rights pursuant to this
paragraph 3(e)(ii) shall not be considered a failure to exercise such
rights that under paragraph 4G of the Stock Purchase Agreement would
require the approval of the holders of at least 67% of the outstanding
Institutional Investor Stock.
(iii) Subject to paragraphs 3(e)(iv) and 3(f) below, to the
right of first refusal as to Vesting Agreement Stock set forth in paragraph
3(e)(i) above, and to the right of first refusal as to Investor Stock set
forth in paragraph 3(e)(ii) above, the Company, by action of the Board,
will have the right to assign all or any portion of its repurchase rights
hereunder to any Investor and/or to any executive employee of the Company
or any of its Subsidiaries.
(iv) Notwithstanding anything in paragraphs 3(e)(i), (ii) or
(iii), the Company may not assign its right under paragraph 3(g) below to
pay all or part of the Repurchase Price for Executive Stock repurchased
hereunder in the form of a promissory note.
(f) Restriction on Repurchase of Unvested Shares. The Company will
--------------------------------------------
reserve all Unvested Shares (other than Vesting Agreement Stock) repurchased
hereunder for the purpose of reissuing such shares to an executive to be hired
or promoted to a key executive position with the Company (i.e., to replace
Executive or to replace another executive promoted to Executive's former
position). After repurchase, such Unvested Shares (other than Vesting Agreement
Stock) will be held by the Company awaiting issue to such an executive (which
issuance must be approved by a majority of the Board and the holders of at least
67% of the Institutional Investor Stock then outstanding); provided that upon
the occurrence of a Sale of the Company (as defined in the Stockholders
Agreement) or a Public Offering, all such repurchased Unvested Shares (other
than Vesting Agreement Stock) which have not been reissued to an executive
employee of the Company shall be canceled immediately prior to the closing of
such event.
(g) Closing of the Repurchase. Within 10 business days after the
-------------------------
Repurchase Price for the Executive Stock to be repurchased has been determined,
the Company shall send a notice to each holder of Executive Stock setting forth
the consideration to be paid for such shares and the time and place for the
closing of the transaction, which date shall not be more than 60 days nor less
than five days after the delivery of such notice. At such closing, the
Executive shall deliver all certificates evidencing the Executive Stock to be
repurchased to the Company (and/or any assignees of the Company's repurchase
right pursuant to paragraph 3(e) above), and the Company (and/or any assignees)
shall pay for the Executive Stock to be purchased pursuant to the Repurchase
Option by delivery of Cash in the aggregate amount of the Repurchase Price for
such shares; provided that in the event the Board determines in its good faith
--------
discretion that
-9-
<PAGE>
the Company is not in a position to pay in Cash any or all of the Repurchase
Price for shares to be repurchased by it, the Company may pay, in the form of a
promissory note (which shall be subordinated to any of the Company's senior debt
obligations either then or thereafter incurred) with a maturity of no more than
five years, earning interest at the rate paid on the Company's senior debt
obligations (or if the Company has no such senior debt, at the prime rate
announced by Citibank from time to time), with all principal and accrued
interest due and payable upon maturity, a portion of the Repurchase Price for
such shares equal to (i) if Executive is terminated for Cause, the Repurchase
Price for all shares to be repurchased by the Company minus the Repurchase Price
-----
for any shares of Investor Stock to be repurchased by the Company, or (ii)
otherwise, the Repurchase Price for all shares to be repurchased by the Company
minus the lesser of (x) the Repurchase Price for any shares of Investor Stock to
- -----
be repurchased by the Company and (y) the aggregate Initial Contribution and
Subsequent Contributions paid by Executive or his Permitted Transferees under
the Stock Purchase Agreement prior to Termination with respect to any shares of
Investor Stock to be repurchased. The purchasers of Executive Stock hereunder
shall be entitled to receive customary representations and warranties from the
sellers regarding good title to such shares, free and clear of any liens or
encumbrances.
(h) Restrictions. Notwithstanding anything to the contrary contained
------------
in this Agreement, all repurchases of Executive Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law and in the Company's and its Subsidiaries' debt and equity financing
agreements. If any such restrictions prohibit the repurchase of Executive Stock
hereunder which the Company is otherwise entitled or required to make, the time
periods provided in this paragraph 3 shall be suspended, and the Company may
make such repurchases as soon as it is permitted to do so under such
restrictions, unless by such time such Repurchase Option has terminated pursuant
to paragraph 3(i).
(i) Termination of Repurchase Option. The right under this paragraph
--------------------------------
3 of the Company and/or its assignees to repurchase Executive Stock shall
terminate upon a Qualified Sale of the Company.
4. Restrictions on Transfer.
------------------------
(a) Opinion of Valid Transfer. In addition to any other restrictions
-------------------------
on transfer imposed by this Agreement, the Stock Purchase Agreement, the Vesting
Agreements, or the Stockholders Agreement, no holder of Class B Common or Class
C Common may sell, transfer or dispose of any Class B Common or Class C Common
(except pursuant to an effective registration statement under the 1933 Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration nor
qualification under the 1933 Act and applicable state securities laws is
required in connection with such transfer.
(b) Restrictive Legend. The certificates representing the Class B
------------------
Common and Class C Common issued hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
NOVEMBER 27, 1996, HAVE NOT BEEN
-10-
<PAGE>
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER."
The certificates representing Executive Stock shall also bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS SET FORTH IN AN EXECUTIVE
STOCK AGREEMENT BETWEEN THE ISSUER OF SUCH SECURITIES (THE "ISSUER") AND
THE INITIAL HOLDER OF SUCH SECURITIES (THE "INITIAL HOLDER"). A COPY OF
SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE ISSUER'S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(c) Retention of Executive Stock. Executive is aware that Executive
----------------------------
Stock is subject to significant restrictions on transfer pursuant to paragraph 3
of the Stockholders Agreement.
5. Terms of Executive's Employment.
-------------------------------
(a) Employment. The Company hereby employs Executive, and Executive
----------
hereby accepts employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
The Company shall have the right to terminate the Executive's employment for any
reason, at any time, with or without Cause. Executive shall have the right to
terminate his employment for any reason, at any time, upon giving the Company
written notice two weeks prior to such termination.
(b) Duties and Responsibilities.
---------------------------
(i) Initially, the Executive shall serve as Executive Vice
President of the Company, and so long as Executive is employed by the
Company or any of its Subsidiaries, the Executive shall serve in such
position as may be determined by the Board and shall perform all duties and
accept all responsibilities incident to such position or as may be assigned
to him by the Board, and shall at all times comply with the policies and
procedures adopted by the Company for its employees.
(ii) The Executive represents and covenants to the Company that
he is not subject or a party to any employment agreement, non-competition
agreement, non-disclosure agreement or any similar agreement, covenant or
restriction that would prohibit the Executive from executing this Agreement
and performing his duties and responsibilities assigned by the Company.
(c) Extent of Service. So long as Executive is employed by the
-----------------
Company or any of its Subsidiaries, the Executive agrees to use his best efforts
to carry out his duties and
-11-
<PAGE>
responsibilities under paragraph 5(b) hereof and to devote his full professional
time and attention thereto.
(d) Base Compensation. For all the services rendered by the Executive
-----------------
hereunder, the Company shall, commencing on November 1, 1996, and continuing so
long as Executive is employed by the Company or any of its Subsidiaries, pay the
Executive an annual salary at the rate of $120,000 per year, plus any additional
amounts, if any, as may be approved by a majority of the Board including an MDCP
Director (if any) and at least one of either the Frontenac Director or the BV
Director (if either) (as such terms are defined in the Stockholders Agreement),
less withholding required by law or agreed to by the Executive, and payable in
installments at such times as is customary with the Company but in any event no
less frequently than monthly. The Company agrees that the Executive's salary
will be reviewed annually by the Board to determine if any increase (but not a
decrease) is appropriate; provided that any such increase must be approved by a
--------
majority of the Board including an MDCP Director (if any) and at least one of
either the Frontenac Director or the BV Director (if either). So long as
Executive is employed by the Company or any of its Subsidiaries, the Executive
shall also be entitled to participate in such vacation pay and any other fringe
benefit plans as may from time to time be adopted by a majority of the Board
including an MDCP Director (if any) and at least one of either the Frontenac
Director or the BV Director (if either).
(e) Incentive Compensation. In addition to the compensation set forth
----------------------
in paragraph 5(d) above, so long as the Executive is employed by the Company or
its Subsidiaries the Executive shall be entitled to participate in an annual
bonus plan providing for the payment to Executive of an annual bonus, in an
amount to be determined by a majority of the Board including an MDCP Director
(if any) and at least one of either the Frontenac Director or the BV Director
(if either), if the Company achieves certain performance goals set in advance of
each year in the sole discretion of a majority of the Board including an MDCP
Director (if any) and at least one of either the Frontenac Director or the BV
Director (if either).
(f) Severance Pay. If at any time after the date hereof Executive's
-------------
employment is terminated for death or Disability or by the Company for any
reason other than Cause, Executive (or, in the case of death, Executive's
estate) shall, until the end of the Severance Pay Period (as defined below), be
entitled to receive a salary at the same rate of pay as, and on the same
schedule and terms as was customary for, the salary Executive received under
paragraph 5(d) above immediately prior to the Termination, as well as (except in
the case of Executive's death) comparable medical benefits to those provided by
the Company to Executive immediately prior to the Termination (such salary and
benefits collectively, the "Severance Pay"); provided that if at any time during
------------- --------
the Severance Pay Period Executive obtains other employment, Executive's
Severance Pay shall during the period of such employment be reduced (but not
below zero) by the amount of salary and benefits Executive receives as
compensation for such employment. The payment of such Severance Pay shall in no
way be construed as a continuation of Executive's employment after the
Termination. The "Severance Pay Period" shall be equal to (i) if Executive is
--------------------
terminated by the Company for any reason other than Cause, the longer of (A) the
period between Termination and the 12-month anniversary of the date hereof, and
(B) the 6-month period commencing on the date of Termination, or (ii) if
Executive's employment is terminated due to death or Disability, the six-month
period commencing on the date of
-12-
<PAGE>
Termination. If Executive resigns or is terminated by the Company for Cause,
the Company shall not be obligated to pay any Severance Pay.
(g) Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
(i) Nondisclosure Obligation. Executive shall not disclose or
------------------------
use at any time, either during his employment with the Company or
thereafter, any Confidential Information (as defined below) of which
Executive is or becomes aware, whether or not such information is developed
by him, except to the extent that such disclosure or use is directly
related to and required by Executive's performance of duties assigned to
Executive by the Company, or to the extent such disclosure is permissible
under paragraph 4A of the Stock Purchase Agreement. Executive shall take
all appropriate steps to safeguard Confidential Information and to protect
it against disclosure, misuse, espionage, loss and theft.
(ii) Confidential Information. As used in this Agreement, the
------------------------
term "Confidential Information" means information that is not generally
------------------------
known to the public and that is used, developed or obtained by the Company
in connection with its business, including but not limited to (i) products
or services, (ii) fees, costs and pricing structures, (iii) designs, (iv)
analysis, (v) drawings, photographs and reports, (vi) computer software,
including operating systems, applications and program listings, (vii) flow
charts, manuals and documentation, (viii) data bases, (ix) accounting and
business methods, (x) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whether or not reduced to
practice, (xi) customers and clients and customer or client lists, (xii)
copyrightable works, (xiv) all technology and trade secrets, (xv) business
plans and financial models, and (xvi) all similar and related information
in whatever form. Confidential Information shall not include any
information that has been published in a form generally available to the
public prior to the date Executive proposes to disclose or use such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately
published, but only if all material features constituting such information
have been published in combination.
6. THE COMPANY'S OWNERSHIP OF INTELLECTUAL PROPERTY.
------------------------------------------------
(a) Acknowledgment of Company Ownership. In the event that Executive
-----------------------------------
as part of his activities on behalf of the Company generates, authors or
contributes to any invention, design, new development, device, product, method
or process (whether or not patentable or reduced to practice or constituting
Confidential Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information relating
directly or indirectly to the Company's business as now or hereinafter conducted
(collectively, "Intellectual Property"), Executive acknowledges that such
---------------------
Intellectual Property is the exclusive property of the Company and hereby
assigns all right, title and interest in and to such Intellectual Property to
the Company. Any copyrightable work prepared in whole or in part by Executive
will be deemed "a work made for hire" under Section 201(b) of the 1976 Copyright
Act, and the Company shall own all of the rights comprised by the copyright
therein. Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate
-13-
<PAGE>
with the Company to protect the Company's interests in and rights to such
Intellectual Property (including, without limitation, providing reasonable
assistance in securing patent protection and copyright registrations and
executing all documents as reasonably requested by the Company, whether such
requests occur prior to or after termination of Executive's employment with the
Company).
(b) Executive Invention. Executive understands that paragraph 6 of
-------------------
this Agreement regarding the Company's ownership of Intellectual Property does
not apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company were used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business of the
Company or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by Executive
for the Company.
(c) Delivery of Materials upon Termination of Employment. As
----------------------------------------------------
requested by the Company from time to time and upon the Termination of
Executive's employment with the Company for any reason, Executive shall promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information and Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
7. NONCOMPETITION AND NONSOLICITATION.
----------------------------------
(a) Noncompetition. Executive acknowledges and agrees with the
--------------
Company that Executive's services to the Company are unique in nature and that
the Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing with the Company or engaged in a
similar business. In connection with his exchange of Existing Common Stock for
Class B Common and Class C Common hereunder, Executive accordingly covenants and
agrees with the Company that during the Noncompetition Period (as defined
below), Executive shall not, directly or indirectly, either for himself or for
any other individual, corporation, partnership, joint venture or other entity,
participate in any business division, group or franchise (or if there are no
divisions, any business) where such division, group or franchise (or business,
if applicable) engages or proposes to engage in any business conducted by the
Company or proposed to be conducted pursuant to a Board resolution or Subsequent
Business Plan (including, but not limited to, the sale or distribution of local
switched dialtone telecommunication services) in any MSA in which the Company
conducts such business or proposes to conduct such business pursuant to a Board
resolution or Subsequent Business Plan. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor,
-14-
<PAGE>
employee, agent, consultant or otherwise), other than ownership of up to 2% of
the outstanding stock of any class which is publicly traded.
(b) Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
(c) Noncompetition Period. The "Noncompetition Period" shall commence
--------------------- ---------------------
on the date hereof and continue (i) if Executive is terminated by the Company
with or without Cause, until such date as shall be specified by the Company in
writing within the 14 days after Termination, provided that such date shall not
--------
be later than the first anniversary of the Termination, or (ii) otherwise, until
such date as shall be specified by the Company in writing within the 30 days
after Termination, provided that such date shall not be later than the 18-month
--------
anniversary of the Termination. After the end of the Severance Pay Period (or
if there is no Severance Pay, the date upon which the Company elects the
duration of the Noncompetition Period), the Company shall until the end of the
Noncompetition Period pay Executive his Noncompete Compensation (unless
Executive breaches his obligations under this paragraph 7, it being understood
that in such case Executive shall continue to be bound by such obligations as if
the Company were continuing to pay Noncompete Compensation). If there is no
Severance Pay, the Company shall during the period from Termination until such
time as the Company elects the duration of the Noncompetition Period (the
"Interim Period"), pay Executive his Interim Compensation (unless Executive
--------------
breaches his obligations under this paragraph 7, it being understood that in
such case Executive shall continue to be bound by such obligations as if the
Company were continuing to pay Interim Compensation). "Noncompete Compensation"
-----------------------
shall consist of 50% of the salary that Executive received under paragraph 5(d)
above as compensation from the Company and its Subsidiaries immediately prior to
Termination (Executive's "Previous Salary") together with the continuation of
---------------
the medical benefits that the Company provided to Executive immediately prior to
Termination (Executive's "Previous Benefits"); provided that if at any time
----------------- --------
during the Noncompetition Period Executive obtains other employment (i) with
comparable medical benefits to Executive's Previous Benefits, Executive's
Noncompete Compensation shall during the period of such employment not include
the continued provision of medical benefits, and (ii) with a salary exceeding
50% of Executive's Previous Salary, Executive's Noncompete Compensation shall
during the period of such employment be reduced (but not below zero) by the
amount of such excess. "Interim Compensation" shall consist of 100% of
--------------------
Executive's Previous Salary and Previous Benefits, provided that if at any time
--------
during the Interim Period Executive obtains other employment, Executive's
Interim Compensation shall during the period of such employment be reduced (but
not less than zero) by the amount of salary and benefits received as
compensation for such other employment.
-15-
<PAGE>
8. NOTICES. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company: Focal Communications Corporation
300 W. Washington Blvd., Suite 1408
Chicago, Illinois 60606
Attention: President
with a copy to: Bischoff, Kenney, and Niehaus
5630 North Main Street
Sylvania, Ohio 43560
Attention: Charles Niehaus
and a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers
attached to the Stock Purchase Agreement
To Executive: c/o the Company
with a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers attached
to the Stock Purchase Agreement
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement shall be deemed to have been given when
personally delivered, one business day after being sent by reputable overnight
courier service, or three business days after being deposited in the U.S. mail.
9. GENERAL PROVISIONS.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
-16-
<PAGE>
(c) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns; provided that this Agreement
--------
shall not inure to the benefit of or be enforceable by any successor or assign
of any Investor if the transfer or other assignment to such Person, directly or
indirectly, breached any provision of this Agreement or the Stockholders
Agreement.
(f) Choice of Law. The corporate law of the State of Delaware shall
-------------
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
Illinois.
(g) Remedies. Each of the parties to this Agreement (including the
--------
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages would not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and
Executive. In addition, the parties acknowledge that, pursuant to the Stock
Purchase Agreement, the Company has agreed not to amend any provision of this
Agreement, or to waive or fail to enforce any of its rights hereunder
(including, without limitation, its rights under paragraph 3 hereof), without
the prior written consent of Investors holding at least 67% of the Institutional
Investor Stock then outstanding.
(i) Third-Party Beneficiaries. The parties hereto acknowledge and
-------------------------
agree that certain provisions of this Agreement are intended for the benefit of
the Investors and each other executive employee of the Company who has entered
into an executive stock agreement substantially similar to this Agreement (the
"Other Executives"), that the Investors and the Other
----------------
-17-
<PAGE>
Executives are third-party beneficiaries of this Agreement and that provisions
of this Agreement shall be enforceable by the Investors and the Other Executives
as provided herein.
(j) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois, the time period shall be automatically extended to the
business day immediately following such Saturday, Sunday or holiday.
* * * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
-------------------------------------
Its: President
----------------------------------
/s/ Brian F. Addy
----------------------------------------
Brian F. Addy
S1
<PAGE>
Exhibit 4.13
EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT
--------------------------------------------------
THIS EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT (the
"Agreement") is made as of November 27, 1996, by and between Focal
Communications Corporation, a Delaware corporation (the "Company"), and John R.
-------
Barnicle ("Executive").
---------
The execution and delivery of this Agreement by the Company and
Executive are a condition to the purchase of shares of the Company's Class A
Common Stock, par value $.01 per share (the "Class A Common"), by certain
--------------
investors (the "Investors") pursuant to a stock purchase agreement of even date
---------
herewith by and among such Investors and the Company (as amended from time to
time pursuant to its terms, the "Stock Purchase Agreement"). Executive is a
------------------------
party to the Stock Purchase Agreement and desires that the purchase of Class A
Common pursuant thereto be consummated. Capitalized terms used but not defined
in this Agreement are used herein with the meanings assigned to such terms in
the Stock Purchase Agreement.
Executive holds beneficially and of record 25% of the Company's common
stock outstanding immediately prior to the closing hereunder (the "Existing
--------
Common Stock"). This Agreement contemplates a transaction where, pursuant to
- ------------
the terms and subject to the conditions set forth herein, Executive will
exchange all of his shares of Existing Common Stock for newly issued shares of
the Company's Class B Common Stock, par value $.01 per share (the "Class B
-------
Common") and newly issued shares of the Company's Class C Common Stock, par
- ------
value $.01 per share (the "Class C Common"). Such shares of Class B Common and
--------------
Class C Common are subject to certain terms and restrictions set forth in this
Agreement, in a stockholders agreement of even date herewith by and among the
Investors and the Company (as amended from time to time pursuant to its terms,
the "Stockholders Agreement"), and in several vesting agreements, each entered
----------------------
into between the Executive, the other Executive Investors, the Company, and one
Institutional Investor (as amended from time to time pursuant to their terms,
the "Vesting Agreements").
------------------
NOW, THEREFORE, in consideration of the above premises and the mutual
promises made herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Exchange of Executive's Existing Common Stock.
---------------------------------------------
(a) Exchange of Existing Common Stock. At the Closing, pursuant to a
---------------------------------
recapitalization of the Company wherein all of the Company's Existing Common
Stock held by the Executive Investors will be converted into newly issued Class
B Common and Class C Common as set forth in the amended Certificate of
Incorporation, Executive shall exchange each
1
<PAGE>
of his shares of Existing Common Stock for 13 and 1/3 shares of Class B Common
and 9 and 60,577/75,000 shares of Class C Common.
(b) The Closing. The closing of the exchange and issuance of Class B
-----------
Common and Class C Common hereunder (the "Closing" for purposes of this
-------
Agreement) shall take place simultaneously with the Initial Closing under the
Stock Purchase Agreement. At the Closing, the Company shall deliver to Executive
certificates representing the shares of Class B Common and Class C Common to be
issued to Executive hereunder, registered in Executive's name, and Executive
shall deliver to the Company certificates representing 25% of the Company's
Existing Common Stock, which Existing Common Stock shall be immediately canceled
by the Company.
(c) Section 83(b) Election. Promptly but in any event within 30 days
----------------------
after the Closing, Executive shall make an effective election with the IRS under
Section 83(b) of the IRC with respect to the Class B Common and Class C Common
issued hereunder. A form of such election is attached to this Agreement as Annex
-----
A.
- -
(d) Representations and Warranties. In connection with the exchange
------------------------------
and issuance of Class B Common and Class C Common hereunder, Executive
represents and warrants to the Company that:
(i) The securities to be acquired by Executive pursuant to this
Agreement shall be acquired for Executive's own account and not with a view
to, or intention of, distribution thereof in violation of the Securities
Act of 1933 or any applicable state securities laws, and such securities
shall not be disposed of in contravention of such Act or laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of his investment in the Class B Common and Class C Common issued
hereunder.
(iii) Executive is able to bear the economic risk of his
investment in the Class B Common and Class C Common for an indefinite
period of time and is aware that transfer of such securities may not be
possible because (A) such transfer is subject to contractual restrictions
on sale set forth herein, in the Stockholders Agreement, and in the Vesting
Agreements, and (B) such securities have not been registered under the 1933
Act and, therefore, cannot be sold unless subsequently registered under the
1933 Act or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Class B Common and
-2-
<PAGE>
Class C Common issued hereunder and has had full access to such other
information concerning the Company as he has requested.
(v) This Agreement, the Stockholders Agreement, the Vesting
Agreements, the Stock Purchase Agreement, and the other agreements
contemplated thereby of even date therewith constitute the legal, valid and
binding obligations of Executive, enforceable in accordance with their
terms, and the execution, delivery and performance of such agreements by
Executive do not and shall not conflict with, violate or cause a breach of
any agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
2. Vesting.
-------
(a) Vesting. Except as otherwise provided herein, 20% of the
-------
Unvested Shares (as defined below) shall vest on the date of the Closing and 20%
on each of the first four anniversaries of such date, provided that except as
--------
otherwise expressly provided herein, Unvested Shares shall not vest after the
date on which Executive's employment by the Company is terminated. "Unvested
--------
Shares" means the Class B Common and Class C Common issued hereunder (as well as
- ------
any Class B Common issued upon conversion of Class C Common issued hereunder),
and any securities issued with respect to such Class B Common or Class C Common
(including in connection with any stock dividend, merger, combination,
recapitalization, or other reorganization); provided that upon vesting pursuant
to this Agreement, such shares shall cease to be Unvested Shares and shall be
referred to as "Vested Shares."
-------------
(b) Acceleration upon a Qualified Sale of the Company. All Unvested
-------------------------------------------------
Shares shall become Vested Shares at the closing of a Qualified Sale of the
Company (as defined below) if Executive is employed by the Company or any of its
Subsidiaries on such closing date (or, if Executive is terminated by the Company
without Cause (as defined below), at any time during the 45-day period preceding
such closing date). "Qualified Sale of the Company" means a sale or transfer of
-----------------------------
all or substantially all of the outstanding stock or assets of the Company and
its subsidiaries, including by way of merger or consolidation, where more than
50% of the consideration for such stock or assets in such sale or transfer
consists of cash and/or publicly traded securities; provided that a Qualified
--------
Sale of the Company shall not include a recapitalization, merger, or other
reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction.
(c) Acceleration upon a Qualified Reorganization. If, at any time
--------------------------------------------
after the closing of a Qualified Reorganization (as defined below), Executive is
terminated by the Company without Cause, there shall vest upon such termination
the number of Unvested Shares which were scheduled to vest within the 12 months
following such termination; and no additional shares shall vest thereafter,
except as otherwise provided in paragraph 2(f) below. "Qualified
---------
Reorganization" means (i) a sale or transfer of all or substantially all of the
- --------------
outstanding stock or assets of the Company and its subsidiaries, including by
way of merger or consolidation, where at least 50% of the consideration for such
stock or assets in such sale or transfer consists of
-3-
<PAGE>
securities that are not publicly traded (other than a recapitalization, merger,
or other reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction); or (ii) a merger of the Company with a
Controlled Entity (as defined below), where the holders of the Company's common
stock immediately prior to such merger receive in such merger with respect to
such common stock less than 50% of the equity of the acquiring or surviving
entity immediately after such transaction. "Controlled Entity" means any
-----------------
corporation, limited liability company, partnership or other business entity of
which (x) if a corporation, a majority of the total voting power of shares of
stock entitled to vote in the election of directors, managers or trustees
thereof is at the time controlled by MDCP, or collectively by MDCP and one of
Frontenac or BV, or (y) if a limited liability company, partnership,
association, or other business entity, a majority of the partnership or similar
ownership interest thereof is at the time controlled by MDCP, or collectively by
MDCP and one of Frontenac or BV.
(d) Acceleration upon a Public Offering. At the closing of the
-----------------------------------
Company's initial Public Offering (as defined in the Stock Purchase Agreement),
if Executive is then employed by the Company, there will vest the number of
Unvested Shares which were scheduled to vest within 12 months following such
closing (and the remaining Unvested Shares, if any, shall continue to vest 20%
on each anniversary of the Closing hereunder as long as Executive is employed by
the Company, so that the vesting schedule set forth in paragraph 2(a) above
shall have been effectively accelerated by one year).
(e) Acceleration upon Death or Disability. If Executive's employment
-------------------------------------
with the Company or any of its Subsidiaries terminates by reason of Executive's
death or Disability, there will vest a number of Unvested Shares equal to the
greater of (i) the quotient obtained by dividing (A) the number of Unvested
Shares minus the number of Vested Shares, each as existing at the time of such
-----
termination, by (B) two, and (ii) the number of Unvested Shares which were
scheduled to vest within 12 months following such termination. No additional
shares shall vest thereafter, except as otherwise provided in paragraph 2(f)
below. "Disability" means the Executive's inability, due to illness, accident,
----------
injury, physical or mental incapacity or other disability, to carry out
effectively his duties and obligations to the Company hereunder or to
participate effectively and actively in the management of the Company for a
period anticipated to last at least six months, as determined in the good faith
judgment of the Company's board of directors (the "Board").
-----
(f) Other Acceleration. Subject to paragraph 3(h) hereof, any
------------------
Unvested Shares which the Company (or its assignees pursuant to paragraph 3(e)
hereof) has not elected to repurchase in the Repurchase Notice provided for in
paragraph 3(b) below (including Unvested Shares originally included in the
Repurchase Notice, but for which the election to repurchase was rescinded,
pursuant to paragraph 3(d)(iii) below, by all of the Company and/or its
assignees having made such election) shall thereafter be deemed Vested Shares
for all purposes of this Agreement and the Stockholders Agreement.
3. COMPANY'S REPURCHASE OPTION.
---------------------------
-4-
<PAGE>
(a) The Repurchase Option. In the event Executive ceases to be
---------------------
employed by the Company and its Subsidiaries for any reason (the "Termination"),
-----------
the Executive Stock then in existence (whether held by Executive or one or more
of Executive's transferees) will be subject to repurchase by the Company
pursuant to the terms and conditions set forth in this paragraph 3 (the
"Repurchase Option"). "Executive Stock" means the Class B Common and Class C
----------------- ---------------
Common issued to Executive hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), the Class A Common purchased by
Executive under the Stock Purchase Agreement, any other shares of Common Stock
or other Company securities acquired by Executive at any time that this
Agreement is in effect, and any securities issued directly or indirectly with
respect to the aforementioned securities (including in connection with any stock
dividend, merger, combination, reorganization or recapitalization), provided
--------
that shares of Executive Stock shall cease to be Executive Stock when they have
been transferred (including to the Company and/or its assignees by virtue of
this Repurchase Option) in compliance with this Agreement, the Stock Purchase
Agreement and the Stockholders Agreement to any Person other than a Permitted
Transferee (as defined in the Stockholders Agreement). "Vested Executive Stock"
----------------------
means all Executive Stock other than Unvested Shares.
(b) Exercise of Repurchase Option. The Company (by action of the
-----------------------------
Board) may elect to purchase all or any portion of the Executive Stock
outstanding at the time of Termination by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 90
-----------------
days after the Termination. The Repurchase Notice shall set forth the number of
shares of Executive Stock of each class (including, if applicable, the number of
Unvested Shares and/or Vested Shares) to be acquired from each such holder. The
number of shares of Vested Executive Stock to be repurchased by the Company
shall first be satisfied to the extent possible from the shares of Vested
Executive Stock held by Executive at the time of delivery of the Repurchase
Notice. If the number of shares of Vested Executive Stock of any class then
held by Executive is less than the total number of shares of Vested Executive
Stock of such class that the Company has elected to purchase, the Company shall
purchase the remaining shares elected to be purchased from the other holder(s)
of Vested Executive Stock of such class, pro rata according to the number of
such shares held of record by each such other holder at the time of delivery of
the Repurchase Notice.
(c) Repurchase Price.
----------------
(i) The repurchase price (the "Repurchase Price") for Unvested
----------------
Shares repurchased hereunder shall be the Original Cost for such shares (as
adjusted for any stock split, stock dividend, recapitalization or other
reorganization). The "Original Cost" of shares of Class B Common and Class
-------------
C Common issued hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), and any shares issued with
respect to such shares, shall be equal to the par value of such shares.
The "Original Cost" of all other shares shall be the aggregate
-------------
consideration (if any) paid by Executive (or, if applicable, holder of
Executive Stock) in exchange for such shares; provided that if any of the
--------
consideration paid for such shares consisted of unvested shares of Class B
Common or Class C Common (or any shares issued with respect to such
shares), the amount of such consideration constituting unvested Class B
Common or Class C Common (or shares issued with respect to such shares)
shall be deemed to be the par
-5-
<PAGE>
value of such shares of unvested Class B Common or Class C Common (or
shares issued with respect to such shares).
(ii) The Repurchase Price for shares of Vested Executive Stock
repurchased hereunder shall be the fair market value of such shares on the
date of the Repurchase Notice (determined according to the method set forth
in paragraph 3(d) below); provided that if Executive's employment is
--------
terminated by the Company or any of its subsidiaries for Cause (as defined
below), the Repurchase Price for shares of Class A Common repurchased
hereunder shall be the lesser of (A) Executive's Original Cost paid for
------
such shares (as adjusted for any stock split, stock dividend,
recapitalization or other reorganization), and (B) the fair market value of
such shares on the date of the Repurchase Notice (determined according to
the method set forth in paragraph 3(d) below), and the Repurchase Price for
all other shares of Vested Executive Stock shall be the Original Cost of
such shares.
(iii) "Cause" means a finding by 2/3 of the Board members then
-----
serving (excluding Executive, if applicable), after Executive has been
given the opportunity for a formal hearing, of (A) Executive's theft or
embezzlement, or attempted theft or embezzlement, of money or property of
the Company, Executive's perpetration or attempted perpetration of fraud,
or Executive's participation in a fraud or attempted fraud, on the Company,
or Executive's unauthorized appropriation of, or attempt to misappropriate,
any tangible or intangible assets or property of the Company, (B) any act
or acts of disloyalty, misconduct or moral turpitude by Executive injurious
to the interest, property, operations, business or reputation of the
Company or Executive's conviction of a crime the commission of which
results in injury to the Company or (C) Executive's repeated refusal or
failure (other than by reason of Disability) to carry out reasonable
instructions by his superiors or the Board.
(d) Fair Market Value of Repurchased Shares.
---------------------------------------
(i) In the event that the fair market value of any shares of
Executive Stock (the "Valued Stock") is relevant to the determination of
------------
the Repurchase Price for such shares under paragraph 3(c) above, a majority
interest of the Company and/or any assignees of the Company's repurchase
rights pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be purchased by each) and the holders of a majority of
the Executive Stock to be repurchased shall attempt in good faith to agree
on the fair market value of the Valued Stock. Any agreement reached by
such Persons shall be final and binding on all parties hereto.
(ii) If such Persons are unable to reach such agreement within 20
days after the giving of Repurchase Notice, the fair market value of any
Valued Stock that is publicly traded shall be the average, over a period of
21 days consisting of the date of Termination and the 20 consecutive
business days prior to that date, of the average of the closing prices of
the sales of such Valued Stock on all securities exchanges on which such
Valued Stock may at that time be listed, or, if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest
asked prices on all such
-6-
<PAGE>
exchanges at the end of such day, or, if on any day the Valued Stock is not
so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day the
Valued Stock is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau Incorporated, or any
similar successor organization.
(iii) If such Persons are unable to reach agreement pursuant to
paragraph 3(d)(i) within 20 days after the giving of Repurchase Notice, and
to the extent any Valued Stock is not publicly traded:
(A) A majority interest of the Company and/or its
assignees pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be repurchased by each) and the holders of a majority of
the Valued Stock shall each, within 10 days thereafter, appoint one
investment banker or other appraiser experienced in valuing companies like
the Company (and if the Valued Stock includes any shares of Class C Common,
experienced in valuing arrangements of the type described in the Vesting
Agreements), and the two Persons so appointed shall within 10 days after
their appointment appoint a third investment banker or appraiser similarly
experienced.
(B) The three investment bankers/appraisers shall each
appraise the fair market value of the Company (based on the assumption of
an orderly, arm's length sale to a willing unaffiliated buyer). The three
investment bankers/appraisers shall then each appraise the fair market
value of the Valued Stock based on their estimation of the fair market
value of the Company divided by the total number of shares of the Company's
----------
common stock outstanding at the time of Termination (calculated on a fully
diluted basis); provided that the value of any Valued Stock that is
--------
Unvested Class C Common (as that term is defined in the Vesting Agreements)
shall reflect (x) the expected market value of such Unvested Class C Common
at such future time as it is expected to become Vested Class C Common (as
that term is defined in the Vesting Agreements), appropriately discounted
to its present value at Termination based upon the amount of time from
Termination until such Unvested Class C Common is expected to vest (if at
all) and (y) the risk that such Unvested Class C Common may never become
Vested Class C Common. To the extent that the Valued Stock represents
securities other than Company common stock, the investment
bankers/appraisers shall value such securities based on a similar appraisal
of the fair market value of the issuer of such securities. Each of the
three investment bankers/appraisers shall, within thirty days of their
retention, provide the written results of such appraisals to the Company
and/or its assignees pursuant to paragraph 3(e) and to each of the holders
of Valued Stock.
(C) For purposes of this paragraph 3, the fair market
value of such Valued Stock shall be the average of the two appraisals
closest to each other, and such determination shall be final and binding on
all parties hereto; provided that the Company (and/or any assignee pursuant
--------
to paragraph 3(e)) may at any time within the five days after receiving
written notice of such determination rescind its prior exercise of the
Repurchase Option by giving written notice of such revocation to the holder
or holders
-7-
<PAGE>
of the Executive Stock to be repurchased, and upon such revocation the
revoking party will be treated as if it had never exercised such Repurchase
Option.
(D) The reasonable costs of such appraisal shall be borne
by the Company.
(e) Assignment by Company.
---------------------
(i) If any of the Executive Stock subject to repurchase
hereunder consists of Unvested Class C Common subject to the terms of a
Vesting Agreement, Vested Class C Common that became Vested Class C Common
pursuant to the terms of a Vesting Agreement, Class B Common that was
issued upon conversion of Vested Class C Common, or any securities issued
with respect to such shares (collectively, "Vesting Agreement Stock"), the
-----------------------
Company shall within 20 days after Termination give written notice to each
Institutional Investor that is party to a Vesting Agreement to which any of
the Vesting Agreement Stock relates (the "Vesting Agreement Stock
-----------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Vesting Agreement Stock relating to
the Vesting Agreement to which such Institutional Investor is party and
whether such shares of Vesting Agreement Stock are Vested Shares or
Unvested Shares. Each such notified Institutional Investor shall, subject
to the limitation set forth in paragraph 3(e)(iv) below, have the right to
require the Company to assign to such Institutional Investor all or any
portion of the Company's rights (including the right to exercise such
repurchase rights) under this paragraph 3 to repurchase the Vesting
Agreement Stock relating to the Vesting Agreement to which such
Institutional Investor is party, upon such Institutional Investor's giving
written notice to the Company within 20 days of the Vesting Agreement Stock
Repurchase Notice; provided that if any such Institutional Investor fails
--------
to exercise any of such assigned repurchase rights to repurchase, the
Company shall have the right once again to exercise (or assign) such
rights. The assignment of such repurchase rights pursuant to this paragraph
3(e)(i) shall not be considered a failure to exercise such rights that
under paragraph 4G of the Stock Purchase Agreement would require the
approval of the holders of at least 67% of the outstanding Institutional
Investor Stock.
(ii) If any of the Executive Stock subject to repurchase
hereunder consists of shares of Investor Stock, the Company shall within 20
days of Termination give written notice to each Executive Investor then
employed by the Company or its Subsidiaries (the "Executive Investor
------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Investor Stock. Each such notified
Executive Investor shall, subject to the limitation set forth in paragraph
3(e)(iv) below, have the right to require the Company to assign to such
Executive Investor all or any portion of the Company's rights (including
the right to exercise such repurchase rights) under this paragraph 3 to
repurchase such Investor Stock, upon such Executive Investor's giving
written notice to the Company within 20 days of the Executive Investor
Repurchase Notice (provided that if the total such Investor Stock elected
--------
to be purchased by the other Executive Investors exceeds the total amount
of such Investor Stock available for repurchase, the right to purchase such
Investor Stock shall be allocated among the
-8-
<PAGE>
electing Executive Investors on the basis of the number of shares of
Investor Stock held by each such electing Executive Investor immediately
prior to the Termination). If any Executive Investor fails to exercise any
such assigned rights to repurchase, the Company shall have the right once
again to exercise (or assign) such rights. Each purchasing Executive
Investor shall succeed to Executive's rights and obligations under the
Stock Purchase Agreement and the other agreements of even date therewith in
proportion to the number of shares of Investor Stock purchased pursuant to
this paragraph. The assignment of such repurchase rights pursuant to this
paragraph 3(e)(ii) shall not be considered a failure to exercise such
rights that under paragraph 4G of the Stock Purchase Agreement would
require the approval of the holders of at least 67% of the outstanding
Institutional Investor Stock.
(iii) Subject to paragraphs 3(e)(iv) and 3(f) below, to the right
of first refusal as to Vesting Agreement Stock set forth in paragraph
3(e)(i) above, and to the right of first refusal as to Investor Stock set
forth in paragraph 3(e)(ii) above, the Company, by action of the Board,
will have the right to assign all or any portion of its repurchase rights
hereunder to any Investor and/or to any executive employee of the Company
or any of its Subsidiaries.
(iv) Notwithstanding anything in paragraphs 3(e)(i), (ii) or
(iii), the Company may not assign its right under paragraph 3(g) below to
pay all or part of the Repurchase Price for Executive Stock repurchased
hereunder in the form of a promissory note.
(f) Restriction on Repurchase of Unvested Shares. The Company will
--------------------------------------------
reserve all Unvested Shares (other than Vesting Agreement Stock) repurchased
hereunder for the purpose of reissuing such shares to an executive to be hired
or promoted to a key executive position with the Company (i.e., to replace
Executive or to replace another executive promoted to Executive's former
position). After repurchase, such Unvested Shares (other than Vesting Agreement
Stock) will be held by the Company awaiting issue to such an executive (which
issuance must be approved by a majority of the Board and the holders of at least
67% of the Institutional Investor Stock then outstanding); provided that upon
--------
the occurrence of a Sale of the Company (as defined in the Stockholders
Agreement) or a Public Offering, all such repurchased Unvested Shares (other
than Vesting Agreement Stock) which have not been reissued to an executive
employee of the Company shall be canceled immediately prior to the closing of
such event.
(g) Closing of the Repurchase. Within 10 business days after the
-------------------------
Repurchase Price for the Executive Stock to be repurchased has been determined,
the Company shall send a notice to each holder of Executive Stock setting forth
the consideration to be paid for such shares and the time and place for the
closing of the transaction, which date shall not be more than 60 days nor less
than five days after the delivery of such notice. At such closing, the
Executive shall deliver all certificates evidencing the Executive Stock to be
repurchased to the Company (and/or any assignees of the Company's repurchase
right pursuant to paragraph 3(e) above), and the Company (and/or any assignees)
shall pay for the Executive Stock to be purchased pursuant to the Repurchase
Option by delivery of Cash in the aggregate amount of the Repurchase Price for
such shares; provided that in the event the Board determines in its good faith
--------
discretion that
-9-
<PAGE>
the Company is not in a position to pay in Cash any or all of the Repurchase
Price for shares to be repurchased by it, the Company may pay, in the form of a
promissory note (which shall be subordinated to any of the Company's senior debt
obligations either then or thereafter incurred) with a maturity of no more than
five years, earning interest at the rate paid on the Company's senior debt
obligations (or if the Company has no such senior debt, at the prime rate
announced by Citibank from time to time), with all principal and accrued
interest due and payable upon maturity, a portion of the Repurchase Price for
such shares equal to (i) if Executive is terminated for Cause, the Repurchase
Price for all shares to be repurchased by the Company minus the Repurchase Price
-----
for any shares of Investor Stock to be repurchased by the Company, or (ii)
otherwise, the Repurchase Price for all shares to be repurchased by the Company
minus the lesser of (x) the Repurchase Price for any shares of Investor Stock to
- -----
be repurchased by the Company and (y) the aggregate Initial Contribution and
Subsequent Contributions paid by Executive or his Permitted Transferees under
the Stock Purchase Agreement prior to Termination with respect to any shares of
Investor Stock to be repurchased. The purchasers of Executive Stock hereunder
shall be entitled to receive customary representations and warranties from the
sellers regarding good title to such shares, free and clear of any liens or
encumbrances.
(h) Restrictions. Notwithstanding anything to the contrary contained
------------
in this Agreement, all repurchases of Executive Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law and in the Company's and its Subsidiaries' debt and equity financing
agreements. If any such restrictions prohibit the repurchase of Executive Stock
hereunder which the Company is otherwise entitled or required to make, the time
periods provided in this paragraph 3 shall be suspended, and the Company may
make such repurchases as soon as it is permitted to do so under such
restrictions, unless by such time such Repurchase Option has terminated pursuant
to paragraph 3(i).
(i) Termination of Repurchase Option. The right under this paragraph
--------------------------------
3 of the Company and/or its assignees to repurchase Executive Stock shall
terminate upon a Qualified Sale of the Company.
4. RESTRICTIONS ON TRANSFER.
------------------------
(a) Opinion of Valid Transfer. In addition to any other restrictions
-------------------------
on transfer imposed by this Agreement, the Stock Purchase Agreement, the Vesting
Agreements, or the Stockholders Agreement, no holder of Class B Common or Class
C Common may sell, transfer or dispose of any Class B Common or Class C Common
(except pursuant to an effective registration statement under the 1933 Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration nor
qualification under the 1933 Act and applicable state securities laws is
required in connection with such transfer.
(b) Restrictive Legend. The certificates representing the Class B
------------------
Common and Class C Common issued hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON NOVEMBER 27, 1996, HAVE NOT BEEN
-10-
<PAGE>
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION
FROM REGISTRATION THEREUNDER."
The certificates representing Executive Stock shall also bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS SET FORTH IN AN
EXECUTIVE STOCK AGREEMENT BETWEEN THE ISSUER OF SUCH SECURITIES
(THE "ISSUER") AND THE INITIAL HOLDER OF SUCH SECURITIES (THE
"INITIAL HOLDER"). A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY
THE HOLDER HEREOF AT THE ISSUER'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(c) Retention of Executive Stock. Executive is aware that Executive
----------------------------
Stock is subject to significant restrictions on transfer pursuant to paragraph 3
of the Stockholders Agreement.
5. TERMS OF EXECUTIVE'S EMPLOYMENT.
-------------------------------
(a) Employment. The Company hereby employs Executive, and Executive
----------
hereby accepts employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
The Company shall have the right to terminate the Executive's employment for any
reason, at any time, with or without Cause. Executive shall have the right to
terminate his employment for any reason, at any time, upon giving the Company
written notice two weeks prior to such termination.
(b) Duties and Responsibilities.
---------------------------
(i) Initially, the Executive shall serve as Assistant Secretary
and COO of the Company, and so long as Executive is employed by the Company
or any of its Subsidiaries, the Executive shall serve in such position as
may be determined by the Board and shall perform all duties and accept all
responsibilities incident to such position or as may be assigned to him by
the Board, and shall at all times comply with the policies and procedures
adopted by the Company for its employees.
(ii) The Executive represents and covenants to the Company that
he is not subject or a party to any employment agreement, non-competition
agreement, non-disclosure agreement or any similar agreement, covenant or
restriction that would prohibit the Executive from executing this Agreement
and performing his duties and responsibilities assigned by the Company.
(c) Extent of Service. So long as Executive is employed by the
-----------------
Company or any of its Subsidiaries, the Executive agrees to use his best efforts
to carry out his duties and responsibilities under paragraph 5(b) hereof and to
devote his full professional time and attention thereto.
-11-
<PAGE>
(d) Base Compensation. For all the services rendered by the
-----------------
Executive hereunder, the Company shall, commencing on November 1, 1996, and
continuing so long as Executive is employed by the Company or any of its
Subsidiaries, pay the Executive an annual salary at the rate of $120,000 per
year, plus any additional amounts, if any, as may be approved by a majority of
the Board including an MDCP Director (if any) and at least one of either the
Frontenac Director or the BV Director (if either) (as such terms are defined in
the Stockholders Agreement), less withholding required by law or agreed to by
the Executive, and payable in installments at such times as is customary with
the Company but in any event no less frequently than monthly. The Company agrees
that the Executive's salary will be reviewed annually by the Board to determine
if any increase (but not a decrease) is appropriate; provided that any such
--------
increase must be approved by a majority of the Board including an MDCP Director
(if any) and at least one of either the Frontenac Director or the BV Director
(if either). So long as Executive is employed by the Company or any of its
Subsidiaries, the Executive shall also be entitled to participate in such
vacation pay and any other fringe benefit plans as may from time to time be
adopted by a majority of the Board including an MDCP Director (if any) and at
least one of either the Frontenac Director or the BV Director (if either).
(e) Incentive Compensation. In addition to the compensation set
----------------------
forth in paragraph 5(d) above, so long as the Executive is employed by the
Company or its Subsidiaries the Executive shall be entitled to participate in an
annual bonus plan providing for the payment to Executive of an annual bonus, in
an amount to be determined by a majority of the Board including an MDCP Director
(if any) and at least one of either the Frontenac Director or the BV Director
(if either), if the Company achieves certain performance goals set in advance of
each year in the sole discretion of a majority of the Board including an MDCP
Director (if any) and at least one of either the Frontenac Director or the BV
Director (if either).
(f) Severance Pay. If at any time after the date hereof Executive's
-------------
employment is terminated for death or Disability or by the Company for any
reason other than Cause, Executive (or, in the case of death, Executive's
estate) shall, until the end of the Severance Pay Period (as defined below), be
entitled to receive a salary at the same rate of pay as, and on the same
schedule and terms as was customary for, the salary Executive received under
paragraph 5(d) above immediately prior to the Termination, as well as (except in
the case of Executive's death) comparable medical benefits to those provided by
the Company to Executive immediately prior to the Termination (such salary and
benefits collectively, the "Severance Pay"); provided that if at any time during
------------- --------
the Severance Pay Period Executive obtains other employment, Executive's
Severance Pay shall during the period of such employment be reduced (but not
below zero) by the amount of salary and benefits Executive receives as
compensation for such employment. The payment of such Severance Pay shall in no
way be construed as a continuation of Executive's employment after the
Termination. The "Severance Pay Period" shall be equal to (i) if Executive is
--------------------
terminated by the Company for any reason other than Cause, the longer of (A) the
period between Termination and the 12-month anniversary of the date hereof, and
(B) the 6-month period commencing on the date of Termination, or (ii) if
Executive's employment is terminated due to death or Disability, the six-month
period commencing on the date of Termination. If Executive resigns or is
terminated by the Company for Cause, the Company shall not be obligated to pay
any Severance Pay.
-12-
<PAGE>
(g) Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
(i) Nondisclosure Obligation. Executive shall not disclose or
------------------------
use at any time, either during his employment with the Company or
thereafter, any Confidential Information (as defined below) of which
Executive is or becomes aware, whether or not such information is developed
by him, except to the extent that such disclosure or use is directly
related to and required by Executive's performance of duties assigned to
Executive by the Company, or to the extent such disclosure is permissible
under paragraph 4A of the Stock Purchase Agreement. Executive shall take
all appropriate steps to safeguard Confidential Information and to protect
it against disclosure, misuse, espionage, loss and theft.
(ii) Confidential Information. As used in this Agreement, the
------------------------
term "Confidential Information" means information that is not generally
------------------------
known to the public and that is used, developed or obtained by the Company
in connection with its business, including but not limited to (i) products
or services, (ii) fees, costs and pricing structures, (iii) designs, (iv)
analysis, (v) drawings, photographs and reports, (vi) computer software,
including operating systems, applications and program listings, (vii) flow
charts, manuals and documentation, (viii) data bases, (ix) accounting and
business methods, (x) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whether or not reduced to
practice, (xi) customers and clients and customer or client lists, (xii)
copyrightable works, (xiv) all technology and trade secrets, (xv) business
plans and financial models, and (xvi) all similar and related information
in whatever form. Confidential Information shall not include any
information that has been published in a form generally available to the
public prior to the date Executive proposes to disclose or use such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately
published, but only if all material features constituting such information
have been published in combination.
6. THE COMPANY'S OWNERSHIP OF INTELLECTUAL PROPERTY.
------------------------------------------------
(a) Acknowledgment of Company Ownership. In the event that Executive
-----------------------------------
as part of his activities on behalf of the Company generates, authors or
contributes to any invention, design, new development, device, product, method
or process (whether or not patentable or reduced to practice or constituting
Confidential Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information relating
directly or indirectly to the Company's business as now or hereinafter conducted
(collectively, "Intellectual Property"), Executive acknowledges that such
---------------------
Intellectual Property is the exclusive property of the Company and hereby
assigns all right, title and interest in and to such Intellectual Property to
the Company. Any copyrightable work prepared in whole or in part by Executive
will be deemed "a work made for hire" under Section 201(b) of the 1976 Copyright
Act, and the Company shall own all of the rights comprised by the copyright
therein. Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate with the Company to protect the Company's
interests in and rights to such Intellectual Property (including, without
limitation, providing reasonable assistance in securing patent protection and
copyright registrations and executing all documents as reasonably requested by
the Company,
-13-
<PAGE>
whether such requests occur prior to or after termination of Executive's
employment with the Company).
(b) Executive Invention. Executive understands that paragraph 6 of
-------------------
this Agreement regarding the Company's ownership of Intellectual Property does
not apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company were used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business of the
Company or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by Executive
for the Company.
(c) Delivery of Materials upon Termination of Employment. As
----------------------------------------------------
requested by the Company from time to time and upon the Termination of
Executive's employment with the Company for any reason, Executive shall promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information and Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or In tellectual Property) irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
7. NONCOMPETITION AND NONSOLICITATION.
----------------------------------
(a) Noncompetition. Executive acknowledges and agrees with the
--------------
Company that Executive's services to the Company are unique in nature and that
the Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing with the Company or engaged in a
similar business. In connection with his exchange of Existing Common Stock for
Class B Common and Class C Common hereunder, Executive accordingly covenants and
agrees with the Company that during the Noncompetition Period (as defined
below), Executive shall not, directly or indirectly, either for himself or for
any other individual, corporation, partnership, joint venture or other entity,
participate in any business division, group or franchise (or if there are no
divisions, any business) where such division, group or franchise (or business,
if applicable) engages or proposes to engage in any business conducted by the
Company or proposed to be conducted pursuant to a Board resolution or Subsequent
Business Plan (including, but not limited to, the sale or distribution of local
switched dialtone telecommunication services) in any MSA in which the Company
conducts such business or proposes to conduct such business pursuant to a Board
resolution or Subsequent Business Plan. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise), other than ownership of up to 2% of the
outstanding stock of any class which is publicly traded.
-14-
<PAGE>
(b) Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
(c) Noncompetition Period. The "Noncompetition Period" shall
--------------------- ---------------------
commence on the date hereof and continue (i) if Executive is terminated by the
Company with or without Cause, until such date as shall be specified by the
Company in writing within the 14 days after Termination, provided that such date
--------
shall not be later than the first anniversary of the Termination, or (ii)
otherwise, until such date as shall be specified by the Company in writing
within the 30 days after Termination, provided that such date shall not be later
--------
than the 18-month anniversary of the Termination. After the end of the Severance
Pay Period (or if there is no Severance Pay, the date upon which the Company
elects the duration of the Noncompetition Period), the Company shall until the
end of the Noncompetition Period pay Executive his Noncompete Compensation
(unless Executive breaches his obligations under this paragraph 7, it being
understood that in such case Executive shall continue to be bound by such
obligations as if the Company were continuing to pay Noncompete Compensation).
If there is no Severance Pay, the Company shall during the period from
Termination until such time as the Company elects the duration of the
Noncompetition Period (the "Interim Period"), pay Executive his Interim
--------------
Compensation (unless Executive breaches his obligations under this paragraph 7,
it being understood that in such case Executive shall continue to be bound by
such obligations as if the Company were continuing to pay Interim Compensation).
"Noncompete Compensation" shall consist of 50% of the salary that Executive
-----------------------
received under paragraph 5(d) above as compensation from the Company and its
Subsidiaries immediately prior to Termination (Executive's "Previous Salary")
---------------
together with the continuation of the medical benefits that the Company provided
to Executive immediately prior to Termination (Executive's "Previous Benefits");
-----------------
provided that if at any time during the Noncompetition Period Executive obtains
- --------
other employment (i) with comparable medical benefits to Executive's Previous
Benefits, Executive's Noncompete Compensation shall during the period of such
employment not include the continued provision of medical benefits, and (ii)
with a salary exceeding 50% of Executive's Previous Salary, Executive's
Noncompete Compensation shall during the period of such employment be reduced
(but not below zero) by the amount of such excess. "Interim Compensation" shall
--------------------
consist of 100% of Executive's Previous Salary and Previous Benefits, provided
--------
that if at any time during the Interim Period Executive obtains other
employment, Executive's Interim Compensation shall during the period of such
employment be reduced (but not less than zero) by the amount of salary and
benefits received as compensation for such other employment.
8. NOTICES. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
-15-
<PAGE>
To the Company: Focal Communications Corporation
300 W. Washington Blvd., Suite 1408
Chicago, Illinois 60606
Attention: President
with a copy to: Bischoff, Kenney, and Niehaus
5630 North Main Street
Sylvania, Ohio 43560
Attention: Charles Niehaus
and a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers
attached to the Stock Purchase Agreement
To Executive: c/o the Company
with a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers attached
to the Stock Purchase Agreement
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement shall be deemed to have been given when
personally delivered, one business day after being sent by reputable overnight
courier service, or three business days after being deposited in the U.S. mail.
9. GENERAL PROVISIONS.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
-16-
<PAGE>
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns; provided that this Agreement
--------
shall not inure to the benefit of or be enforceable by any successor or assign
of any Investor if the transfer or other assignment to such Person, directly or
indirectly, breached any provision of this Agreement or the Stockholders
Agreement.
(f) Choice of Law. The corporate law of the State of Delaware shall
-------------
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
Illinois.
(g) Remedies. Each of the parties to this Agreement (including the
--------
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages would not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and
Executive. In addition, the parties acknowledge that, pursuant to the Stock
Purchase Agreement, the Company has agreed not to amend any provision of this
Agreement, or to waive or fail to enforce any of its rights hereunder
(including, without limitation, its rights under paragraph 3 hereof), without
the prior written consent of Investors holding at least 67% of the Institutional
Investor Stock then outstanding.
(i) Third-Party Beneficiaries. The parties hereto acknowledge and
-------------------------
agree that certain provisions of this Agreement are intended for the benefit of
the Investors and each other executive employee of the Company who has entered
into an executive stock agreement substantially similar to this Agreement (the
"Other Executives"), that the Investors and the Other Executives are third-party
----------------
beneficiaries of this Agreement and that provisions of this Agreement shall be
enforceable by the Investors and the Other Executives as provided herein.
(j) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois,
-17-
<PAGE>
the time period shall be automatically extended to the business day immediately
following such Saturday, Sunday or holiday.
* * * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
------------------------------------------
Its: President
-----------------------------------------
/s/ John R. Barnicle
-----------------------------------------------
John R. Barnicle
-19-
<PAGE>
Exhibit 4.14
EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT
--------------------------------------------------
THIS EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT (the
"Agreement") is made as of November 27, 1996, by and between Focal
Communications Corporation, a Delaware corporation (the "Company"), and Joseph
-------
A. Beatty ("Executive").
---------
The execution and delivery of this Agreement by the Company and
Executive are a condition to the purchase of shares of the Company's Class A
Common Stock, par value $.01 per share (the "Class A Common"), by certain
--------------
investors (the "Investors") pursuant to a stock purchase agreement of even date
---------
herewith by and among such Investors and the Company (as amended from time to
time pursuant to its terms, the "Stock Purchase Agreement"). Executive is a
------------------------
party to the Stock Purchase Agreement and desires that the purchase of Class A
Common pursuant thereto be consummated. Capitalized terms used but not defined
in this Agreement are used herein with the meanings assigned to such terms in
the Stock Purchase Agreement.
Executive holds beneficially and of record 25% of the Company's common
stock outstanding immediately prior to the closing hereunder (the "Existing
--------
Common Stock"). This Agreement contemplates a transaction where, pursuant to
- ------------
the terms and subject to the conditions set forth herein, Executive will
exchange all of his shares of Existing Common Stock for newly issued shares of
the Company's Class B Common Stock, par value $.01 per share (the "Class B
-------
Common") and newly issued shares of the Company's Class C Common Stock, par
- ------
value $.01 per share (the "Class C Common"). Such shares of Class B Common and
--------------
Class C Common are subject to certain terms and restrictions set forth in this
Agreement, in a stockholders agreement of even date herewith by and among the
Investors and the Company (as amended from time to time pursuant to its terms,
the "Stockholders Agreement"), and in several vesting agreements, each entered
----------------------
into between the Executive, the other Executive Investors, the Company, and one
Institutional Investor (as amended from time to time pursuant to their terms,
the "Vesting Agreements").
------------------
NOW, THEREFORE, in consideration of the above premises and the mutual
promises made herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EXCHANGE OF EXECUTIVE'S EXISTING COMMON STOCK.
---------------------------------------------
(a) Exchange of Existing Common Stock. At the Closing, pursuant to a
---------------------------------
recapitalization of the Company wherein all of the Company's Existing Common
Stock held by the Executive Investors will be converted into newly issued Class
B Common and Class C
-1-
<PAGE>
Common as set forth in the amended Certificate of Incorporation, Executive shall
exchange each of his shares of Existing Common Stock for 13 and 1/3 shares of
Class B Common and 9 and 60,577/75,000 shares of Class C Common.
(b) The Closing. The closing of the exchange and issuance of Class B
-----------
Common and Class C Common hereunder (the "Closing" for purposes of this
-------
Agreement) shall take place simultaneously with the Initial Closing under the
Stock Purchase Agreement. At the Closing, the Company shall deliver to Executive
certificates representing the shares of Class B Common and Class C Common to be
issued to Executive hereunder, registered in Executive's name, and Executive
shall deliver to the Company certificates representing 25% of the Company's
Existing Common Stock, which Existing Common Stock shall be immediately canceled
by the Company.
(c) Section 83(b) Election. Promptly but in any event within 30 days
----------------------
after the Closing, Executive shall make an effective election with the IRS under
Section 83(b) of the IRC with respect to the Class B Common and Class C Common
issued hereunder. A form of such election is attached to this Agreement as Annex
-----
A.
- -
(d) Representations and Warranties. In connection with the exchange
------------------------------
and issuance of Class B Common and Class C Common hereunder, Executive
represents and warrants to the Company that:
(i) The securities to be acquired by Executive pursuant to this
Agreement shall be acquired for Executive's own account and not with a view
to, or intention of, distribution thereof in violation of the Securities
Act of 1933 or any applicable state securities laws, and such securities
shall not be disposed of in contravention of such Act or laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of his investment in the Class B Common and Class C Common issued
hereunder.
(iii) Executive is able to bear the economic risk of his
investment in the Class B Common and Class C Common for an indefinite
period of time and is aware that transfer of such securities may not be
possible because (A) such transfer is subject to contractual restrictions
on sale set forth herein, in the Stockholders Agreement, and in the Vesting
Agreements, and (B) such securities have not been registered under the 1933
Act and, therefore, cannot be sold unless subsequently registered under the
1933 Act or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Class B Common and
-2-
<PAGE>
Class C Common issued hereunder and has had full access to such other
information concerning the Company as he has requested.
(v) This Agreement, the Stockholders Agreement, the Vesting
Agreements, the Stock Purchase Agreement, and the other agreements
contemplated thereby of even date therewith constitute the legal, valid and
binding obligations of Executive, enforceable in accordance with their
terms, and the execution, delivery and performance of such agreements by
Executive do not and shall not conflict with, violate or cause a breach of
any agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
2. VESTING.
-------
(a) Vesting. Except as otherwise provided herein, 20% of the Unvested
-------
Shares (as defined below) shall vest on the date of the Closing and 20% on each
of the first four anniversaries of such date, provided that except as otherwise
--------
expressly provided herein, Unvested Shares shall not vest after the date on
which Executive's employment by the Company is terminated. "Unvested Shares"
---------------
means the Class B Common and Class C Common issued hereunder (as well as any
Class B Common issued upon conversion of Class C Common issued hereunder), and
any securities issued with respect to such Class B Common or Class C Common
(including in connection with any stock dividend, merger, combination,
recapitalization, or other reorganization); provided that upon vesting pursuant
to this Agreement, such shares shall cease to be Unvested Shares and shall be
referred to as "Vested Shares."
-------------
(b) Acceleration upon a Qualified Sale of the Company. All Unvested
-------------------------------------------------
Shares shall become Vested Shares at the closing of a Qualified Sale of the
Company (as defined below) if Executive is employed by the Company or any of its
Subsidiaries on such closing date (or, if Executive is terminated by the Company
without Cause (as defined below), at any time during the 45-day period preceding
such closing date). "Qualified Sale of the Company" means a sale or transfer of
-----------------------------
all or substantially all of the outstanding stock or assets of the Company and
its subsidiaries, including by way of merger or consolidation, where more than
50% of the consideration for such stock or assets in such sale or transfer
consists of cash and/or publicly traded securities; provided that a Qualified
--------
Sale of the Company shall not include a recapitalization, merger, or other
reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction.
(c) Acceleration upon a Qualified Reorganization. If, at any time
--------------------------------------------
after the closing of a Qualified Reorganization (as defined below), Executive is
terminated by the Company without Cause, there shall vest upon such termination
the number of Unvested Shares which were scheduled to vest within the 12 months
following such termination; and no additional shares shall vest thereafter,
except as otherwise provided in paragraph 2(f) below. "Qualified
---------
Reorganization" means (i) a sale or transfer of all or substantially all of the
- --------------
outstanding stock or assets of the Company and its subsidiaries, including by
way of merger or consolidation, where at least 50% of the consideration for such
stock or assets in such sale or transfer consists of
-3-
<PAGE>
securities that are not publicly traded (other than a recapitalization, merger,
or other reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction); or (ii) a merger of the Company with a
Controlled Entity (as defined below), where the holders of the Company's common
stock immediately prior to such merger receive in such merger with respect to
such common stock less than 50% of the equity of the acquiring or surviving
entity immediately after such transaction. "Controlled Entity" means any
-----------------
corporation, limited liability company, partnership or other business entity of
which (x) if a corporation, a majority of the total voting power of shares of
stock entitled to vote in the election of directors, managers or trustees
thereof is at the time controlled by MDCP, or collectively by MDCP and one of
Frontenac or BV, or (y) if a limited liability company, partnership,
association, or other business entity, a majority of the partnership or similar
ownership interest thereof is at the time controlled by MDCP, or collectively by
MDCP and one of Frontenac or BV.
(d) Acceleration upon a Public Offering. At the closing of the
-----------------------------------
Company's initial Public Offering (as defined in the Stock Purchase Agreement),
if Executive is then employed by the Company, there will vest the number of
Unvested Shares which were scheduled to vest within 12 months following such
closing (and the remaining Unvested Shares, if any, shall continue to vest 20%
on each anniversary of the Closing hereunder as long as Executive is employed by
the Company, so that the vesting schedule set forth in paragraph 2(a) above
shall have been effectively accelerated by one year).
(e) Acceleration upon Death or Disability. If Executive's employment
-------------------------------------
with the Company or any of its Subsidiaries terminates by reason of Executive's
death or Disability, there will vest a number of Unvested Shares equal to the
greater of (i) the quotient obtained by dividing (A) the number of Unvested
Shares minus the number of Vested Shares, each as existing at the time of such
-----
termination, by (B) two, and (ii) the number of Unvested Shares which were
scheduled to vest within 12 months following such termination. No additional
shares shall vest thereafter, except as otherwise provided in paragraph 2(f)
below. "Disability" means the Executive's inability, due to illness, accident,
----------
injury, physical or mental incapacity or other disability, to carry out
effectively his duties and obligations to the Company hereunder or to
participate effectively and actively in the management of the Company for a
period anticipated to last at least six months, as determined in the good faith
judgment of the Company's board of directors (the "Board").
-----
(f) Other Acceleration. Subject to paragraph 3(h) hereof, any
------------------
Unvested Shares which the Company (or its assignees pursuant to paragraph 3(e)
hereof) has not elected to repurchase in the Repurchase Notice provided for in
paragraph 3(b) below (including Unvested Shares originally included in the
Repurchase Notice, but for which the election to repurchase was rescinded,
pursuant to paragraph 3(d)(iii) below, by all of the Company and/or its
assignees having made such election) shall thereafter be deemed Vested Shares
for all purposes of this Agreement and the Stockholders Agreement.
3. COMPANY'S REPURCHASE OPTION.
---------------------------
-4-
<PAGE>
(a) The Repurchase Option. In the event Executive ceases to be
---------------------
employed by the Company and its Subsidiaries for any reason (the "Termination"),
-----------
the Executive Stock then in existence (whether held by Executive or one or more
of Executive's transferees) will be subject to repurchase by the Company
pursuant to the terms and conditions set forth in this paragraph 3 (the
"Repurchase Option"). "Executive Stock" means the Class B Common and Class C
----------------- ---------------
Common issued to Executive hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), the Class A Common purchased by
Executive under the Stock Purchase Agreement, any other shares of Common Stock
or other Company securities acquired by Executive at any time that this
Agreement is in effect, and any securities issued directly or indirectly with
respect to the aforementioned securities (including in connection with any stock
dividend, merger, combination, reorganization or recapitalization), provided
--------
that shares of Executive Stock shall cease to be Executive Stock when they have
been transferred (including to the Company and/or its assignees by virtue of
this Repurchase Option) in compliance with this Agreement, the Stock Purchase
Agreement and the Stockholders Agreement to any Person other than a Permitted
Transferee (as defined in the Stockholders Agreement). "Vested Executive Stock"
----------------------
means all Executive Stock other than Unvested Shares.
(b) Exercise of Repurchase Option. The Company (by action of the
-----------------------------
Board) may elect to purchase all or any portion of the Executive Stock
outstanding at the time of Termination by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 90
-----------------
days after the Termination. The Repurchase Notice shall set forth the number of
shares of Executive Stock of each class (including, if applicable, the number of
Unvested Shares and/or Vested Shares) to be acquired from each such holder. The
number of shares of Vested Executive Stock to be repurchased by the Company
shall first be satisfied to the extent possible from the shares of Vested
Executive Stock held by Executive at the time of delivery of the Repurchase
Notice. If the number of shares of Vested Executive Stock of any class then
held by Executive is less than the total number of shares of Vested Executive
Stock of such class that the Company has elected to purchase, the Company shall
purchase the remaining shares elected to be purchased from the other holder(s)
of Vested Executive Stock of such class, pro rata according to the number of
such shares held of record by each such other holder at the time of delivery of
the Repurchase Notice.
(c) Repurchase Price.
----------------
(i) The repurchase price (the "Repurchase Price") for Unvested
----------------
Shares repurchased hereunder shall be the Original Cost for such shares (as
adjusted for any stock split, stock dividend, recapitalization or other
reorganization). The "Original Cost" of shares of Class B Common and Class
-------------
C Common issued hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), and any shares issued with
respect to such shares, shall be equal to the par value of such shares.
The "Original Cost" of all other shares shall be the aggregate
-------------
consideration (if any) paid by Executive (or, if applicable, holder of
Executive Stock) in exchange for such shares; provided that if any of the
--------
consideration paid for such shares consisted of unvested shares of Class B
Common or Class C Common (or any shares issued with respect to such
shares), the amount of such consideration constituting unvested Class B
Common or Class C Common (or shares issued with respect to such shares)
shall be deemed to be the par
-5-
<PAGE>
value of such shares of unvested Class B Common or Class C Common (or
shares issued with respect to such shares).
(ii) The Repurchase Price for shares of Vested Executive Stock
repurchased hereunder shall be the fair market value of such shares on the
date of the Repurchase Notice (determined according to the method set forth
in paragraph 3(d) below); provided that if Executive's employment is
--------
terminated by the Company or any of its subsidiaries for Cause (as defined
below), the Repurchase Price for shares of Class A Common repurchased
hereunder shall be the lesser of (A) Executive's Original Cost paid for
------
such shares (as adjusted for any stock split, stock dividend,
recapitalization or other reorganization), and (B) the fair market value of
such shares on the date of the Repurchase Notice (determined according to
the method set forth in paragraph 3(d) below), and the Repurchase Price for
all other shares of Vested Executive Stock shall be the Original Cost of
such shares.
(iii) "Cause" means a finding by 2/3 of the Board members then
-----
serving (excluding Executive, if applicable), after Executive has been
given the opportunity for a formal hearing, of (A) Executive's theft or
embezzlement, or attempted theft or embezzlement, of money or property of
the Company, Executive's perpetration or attempted perpetration of fraud,
or Executive's participation in a fraud or attempted fraud, on the Company,
or Executive's unauthorized appropriation of, or attempt to misap
propriate, any tangible or intangible assets or property of the Company,
(B) any act or acts of disloyalty, misconduct or moral turpitude by
Executive injurious to the interest, property, operations, business or
reputation of the Company or Executive's conviction of a crime the
commission of which results in injury to the Company or (C) Executive's
repeated refusal or failure (other than by reason of Disability) to carry
out reasonable instructions by his superiors or the Board.
(d) Fair Market Value of Repurchased Shares.
---------------------------------------
(i) In the event that the fair market value of any shares of
Executive Stock (the "Valued Stock") is relevant to the determination of
------------
the Repurchase Price for such shares under paragraph 3(c) above, a majority
interest of the Company and/or any assignees of the Company's repurchase
rights pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be purchased by each) and the holders of a majority of
the Executive Stock to be repurchased shall attempt in good faith to agree
on the fair market value of the Valued Stock. Any agreement reached by
such Persons shall be final and binding on all parties hereto.
(ii) If such Persons are unable to reach such agreement within 20
days after the giving of Repurchase Notice, the fair market value of any
Valued Stock that is publicly traded shall be the average, over a period of
21 days consisting of the date of Termination and the 20 consecutive
business days prior to that date, of the average of the closing prices of
the sales of such Valued Stock on all securities exchanges on which such
Valued Stock may at that time be listed, or, if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest
asked prices on all such
-6-
<PAGE>
exchanges at the end of such day, or, if on any day the Valued Stock is not
so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day the
Valued Stock is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau Incorporated, or any
similar successor organization.
(iii) If such Persons are unable to reach agreement pursuant to
paragraph 3(d)(i) within 20 days after the giving of Repurchase Notice, and
to the extent any Valued Stock is not publicly traded:
(A) A majority interest of the Company and/or its
assignees pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be repurchased by each) and the holders of a majority of
the Valued Stock shall each, within 10 days thereafter, appoint one
investment banker or other appraiser experienced in valuing companies like
the Company (and if the Valued Stock includes any shares of Class C Common,
experienced in valuing arrangements of the type described in the Vesting
Agreements), and the two Persons so appointed shall within 10 days after
their appointment appoint a third investment banker or appraiser similarly
experienced.
(B) The three investment bankers/appraisers shall each
appraise the fair market value of the Company (based on the assumption of
an orderly, arm's length sale to a willing unaffiliated buyer). The three
investment bankers/appraisers shall then each appraise the fair market
value of the Valued Stock based on their estimation of the fair market
value of the Company divided by the total number of shares of the Company's
----------
common stock outstanding at the time of Termination (calculated on a fully
diluted basis); provided that the value of any Valued Stock that is
--------
Unvested Class C Common (as that term is defined in the Vesting Agreements)
shall reflect (x) the expected market value of such Unvested Class C Common
at such future time as it is expected to become Vested Class C Common (as
that term is defined in the Vesting Agreements), appropriately discounted
to its present value at Termination based upon the amount of time from
Termination until such Unvested Class C Common is expected to vest (if at
all) and (y) the risk that such Unvested Class C Common may never become
Vested Class C Common. To the extent that the Valued Stock represents
securities other than Company common stock, the investment
bankers/appraiser s shall value such securities based on a similar
appraisal of the fair market value of the issuer of such securities. Each
of the three investment bankers/appraisers shall, within thirty days of
their retention, provide the written results of such appraisals to the
Company and/or its assignees pursuant to paragraph 3(e) and to each of the
holders of Valued Stock.
(C) For purposes of this paragraph 3, the fair market
value of such Valued Stock shall be the average of the two appraisals
closest to each other, and such determination shall be final and binding on
all parties hereto; provided that the Company (and/or any assignee pursuant
--------
to paragraph 3(e)) may at any time within the five days after receiving
written notice of such determination rescind its prior exercise of the
Repurchase Option by giving written notice of such revocation to the holder
or holders
-7-
<PAGE>
of the Executive Stock to be repurchased, and upon such revocation the
revoking party will be treated as if it had never exercised such Repurchase
Option.
(D) The reasonable costs of such appraisal shall be borne
by the Company.
(e) Assignment by Company.
---------------------
(i) If any of the Executive Stock subject to repurchase
hereunder consists of Unvested Class C Common subject to the terms of a
Vesting Agreement, Vested Class C Common that became Vested Class C Common
pursuant to the terms of a Vesting Agreement, Class B Common that was
issued upon conversion of Vested Class C Common, or any securities issued
with respect to such shares (collectively, "Vesting Agreement Stock"), the
-----------------------
Company shall within 20 days after Termination give written notice to each
Institutional Investor that is party to a Vesting Agreement to which any of
the Vesting Agreement Stock relates (the "Vesting Agreement Stock
-----------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Vesting Agreement Stock relating to
the Vesting Agreement to which such Institutional Investor is party and
whether such shares of Vesting Agreement Stock are Vested Shares or
Unvested Shares. Each such notified Institutional Investor shall, subject
to the limitation set forth in paragraph 3(e)(iv) below, have the right to
require the Company to assign to such Institutional Investor all or any
portion of the Company's rights (including the right to exercise such
repurchase rights) under this paragraph 3 to repurchase the Vesting
Agreement Stock relating to the Vesting Agreement to which such
Institutional Investor is party, upon such Institutional Investor's giving
written notice to the Company within 20 days of the Vesting Agreement Stock
Repurchase Notice; provided that if any such Institutional Investor fails
--------
to exercise any of such assigned repurchase rights to repurchase, the
Company shall have the right once again to exercise (or assign) such
rights. The assignment of such repurchase rights pursuant to this paragraph
3(e)(i) shall not be considered a failure to exercise such rights that
under paragraph 4G of the Stock Purchase Agreement would require the
approval of the holders of at least 67% of the outstanding Institutional
Investor Stock.
(ii) If any of the Executive Stock subject to repurchase
hereunder consists of shares of Investor Stock, the Company shall within 20
days of Termination give written notice to each Executive Investor then
employed by the Company or its Subsidiaries (the "Executive Investor
------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Investor Stock. Each such notified
Executive Investor shall, subject to the limitation set forth in paragraph
3(e)(iv) below, have the right to require the Company to assign to such
Executive Investor all or any portion of the Company's rights (including
the right to exercise such repurchase rights) under this paragraph 3 to
repurchase such Investor Stock, upon such Executive Investor's giving
written notice to the Company within 20 days of the Executive Investor
Repurchase Notice (provided that if the total such Investor Stock elected
--------
to be purchased by the other Executive Investors exceeds the total amount
of such Investor Stock available for repurchase, the right to purchase such
Investor Stock shall be allocated among the
-8-
<PAGE>
electing Executive Investors on the basis of the number of shares of
Investor Stock held by each such electing Executive Investor immediately
prior to the Termination). If any Executive Investor fails to exercise any
such assigned rights to repurchase, the Company shall have the right once
again to exercise (or assign) such rights. Each purchasing Executive
Investor shall succeed to Executive's rights and obligations under the
Stock Purchase Agreement and the other agreements of even date therewith in
proportion to the number of shares of Investor Stock purchased pursuant to
this paragraph. The assignment of such repurchase rights pursuant to this
paragraph 3(e)(ii) shall not be considered a failure to exercise such
rights that under paragraph 4G of the Stock Purchase Agreement would
require the approval of the holders of at least 67% of the outstanding
Institutional Investor Stock.
(iii) Subject to paragraphs 3(e)(iv) and 3(f) below, to the
right of first refusal as to Vesting Agreement Stock set forth in paragraph
3(e)(i) above, and to the right of first refusal as to Investor Stock set
forth in paragraph 3(e)(ii) above, the Company, by action of the Board,
will have the right to assign all or any portion of its repurchase rights
hereunder to any Investor and/or to any executive employee of the Company
or any of its Subsidiaries.
(iv) Notwithstanding anything in paragraphs 3(e)(i), (ii) or
(iii), the Company may not assign its right under paragraph 3(g) below to
pay all or part of the Repurchase Price for Executive Stock repurchased
hereunder in the form of a promissory note.
(f) Restriction on Repurchase of Unvested Shares. The Company will
--------------------------------------------
reserve all Unvested Shares (other than Vesting Agreement Stock) repurchased
hereunder for the purpose of reissuing such shares to an executive to be hired
or promoted to a key executive position with the Company (i.e., to replace
Executive or to replace another executive promoted to Executive's former
position). After repurchase, such Unvested Shares (other than Vesting Agreement
Stock) will be held by the Company awaiting issue to such an executive (which
issuance must be approved by a majority of the Board and the holders of at least
67% of the Institutional Investor Stock then outstanding); provided that upon
the occurrence of a Sale of the Company (as defined in the Stockholders
Agreement) or a Public Offering, all such repurchased Unvested Shares (other
than Vesting Agreement Stock) which have not been reissued to an executive
employee of the Company shall be canceled immediately prior to the closing of
such event.
(g) Closing of the Repurchase. Within 10 business days after the
-------------------------
Repurchase Price for the Executive Stock to be repurchased has been determined,
the Company shall send a notice to each holder of Executive Stock setting forth
the consideration to be paid for such shares and the time and place for the
closing of the transaction, which date shall not be more than 60 days nor less
than five days after the delivery of such notice. At such closing, the
Executive shall deliver all certificates evidencing the Executive Stock to be
repurchased to the Company (and/or any assignees of the Company's repurchase
right pursuant to paragraph 3(e) above), and the Company (and/or any assignees)
shall pay for the Executive Stock to be purchased pursuant to the Repurchase
Option by delivery of Cash in the aggregate amount of the Repurchase Price for
such shares; provided that in the event the Board determines in its good faith
--------
discretion that
-9-
<PAGE>
the Company is not in a position to pay in Cash any or all of the Repurchase
Price for shares to be repurchased by it, the Company may pay, in the form of a
promissory note (which shall be subordinated to any of the Company's senior debt
obligations either then or thereafter incurred) with a maturity of no more than
five years, earning interest at the rate paid on the Company's senior debt
obligations (or if the Company has no such senior debt, at the prime rate
announced by Citibank from time to time), with all principal and accrued
interest due and payable upon maturity, a portion of the Repurchase Price for
such shares equal to (i) if Executive is terminated for Cause, the Repurchase
Price for all shares to be repurchased by the Company minus the Repurchase Price
-----
for any shares of Investor Stock to be repurchased by the Company, or (ii)
otherwise, the Repurchase Price for all shares to be repurchased by the Company
minus the lesser of (x) the Repurchase Price for any shares of Investor Stock to
- -----
be repurchased by the Company and (y) the aggregate Initial Contribution and
Subsequent Contributions paid by Executive or his Permitted Transferees under
the Stock Purchase Agreement prior to Termination with respect to any shares of
Investor Stock to be repurchased. The purchasers of Executive Stock hereunder
shall be entitled to receive customary representations and warranties from the
sellers regarding good title to such shares, free and clear of any liens or
encumbrances.
(h) Restrictions. Notwithstanding anything to the contrary contained
------------
in this Agreement, all repurchases of Executive Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law and in the Company's and its Subsidiaries' debt and equity financing
agreements. If any such restrictions prohibit the repurchase of Executive Stock
hereunder which the Company is otherwise entitled or required to make, the time
periods provided in this paragraph 3 shall be suspended, and the Company may
make such repurchases as soon as it is permitted to do so under such
restrictions, unless by such time such Repurchase Option has terminated pursuant
to paragraph 3(i).
(i) Termination of Repurchase Option. The right under this paragraph
--------------------------------
3 of the Company and/or its assignees to repurchase Executive Stock shall
terminate upon a Qualified Sale of the Company.
4. RESTRICTIONS ON TRANSFER.
------------------------
(a) Opinion of Valid Transfer. In addition to any other restrictions
-------------------------
on transfer imposed by this Agreement, the Stock Purchase Agreement, the Vesting
Agreements, or the Stockholders Agreement, no holder of Class B Common or Class
C Common may sell, transfer or dispose of any Class B Common or Class C Common
(except pursuant to an effective registration statement under the 1933 Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration nor
qualification under the 1933 Act and applicable state securities laws is
required in connection with such transfer.
(b) Restrictive Legend. The certificates representing the Class B
------------------
Common and Class C Common issued hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
NOVEMBER 27, 1996, HAVE NOT BEEN
-10-
<PAGE>
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER."
The certificates representing Executive Stock shall also bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS SET FORTH IN AN EXECUTIVE
STOCK AGREEMENT BETWEEN THE ISSUER OF SUCH SECURITIES (THE "ISSUER") AND
THE INITIAL HOLDER OF SUCH SECURITIES (THE "INITIAL HOLDER"). A COPY OF
SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE ISSUER'S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(c) Retention of Executive Stock. Executive is aware that Executive
----------------------------
Stock is subject to significant restrictions on transfer pursuant to paragraph 3
of the Stockholders Agreement.
5. TERMS OF EXECUTIVE'S EMPLOYMENT.
-------------------------------
(a) Employment. The Company hereby employs Executive, and Executive
----------
hereby accepts employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
The Company shall have the right to terminate the Executive's employment for any
reason, at any time, with or without Cause. Executive shall have the right to
terminate his employment for any reason, at any time, upon giving the Company
written notice two weeks prior to such termination.
(b) Duties and Responsibilities.
---------------------------
(i) Initially, the Executive shall serve as Secretary,
Treasurer, and CFO of the Company, and so long as Executive is employed by
the Company or any of its Subsidiaries, the Executive shall serve in such
position as may be determined by the Board and shall perform all duties and
accept all responsibilities incident to such position or as may be assigned
to him by the Board, and shall at all times comply with the policies and
procedures adopted by the Company for its employees.
(ii) The Executive represents and covenants to the Company that
he is not subject or a party to any employment agreement, non-competition
agreement, non-disclosure agreement or any similar agreement, covenant or
restriction that would prohibit the Executive from executing this Agreement
and performing his duties and responsibilities assigned by the Company.
(c) Extent of Service. So long as Executive is employed by the
-----------------
Company or any of its Subsidiaries, the Executive agrees to use his best efforts
to carry out his duties and
-11-
<PAGE>
responsibilities under paragraph 5(b) hereof and to devote his full professional
time and attention thereto.
(d) Base Compensation. For all the services rendered by the Executive
-----------------
hereunder, the Company shall, commencing on November 1, 1996, and continuing so
long as Executive is employed by the Company or any of its Subsidiaries, pay the
Executive an annual salary at the rate of $120,000 per year, plus any additional
amounts, if any, as may be approved by a majority of the Board including an MDCP
Director (if any) and at least one of either the Frontenac Director or the BV
Director (if either) (as such terms are defined in the Stockholders Agreement),
less withholding required by law or agreed to by the Executive, and payable in
installments at such times as is customary with the Company but in any event no
less frequently than monthly. The Company agrees that the Executive's salary
will be reviewed annually by the Board to determine if any increase (but not a
decrease) is appropriate; provided that any such increase must be approved by a
--------
majority of the Board including an MDCP Director (if any) and at least one of
either the Frontenac Director or the BV Director (if either). So long as
Executive is employed by the Company or any of its Subsidiaries, the Executive
shall also be entitled to participate in such vacation pay and any other fringe
benefit plans as may from time to time be adopted by a majority of the Board
including an MDCP Director (if any) and at least one of either the Frontenac
Director or the BV Director (if either).
(e) Incentive Compensation. In addition to the compensation set forth
----------------------
in paragraph 5(d) above, so long as the Executive is employed by the Company or
its Subsidiaries the Executive shall be entitled to participate in an annual
bonus plan providing for the payment to Executive of an annual bonus, in an
amount to be determined by a majority of the Board including an MDCP Director
(if any) and at least one of either the Frontenac Director or the BV Director
(if either), if the Company achieves certain performance goals set in advance of
each year in the sole discretion of a majority of the Board including an MDCP
Director (if any) and at least one of either the Frontenac Director or the BV
Director (if either).
(f) Severance Pay. If at any time after the date hereof Executive's
-------------
employment is terminated for death or Disability or by the Company for any
reason other than Cause, Executive (or, in the case of death, Executive's
estate) shall, until the end of the Severance Pay Period (as defined below), be
entitled to receive a salary at the same rate of pay as, and on the same
schedule and terms as was customary for, the salary Executive received under
paragraph 5(d) above immediately prior to the Termination, as well as (except in
the case of Executive's death) comparable medical benefits to those provided by
the Company to Executive immediately prior to the Termination (such salary and
benefits collectively, the "Severance Pay"); provided that if at any time during
------------- --------
the Severance Pay Period Executive obtains other employment, Executive's
Severance Pay shall during the period of such employment be reduced (but not
below zero) by the amount of salary and benefits Executive receives as
compensation for such employment. The payment of such Severance Pay shall in no
way be construed as a continuation of Executive's employment after the
Termination. The "Severance Pay Period" shall be equal to (i) if Executive is
--------------------
terminated by the Company for any reason other than Cause, the longer of (A) the
period between Termination and the 12-month anniversary of the date hereof, and
(B) the 6-month period commencing on the date of Termination, or (ii) if
Executive's employment is terminated due to death or Disability, the six-month
period commencing on the date of
-12-
<PAGE>
Termination. If Executive resigns or is terminated by the Company for Cause,
the Company shall not be obligated to pay any Severance Pay.
(g) Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
(i) Nondisclosure Obligation. Executive shall not disclose or
------------------------
use at any time, either during his employment with the Company or
thereafter, any Confidential Information (as defined below) of which
Executive is or becomes aware, whether or not such information is developed
by him, except to the extent that such disclosure or use is directly
related to and required by Executive's performance of duties assigned to
Executive by the Company, or to the extent such disclosure is permissible
under paragraph 4A of the Stock Purchase Agreement. Executive shall take
all appropriate steps to safeguard Confidential Information and to protect
it against disclosure, misuse, espionage, loss and theft.
(ii) Confidential Information. As used in this Agreement, the
------------------------
term "Confidential Information" means information that is not generally
------------------------
known to the public and that is used, developed or obtained by the Company
in connection with its business, including but not limited to (i) products
or services, (ii) fees, costs and pricing structures, (iii) designs, (iv)
analysis, (v) drawings, photographs and reports, (vi) computer software,
including operating systems, applications and program listings, (vii) flow
charts, manuals and documentation, (viii) data bases, (ix) accounting and
business methods, (x) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whether or not reduced to
practice, (xi) customers and clients and customer or client lists, (xii)
copyrightable works, (xiv) all technology and trade secrets, (xv) business
plans and financial models, and (xvi) all similar and related information
in whatever form. Confidential Information shall not include any
information that has been published in a form generally available to the
public prior to the date Executive proposes to disclose or use such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately
published, but only if all material features constituting such information
have been published in combination.
6. THE COMPANY'S OWNERSHIP OF INTELLECTUAL PROPERTY.
------------------------------------------------
(a) Acknowledgment of Company Ownership. In the event that Executive
-----------------------------------
as part of his activities on behalf of the Company generates, authors or
contributes to any invention, design, new development, device, product, method
or process (whether or not patentable or reduced to practice or constituting
Confidential Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information relating
directly or indirectly to the Company's business as now or hereinafter conducted
(collectively, "Intellectual Property"), Executive acknowledges that such
---------------------
Intellectual Property is the exclusive property of the Company and hereby
assigns all right, title and interest in and to such Intellectual Property to
the Company. Any copyrightable work prepared in whole or in part by Executive
will be deemed "a work made for hire" under Section 201(b) of the 1976 Copyright
Act, and the Company shall own all of the rights comprised by the copyright
therein. Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate
-13-
<PAGE>
with the Company to protect the Company's interests in and rights to such
Intellectual Property (including, without limitation, providing reasonable
assistance in securing patent protection and copyright registrations and
executing all documents as reasonably requested by the Company, whether such
requests occur prior to or after termination of Executive's employment with the
Company).
(b) Executive Invention. Executive understands that paragraph 6 of
-------------------
this Agree ment regarding the Company's ownership of Intellectual Property does
not apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company were used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business of the
Company or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by Executive
for the Company.
(c) Delivery of Materials upon Termination of Employment. As
----------------------------------------------------
requested by the Company from time to time and upon the Termination of
Executive's employment with the Company for any reason, Executive shall promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information and Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or In tellectual Property) irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
7. NONCOMPETITION AND NONSOLICITATION.
----------------------------------
(a) Noncompetition. Executive acknowledges and agrees with the
--------------
Company that Executive's services to the Company are unique in nature and that
the Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing with the Company or engaged in a
similar business. In connection with his exchange of Existing Common Stock for
Class B Common and Class C Common hereunder, Executive accordingly covenants and
agrees with the Company that during the Noncompetition Period (as defined
below), Executive shall not, directly or indirectly, either for himself or for
any other individual, corporation, partnership, joint venture or other entity,
participate in any business division, group or franchise (or if there are no
divisions, any business) where such division, group or franchise (or business,
if applicable) engages or proposes to engage in any business conducted by the
Company or proposed to be conducted pursuant to a Board resolution or Subsequent
Business Plan (including, but not limited to, the sale or distribution of local
switched dialtone telecommunication services) in any MSA in which the Company
conducts such business or proposes to conduct such business pursuant to a Board
resolution or Subsequent Business Plan. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor,
-14-
<PAGE>
employee, agent, consultant or otherwise), other than ownership of up to 2% of
the outstanding stock of any class which is publicly traded.
(b) Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
(c) Noncompetition Period. The "Noncompetition Period" shall commence
--------------------- ---------------------
on the date hereof and continue (i) if Executive is terminated by the Company
with or without Cause, until such date as shall be specified by the Company in
writing within the 14 days after Termination, provided that such date shall not
--------
be later than the first anniversary of the Termination, or (ii) otherwise, until
such date as shall be specified by the Company in writing within the 30 days
after Termination, provided that such date shall not be later than the 18-month
--------
anniversary of the Termination. After the end of the Severance Pay Period (or
if there is no Severance Pay, the date upon which the Company elects the
duration of the Noncompetition Period), the Company shall until the end of the
Noncompetition Period pay Executive his Noncompete Compensation (unless
Executive breaches his obligations under this paragraph 7, it being understood
that in such case Executive shall continue to be bound by such obligations as if
the Company were continuing to pay Noncompete Compensation). If there is no
Severance Pay, the Company shall during the period from Termination until such
time as the Company elects the duration of the Noncompetition Period (the
"Interim Period"), pay Executive his Interim Compensation (unless Executive
--------------
breaches his obligations under this paragraph 7, it being understood that in
such case Executive shall continue to be bound by such obligations as if the
Company were continuing to pay Interim Compensation). "Noncompete Compensation"
-----------------------
shall consist of 50% of the salary that Executive received under paragraph 5(d)
above as compensation from the Company and its Subsidiaries immediately prior to
Termination (Executive's "Previous Salary") together with the continuation of
---------------
the medical benefits that the Company provided to Executive immediately prior to
Termination (Executive's "Previous Benefits"); provided that if at any time
----------------- --------
during the Noncompetition Period Executive obtains other employment (i) with
comparable medical benefits to Executive's Previous Benefits, Executive's
Noncompete Compensation shall during the period of such employment not include
the continued provision of medical benefits, and (ii) with a salary exceeding
50% of Executive's Previous Salary, Executive's Noncompete Compensation shall
during the period of such employment be reduced (but not below zero) by the
amount of such excess. "Interim Compensation" shall consist of 100% of
--------------------
Executive's Previous Salary and Previous Benefits, provided that if at any time
--------
during the Interim Period Executive obtains other employment, Executive's
Interim Compensation shall during the period of such employment be reduced (but
not less than zero) by the amount of salary and benefits received as
compensation for such other employment.
-15-
<PAGE>
8. NOTICES. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company: Focal Communications Corporation
300 W. Washington Blvd., Suite 1408
Chicago, Illinois 60606
Attention: President
with a copy to: Bischoff, Kenney, and Niehaus
5630 North Main Street
Sylvania, Ohio 43560
Attention: Charles Niehaus
and a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers
attached to the Stock Purchase Agreement
To Executive: c/o the Company
with a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers attached
to the Stock Purchase Agreement
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement shall be deemed to have been given when
personally delivered, one business day after being sent by reputable overnight
courier service, or three business days after being deposited in the U.S. mail.
9. GENERAL PROVISIONS.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
-16-
<PAGE>
(c) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns; provided that this Agreement
--------
shall not inure to the benefit of or be enforceable by any successor or assign
of any Investor if the transfer or other assignment to such Person, directly or
indirectly, breached any provision of this Agreement or the Stockholders
Agreement.
(f) Choice of Law. The corporate law of the State of Delaware shall
-------------
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
Illinois.
(g) Remedies. Each of the parties to this Agreement (including the
--------
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages would not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and
Executive. In addition, the parties acknowledge that, pursuant to the Stock
Purchase Agreement, the Company has agreed not to amend any provision of this
Agreement, or to waive or fail to enforce any of its rights hereunder
(including, without limitation, its rights under paragraph 3 hereof), without
the prior written consent of Investors holding at least 67% of the Institutional
Investor Stock then outstanding.
(i) Third-Party Beneficiaries. The parties hereto acknowledge and
-------------------------
agree that certain provisions of this Agreement are intended for the benefit of
the Investors and each other executive employee of the Company who has entered
into an executive stock agreement substantially similar to this Agreement (the
"Other Executives"), that the Investors and the Other
----------------
-17-
<PAGE>
Executives are third-party beneficiaries of this Agreement and that provisions
of this Agreement shall be enforceable by the Investors and the Other Executives
as provided herein.
(j) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois, the time period shall be automatically extended to the
business day immediately following such Saturday, Sunday or holiday.
* * * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
-------------------------------------
Its: President
-----------------------------------
/s/ Joseph A. Beatty
--------------------------------------
Joseph A. Beatty
-19-
<PAGE>
Exhibit 4.15
EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT
--------------------------------------------------
THIS EXECUTIVE STOCK AGREEMENT AND EMPLOYMENT AGREEMENT (the
"Agreement") is made as of November 27, 1996, by and between Focal
Communications Corporation, a Delaware corporation (the "Company"), and Robert
-------
C. Taylor, Jr. ("Executive").
---------
The execution and delivery of this Agreement by the Company and
Executive are a condition to the purchase of shares of the Company's Class A
Common Stock, par value $.01 per share (the "Class A Common"), by certain
--------------
investors (the "Investors") pursuant to a stock purchase agreement of even date
---------
herewith by and among such Investors and the Company (as amended from time to
time pursuant to its terms, the "Stock Purchase Agreement"). Executive is a
------------------------
party to the Stock Purchase Agreement and desires that the purchase of Class A
Common pursuant thereto be consummated. Capitalized terms used but not defined
in this Agreement are used herein with the meanings assigned to such terms in
the Stock Purchase Agreement.
Executive holds beneficially and of record 25% of the Company's common
stock outstanding immediately prior to the closing hereunder (the "Existing
--------
Common Stock"). This Agreement contemplates a transaction where, pursuant to
- ------------
the terms and subject to the conditions set forth herein, Executive will
exchange all of his shares of Existing Common Stock for newly issued shares of
the Company's Class B Common Stock, par value $.01 per share (the "Class B
-------
Common") and newly issued shares of the Company's Class C Common Stock, par
- ------
value $.01 per share (the "Class C Common"). Such shares of Class B Common and
--------------
Class C Common are subject to certain terms and restrictions set forth in this
Agreement, in a stockholders agreement of even date herewith by and among the
Investors and the Company (as amended from time to time pursuant to its terms,
the "Stockholders Agreement"), and in several vesting agreements, each entered
----------------------
into between the Executive, the other Executive Investors, the Company, and one
Institutional Investor (as amended from time to time pursuant to their terms,
the "Vesting Agreements").
------------------
NOW, THEREFORE, in consideration of the above premises and the mutual
promises made herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EXCHANGE OF EXECUTIVE'S EXISTING COMMON STOCK.
---------------------------------------------
(a) Exchange of Existing Common Stock. At the Closing, pursuant to a
---------------------------------
recapitalization of the Company wherein all of the Company's Existing Common
Stock held by the Executive Investors will be converted into newly issued Class
B Common and Class C Common as set forth in the amended Certificate of
Incorporation, Executive shall exchange each
1
<PAGE>
of his shares of Existing Common Stock for 13 and 1/3 shares of Class B Common
and 9 and 60,577/75,000 shares of Class C Common.
(b) The Closing. The closing of the exchange and issuance of Class B
-----------
Common and Class C Common hereunder (the "Closing" for purposes of this
-------
Agreement) shall take place simultaneously with the Initial Closing under the
Stock Purchase Agreement. At the Closing, the Company shall deliver to Executive
certificates representing the shares of Class B Common and Class C Common to be
issued to Executive hereunder, registered in Executive's name, and Executive
shall deliver to the Company certificates representing 25% of the Company's
Existing Common Stock, which Existing Common Stock shall be immediately canceled
by the Company.
(c) Section 83(b) Election. Promptly but in any event within 30 days
----------------------
after the Closing, Executive shall make an effective election with the IRS under
Section 83(b) of the IRC with respect to the Class B Common and Class C Common
issued hereunder. A form of such election is attached to this Agreement as Annex
-----
A.
- -
(d) Representations and Warranties. In connection with the exchange
------------------------------
and issuance of Class B Common and Class C Common hereunder, Executive
represents and warrants to the Company that:
(i) The securities to be acquired by Executive pursuant to
this Agreement shall be acquired for Executive's own account and not with a
view to, or intention of, distribution thereof in violation of the
Securities Act of 1933 or any applicable state securities laws, and such
securities shall not be disposed of in contravention of such Act or laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of his investment in the Class B Common and Class C Common issued
hereunder.
(iii) Executive is able to bear the economic risk of his
investment in the Class B Common and Class C Common for an indefinite
period of time and is aware that transfer of such securities may not be
possible because (A) such transfer is subject to contractual restrictions
on sale set forth herein, in the Stockholders Agreement, and in the Vesting
Agreements, and (B) such securities have not been registered under the 1933
Act and, therefore, cannot be sold unless subsequently registered under the
1933 Act or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Class B Common and
-2-
<PAGE>
Class C Common issued hereunder and has had full access to such other
information concerning the Company as he has requested.
(v) This Agreement, the Stockholders Agreement, the Vesting
Agreements, the Stock Purchase Agreement, and the other agreements
contemplated thereby of even date therewith constitute the legal, valid and
binding obligations of Executive, enforceable in accordance with their
terms, and the execution, delivery and performance of such agreements by
Executive do not and shall not conflict with, violate or cause a breach of
any agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
2. VESTING.
-------
(a) Vesting. Except as otherwise provided herein, 20% of the Unvested
-------
Shares (as defined below) shall vest on the date of the Closing and 20% on each
of the first four anniversaries of such date, provided that except as otherwise
--------
expressly provided herein, Unvested Shares shall not vest after the date on
which Executive's employment by the Company is terminated. "Unvested Shares"
---------------
means the Class B Common and Class C Common issued hereunder (as well as any
Class B Common issued upon conversion of Class C Common issued hereunder), and
any securities issued with respect to such Class B Common or Class C Common
(including in connection with any stock dividend, merger, combination,
recapitalization, or other reorganization); provided that upon vesting pursuant
to this Agreement, such shares shall cease to be Unvested Shares and shall be
referred to as "Vested Shares."
-------------
(b) Acceleration upon a Qualified Sale of the Company. All Unvested
-------------------------------------------------
Shares shall become Vested Shares at the closing of a Qualified Sale of the
Company (as defined below) if Executive is employed by the Company or any of its
Subsidiaries on such closing date (or, if Executive is terminated by the Company
without Cause (as defined below), at any time during the 45-day period preceding
such closing date). "Qualified Sale of the Company" means a sale or transfer of
-----------------------------
all or substantially all of the outstanding stock or assets of the Company and
its subsidiaries, including by way of merger or consolidation, where more than
50% of the consideration for such stock or assets in such sale or transfer
consists of cash and/or publicly traded securities; provided that a Qualified
--------
Sale of the Company shall not include a recapitalization, merger, or other
reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction.
(c) Acceleration upon a Qualified Reorganization. If, at any time
--------------------------------------------
after the closing of a Qualified Reorganization (as defined below), Executive is
terminated by the Company without Cause, there shall vest upon such termination
the number of Unvested Shares which were scheduled to vest within the 12 months
following such termination; and no additional shares shall vest thereafter,
except as otherwise provided in paragraph 2(f) below. "Qualified
---------
Reorganization" means (i) a sale or transfer of all or substantially all of the
- --------------
outstanding stock or assets of the Company and its subsidiaries, including by
way of merger or consolidation, where at least 50% of the consideration for such
stock or assets in such sale or transfer consists of
-3-
<PAGE>
securities that are not publicly traded (other than a recapitalization, merger,
or other reorganization in which the Persons holding a majority of the Company's
outstanding equity (by vote or value) prior to such transaction hold a majority
of the equity of the acquiring or successor entity (by vote or value)
immediately after such transaction); or (ii) a merger of the Company with a
Controlled Entity (as defined below), where the holders of the Company's common
stock immediately prior to such merger receive in such merger with respect to
such common stock less than 50% of the equity of the acquiring or surviving
entity immediately after such transaction. "Controlled Entity" means any
-----------------
corporation, limited liability company, partnership or other business entity of
which (x) if a corporation, a majority of the total voting power of shares of
stock entitled to vote in the election of directors, managers or trustees
thereof is at the time controlled by MDCP, or collectively by MDCP and one of
Frontenac or BV, or (y) if a limited liability company, partnership,
association, or other business entity, a majority of the partnership or similar
ownership interest thereof is at the time controlled by MDCP, or collectively by
MDCP and one of Frontenac or BV.
(d) Acceleration upon a Public Offering. At the closing of the
-----------------------------------
Company's initial Public Offering (as defined in the Stock Purchase Agreement),
if Executive is then employed by the Company, there will vest the number of
Unvested Shares which were scheduled to vest within 12 months following such
closing (and the remaining Unvested Shares, if any, shall continue to vest 20%
on each anniversary of the Closing hereunder as long as Executive is employed by
the Company, so that the vesting schedule set forth in paragraph 2(a) above
shall have been effectively accelerated by one year).
(e) Acceleration upon Death or Disability. If Executive's employment
-------------------------------------
with the Company or any of its Subsidiaries terminates by reason of Executive's
death or Disability, there will vest a number of Unvested Shares equal to the
greater of (i) the quotient obtained by dividing (A) the number of Unvested
Shares minus the number of Vested Shares, each as existing at the time of such
termination, by (B) two, and (ii) the number of Unvested Shares which were
scheduled to vest within 12 months following such termination. No additional
shares shall vest thereafter, except as otherwise provided in paragraph 2(f)
below. "Disability" means the Executive's inability, due to illness, accident,
----------
injury, physical or mental incapacity or other disability, to carry out
effectively his duties and obligations to the Company hereunder or to
participate effectively and actively in the management of the Company for a
period anticipated to last at least six months, as determined in the good faith
judgment of the Company's board of directors (the "Board").
-----
(f) Other Acceleration. Subject to paragraph 3(h) hereof, any
------------------
Unvested Shares which the Company (or its assignees pursuant to paragraph 3(e)
hereof) has not elected to repurchase in the Repurchase Notice provided for in
paragraph 3(b) below (including Unvested Shares originally included in the
Repurchase Notice, but for which the election to repurchase was rescinded,
pursuant to paragraph 3(d)(iii) below, by all of the Company and/or its
assignees having made such election) shall thereafter be deemed Vested Shares
for all purposes of this Agreement and the Stockholders Agreement.
3. Company's Repurchase Option.
---------------------------
-4-
<PAGE>
(a) The Repurchase Option. In the event Executive ceases to be
---------------------
employed by the Company and its Subsidiaries for any reason (the "Termination"),
-----------
the Executive Stock then in existence (whether held by Executive or one or more
of Executive's transferees) will be subject to repurchase by the Company
pursuant to the terms and conditions set forth in this paragraph 3 (the
"Repurchase Option"). "Executive Stock" means the Class B Common and Class C
----------------- ---------------
Common issued to Executive hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), the Class A Common purchased by
Executive under the Stock Purchase Agreement, any other shares of Common Stock
or other Company securities acquired by Executive at any time that this
Agreement is in effect, and any securities issued directly or indirectly with
respect to the aforementioned securities (including in connection with any stock
dividend, merger, combination, reorganization or recapitalization), provided
--------
that shares of Executive Stock shall cease to be Executive Stock when they have
been transferred (including to the Company and/or its assignees by virtue of
this Repurchase Option) in compliance with this Agreement, the Stock Purchase
Agreement and the Stockholders Agreement to any Person other than a Permitted
Transferee (as defined in the Stockholders Agreement). "Vested Executive Stock"
----------------------
means all Executive Stock other than Unvested Shares.
(b) Exercise of Repurchase Option. The Company (by action of the
-----------------------------
Board) may elect to purchase all or any portion of the Executive Stock
outstanding at the time of Termination by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 90
-----------------
days after the Termination. The Repurchase Notice shall set forth the number of
shares of Executive Stock of each class (including, if applicable, the number of
Unvested Shares and/or Vested Shares) to be acquired from each such holder. The
number of shares of Vested Executive Stock to be repurchased by the Company
shall first be satisfied to the extent possible from the shares of Vested
Executive Stock held by Executive at the time of delivery of the Repurchase
Notice. If the number of shares of Vested Executive Stock of any class then
held by Executive is less than the total number of shares of Vested Executive
Stock of such class that the Company has elected to purchase, the Company shall
purchase the remaining shares elected to be purchased from the other holder(s)
of Vested Executive Stock of such class, pro rata according to the number of
such shares held of record by each such other holder at the time of delivery of
the Repurchase Notice.
(c) Repurchase Price.
----------------
(i) The repurchase price (the "Repurchase Price") for Unvested
----------------
Shares repurchased hereunder shall be the Original Cost for such shares (as
adjusted for any stock split, stock dividend, recapitalization or other
reorganization). The "Original Cost" of shares of Class B Common and Class
-------------
C Common issued hereunder (as well as any Class B Common issued upon
conversion of Class C Common issued hereunder), and any shares issued with
respect to such shares, shall be equal to the par value of such shares.
The "Original Cost" of all other shares shall be the aggregate
-------------
consideration (if any) paid by Executive (or, if applicable, holder of
Executive Stock) in exchange for such shares; provided that if any of the
--------
consideration paid for such shares consisted of unvested shares of Class B
Common or Class C Common (or any shares issued with respect to such
shares), the amount of such consideration constituting unvested Class B
Common or Class C Common (or shares issued with respect to such shares)
shall be deemed to be the par
-5-
<PAGE>
value of such shares of unvested Class B Common or Class C Common (or
shares issued with respect to such shares).
(ii) The Repurchase Price for shares of Vested Executive Stock
repurchased hereunder shall be the fair market value of such shares on the
date of the Repurchase Notice (determined according to the method set forth
in paragraph 3(d) below); provided that if Executive's employment is
--------
terminated by the Company or any of its subsidiaries for Cause (as defined
below), the Repurchase Price for shares of Class A Common repurchased
hereunder shall be the lesser of (A) Executive's Original Cost paid for
------
such shares (as adjusted for any stock split, stock dividend,
recapitalization or other reorganization), and (B) the fair market value of
such shares on the date of the Repurchase Notice (determined according to
the method set forth in paragraph 3(d) below), and the Repurchase Price for
all other shares of Vested Executive Stock shall be the Original Cost of
such shares.
(iii) "Cause" means a finding by 2/3 of the Board members then
-----
serving (excluding Executive, if applicable), after Executive has been
given the opportunity for a formal hearing, of (A) Executive's theft or
embezzlement, or attempted theft or embezzlement, of money or property of
the Company, Executive's perpetration or attempted perpetration of fraud,
or Executive's participation in a fraud or attempted fraud, on the Company,
or Executive's unauthorized appropriation of, or attempt to misappropriate,
any tangible or intangible assets or property of the Company, (B) any act
or acts of disloyalty, misconduct or moral turpitude by Executive injurious
to the interest, property, operations, business or reputation of the
Company or Executive's conviction of a crime the commission of which
results in injury to the Company or (C) Executive's repeated refusal or
failure (other than by reason of Disability) to carry out reasonable
instructions by his superiors or the Board.
(d) Fair Market Value of Repurchased Shares.
---------------------------------------
(i) In the event that the fair market value of any shares of
Executive Stock (the "Valued Stock") is relevant to the determination of
------------
the Repurchase Price for such shares under paragraph 3(c) above, a majority
interest of the Company and/or any assignees of the Company's repurchase
rights pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be purchased by each) and the holders of a majority of
the Executive Stock to be repurchased shall attempt in good faith to agree
on the fair market value of the Valued Stock. Any agreement reached by
such Persons shall be final and binding on all parties hereto.
(ii) If such Persons are unable to reach such agreement within
20 days after the giving of Repurchase Notice, the fair market value of any
Valued Stock that is publicly traded shall be the average, over a period of
21 days consisting of the date of Termination and the 20 consecutive
business days prior to that date, of the average of the closing prices of
the sales of such Valued Stock on all securities exchanges on which such
Valued Stock may at that time be listed, or, if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest
asked prices on all such
-6-
<PAGE>
exchanges at the end of such day, or, if on any day the Valued Stock is not
so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day the
Valued Stock is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau Incorporated, or any
similar successor organization.
(iii) If such Persons are unable to reach agreement pursuant to
paragraph 3(d)(i) within 20 days after the giving of Repurchase Notice, and
to the extent any Valued Stock is not publicly traded:
(A) A majority interest of the Company and/or its
assignees pursuant to paragraph 3(e) (based on the number of shares of
Executive Stock to be repurchased by each) and the holders of a majority of
the Valued Stock shall each, within 10 days thereafter, appoint one
investment banker or other appraiser experienced in valuing companies like
the Company (and if the Valued Stock includes any shares of Class C Common,
experienced in valuing arrangements of the type described in the Vesting
Agreements), and the two Persons so appointed shall within 10 days after
their appointment appoint a third investment banker or appraiser similarly
experienced.
(B) The three investment bankers/appraisers shall each
appraise the fair market value of the Company (based on the assumption of
an orderly, arm's length sale to a willing unaffiliated buyer). The three
investment bankers/appraisers shall then each appraise the fair market
value of the Valued Stock based on their estimation of the fair market
value of the Company divided by the total number of shares of the Company's
----------
common stock outstanding at the time of Termination (calculated on a fully
diluted basis); provided that the value of any Valued Stock that is
--------
Unvested Class C Common (as that term is defined in the Vesting Agreements)
shall reflect (x) the expected market value of such Unvested Class C Common
at such future time as it is expected to become Vested Class C Common (as
that term is defined in the Vesting Agreements), appropriately discounted
to its present value at Termination based upon the amount of time from
Termination until such Unvested Class C Common is expected to vest (if at
all) and (y) the risk that such Unvested Class C Common may never become
Vested Class C Common. To the extent that the Valued Stock represents
securities other than Company common stock, the investment
bankers/appraisers shall value such securities based on a similar appraisal
of the fair market value of the issuer of such securities. Each of the
three investment bankers/appraisers shall, within thirty days of their
retention, provide the written results of such appraisals to the Company
and/or its assignees pursuant to paragraph 3(e) and to each of the holders
of Valued Stock.
(C) For purposes of this paragraph 3, the fair market
value of such Valued Stock shall be the average of the two appraisals
closest to each other, and such determination shall be final and binding on
all parties hereto; provided that the Company (and/or any assignee pursuant
--------
to paragraph 3(e)) may at any time within the five days after receiving
written notice of such determination rescind its prior exercise of the
Repurchase Option by giving written notice of such revocation to the holder
or holders
-7-
<PAGE>
of the Executive Stock to be repurchased, and upon such revocation the
revoking party will be treated as if it had never exercised such Repurchase
Option.
(D) The reasonable costs of such appraisal shall be borne
by the Company.
(e) Assignment by Company.
---------------------
(i) If any of the Executive Stock subject to repurchase
hereunder consists of Unvested Class C Common subject to the terms of a
Vesting Agreement, Vested Class C Common that became Vested Class C Common
pursuant to the terms of a Vesting Agreement, Class B Common that was
issued upon conversion of Vested Class C Common, or any securities issued
with respect to such shares (collectively, "Vesting Agreement Stock"), the
-----------------------
Company shall within 20 days after Termination give written notice to each
Institutional Investor that is party to a Vesting Agreement to which any of
the Vesting Agreement Stock relates (the "Vesting Agreement Stock
-----------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Vesting Agreement Stock relating to
the Vesting Agreement to which such Institutional Investor is party and
whether such shares of Vesting Agreement Stock are Vested Shares or
Unvested Shares. Each such notified Institutional Investor shall, subject
to the limitation set forth in paragraph 3(e)(iv) below, have the right to
require the Company to assign to such Institutional Investor all or any
portion of the Company's rights (including the right to exercise such
repurchase rights) under this paragraph 3 to repurchase the Vesting
Agreement Stock relating to the Vesting Agreement to which such
Institutional Investor is party, upon such Institutional Investor's giving
written notice to the Company within 20 days of the Vesting Agreement Stock
Repurchase Notice; provided that if any such Institutional Investor fails
--------
to exercise any of such assigned repurchase rights to repurchase, the
Company shall have the right once again to exercise (or assign) such
rights. The assignment of such repurchase rights pursuant to this paragraph
3(e)(i) shall not be considered a failure to exercise such rights that
under paragraph 4G of the Stock Purchase Agreement would require the
approval of the holders of at least 67% of the outstanding Institutional
Investor Stock.
(ii) If any of the Executive Stock subject to repurchase
hereunder consists of shares of Investor Stock, the Company shall within 20
days of Termination give written notice to each Executive Investor then
employed by the Company or its Subsidiaries (the "Executive Investor
------------------
Repurchase Notice"), setting forth the number of shares of Executive Stock
-----------------
subject to repurchase that constitute Investor Stock. Each such notified
Executive Investor shall, subject to the limitation set forth in paragraph
3(e)(iv) below, have the right to require the Company to assign to such
Executive Investor all or any portion of the Company's rights (including
the right to exercise such repurchase rights) under this paragraph 3 to
repurchase such Investor Stock, upon such Executive Investor's giving
written notice to the Company within 20 days of the Executive Investor
Repurchase Notice (provided that if the total such Investor Stock elected
--------
to be purchased by the other Executive Investors exceeds the total amount
of such Investor Stock available for repurchase, the right to purchase such
Investor Stock shall be allocated among the
-8-
<PAGE>
electing Executive Investors on the basis of the number of shares of
Investor Stock held by each such electing Executive Investor immediately
prior to the Termination). If any Executive Investor fails to exercise any
such assigned rights to repurchase, the Company shall have the right once
again to exercise (or assign) such rights. Each purchasing Executive
Investor shall succeed to Executive's rights and obligations under the
Stock Purchase Agreement and the other agreements of even date therewith in
proportion to the number of shares of Investor Stock purchased pursuant to
this paragraph. The assignment of such repurchase rights pursuant to this
paragraph 3(e)(ii) shall not be considered a failure to exercise such
rights that under paragraph 4G of the Stock Purchase Agreement would
require the approval of the holders of at least 67% of the outstanding
Institutional Investor Stock.
(iii) Subject to paragraphs 3(e)(iv) and 3(f) below, to the
right of first refusal as to Vesting Agreement Stock set forth in paragraph
3(e)(i) above, and to the right of first refusal as to Investor Stock set
forth in paragraph 3(e)(ii) above, the Company, by action of the Board,
will have the right to assign all or any portion of its repurchase rights
hereunder to any Investor and/or to any executive employee of the Company
or any of its Subsidiaries.
(iv) Notwithstanding anything in paragraphs 3(e)(i), (ii) or
(iii), the Company may not assign its right under paragraph 3(g) below to
pay all or part of the Repurchase Price for Executive Stock repurchased
hereunder in the form of a promissory note.
(f) Restriction on Repurchase of Unvested Shares. The Company will
--------------------------------------------
reserve all Unvested Shares (other than Vesting Agreement Stock) repurchased
hereunder for the purpose of reissuing such shares to an executive to be hired
or promoted to a key executive position with the Company (i.e., to replace
Executive or to replace another executive promoted to Executive's former
position). After repurchase, such Unvested Shares (other than Vesting Agreement
Stock) will be held by the Company awaiting issue to such an executive (which
issuance must be approved by a majority of the Board and the holders of at least
67% of the Institutional Investor Stock then outstanding); provided that upon
the occurrence of a Sale of the Company (as defined in the Stockholders
Agreement) or a Public Offering, all such repurchased Unvested Shares (other
than Vesting Agreement Stock) which have not been reissued to an executive
employee of the Company shall be canceled immediately prior to the closing of
such event.
(g) Closing of the Repurchase. Within 10 business days after the
-------------------------
Repurchase Price for the Executive Stock to be repurchased has been determined,
the Company shall send a notice to each holder of Executive Stock setting forth
the consideration to be paid for such shares and the time and place for the
closing of the transaction, which date shall not be more than 60 days nor less
than five days after the delivery of such notice. At such closing, the
Executive shall deliver all certificates evidencing the Executive Stock to be
repurchased to the Company (and/or any assignees of the Company's repurchase
right pursuant to paragraph 3(e) above), and the Company (and/or any assignees)
shall pay for the Executive Stock to be purchased pursuant to the Repurchase
Option by delivery of Cash in the aggregate amount of the Repurchase Price for
such shares; provided that in the event the Board determines in its good faith
--------
discretion that
-9-
<PAGE>
the Company is not in a position to pay in Cash any or all of the Repurchase
Price for shares to be repurchased by it, the Company may pay, in the form of a
promissory note (which shall be subordinated to any of the Company's senior debt
obligations either then or thereafter incurred) with a maturity of no more than
five years, earning interest at the rate paid on the Company's senior debt
obligations (or if the Company has no such senior debt, at the prime rate
announced by Citibank from time to time), with all principal and accrued
interest due and payable upon maturity, a portion of the Repurchase Price for
such shares equal to (i) if Executive is terminated for Cause, the Repurchase
Price for all shares to be repurchased by the Company minus the Repurchase Price
-----
for any shares of Investor Stock to be repurchased by the Company, or (ii)
otherwise, the Repurchase Price for all shares to be repurchased by the Company
minus the lesser of (x) the Repurchase Price for any shares of Investor Stock to
- -----
be repurchased by the Company and (y) the aggregate Initial Contribution and
Subsequent Contributions paid by Executive or his Permitted Transferees under
the Stock Purchase Agreement prior to Termination with respect to any shares of
Investor Stock to be repurchased. The purchasers of Executive Stock hereunder
shall be entitled to receive customary representations and warranties from the
sellers regarding good title to such shares, free and clear of any liens or
encumbrances.
(h) Restrictions. Notwithstanding anything to the contrary contained
------------
in this Agreement, all repurchases of Executive Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law and in the Company's and its Subsidiaries' debt and equity financing
agreements. If any such restrictions prohibit the repurchase of Executive Stock
hereunder which the Company is otherwise entitled or required to make, the time
periods provided in this paragraph 3 shall be suspended, and the Company may
make such repurchases as soon as it is permitted to do so under such
restrictions, unless by such time such Repurchase Option has terminated pursuant
to paragraph 3(i).
(i) Termination of Repurchase Option. The right under this paragraph
--------------------------------
3 of the Company and/or its assignees to repurchase Executive Stock shall
terminate upon a Qualified Sale of the Company.
4. RESTRICTIONS ON TRANSFER.
------------------------
(a) Opinion of Valid Transfer. In addition to any other restrictions
-------------------------
on transfer imposed by this Agreement, the Stock Purchase Agreement, the Vesting
Agreements, or the Stockholders Agreement, no holder of Class B Common or Class
C Common may sell, transfer or dispose of any Class B Common or Class C Common
(except pursuant to an effective registration statement under the 1933 Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration nor
qualification under the 1933 Act and applicable state securities laws is
required in connection with such transfer.
(b) Restrictive Legend. The certificates representing the Class B
------------------
Common and Class C Common issued hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
NOVEMBER 27, 1996, HAVE NOT BEEN
-10-
<PAGE>
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER."
The certificates representing Executive Stock shall also bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS SET FORTH IN AN EXECUTIVE
STOCK AGREEMENT BETWEEN THE ISSUER OF SUCH SECURITIES (THE "ISSUER") AND
THE INITIAL HOLDER OF SUCH SECURITIES (THE "INITIAL HOLDER"). A COPY OF
SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE ISSUER'S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(c) Retention of Executive Stock. Executive is aware that Executive
----------------------------
Stock is subject to significant restrictions on transfer pursuant to paragraph 3
of the Stockholders Agreement.
5. TERMS OF EXECUTIVE'S EMPLOYMENT.
-------------------------------
(a) Employment. The Company hereby employs Executive, and Executive
----------
hereby accepts employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
The Company shall have the right to terminate the Executive's employment for any
reason, at any time, with or without Cause. Executive shall have the right to
terminate his employment for any reason, at any time, upon giving the Company
written notice two weeks prior to such termination.
(b) Duties and Responsibilities.
---------------------------
(i) Initially, the Executive shall serve as President of the
Company, and so long as Executive is employed by the Company or any of its
Subsidiaries, the Executive shall serve in such position as may be
determined by the Board and shall perform all duties and accept all
responsibilities incident to such position or as may be assigned to him by
the Board, and shall at all times comply with the policies and procedures
adopted by the Company for its employees.
(ii) The Executive represents and covenants to the Company that
he is not subject or a party to any employment agreement, non-competition
agreement, non-disclosure agreement or any similar agreement, covenant or
restriction that would prohibit the Executive from executing this Agreement
and performing his duties and responsibilities assigned by the Company.
(c) Extent of Service. So long as Executive is employed by the
-----------------
Company or any of its Subsidiaries, the Executive agrees to use his best efforts
to carry out his duties and responsibilities under paragraph 5(b) hereof and to
devote his full professional time and attention thereto.
-11-
<PAGE>
(d) Base Compensation. For all the services rendered by the Executive
-----------------
hereunder, the Company shall, commencing on November 1, 1996, and continuing so
long as Executive is employed by the Company or any of its Subsidiaries, pay the
Executive an annual salary at the rate of $120,000 per year, plus any additional
amounts, if any, as may be approved by a majority of the Board including an MDCP
Director (if any) and at least one of either the Frontenac Director or the BV
Director (if either) (as such terms are defined in the Stockholders Agreement),
less withholding required by law or agreed to by the Executive, and payable in
installments at such times as is customary with the Company but in any event no
less frequently than monthly. The Company agrees that the Executive's salary
will be reviewed annually by the Board to determine if any increase (but not a
decrease) is appropriate; provided that any such increase must be approved by a
--------
majority of the Board including an MDCP Director (if any) and at least one of
either the Frontenac Director or the BV Director (if either). So long as
Executive is employed by the Company or any of its Subsidiaries, the Executive
shall also be entitled to participate in such vacation pay and any other fringe
benefit plans as may from time to time be adopted by a majority of the Board
including an MDCP Director (if any) and at least one of either the Frontenac
Director or the BV Director (if either).
(e) Incentive Compensation. In addition to the compensation set forth
----------------------
in paragraph 5(d) above, so long as the Executive is employed by the Company or
its Subsidiaries the Executive shall be entitled to participate in an annual
bonus plan providing for the payment to Executive of an annual bonus, in an
amount to be determined by a majority of the Board including an MDCP Director
(if any) and at least one of either the Frontenac Director or the BV Director
(if either), if the Company achieves certain performance goals set in advance of
each year in the sole discretion of a majority of the Board including an MDCP
Director (if any) and at least one of either the Frontenac Director or the BV
Director (if either).
(f) Severance Pay. If at any time after the date hereof Executive's
-------------
employment is terminated for death or Disability or by the Company for any
reason other than Cause, Executive (or, in the case of death, Executive's
estate) shall, until the end of the Severance Pay Period (as defined below), be
entitled to receive a salary at the same rate of pay as, and on the same
schedule and terms as was customary for, the salary Executive received under
paragraph 5(d) above immediately prior to the Termination, as well as (except in
the case of Executive's death) comparable medical benefits to those provided by
the Company to Executive immediately prior to the Termination (such salary and
benefits collectively, the "Severance Pay"); provided that if at any time during
------------- --------
the Severance Pay Period Executive obtains other employment, Executive's
Severance Pay shall during the period of such employment be reduced (but not
below zero) by the amount of salary and benefits Executive receives as
compensation for such employment. The payment of such Severance Pay shall in no
way be construed as a continuation of Executive's employment after the
Termination. The "Severance Pay Period" shall be equal to (i) if Executive is
--------------------
terminated by the Company for any reason other than Cause, the longer of (A) the
period between Termination and the 12-month anniversary of the date hereof, and
(B) the 6-month period commencing on the date of Termination, or (ii) if
Executive's employment is terminated due to death or Disability, the six-month
period commencing on the date of Termination. If Executive resigns or is
terminated by the Company for Cause, the Company shall not be obligated to pay
any Severance Pay.
-12-
<PAGE>
(g) Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
(i) Nondisclosure Obligation. Executive shall not disclose or
------------------------
use at any time, either during his employment with the Company or
thereafter, any Confidential Information (as defined below) of which
Executive is or becomes aware, whether or not such information is developed
by him, except to the extent that such disclosure or use is directly
related to and required by Executive's performance of duties assigned to
Executive by the Company, or to the extent such disclosure is permissible
under paragraph 4A of the Stock Purchase Agreement. Executive shall take
all appropriate steps to safeguard Confidential Information and to protect
it against disclosure, misuse, espionage, loss and theft.
(ii) Confidential Information. As used in this Agreement, the
------------------------
term "Confidential Information" means information that is not generally
------------------------
known to the public and that is used, developed or obtained by the Company
in connection with its business, including but not limited to (i) products
or services, (ii) fees, costs and pricing structures, (iii) designs, (iv)
analysis, (v) drawings, photographs and reports, (vi) computer software,
including operating systems, applications and program listings, (vii) flow
charts, manuals and documentation, (viii) data bases, (ix) accounting and
business methods, (x) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whether or not reduced to
practice, (xi) customers and clients and customer or client lists, (xii)
copyrightable works, (xiv) all technology and trade secrets, (xv) business
plans and financial models, and (xvi) all similar and related information
in whatever form. Confidential Information shall not include any
information that has been published in a form generally available to the
public prior to the date Executive proposes to disclose or use such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately
published, but only if all material features constituting such information
have been published in combination.
6. THE COMPANY'S OWNERSHIP OF INTELLECTUAL PROPERTY.
------------------------------------------------
(a) Acknowledgment of Company Ownership. In the event that Executive
-----------------------------------
as part of his activities on behalf of the Company generates, authors or
contributes to any invention, design, new development, device, product, method
or process (whether or not patentable or reduced to practice or constituting
Confidential Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information relating
directly or indirectly to the Company's business as now or hereinafter conducted
(collectively, "Intellectual Property"), Executive acknowledges that such
---------------------
Intellectual Property is the exclusive property of the Company and hereby
assigns all right, title and interest in and to such Intellectual Property to
the Company. Any copyrightable work prepared in whole or in part by Executive
will be deemed "a work made for hire" under Section 201(b) of the 1976 Copyright
Act, and the Company shall own all of the rights comprised by the copyright
therein. Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate with the Company to protect the Company's
interests in and rights to such Intellectual Property (including, without
limitation, providing reasonable assistance in securing patent protection and
copyright registrations and executing all documents as reasonably requested by
the Company,
-13-
<PAGE>
whether such requests occur prior to or after termination of Executive's
employment with the Company).
(b) Executive Invention. Executive understands that paragraph 6 of
-------------------
this Agreement regarding the Company's ownership of Intellectual Property does
not apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company were used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business of the
Company or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by Executive
for the Company.
(c) Delivery of Materials upon Termination of Employment. As
----------------------------------------------------
requested by the Company from time to time and upon the Termination of
Executive's employment with the Company for any reason, Executive shall promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information and Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
7. NONCOMPETITION AND NONSOLICITATION.
----------------------------------
(a) Noncompetition. Executive acknowledges and agrees with the
--------------
Company that Executive's services to the Company are unique in nature and that
the Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing with the Company or engaged in a
similar business. In connection with his exchange of Existing Common Stock for
Class B Common and Class C Common hereunder, Executive accordingly covenants and
agrees with the Company that during the Noncompetition Period (as defined
below), Executive shall not, directly or indirectly, either for himself or for
any other individual, corporation, partnership, joint venture or other entity,
participate in any business division, group or franchise (or if there are no
divisions, any business) where such division, group or franchise (or business,
if applicable) engages or proposes to engage in any business conducted by the
Company or proposed to be conducted pursuant to a Board resolution or Subsequent
Business Plan (including, but not limited to, the sale or distribution of local
switched dialtone telecommunication services) in any MSA in which the Company
conducts such business or proposes to conduct such business pursuant to a Board
resolution or Subsequent Business Plan. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise), other than ownership of up to 2% of the
outstanding stock of any class which is publicly traded.
-14-
<PAGE>
(b) Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
(c) Noncompetition Period. The "Noncompetition Period" shall commence
--------------------- ---------------------
on the date hereof and continue (i) if Executive is terminated by the Company
with or without Cause, until such date as shall be specified by the Company in
writing within the 14 days after Termination, provided that such date shall not
--------
be later than the first anniversary of the Termination, or (ii) otherwise, until
such date as shall be specified by the Company in writing within the 30 days
after Termination, provided that such date shall not be later than the 18-month
--------
anniversary of the Termination. After the end of the Severance Pay Period (or
if there is no Severance Pay, the date upon which the Company elects the
duration of the Noncompetition Period), the Company shall until the end of the
Noncompetition Period pay Executive his Noncompete Compensation (unless
Executive breaches his obligations under this paragraph 7, it being understood
that in such case Executive shall continue to be bound by such obligations as if
the Company were continuing to pay Noncompete Compensation). If there is no
Severance Pay, the Company shall during the period from Termination until such
time as the Company elects the duration of the Noncompetition Period (the
"Interim Period"), pay Executive his Interim Compensation (unless Executive
--------------
breaches his obligations under this paragraph 7, it being understood that in
such case Executive shall continue to be bound by such obligations as if the
Company were continuing to pay Interim Compensation). "Noncompete Compensation"
-----------------------
shall consist of 50% of the salary that Executive received under paragraph 5(d)
above as compensation from the Company and its Subsidiaries immediately prior to
Termination (Executive's "Previous Salary") together with the continuation of
---------------
the medical benefits that the Company provided to Executive immediately prior to
Termination (Executive's "Previous Benefits"); provided that if at any time
----------------- --------
during the Noncompetition Period Executive obtains other employment (i) with
comparable medical benefits to Executive's Previous Benefits, Executive's
Noncompete Compensation shall during the period of such employment not include
the continued provision of medical benefits, and (ii) with a salary exceeding
50% of Executive's Previous Salary, Executive's Noncompete Compensation shall
during the period of such employment be reduced (but not below zero) by the
amount of such excess. "Interim Compensation" shall consist of 100% of
--------------------
Executive's Previous Salary and Previous Benefits, provided that if at any time
--------
during the Interim Period Executive obtains other employment, Executive's
Interim Compensation shall during the period of such employment be reduced (but
not less than zero) by the amount of salary and benefits received as
compensation for such other employment.
8. NOTICES. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
-15-
<PAGE>
To the Company: Focal Communications Corporation
300 W. Washington Blvd., Suite 1408
Chicago, Illinois 60606
Attention: President
with a copy to: Bischoff, Kenney, and Niehaus
5630 North Main Street
Sylvania, Ohio 43560
Attention: Charles Niehaus
and a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers
attached to the Stock Purchase Agreement
To Executive: c/o the Company
with a copy to: the Institutional Investors at the addresses listed for such
Institutional Investors on the Schedule of Purchasers attached
to the Stock Purchase Agreement
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement shall be deemed to have been given when
personally delivered, one business day after being sent by reputable overnight
courier service, or three business days after being deposited in the U.S. mail.
9. GENERAL PROVISIONS.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
-16-
<PAGE>
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns; provided that this Agreement
--------
shall not inure to the benefit of or be enforceable by any successor or assign
of any Investor if the transfer or other assignment to such Person, directly or
indirectly, breached any provision of this Agreement or the Stockholders
Agreement.
(f) Choice of Law. The corporate law of the State of Delaware shall
-------------
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
Illinois.
(g) Remedies. Each of the parties to this Agreement (including the
--------
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages would not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and
Executive. In addition, the parties acknowledge that, pursuant to the Stock
Purchase Agreement, the Company has agreed not to amend any provision of this
Agreement, or to waive or fail to enforce any of its rights hereunder
(including, without limitation, its rights under paragraph 3 hereof), without
the prior written consent of Investors holding at least 67% of the Institutional
Investor Stock then outstanding.
(i) Third-Party Beneficiaries. The parties hereto acknowledge and
-------------------------
agree that certain provisions of this Agreement are intended for the benefit of
the Investors and each other executive employee of the Company who has entered
into an executive stock agreement substantially similar to this Agreement (the
"Other Executives"), that the Investors and the Other Executives are third-party
----------------
beneficiaries of this Agreement and that provisions of this Agreement shall be
enforceable by the Investors and the Other Executives as provided herein.
(j) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois,
-17-
<PAGE>
the time period shall be automatically extended to the business day immediately
following such Saturday, Sunday or holiday.
* * * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Joseph A. Beatty
------------------------------------------
Its: Secretary and Executive Vice President
-----------------------------------------
/s/ Robert C. Taylor, Jr.
-----------------------------------------------
Robert C. Taylor, Jr.
-19-
<PAGE>
Exhibit 4.16
REGISTRATION AGREEMENT
----------------------
THIS REGISTRATION AGREEMENT (the "Agreement") is made as of November
---------
27, 1996, by and among Focal Communications Corporation, a Delaware corporation
(the "Company"), Madison Dearborn Capital Partners, L.P., a Delaware limited
-------
partnership ("MDCP"), Frontenac VI, L.P., a Delaware limited partnership
----
("Frontenac"), Battery Ventures III, L.P., a Delaware limited partnership ("BV,"
--
and collectively with MDCP and Frontenac, the "Institutional Investors"), Robert
-----------------------
C. Taylor, Jr. ("Taylor"), John R. Barnicle ("Barnicle"), Brian F. Addy
------ --------
("Addy"), and Joseph Beatty ("Beatty," and collectively with Taylor, Barnicle,
---- ------
and Addy, the "Executive Investors").
-------------------
The execution and delivery of this Agreement is a condition to the
purchase of the Company's Class A Common Stock, par value $.01 per share ("Class
-----
A Common") by the Institutional Investors and the Executive Investors
- --------
(collectively, the "Investors") pursuant to a stock purchase agreement of even
---------
date herewith by and among the Company and such Investors (the "Stock Purchase
--------------
Agreement."). Capitalized terms used but not otherwise defined in this
- ---------
Agreement are used herein with the meanings ascribed to such terms in the Stock
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time after the date hereof and
-------------------------
prior to the Company's Initial Public Offering (as defined below), the holders
of at least 67% of the Institutional Investor Registrable Securities then
outstanding may request registration under the Securities Act of all or any
portion of their Registrable Securities on Form S-1 or any similar long-form
registration ("Long-Form Registrations"). "Initial Public Offering" means a
----------------------- -----------------------
sale of Common Stock to the public registered with the Securities and Exchange
Commission on Form S-1 or any similar form. After the Company's Initial Public
Offering, (i) the holders of a majority of the MDCP Registrable Securities then
outstanding may request two Long-Form Registrations, (ii) the holders of a
majority of the Frontenac Registrable Securities then outstanding and the
holders of a majority of the BV Registrable Securities then outstanding may each
request one Long-Form Registration, (iii) and the holders of at least 10% of the
Institutional Investor Registrable Securities then outstanding may request
registration under the Securities Act of all or any portion of their Registrable
Securities on Form S-2 or S-3 or any similar short-form registration ("Short-
------
Form Registrations") if available; provided that the aggregate offering value
- ------------------ --------
of the Registrable Securities requested to be registered in any Long-Form
Registration must equal at least $20 million if the registration is the
Company's Initial Public Offering, at least $10
1
<PAGE>
million in all other Long-Form Registrations, and at least $2 million in any
Short-Form Registration.
All requests for registration hereunder shall be made by giving
written notice to the Company (the "Demand Notice"). Each Demand Notice shall
-------------
specify the approximate number of Registrable Securities requested to be
registered and the anticipated per share price range for such offering. Within
ten days after receipt of any Demand Notice, the Company shall give written
notice of such requested registration to all other holders of Registrable
Securities and, subject to the provisions of paragraph 1(e) below, shall include
in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 15 days after
the receipt of the Company's notice. All registrations requested pursuant to
this paragraph 1(a) are referred to herein as "Demand Registrations."
--------------------
(b) Definitions.
-----------
"Registrable Securities" means (i) any Class A Common issued pursuant
----------------------
to the Stock Purchase Agreement, any Class B Common issued pursuant to an
Executive Stock Agreement, or any Class B Common issued upon conversion of
Class C Common issued pursuant to an Executive Stock Agreement into such
Class B Common pursuant to the Company's Certificate of Incorporation, (ii)
any Common Stock issued with respect to the securities referred to in
clause (i) by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization, and (iii) any other common stock of the Company (except
shares of Class C Common) held by any holder of Registrable Securities;
provided that such securities shall cease to be Registrable Securities when
they have been distributed to the public pursuant to an offering registered
under the Securities Act or sold to the public through a broker, dealer or
market maker in compliance with Rule 144 under the Securities Act (or any
similar rule promulgated by the Securities Exchange Commission then in
force).
"Institutional Investor Registrable Securities" means, collectively,
---------------------------------------------
MDCP Registrable Securities, Frontenac Registrable Securities, and BV
Registrable Securities.
"MDCP Registrable Securities" means Registrable Securities consisting
---------------------------
of, or derived from, Class A Common initially purchased by MDCP under the
Stock Purchase Agreement, "Frontenac Registrable Securities" means
--------------------------------
Registrable Securities consisting of, or derived from, Class A Common
initially purchased by Frontenac under the Stock Purchase Agreement, and
"BV Registrable Securities" means Registrable Securities consisting of, or
-------------------------
derived from, Class A Common initially purchased by BV under the Stock
Purchase Agreement.
"Class B Registrable Securities" means Registrable Securities
------------------------------
consisting of, or derived from, Class B Common initially issued under the
Executive Stock Agreements or
-2-
<PAGE>
Class B Common issued upon conversion of Class C Common initially issued
under the Executive Stock Agreements into such Class B Common pursuant to
the Company's Certificate of Incorporation.
(c) Expenses; Withdrawal. The Company shall pay all Registration
--------------------
Expenses of holders of Registrable Securities in any registration under this
Agreement. A registration shall not count as one of the permitted Long-Form
Registrations until it has become effective (unless such Long-Form Registration
has not become effective due solely to the fault of the holders requesting such
registration) or if the holders of Registrable Securities initially requesting
such registration are not able to register and sell at least 90% of the
Registrable Securities requested to be included in such registration; provided
--------
that the Company shall in any event pay all Registration Expenses in connection
with any registration initiated as a Demand Registration whether or not it has
become effective and whether or not such registration has counted as one of the
permitted Long-Form Registrations. All Long-Form Registrations shall be
underwritten registrations.
(d) Short-Form Registrations. Demand Registrations shall be Short-
------------------------
Form Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Securities Exchange Act, the Company shall use its best efforts to make Short-
Form Registrations on Form S-3 (or any successor form) available for the sale of
Registrable Securities.
(e) Priority on Demand Registrations. The Company shall not include
--------------------------------
in any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities initially
requesting registration, the Company shall include in such registration the
number which can be so sold in the following order of priorities: (i) first,
the Registrable Securities other than Class B Registrable Securities requested
to be included in such registration, pro rata among the holders of such
Registrable Securities on the basis of the number of shares owned by each such
holder, (ii) second, the Class B Registrable Securities requested to be included
in such registration, pro rata among the holders of such Registrable Securities
on the basis of the number of shares owned by each such holder, and (iii) third,
other securities requested to be included in such registration.
(f) Restrictions on Long-Form Registrations. The Company shall not be
---------------------------------------
obligated to effect any Demand Registration which is a Long-Form Registration
within 180 days after the effective date of a previous Demand Registration which
was a Long-Form Registration or a previous registration in which the holders of
Registrable Securities were given piggyback rights pursuant to paragraph 2 and
in which there was no reduction in the number of Registrable Securities
requested to be included. The Company may postpone for up to 180 days the
filing
-3-
<PAGE>
or the effectiveness of a registration statement for a Demand Registration if
the Company's board of directors determines in its reasonable good faith
judgment that such Demand Registration would reasonably be expected to have a
material adverse effect on any proposal or plan by the Company or any of its
Subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction; provided that in such event, the holders of Registrable
Securities initially requesting such Demand Registration shall be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration shall not count as one of the permitted Demand Registrations
hereunder and the Company shall pay all Registration Expenses in connection with
such withdrawn registration. The Company may delay a Demand Registration
hereunder only once in any twelve-month period.
(g) Selection of Underwriters. The holders of a majority of the
-------------------------
Registrable Securities initially requesting registration hereunder shall have
the right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which shall not be unreasonably
withheld.
(h) Other Registration Rights. Except as provided in this Agreement,
-------------------------
the Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of at least 67% of the Institutional Investor Registrable
Securities then outstanding; provided that the Company may grant rights to other
--------
Persons to (i) participate in Piggyback Registrations so long as such rights are
subordinate to the rights of the holders of Registrable Securities with respect
to such Piggyback Registrations and (ii) request registrations so long as the
holders of Registrable Securities are entitled to participate in any such
registrations with such Persons pro rata on the basis of the number of shares
owned by each such holder.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any
------------------
of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
----------------------
shall give prompt written notice (in any event within three business days after
its receipt of notice of any exercise of demand registration rights other than
under this Agreement) to all holders of Registrable Securities of its intention
to effect such a registration and shall include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 20 days after the receipt of the Company's
notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
---------------------------------
an underwritten primary registration on behalf of the Company, and the managing
underwriters
-4-
<PAGE>
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the Company, the Company shall include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
(other than Class B Registrable Securities) requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of shares owned by each such holder, (iii) third, the Class
B Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
shares owned by each such holder, and (iv) fourth, other securities requested to
be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company shall include in such registration (i) first,
the securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata among the holders of such securities on the basis of the
number of securities so requested to be included therein owned by each such
holder, and (ii) second, other securities requested to be included in such
registration.
(e) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least 180 days has elapsed from the effective date of such
previous registration.
3. Holdback Agreements.
-------------------
(a) Holders of Registrable Securities. Each holder of Registrable
---------------------------------
Securities shall not effect any public sale or distribution (including sales
pursuant to Rule 144) of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 180-day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
in which Registrable Securities are included (except as part of such
underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(b) The Company. The Company (i) shall not effect any public sale or
-----------
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten
-5-
<PAGE>
Piggyback Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
shall cause each holder of at least 3% (on a fully-diluted basis) of its Common
Stock, or any securities convertible into or exchangeable or exercisable for
Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering or pursuant to Rule 144)
to agree not to effect any public sale or distribution (including sales pursuant
to Rule 144) of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
shall be subject to the review and comment of such counsel);
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this
-6-
<PAGE>
subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
-7-
<PAGE>
(k) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order; and
(m) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority of the
Registrable Securities being sold reasonably request (provided that such
Registrable Securities constitute at least 10% of the securities covered by such
registration statement).
5. Registration Expenses.
---------------------
(a) Expenses. All expenses incident to the Company's performance of
--------
or compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne as provided in this
---------------------
Agreement, except that the Company shall, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.
(b) Reimbursement of Counsel. In connection with each Demand
------------------------
Registration and each Piggyback Registration, the Company shall reimburse the
holders of Registrable Securities included in such registration for the
reasonable fees and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities included in such registration and for the
reasonable fees and disbursements of each additional counsel retained by any
holder of Registrable Securities for the purpose of rendering a legal opinion on
behalf of such holder in connection with any underwritten Demand Registration or
Piggyback Registration.
6. Indemnification.
---------------
-8-
<PAGE>
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a holder
of Registrable Securities is participating, each such holder shall furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be limited
to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may
-9-
<PAGE>
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and shall survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of Registrable Securities included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters (other than representations and warranties regarding such holder
and such holder's intended method of distribution) or to undertake any
indemnification obligations to the Company or the underwriters with respect
thereto, except as otherwise provided in paragraph 6 hereof.
8. MISCELLANEOUS.
-------------
(a) No Inconsistent Agreements. The Company shall not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company shall
--------------------------------------------
not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
(c) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
-10-
<PAGE>
(d) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least 67% of the Institutional
Investor Registrable Securities outstanding at the time such amendment or waiver
becomes effective; provided, that an amendment which adversely affects the Class
--------
B Registrable Securities in a manner different from other Registrable Securities
also requires the prior written consent of holders of a majority of the Class B
Registrable Securities then outstanding.
(e) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(f) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. The corporate law of the State of Delaware shall
-------------
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Illinois, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Illinois or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Illinois.
(j) Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, one business day after being sent to the recipient by reputable
overnight courier service (charges prepaid), or three business days after being
sent to the recipient by certified or registered mail, return receipt requested
and postage prepaid. Such notices, demands and other communications shall be
sent to each Investor at the address indicated on the Schedule of Investors and
to the Company at the address indicated below:
-11-
<PAGE>
Focal Communications Corporation
300 West Washington Boulevard, Suite 1408
Chicago, Illinois 60606
Attention: President
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
/s/ Brian F. Addy MADISON DEARBORN CAPITAL PARTNERS, L.P.
- -----------------
Brian F. Addy By Madison Dearborn Partners, L.P., Its General
Partner
By Madison Dearborn Partners, Inc., its General
Partner
/s/ John R. Barnicle By /s/ James N. Perry, Jr.
- --------------------- -------------------------
John R. Barnicle Its Vice President
----------------
/s/ Joseph Beatty
- ------------------
Joseph Beatty FRONTENAC VI, L.P.
By Frontenac Company, its General Partner
/s/ Robert C. Taylor, Jr. By /s/ James E. Crawford III
- -------------------------- --------------------------
Robert C. Taylor, Jr. Its General Partner
----------------
BATTERY VENTURES III, L.P.
By Battery Partners, III, L.P.
By /s/ Richard D. Frisbie
-----------------------
Its Managing Partner
------------------
FOCAL COMMUNICATIONS CORPORATION
By /s/ Robert C. Taylor, Jr.
-------------------------
Its President
---------
-13-
<PAGE>
Exhibit 5.1
April 3, 1998
Focal Communications Corporation
200 North LaSalle Street
Suite 820
Chicago, Illinois 60601
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Focal Communications Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
registration statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement relates to the exchange of up to an aggregate stated
principal amount at maturity of $270,000,000 of the Company's 12.125% Senior
Discount Notes Due 2008, Series B (the "Exchange Notes") for up to an aggregate
stated principal amount at maturity of $270,000,000 of its outstanding 12.125%
Senior Discount Notes Due 2008. Capitalized terms used but not defined herein
shall have the meanings as set forth in the Registration Statement.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Registration
Statement, (b) the Articles of Incorporation of the Company, (c) the By-laws of
the Company, (d) the minutes of meetings of the Board of Directors of the
Company, (e) the Indenture for the Notes, and (f) the Form of Exchange Note.
<PAGE>
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the due authority of the parties signing such documents, the
authenticity of the documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or reproduced copies. We have further assumed that:
(i) All natural persons involved in the transactions contemplated by
the Registration Statement (the "Offering") and the Indenture
have sufficient legal capacity to enter into and perform their
respective obligations under the Indenture and to carry out their
roles in the Offering.
(ii) Each party involved in the Offering other than the Company
(collectively the "Other Parties") has satisfied all legal
requirements that are applicable to it to the extent necessary to
make the Indenture enforceable against it.
(iii) Each of the Other Parties has complied with all legal
requirements pertaining to its status as such related to its
rights to enforce the Indenture against the Company.
The opinions set forth below are limited to the laws of the States of Illinois
and New York, the general corporate laws of the State of Delaware and the
federal laws of the United States of America.
Based upon and subject to the foregoing, it is our opinion that:
(1) The Company is a corporation duly incorporated and existing under the
laws of the State of Delaware.
(2) The Exchange Notes covered by the Registration Statement, when
executed in the manner set forth in the Indenture and issued and delivered in
the manner set forth in the Registration Statement, will be legally issued, will
be binding obligations of, and will be enforceable against the Company.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
/s/ ROSS & HARDIES
-------------------
<PAGE>
Exhibit 8.1
April 3, 1998
Focal Communications Corporation
200 North LaSalle Street
Suite 820
Chicago, Illinois 60601
Ladies and Gentlemen:
We have acted as counsel for Focal Communications Corporation, a Delaware
corporation (the "Company"), in connection with the offer by the Company to
exchange (the "Exchange Offer") its 12.125% Senior Discount Notes Due 2008,
Series B (the "Exchange Notes"), for all outstanding 12.125% Senior Discount
Notes Due 2008 (the "Senior Notes"). This letter will confirm that we have
advised the Company with respect to certain United States federal income tax
consequences of the Exchange Offer, as described in the discussion set forth
under the caption "Certain United States Federal Income Tax Considerations" in
the Prospectus included in the Registration Statement on Form S-4 (the
"Registration Statement"), filed on this date with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act").
Unless otherwise defined, capitalized terms used herein shall have the
respective meanings ascribed to them in the Registration Statement.
We have based our opinions set forth in this letter on the provisions of
the Internal Revenue Code of 1986, as presently amended (the "Code"), existing
Treasury regulations thereunder (the "Regulations"), published rulings and
practices of the Internal Revenue Service (the "Service") and court decisions.
It should be noted that the federal income tax consequences discussed in this
letter might be modified by legislative, judicial or administrative action at
any time, and such action might be applied retroactively or otherwise in a
manner that might alter such tax considerations.
Based on the assumptions and subject to the qualifications and limitations
set forth therein, (i) we adopt the discussion set forth under the caption
"United States Federal Income Tax Considerations" in the Registration Statement
as our opinion with respect to the material United States federal income tax
consequences of the Exchange Offer, and (ii) in our opinion such
<PAGE>
discussion accurately describes the material United States federal income tax
consequences of the exchange of the Notes. Such discussion is limited to the
material United States federal income tax consequences discussed therein, and it
does not purport to discuss all possible federal income tax consequences or any
state, local or foreign tax consequences, of the exchange of the Notes.
Except as stated above, we express no opinion with respect to any other
matter. We are furnishing this opinion to you solely in connection with the
Exchange Offer, and this opinion is not to be relied upon, circulated, quoted,
or otherwise referred to for any other purpose.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement, to the use of our name in the Registration Statement and
to the reference to us and this opinion letter in the Registration Statement. By
giving such consent, we do not thereby admit that we are "experts" with respect
to this letter, as that term is used in the Act, or the rules and regulations of
the SEC thereunder.
Very truly yours,
/s/ ROSS & HARDIES
----------------------
<PAGE>
Exhibit 10.1
INTERCONNECTION AGREEMENT UNDER
SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
Dated as of October 28th, 1996
by and between
AMERITECH INFORMATION INDUSTRY SERVICES,
a division of Ameritech Services, Inc.
On behalf of Ameritech Illinois
and
FOCAL COMMUNICATIONS CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1.0 DEFINITIONS....................................................... 5
2.0 INTERPRETATION AND CONSTRUCTION................................... 12
3.0 IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION
DATES............................................................. 13
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)..................... 13
4.1 Scope........................................................ 13
4.2 Interconnection Points and Methods........................... 13
4.3 Ameritech Leased Transport................................... 13
4.4 Collocation.................................................. 14
4.5 FiberMeet.................................................... 14
4.6 Interconnection in Additional LATAs.......................... 16
4.7 Nondiscriminatory Interconnection............................ 16
4.8 Technical Specifications..................................... 16
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE
TRAFFIC PURSUANT TO SECTION 251(c)(2)............................. 17
5.1 Scope of Traffic............................................ 17
5.2 Switching System Hierarchy.................................. 17
5.3 Trunk Group Architecture and Traffic Routing................ 18
5.4 Interim Use of 1Way Trunks.................................. 18
5.5 Signaling................................................... 19
5.6 Grades of Service........................................... 19
5.7 Measurement and Billing..................................... 19
5.8 Reciprocal Compensation Arrangements--Section 251(b)(5)..... 20
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC
PURSUANT TO SECTION 251(c)(2)..................................... 20
6.1 Scope of Traffic........................................... 20
6.2 Trunk Group Architecture and Traffic Routing............... 20
6.3 MeetPoint Billing Arrangements............................. 21
7.0 TRANSPORTATION AND TERMINATION OF OTHER TYPES OF
TRAFFIC........................................................... 21
7.1 Information Services Traffic............................... 21
7.2 BLV/BLVI Traffic........................................... 22
7.3 Transit Service............................................ 23
8.0 GROOMING PLAN AND INSTALLATION, MAINTENANCE, TESTING
AND REPAIR........................................................ 25
<PAGE>
8.1 Grooming Plan.............................................. 25
8.2 Operation and Maintenance.................................. 25
8.3 Installation, Maintenance, Testing and Repair.............. 25
9.0 UNBUNDLED ACCESS--SECTION 251(c)(3)............................... 26
9.1 Local Loop Transmission Types.............................. 26
9.2 Port Types and Unbundled Switching......................... 27
9.3 Private Lines and Special Access........................... 27
9.4 Limitations on Unbundled Access............................ 27
9.5 Availability of Other Network Elements
on an Unbundled Basis...................................... 28
9.6 Provisioning of Unbundled Loops............................ 29
9.7 Maintenance of Unbundled Network Elements.................. 30
10.0 RESALE--SECTIONS 251(c)(4) and 251(b)(1).......................... 30
10.1 Availability of Wholesale Rates for Resale................. 30
10.2 Availability of Retail Rates for Resale.................... 30
11.0 NOTICE OF CHANGES--SECTION 251(c)(5).............................. 30
12.0 COLLOCATION--SECTION 251(c)(6).................................... 31
13.0 NUMBER PORTABILITY -- SECTION 251(b)(2)........................... 32
13.1 Scope...................................................... 32
13.2 Procedures for Providing INP
Through Remote Call Forwarding............................. 33
13.3 Procedures for Providing IMP Through Direct Inward Dial.... 33
13.4 Procedures for Providing INP Through Now Migration......... 33
13.5 Receipt of Terminating Compensation on
Traffic to INP'ed Numbers.................................. 34
13.6 Pricing For Interim Number Portability..................... 35
14.0 DIALING PARITY--SECTION 251(b)(3)................................. 35
15.0 DIRECTORY LISTINGS--SECTION 251(b)(3)............................. 35
15.1 White Pages Directory Listings............................ 35
15.2 Listing and Listing Dates................................. 36
16.0 ACCESS TO RIGHTSOFWAY--SECTION 251(b)(4).......................... 37
17.0 DATABASE ACCESS................................................... 37
18.0 REFERRAL ANNOUNCEMENT............................................. 37
19.0 OTHER SERVICES.................................................... 37
20.0 GENERAL RESPONSIBILITIES OF THE PARTIES........................... 37
21.0 TERM AND TERMINATION.............................................. 40
<PAGE>
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTS........................ 41
23.0 CANCELLATION CHARGES.............................................. 41
24.0 NON-SEVERABILITY.................................................. 42
25.0 INDEMNIFICATION................................................... 42
26.0 LIMITATION OF LIABILITY........................................... 43
27.0 LIQUIDATED DAMAGES FOR SPECIFIED ACTIVITIES....................... 44
27.1 Certain Definitions....................................... 44
27.2 Specified Performance Breach.............................. 45
27.3 Liquidated Damages........................................ 45
27.4 Limitations............................................... 45
27.5 Sole Remedy............................................... 46
27.6 Records................................................... 46
28.0 REGULATORY APPROVAL............................................... 46
29.0 MISCELLANEOUS..................................................... 46
29.1 Authorization............................................. 46
29.2 Compliance................................................ 46
29.3 Compliance with the Communications Law Enforcement Act
of 1994 ("CALEA")......................................... 47
29.4 Independent Contractor.................................... 47
29.5 Force Majeure............................................. 47
29.6 Confidentiality........................................... 47
29.7 Governing Law............................................. 48
29.8 Taxes..................................................... 48
29.9 NonAssignment............................................. 49
29.10 NonWaiver................................................. 49
29.11 Disputed Amounts.......................................... 49
29.12 Notices................................................... 50
29.13 Publicity and Use of Trademarks or Service Marks.......... 51
29.14 Section 242(i) Obligations................................ 51
29.15 Jolt Work Product......................................... 51
29.16 No Third Party Beneficiaries; Disclaimer of Agency........ 52
29.17 No License................................................ 52
29.18 Technology Upgrades....................................... 52
29.19 Survival.................................................. 52
29.20 Scope of Agreement........................................ 52
29.21 Entire Agreement.......................................... 52
<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 28th day of
October, 1996 (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 Ameritech Illinois ("Ameritech") and Focal Communications
Corporation, a Delaware corporation with offices at 300 West Washington Street,
Suite 1408, Chicago, Illinois 60606 ("Focal").
WHEREAS, the Parties want to Interconnect their networks at mutually agreed
upon points of interconnection to provide Telephone Exchange Services (as
defined below) and Exchange Access (as defined below) to their respective
business and residential Customers.
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
the Parties will interconnect their networks and provide other services as
required by the Act (as defined below) and additional services as set forth
herein.
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Focal and Ameritech hereby agree as follows:
1.0 DEFINITIONS.
Capitalized terms used in this Agreement shall have the meanings specified
below in this Section 1.0 and as defined elsewhere in this Agreement.
1.1 "Act" means the Communications Act of 1934 (47 U.S.C. 151 et seq.), as
amended by the Telecommunications Act of 1996, and as from time to time
interpreted in the duly authorized rules and regulations of the FCC or the
Commission having authority to interpret the Act within its state of
jurisdiction.
1.2 "ADSL" or "Asymmetrical Digital Subscriber Line" means a transmission
technology which transmits an asymmetrical digital signal using one of a variety
of line codes.
1.3 "Affiliate" is As Defined in the Act.
1.4 "Agreement for Switched Access Meet Point Billing" means the Agreement
for Switched Access Meet Point Billing dated as of the Effective Date by and
between the Parties.
1.5 "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.
<PAGE>
1.6 "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.
1.7 "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.
1.8 "Bona Fide Request" means the process described on Exhibit A that
prescribes the terms and conditions relating to a Party's request that the other
Party provide an Interconnection Network Element (or standard of quality
thereof) not otherwise provided by the terms of this Agreement.
1.9 "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.
1.10 "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.
1.11 "Central Office Switch" means a switch used to provide
Telecommunications Services, including, but not limited to
(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.
1.12 "CCS" means one hundred (100) call seconds.
1.13 "CLASS Features" means certain CCIS-based features available to
Customers including, but not limited to Automatic Call Back; Call Trace; Caller
Identification and related blocking features; Distinctive Ringing/Call Waiting;
Selective Call Forward; and Selective Call Rejection.
1.14 "Collocation" means an arrangement whereby one Party's (the
"Collocating Party") facilities are terminated in its equipment necessary for
Interconnection or for access to Network Elements on an unbundled basis which
has been installed and maintained at the Premises of a second Party (the
"Housing Party"). Collocation may be "physical" or "virtually.
- 6 -
<PAGE>
In "Physical Collocation," the Collocating Party installs and maintains its own
equipment in the Housing Party's Premises. In "Virtual Collocation," the Housing
Party installs and maintains the Collocating Party's equipment in the Housing
Party's Premises.
1.15 "Commercial Mobile Radio Service" or "CMRS" is As Defined by the
Act.
1.16 "Commission" or "ICC" means the Illinois Commerce Commission.
1.17 "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.
1.18 "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 Collocating Party's equipment or a
third party's collocated Telecommunications carrier's equipment and (ii) the
equipment or facilities of the Housing Party.
1.19 "Customer" means a third-party residence or business that subscribes
to Telecommunications Services provided by either of the Parties.
1.20 "Customer Listing" means a list containing the names, the telephone
numbers, addresses and zip codes of Customers within a defined geographic area,
except to the extent such Customers have requested not to be listed in a
directory.
1.21 "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 (i) the
failure of the other Party to perform any of its obligations set forth in this
Agreement (including the Implementation Schedule and the Grooming Plan), or (ii)
any delay, act or failure to act by Party or its Customer, agent or
subcontractor or (b) any Force Majeure Event.
1.22 "Dialing Parity" is As Defined in the Act.
1.23 "Digital Signal Level" means one of several transmission rates in
the time-division multiplex hierarchy.
1.24 "Digital Signal Level O" or "DSO" means the 64 Kbps zero-level
signal in the time-division multiplex hierarchy.
1.25 "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.
- 7 -
<PAGE>
1.26 "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.
1.27 "Exchange Message Record" or "EAR" 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.
1.28 "Exchange Access" is As Defined in the Act.
1.29 "Exchange Area" means an area, defined by the Commission, for which
a distinct local rate schedule is in effect.
1.30 "FCC" means the Federal Communications Commission.
1.31 "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 for service begins and the other
Party's responsibility ends.
1.32 "HDS1" 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").
1.33 "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).
1.34 "Integrated Digital Loop Carrier" means a subscriber loop carrier
system which integrates within the switch at a DS1 level 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.
1.35 "Interconnection" means the Telephone Exchange Service traffic and
Exchange Access traffic.
1.36 "Interexchange Carrier" or YXC means a carrier that provides,
directly or indirectly, interLATA or intraLATA Telephone Toll Services.
1.37 "Interim Telecommunications Number Portability" or "INP" is As
Described in the Act.
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1.38 "InterLATA" is As Defined in the Act.
1.39 "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).
1.40 "Intellectual Property" means copyrights, patents, trademarks,
trade-secrets, mask works and all other intellectual property rights.
1.41 "IntraLATA Toll Traffic" means all intraLATA calls other than Local
Traffic calls.
1.42 "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 Focal 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 Focal to another LEC, Listing Updates shall also
include the Customer's referral telephone number and new LEC, if available.
1.43 "Local Access and Transport Area" or "LATA" is As Defined in the
Act.
1.44 "Local Exchange Carrier" or "LEC" is As Defined in the Act.
1.45 "Local Loop Transmission" or "Loop" means the entire 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 which serves the Customer. Loops are defined by
the electrical interface rather than the type of facility used.
1.46 "Local Traffic" means a call of which the distance is fifteen (15)
miles or less as calculated by using the V&H coordinates of the originating Now
and the V&H coordinates of the terminating NXX, or as otherwise determined by
the FCC or the Commission for purposes of Reciprocal Compensation.
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1.47 "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).
1.48 "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.
1.49 "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 as agreed to in the Agreement for Switched Access Meet
Point Billing.
1.50 "Network Element" is As Defined in the Act.
1.51 "North American Numbering" 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 Digit line number.
1.52 Number Portability" is As Defined in the Act.
1.53 "NXX" means the three-digit code which appears as the first three
digits of a seven digit telephone number.
1.54 "Party" means either Ameritech or Focal, and "Parties" means
Ameritech and Focal.
1.55 "Sport" means a termination on a Central Office Switch that permits
Customers to send or receive Telecommunications over the public switched
network, but does not include switch features or switching functionality.
1.56 "Premises" mean the portion of any of the following buildings,
structures or facilities in which a Housing Party has the exclusive right of
occupancy a Housing Party's Central Offices and serving Wire Centers, as well as
all buildings or similar structures owned or leased by such Housing Party that
house its network facilities, and all structures that house such Housing Party's
facilities on public rights-of-ways, including but not limited to vaults
containing loop concentrators or similar structures.
1.57 "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.
1.58 "Publisher" means Ameritech's White Pages Directories publisher.
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1.59 "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.
1.60 "Reciprocal Compensation" is As Described in the Act.
1.61 "Resale Listing" means a list containing the names, the telephone
numbers, addresses and zip codes of Customers of Focal within the defined
geographic area, except to the extent such Customers of Focal have requested not
to be listed in a directory.
1.62 "Routing Point" means a location which a 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 Bell Communications Research, Inc.
("Bellcore") Practice BR 795-100100 (the "Bellcore Practice"), the Routing Point
(referred to as the Rating Point" in such Bellcore Practice) may be an End
Office Switch location, or a "LEC Consortium Point of Interconnection."
Pursuant to such Bellcore Practice, each "LEC Consortium Point of
Interconnection" shall be designated by a common language location identifier
(CLL1) code with (x)KD in positions 9, 10, 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.
1.63 "Service Control Point" or "SCP" is As Defined in the Act.
1.64 "Signaling End Point" or "SEP" means a signaling point, other than
an STP, which serves as a source or a repository for CCIS messages.
1.65 "Signaling Transfer Point" or "STP" is As Defined in the Act.
1.66 "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.
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1.67 "Asynchronous 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.
1.68 "Technically Feasible Point" is As Described in the Act.
1.69 "Telecommunications" is As Defined in the Act.
1.70 "Telecommunications Act" means the Telecommunications Act of 1996
and any rules and regulations promulgated thereunder.
1.71 "Telecommunications Carrier" is As Defined in the Act.
1.72 "Telecommunications Service" is As Defined in the Act.
1.73 "Telephone Exchange Service" is As Defined in the Act.
1.74 "Telephone Toll Service" is As Defined in the Act.
1.75 "White Pages Directories" mean 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.
1.76 "Wire Center" means an occupied structure or portion thereof in
which a Party has the exclusive right of occupancy and which serves as a Routing
Point for Switched Exchange Access Service.
2.0 INTERPRETATION AND CONSTRUCTION.
All references to Sections, Exhibits and Schedules shall be deemed to be
references to Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. The headings of the Sections 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. Unless the context shall
otherwise require, any reference to any agreement, other instrument (including
Ameritech 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).
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3.0 IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION DATES.
Subject to the terms and conditions of this Agreement, Interconnection of
the Parties' facilities and equipment pursuant to Section 4.0 for the
transmission and routing of Telephone Exchange Service traffic and Exchange
Access traffic shall be established on or before the corresponding
"Interconnection Activation Date" shown for each such LATA on Schedule 3.0.
Schedule 3.0 may be revised and supplemented from time to time upon the mutual
agreement of the Parties to reflect the Interconnection of additional LATAs
pursuant to Section 4.4 by attaching one or more supplementary schedules to such
schedule.
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2).
4.1 Scope
Section 4.0 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 between the respective
business and residential customers of the Parties pursuant to Section 251(c)(2)
of the Act. Each Party shall make available to the other Party the same
Interconnection methods on the same rates, terms and conditions. Sections 5.0
and 6.0 prescribe the specific logical trunk groups (and traffic routing
parameters) which will be configured over the physical connections described in
this Section 4.0 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.
4.2 Interconnection Points and Methods
4.2.1 In each LATA identified on Schedule 3.0, Focal Ameritech
shall Interconnect their networks at the correspondingly identified Ameritech
and Focal Wire Centers on Schedule 3.0 for the transmission and muting within
that LATA of Telephone Exchange Service traffic and Exchange Access traffic
pursuant to Section 251(c)(2) of the Act.
4.2.2 Interconnection in each LATA shall be accomplished through
either (i) Ameritech leased transport facilities, (ii) Collocation as provided
in Section 12.0, (iii) a Fiber-Meet as provided in Section 4.5 or (iv) any other
Interconnection method to which the Parties may agree in advance of the
applicable Interconnection Activation date for a given LATA and which is
consistent with the Act (including Utilizing Conventional metallic twisted pair
cable).
4.3 Ameritech Leased Transport
If the Parties Interconnect their networks using Ameritech leased transport
facilities, Focal shall obtain from Ameritech facilities for the transmission of
Traffic from Focal to
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Ameritech. Ameritech shall provide Focal with DS1 and DS3 transport facilities
on fiber circuits provisioned in a SONET ring configuration, subject to the
availability of such circuits. Ameritech shall charge Focal for these circuits
at the tariffed rate for such services. Ameritech shall be responsible for
providing facilities for the transmission of traffic from Ameritech to Focal.
4.4 Collocation.
With respect to collocation for Interconnection only, if the Parties use
one-way trunks, each party shall be responsible for providing facilities for the
transmission of its own traffic to the other Party. If the Parties use two-way
trunks, each Party shall be responsible for providing one-half of the circuits
between their networks. This arrangement applies only to Interconnection; Focal
shall be solely responsible for providing the facilities it uses to access
Ameritech unbundled Network Elements through Collocation.
4.5 Fiber-Meet.
4.5.1 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. The Parties shall jointly
determine and agree upon the specific Optical Line Terminating Multiplexor
("OLTM") equipment to be utilized at each end of the SONET transmission system.
If the Parties cannot agree on the OLTM, the following decision criteria shall
apply to the selection of the OLTM:
(a) First, the type of OLTM equipment utilized by both Parties
within the LATA. Where more than one type of OLTM equipment is used in
common by the Parties within the LATA, the Parties shall choose from among
the common types of OLTM equipment according to the method described in
subsection (c) below;
(b) Second, the type of OLTM equipment utilized by both Parties
anywhere Outside the LATA. Where more than one type of OLTM equipment is
used in common by the Parties outside the LATA, the Parties shall choose
from among the common types of OLTM equipment according to the method
described in subsection (c) below; and
(c) Third, the Party first selecting the OLTM equipment shall be
determined by lot and the choice to select such OLTM equipment shall
thereafter alternate between the Parties.
4.5.2 Ameritech shall, wholly at its own expense, procure, install
and maintain the agreed upon OLTM equipment in the Ameritech Interconnection
Wire Center ("AIWC") identified for each LATA set forth on Schedule 3.0, in
capacity sufficient and maintain all logical trunk groups prescribed by Sections
5.0 and 6.0.
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4.5.3 Focal shall, wholly at its own expense, procure, install and
maintain the agreed upon OLTM equipment in the Focal Interconnection Wire Center
("FIWC") identified for that LATA in Schedule 3.0, in capacity sufficient to
provision and maintain all logical trunk groups prescribed by Sections 5.0 and
6.0.
4.5.4 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 Focal to deliver,
fiber optic facilities into that manhole with sufficient spare length to reach
the OLTM equipment in the AIWC. Focal shall deliver and maintain such strands
wholly at its own expense.
4.5.5 Focal shall designate a manhole or other suitable entry-way
immediately outside the FIWC 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 FIWC. Ameritech shall deliver and maintain such
strands wholly at its own expense.
4.5.6 Focal shall pull the fiber optic strands from the Focal-
designated manhole/entry-way into the FIWC and through appropriate internal
conduits Focal utilizes for fiber optic facilities and shall connect the
Ameritech strands to the OLTM equipment Focal has installed in the FIWC.
4.5.7 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 Focal strands to the OLTM equipment Ameritech has installed in the
AIWC.
4.5.8 Each Party shall use its best efforts to ensure that fiber
received from the other Party will enter that Party's Wire Center through a
point separate from that through which the Party's own fiber exited.
4.5.9 Unless otherwise mutually agreed, this SONET transmission
system shall be configured as illustrated in Exhibit B. and engineered,
installed, and maintained as described in this Section 4.0 and in the Grooming
Plan (as defined in Section 8.1).
4.5.10 Each Party shall ensure that each Tandem connection permits
the completion of traffic to all End Offices which subtend that Tandem. Pursuant
to Section 5.0, each Party shall establish and maintain separate trunk groups
connected to each Tandem of the other Party which serves, or is sub-tended by
End Offices which serve, such other Party's Customers within the Exchange Areas
served by such Tandem Switches.
4.5.11 For Fiber-Meet arrangements, each Party will be responsible
for providing its own transport facilities to the Fiber-Meet in accordance with
the Grooming Plan.
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4.8.3 The following publications describe the practices procedures
specifications and interfaces generally utility by Ameritech and are listed
herein to assist the Parties in meeting their respective responsibilities
related to Electrical/Optical Interfaces:
(a) Bellcore Technical Publication TR-INS-000342; High Capacity
Digital Special Access Service Transmission Parameter Limits
and Interface Combinations;
(b) Ameritech Technical Publication AM-TR-NIS-000133; Ameritech
OC3 OC12 and OC48 Dedicated Ring Service Interface
Specifications.
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT TO
SECTION 251(c)(2)
5.1 Scope of Traffic
Section 5.0 prescribes parameters for trunk groups (the "Local/IntraLATA
Trunks") to be effected over the Interconnections specified in Section 4.0 for
the transmission and routing of Local Traffic and IntraLATA Toll Traffic between
the Parties respective Telephone Exchange Service Customers and where such
traffic is not presubscribed for carriage by a third party carrier.
5.2 Switching System Hierarchy
5.2.1 For purposes of this Section 5.0 each of the following
Central Office Switches shall be designated as a "Primary Switch":
(a) Each Access Tandem Ameritech operates in the LATA;
(b) The initial switch Focal employs to provide Telephone
Exchange Service in the LATA;
(c) Any Access Tandem Focal may establish for provision of
Exchange Access in the LATA; and
(d) Any additional switch Focal may subsequently employ to
provide Telephone Exchange Service in the LATA which Focal
may at its sole option designate as a Primary Switch;
provided that the total number of Focal Primary Switches for
a LATA may not exceed the total number of Ameritech s
Primary Switches for that LATA. To the extent Focal chooses
to designate any additional switch as a Primary Switch, it
shall provide notice to Ameritech of such
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designation at least ninety (90) days in advance of the date
on which Focal activates such switch as a Primary Switch.
5.2.2 Each Central Office Switch operated by the Parties which is
not designated as a Primary Switch pursuant to Section 5.2.1 shall be designated
as a "Secondary Switch".
5.2.3 For purposes of Focal routing traffic to Ameritech, sub-
tending arrangements between Ameritech Primary Switches and Ameritech Secondary
Switches shall be the same as the Access Tandem/End Office subtending-
arrangements which Ameritech maintains for those switches. For purposes of
Ameritech routing traffic to Focal, subtending arrangements between Focal
Primary Switches and Focal Secondary Switches shall be the same as the Access
Tandem/End Office sub-tending arrangements which Focal maintains for those
switches.
5.3 Trunk Group Architecture and Traffic Routing
The Parties shall jointly engineer and configure Local/IntraLATA Trunks
over the physical Interconnection arrangements as follows:
5.3.1 The Local/IntraLATA Trunks shall be provided via one-way
trunk groups or, at the request of Focal, two-way trunks. Once two-way trunks
are employed, Focal shall provide to Ameritech a PLU or actual minutes of use.
5.3.2 Notwithstanding anything to the contrary in this Section
5.0, if the two-way traffic volumes between any two Central Office Switches
(whether Primary-Primary, Primary-Secondary or Secondary-Secondary) at any time
exceeds the CCS busy hour equivalent of one DS1, the Parties shall within sixty
(60) days after such occurrence add trunks or establish new direct trunk groups
to the applicable End Offices consistent with the grades of service and quality
parameters set forth in the Grooming Plan; provided, however, nothing in this
Section 5.3 shall require a Party to establish new direct trunk groups to such
End Offices on or before the date which is one-hundred and twenty (120) days
after the applicable Interconnection Activation Date; provided, however, that if
such traffic volume is exceeded within such one hundred and twenty (120) day
period, such Party shall establish new direct trunk groups on the date which is
the later of (i) sixty (60) days after such occurrence or (ii) one-hundred and
twenty-one (121) days after the Interconnection Activation Date.
5.4 Interim Use of 1-Way Trunks
Either Party may unilaterally elect, by providing notice to the other Party
not less than seventy-five (75) days in advance of an applicable Interconnection
Activation Date, to employ 1-way trunk groups for an interim period (the "1-Way
Trunk Period") not to exceed one hundred and twenty (120) days after the
Interconnection Activation Date; provided that the Parties shall
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transition all 1-way trunks established under this Section 5.4 to 2-way trunks
on or before the last day of such 1-Way Trunk Period.
5.5 Signaling
5.5.1 Where available, CCIS signaling shall be used by the Parties
to set up calls between the Parties' Telephone Exchange Service networks. If
CCIS signaling is unavailable, MF (Multi-Frequency) signaling shall be used by
the Parties. Each Party shall charge the other Party equal and reciprocal rates
for CCIS signaling in accordance with applicable tariffs.
5.5.2 The following list of publications describe the practices,
procedures and specifications generally utilized by Ameritech for signaling
purposes and are listed herein to assist the Parties in meeting their respective
Interconnection responsibilities related to Signaling.
(a) Bellcore Special Report SR-TSV-002275, BOC Notes on the LEC
Networks - Signaling.
(b) Ameritech Supplement AM-TR-OAT 000069, Common Channel
Signaling Network Interface Specifications.
5.5.3 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, without limitation, calling party number (CPN), originating line
information (OLI), calling party category and charge number.
5.5.4 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.
5.6 Grades of Service
The Parties shall initially engineer and shall jointly monitor and enhance
all trunk groups consistent with the Grooming Plan.
5.7 Measurement and Billing
5.7.1 For billing purposes, each Party shall pass CalLing Party
Number (CPN) information on each call carried over the Local/IntraLATA Trunks;
provided that so long
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as the percentage of calls passed with CPN is greater than ninety percent (90%),
all calls exchanged without CPN information shall be billed as either Local
Traffic or IntraLATA Toll Traffic in direct proportion to the minutes of use of
calls exchanged with CPN information.
5.7.2 Measurement of Telecommunications traffic billed hereunder
shall be (i) in actual conversation seconds for Local Traffic and (ii) in
accordance with applicable tariffs for all other types of Telecommunications
traffic.
5.8 Reciprocal Compensation Arrangements--Section 251(b)(5).
5.8.1 Reciprocal Compensation applies for transport and
termination of Local Traffic by Ameritech or Focal which a Telephone Exchange
Service Customer originates on Ameritech's or Focal'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 rate provided in the Pricing
Schedule.
5.8.2 The Reciprocal Compensation arrangements set forth in this
Agreement are not applicable to Switched Exchange Access Service. All Switched
Exchange Access Service and all Int=LATA Toll Traffic shall continue to be
governed by the terms and conditions of the applicable federal and state
tariffs.
5.8.3 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.
5.8.4 Compensation for transport and termination of all traffic
which has been subject to performance of INP by one Party for the other Party
pursuant to Section 13.0 shall be as specified in Section 13.5.
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO SECTION
251(c)(2).
6.1 Scope of Traffic.
Section 6.0 prescribes parameters for certain trunk groups ("Access Toll
Connecting Trunks") to be established over the Interconnections specified in
Section 4.0 for the transmission and routing of Exchange Access traffic between
Focal Telephone Exchange Service Customers and Interexchange Carriers.
6.2 Trunk Group Architecture and Traffic Routing
6.2.1 The Parties shall jointly establish Access Toll Connecting
Trunks by which they will jointly provide Tandem-transported Switched Exchange
Access Services to
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Interexchange Carriers to enable such Interexchange Carriers to originate and
terminate traffic from/to Focal's Customers.
6.2.2 Access Toll Connecting Trunks shall be used solely for the
transmission and routing of Exchange Access to allow Focal' Customers to connect
to or be connected to the Interexchange trunks of any Interexchange Carrier
which is connected to an Ameritech access Tandem.
6.2.3 The Access Toll Connecting Trunks shall be two-way trunks
connecting an End Office Switch Focal utilizes to provide Telephone Exchange
Service and Switched Exchange Access in a given LATA to an Access Tandem Switch
Ameritech utilizes to provide Exchange access in such LATA.
6.2.4 The Parties shall jointly determine which access Tandem(s)
will be sub-tended by each Focal End Office Switch. Except as otherwise agreed
by the Parties, Focal or as required by the FCC or the Commission, each Focal
End Office Switch shall subtend each access Tandem in each LATA identified on
Schedule 3.0, as currently required. However, the Parties shall work towards a
resolution of technical issues that, consistent with then existing FCC
requirements, allows each Focal End Office Switch to subtend the access Tandem
nearest to the Routing Point associated with the Now codes assigned to that End
Office Switch and shall not require that a single Focal End Office Switch
subtend multiple access Tandems, even in those cases where such End Office
Switch serves multiple Rate Centers.
6.2.5 Only those valid codes served by an End Office may be
accessed through a direct connection to that End Office.
6.3 Meet-Point Billing Arrangements
Meet-Point Billing arrangements between the Parties for jointly-provided
Switched Exchange Access Services on Access Toll Connecting Trunks will be
governed by the terms and conditions of the Agreement For Switched Access Meet
Point Billing and shall be billed at each Party's applicable switched access
rates.
7.0 TRANSPORTATION AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
7.1.1 Each Party shall route Information Service Traffic which
originates on its own network to the appropriate information services
platform(s) connected to the other Party's network over the Local/IntraLATA
Trunks.
7.1.2 The Party ("Originating Party") on whose network the
Information Services Traffic originated shall provide an electronic file
transfer or monthly magnetic tape
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containing recorded call detail information to the Party ("Terminating Party")
to whose information platform the Information Services Traffic terminated.
7.1.3 The Terminating Party shall provide to the Originating Party
via electronic file transfer or magnetic tape all necessary information to rate
the Information Services Traffic to the Originating Party's Customers pursuant
to the Terminating Party's agreements with each information provider.
7.1.4 The Originating Party shall bill and collect such
information provider charges and remit the amounts collected to the Terminating
Party less
(a) The Information Services Billing and Collection fee set
forth on the Pricing Schedule; and
(b) An uncollectibles reserve calculated based on the
uncollectibles reserve in the Terminating Party's billing
and collection agreement with the applicable information
provider; and
(c) Customer adjustments provided by the Originating Party.
The Originating Party shall provide to the Terminating Party sufficient
information regarding uncollectibles and Customer adjustments. The Terminating
Party shall pass through the adjustments to the information provider. Final
resolution regarding all disputed adjustments shall be solely between the
Originating Party and the information provider.
7.1.5 Nothing in this Agreement shall restrict either Party from
offering to its Exchange Service Customers the ability to block the completion
of Information Service Traffic.
7.1.6 Nothing in this Agreement shall restrict either Party from
interconnecting directly with Information Service Providers and from acting as
both the Originating Party and the Terminating Party.
7.2 BLV/BLVI Traffic
7.2.1 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, 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, and a charge shall apply whether or not the
called party releases the line.
7.2.2 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
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<PAGE>
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.
7.2.3 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.
7.2.4 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 Section 4.0, consistent with the Grooming Plan. Each Party shall
compensate the other Party for BLV/BLVI Traffic as set forth on the Pricing
Schedule.
7.3 Transit Service
7.3.1 In addition to the Interconnection and other services
provided to Focal by Ameritech under this Agreement that are required under the
Act, Ameritech shall also provide Transit Service to Focal on the terms and
conditions set forth in this Section 7.3.
7.3.2 "Transit Service" means the delivery of certain traffic
Focal and a third party LEC, ILEC or CMRS provider by Ameritech over the
Local/IntraLATA Trunks. The following traffic types will be delivered (i) Local
Traffic and IntraLATA Toll Traffic originated from Focal to such third party
LEC, ILEC or CMRS provider and (ii) IntraLATA Toll Traffic originated from such
third party LEC, ILEC or CMRS provider and terminated to Focal where Ameritech
carries such traffic pursuant to the Commission's Primary Toll Carrier ("PTC")
plan or other similar plan. Transit service is only provided at Ameritech's
access Tandem.
7.3.3 The Parties shall compensate each other for Transit Service
as follows:
(a) For Local Traffic and IntraLATA Toll Traffic originating
from Focal that is delivered over the Transit Service
("Transit Traffic")
(1) Focal shall
(A) Pay to Ameritech a Transit Service charge as set
forth in the Pricing Schedule; and
(B) Reimburse Ameritech for any charges, including
switched access charges, that a third party T
Or,
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<PAGE>
IT PC or CMRS provider with whom Ameritech does
not have a Transit Service agreement similar to
that set forth in this Section imposes or levies
on Ameritech for delivery or termination of any
such Transit Traffic.
(2) Ameritech shall remit to Focal any access charges
Ameritech receives from such third party LEC, IT PC
or CMRS provider in connection with the delivery of
such Transit Traffic.
(b) For Local Traffic and IntraLATA Toll Traffic that is to be
terminated to Focal from a third party T Or, ALEC 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, ALEC or CMRS provider which authorizes Ameritech to
deliver such traffic to Focal (bother Party Transit
Agreements), then Ameritech shall deliver such Local Traffic
and IntraLATA Toll Traffic to Focal in accordance with the
terms and conditions of such Other Party Transit Agreement
and such third party T Or, ILEC or CMRS provider (and not
Focal) shall be responsible to pay Ameritech the applicable
Transit Service charge.
(c) For IntraLATA Toll Traffic is subject to a PTC arrangement
and where Ameritech is the PTC, Ameritech shall deliver such
IntraLATA Toll Traffic to or from Focal in accordance with
the terms and conditions of such PTC arrangement.
7.3.4 While the Parties agree that it is the responsibility of
each third party LEC, ILEC or CMRS provider to enter into arrangements to
deliver Local Traffic and IntraLATA Toll Traffic to Focal, they acknowledge that
such arrangements are not currently in place and an interim arrangement is
necessary to ensure traffic completion. Accordingly, until the earlier of (i)
the date on which either Party has entered into an arrangement with such third
party LEC, ILEC or CMRS provider-to deliver Local Traffic and IntraLATA Toll
Traffic to Focal or (ii) one hundred eighty (180) days after the earliest
Interconnection Activation Date, Ameritech will provide Focal with Transit
Service. However, if the aforementioned arrangements are not entered into by
such one hundred eighty (180) days, and subject to any Applicable Laws, either
Party may block such Local and IntraLATA Toll Traffic delivered to Focal from
the originating third party LEC, ILEC or CMRS provider.
7.3.5 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
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<PAGE>
functions and, to the extent such CCIS and TCAP messages are delivered by the
originating third party LEC, IT FC or CMRS provider, Ameritech will deliver such
information to the terminating third party LEC, ARC or CMRS provider. In all
cases, Focal is responsible to follow the Exchange Message Record ("EMR")
standard and exchange records with both Ameritech and the terminating LEC, ILEC
or CMRS provider to facilitate the billing process to the originating network.
8.0 GROOMING PLAN AND INSTALLATION, MAINTENANCE, TESTING AND REPAIR.
8.1 Grooming Plan. On or before _____________, 1996, Focal and Ameritech
shall jointly develop a grooming plan (the "Grooming Plan") which shall define
and detail, inter alia,
(a) standards to ensure that Interconnection trunk groups
experience a grade of service, availability and quality
which is comparable to that achieved on interoffice trunks
within Ameritech's network and in accord with all
appropriate relevant industry-accepted quality, reliability
and availability standards;
(b) the respective duties and responsibilities of the Parties
with respect to the administration and maintenance of the
trunk groups, including but not limited to standards and
procedures for notification and discoveries of trunk
disconnects;
(c) maintenance of the SONET transmission system;
(d) disaster recovery provision escalations; and
(e) such other matters as the Parties may agree.
8.2 Operation and Maintenance. Each Party shall be solely responsible for
the installation, operation and maintenance of equipment and facilities provided
by it for Interconnection, subject to compatibility and cooperative testing and
monitoring and the specific operation and maintenance provisions for equipment
and facilities used to provide Interconnection. Operation and maintenance of
equipment in Virtual Collocation shall be governed by applicable tariff.
8.3 Installation, Maintenance, Testing and Repair. Ameritech's standard
intervals for Feature Group D Exchange Access Services will be used for
Interconnection as specified in the Ameritech Dedicated and Switched Common
Service Switched Access and Exchange Interval Guide, AM-TR-F-000066. Focal shall
meet the same intervals for comparable installations, maintenance, joint
testing, and repair of its facilities and services
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<PAGE>
associated with or used in conjunction with Interconnection or shall notify
Ameritech of its inability to do so and will negotiate such intervals in good
faith.
9.0 UNBUNDLED ACCESS--SECTION 251(c)(3).
9.1 Local Loop Transmission Types
Subject to Section 9.4, Ameritech shall allow Focal to access the following
Loop types (in addition to those Loops available under applicable tariffs)
unbundled from local switching and local transport in accordance with the terms
and conditions set forth in this Section 9.1
9.1.1 "2-Wire Analog Voice Grade Loops" or "Analog 2W" which
support 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).
Analog 2W include 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;
9.1.2 "4-Wire Analog Voice Grade Loops" or "Analog 4W" which
support transmission of voice grade signals using separate transmit and receive
paths and terminate in a 4-wire electrical interface. 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;
9.1.3 "2-Wire ISDN Digital Grade Links or "BRI ISDN. which support
digital transmission of two 64 kbps bearer channels and one 16 kbps data
channel. 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).
9.1.4 "2-Wire ADS1-Compatible Loop. or "ADS1 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 ADS1-2W is provided over a 2-Wire non-loaded twisted copper pair provisioned
using revised resistance design guidelines and meeting ANSI Standard
T1.413-1995-007R2. An ADS1-2W terminates in a 2-wire electrical interface at the
Customer premises and at the Ameritech Central Office frame. ADS1 technology can
only be deployed over Loops which extend less than 18K ft. from Ameritech's
Central Office. ADS1 compatible Loops are only available where existing copper
facilities can meet the ANSI T1.413-1995 007R2 specifications.
9.1.5 "2-Wire HDS1-Compatible Loop" or "HDS1 2W" is a transmission
path which facilitates the transmission of a 768 kbps digital signal over a 2-
Wire non-loaded
- 26 -
<PAGE>
twisted copper pair meeting the specifications in ANSI.T1E1 Committee Technical
Report Number 28. HDS1 compatible Loops are available only where existing copper
facilities can meet the T1E1 Technical Report Number 28 specifications.
9.1.6 "4-Wire HDS1-Compatible Loop" or "HDS1 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. HDS1 compatible Loops are available only
where existing copper facilities can meet the T1E1 Technical Report Number 28
specifications.
9.1.7 Focal may procure Loops from Ameritech either (i) at the
rates set forth in the Pricing Schedule and on the terms and conditions
specified herein or (ii) at the rates and on terms and conditions set forth in
the applicable tariffs.
9.2 Port Types and Unbundled Switching
Ameritech shall make available to Focal unbundled Ports and unbundled
switching in accordance with the terms and conditions of and at the rates
specified in applicable state tariffs.
9.3 Private Lines and Special Access
Ameritech shall make available to Focal private lines and special access
services in accordance with the terms and conditions of and at the rates
specified in applicable tariffs.
9.4 Limitations on Unbundled Access
9.4.1 Ameritech shall only be Squired to make available Loops and
Ports where such Loops and Ports are available.
9.4.2 Focal shall access Ameritech's unbundled Network Elements at
the Ameritech Wire Center where those elements exist and each Loop or Port shall
be delivered to Focal by means of a cross connection which in the case of Loops,
is included in the rates set forth in the Pricing Schedule.
9.4.3 Ameritech shall provide Focal access to its unbundled Loops
at each of Ameritech's Wire Centers. In addition, if Focal Quests 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 Focal. If,
however, no spare physical Loop is available, Ameritech shall within forty-eight
(48) hours of Focal's request notify Focal of the lack of available facilities.
Focal 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). Focal may also make a Bona Fide Request for access to
unbundled Loops at the Loop concentration site point. Notwithstanding anything
to the contrary in this Agreement, the
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<PAGE>
provisioning intervals set forth in Section 9.6 and the Performance Interval
Dates and Performance Criteria set forth in Section 26.1 shall not apply to
unbundled Loops provided under this Section 9.4.4.
9.4.4 If Focal 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 required and
additional rates and charges shall apply as set forth on the Pricing Schedule.
<TABLE>
<CAPTION>
================================================================================
Loop Type Technical Reference/Limitation
- --------------------------------------------------------------------------------
<S> <C>
Electronic Key Line 2.5 miles
- --------------------------------------------------------------------------------
ISDN Bellcore TAR 000393
- --------------------------------------------------------------------------------
HDS1 2W T1E1 Technical Report Number 28
- --------------------------------------------------------------------------------
HDS1 4W T1E1 Technical Report Number 28
- --------------------------------------------------------------------------------
ADS1 2W ANSI T1.413-1995 Specification
================================================================================
</TABLE>
9.4.5 Prior to submitting an order for a Network Element, Focal shall
deliver to Ameritech a representation of authorization in the form set forth on
Schedule 9.4.5.
9.5 Availability of Other Network Elements on an Unbundled Basis
9.5.1 Ameritech shall, upon request of Focal, and to the extent
technically feasible, provide to Focal access to its Network Elements for the
provision of Focal Telecommunications Service. Any request by Focal for access
to an Ameritech Network Element that is not already available at the time of
such request shall be treated as a Bona Fide Request.
9.5.2 A Network Element obtained by one Party from the other Party
under this Section 9.5 may be used in combination with the facilities of the
requesting Party only to provide a Telecommunications Service, including
obtaining billing and collection, transmission, and routing of the
Telecommunications Service.
9.5.3 Notwithstanding anything to the contrary in this Section 9.5,
a Party shall not be required to provide a proprietary Network Element to the
other Party under this Section 9.5 except as required by the Commission or FCC.
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<PAGE>
9.6 Provisioning of Unbundled Loops
The following coordination procedures shall apply for conversions of "live"
Telephone Exchange Services to unbundled Network Elements
9.6.1 Focal shall request unbundled Loops from Ameritech by
delivering to Ameritech a valid electronic transmittal Service Order (a "Service
Order") using the Ameritech electronic ordering system (as defined in the
Unbundling Product Guide) or another mutually agreed upon system. Within forty-
eight (48) hours of Ameritech's receipt of a Service Order, Ameritech shall
provide Focal the firm order commitment ("FOC") date according to the applicable
Performance Interval Dates set forth in Section 26.1 by which the Loop(s)
covered by such Service Order will be installed.
9.6.2 Ameritech agrees to coordinate with Focal at least forty-
eight hours prior to the due date a scheduled conversion date and time (the
"Scheduled Conversion Time") in the "A.M." (1200 midnight to 1200 noon) or
"P.M." (1200 noon to 1200 midnight) (as applicable, the "Conversion Window).
9.6.3 Ameritech shall test for Focal dial-tone ("Dial Tone Test")
on Focal's Virtual Collocation-digital Loop carrier 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 on Focal's Virtual Collocated digital Loop carrier at
no charge until June 1, 1997. Thereafter, Focal may request Ameritech to perform
such Dial Tone Test on a time and materials basis at Ameritech's then current
rates. Ameritech shall not perform any Dial Tone Test on any Focal Physically
Collocated digital Loop carrier.
9.6.4 Not less than one 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 Conversion Window, no charges shall be assessed on or waived
by either Party. If, however, the New Conversion Time is outside of the
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 Focal requests the New Conversion Time, Focal shall be assessed a
Line Connection Charge in addition to the Line Connection Charge
that will be incurred for the New Conversion Time.
9.6.5 Except as otherwise agreed by the Parties for a specific
conversion, the Parties agree that the time interval expected from disconnection
of "live" Telephone
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<PAGE>
Exchange Service to the connection of an unbundled Network Element at the Focal
Collocation interface point will be sixty (60) minutes or less. If a conversion
interval exceeds sixty (60) minutes and such delay is caused solely by Ameritech
(and not by a contributing Delaying Event (as defined in Section 26.4)),
Ameritech shall waive the applicable Line Connection Charge for such element. If
Focal has ordered INP with the installation of a Loop, Ameritech will coordinate
the implementation of INP with the Loop conversion during the sixty (60) minute
interval at no additional charge.
9.6.6 If Focal requests or approves an Ameritech technician to
perform services in excess of or not otherwise contemplated by the Line
Connection Service, Ameritech may charge Focal for any additional and reasonable
labor charges to perform such services.
9.7 Maintenance of Unbundled Network Elements
If (i) Focal reports to Ameritech a Customer trouble, (ii) Focal requests a
dispatch, (iii) Ameritech dispatches a technician, and (iv) such trouble was not
caused by Ameritech's facilities or equipment, then Focal shall pay Ameritech a
trip charge of $51.00 per trouble dispatch and time charges of $21.00 per
quarter hour.
10.0 RESALE--SECTIONS 251(c)(4) and 251(b)(1).
10.1 Availability of Wholesale Rates for Resale
Ameritech shall offer to Focal for resale at wholesale rates its local
exchange telecommunications services, as described in Section 251(c)(4) of the
Am, pursuant to the terms and conditions or a separately negotiated agreement
between the Parties.
10.2 Availability of Retail Rates for Resale
Each Party shall make available its Telecommunications Services for resale
at retail rates to the other Party in accordance with Section 251(b)(1) of the
Act.
11.0 NOTICE OF CHANGES--SECTION 251(c)(5).
If a Party makes a change in its network which it believes will materially
affect the inter-operability of its network with the other Party, the Party
making the change shall provide at least ninety (90) days advance written notice
of such change to the other Party or within such other time period as determined
by the FCC or the Commission and their respective rules and regulations.
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<PAGE>
12.0 COLLOCATION--SECTION 251(c)(6).
12.1 Ameritech shall provide to Focal Physical Collocation of
equipment necessary for Interconnection (pursuant to Section 4.0) or for access
to unbundled Network Elements (pursuant to Section 9.0), except that Ameritech
may provide for Virtual Collocation 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 such Collocation for the purpose of Interconnection or access to
unbundled Network Elements.
12.2 Although not required to do so by Section 251(c)(6) of the
Act, by this Agreement, Focal agrees to provide to Ameritech upon Ameritech's
Bona Fide Request by Ameritech, Collocation (at Focal's option either Physical
or Virtual) of equipment for purposes of Interconnection (pursuant to Section
4.0) on a non-discriminatory basis and at comparable rates, terms and conditions
as Focal may provide to other third parties. Focal shall provide such
Collocation subject to applicable tariffs or contracts.
12.3 For both Physical Collocation and Virtual Collocation, the
Collocating Party shall provide its own alternative transport facilities and
terminate those transport facilities in equipment located in its Physical
Collocation space at the Housing Party's premises as described in applicable
tariffs or contracts and purchase Cross Connection to services or facilities as
described in applicable tariffs or contracts.
12.4 The Collocating Party may collocate any type of equipment
used for Interconnection or access to unbundled 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 (utilizing transmission capabilities
only);
(f) Data voice equipment; and
(g) any other transmission equipment collocated as of August 1,
1996 necessary to terminate basic transmission facilities
pursuant to 47C.F.R. (S)(S) 64.1401 and 64.1402.
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<PAGE>
A Collocating Party shall not be permitted to collocate switching equipment or
other equipment used to provide enhanced services or to facilitate bobbing
architectures.
12.5 Upon written request to the Housing Party, Collocating Party shall
be permitted to Interconnect its network with that of another collocating
Telecommunications Carrier at the Housing Party's Premises by connecting its
collocated equipment to the collocated equipment of the Other Telecommunications
Carrier via a Cross-Connection; provided that (i) the collocated equipment is
also used for Interconnection with the Housing Party or for access to the
Housing Party's unbundled Network Elements and (ii) if required by the Housing
Party, such Housing Party provides the connection between the equipment in the
collocated spaces via a Cross-connection as described in such Housing Party's
applicable tariffs.
12.6 A Collocating Party may subcontract the construction of its Physical
Collocation space with contractors approved by the Housing Party, which approval
shall not be unreasonably withheld.
SECTION 251(b) PROVISIONS
13.0 NUMBER PORTABILITY -- SECTION 251(b)(2).
13.1 Scope
13.1.1 The Parties shall provide Number Portability on a reciprocal
basis to each other to the extent technically feasible, and in accordance with
rules and regulations as from time to time prescribed by the FCC and/or the
Commission.
13.1.2 Until Number Portability is implemented by the industry
pursuant to regulations issued by the FCC or the Commission, the Parties agree
to provide Interim Telecommunications Number Portability ("BLIMP") to each other
in accordance with Section 271(c)(2)(B)(xi) of the Act through remote call
forwarding, direct inward dialing and NXX migration.
13.1.3 Once Number Portability is implemented pursuant to FCC or
Commission regulation, either Party may withdraw, at any time and at its sole
discretion, its INP offerings, subject to advance notice to the other Party and
coordination to allow the seamless and transparent conversion of INP Customer
numbers to Number Portability. Upon implementation of Number Portability
pursuant to FCC regulation, both Parties agree to conform and provide such
Number Portability.
13.1.4 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.
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<PAGE>
13.2 Procedures for Providing INP Through Remote Call Forwarding
Focal and Ameritech will provide INP through Remote Call Forwarding as
follows:
13.2.1 If a Telephone Exchange Service Customer of one Party
("Party A") elects to become a Customer of the other Party ("Party B"), such a
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 will now receive from
Party B. Provided that Party A has on file a representation of authorization in
the form set forth in Schedule 9.4.5 and has issued an associated service order
to Party A to assign the number to Party B. Party A will implement an
arrangement whereby all calls to the original telephone number(s) will be
forwarded to a new telephone number(s) designated by Party B. Party A will route
the forwarded traffic to Party B over the appropriate Local/IntraLATA Trunks as
if the call had originated on Party A's network.
13.2.2 Party B will become the customer of record for the original
Party A's telephone numbers subject to the INP arrangements. Party A shall use
its reasonable efforts to consolidate into as few billing statements as possible
for all collect, calling card, and 3rd-number billed calls associated with those
numbers, with sub-account detail by retained number. At Party B's sole
discretion, such billing statement shall be delivered to Party B in an agreed-
upon format via either electronic file transfer, daily magnetic tape, or monthly
magnetic tape.
13.2.3 Party A will update its Line Information Database ("LIDB")
listings for returned numbers, and restrict or cancel calling cards associated
with those forwarded numbers as directed by Party B.
13.2.4 Within two (2) business days of receiving notification from
the Customer, Party B shall notify Party A of the Customer's termination of
service with Party B. and shall further notify Party A as to that Customer's
instructions regarding its telephone number(s). Party A will reinstate service
to that Customer, cancel the INP arrangements for that Customer's telephone
number(s), or redirect the INP arrangement to another INP-participating-LEC
pursuant to the Customer's instructions at that time.
13.3 Procedures for Providing IMP Through Direct Inward Dial
Upon request, Ameritech shall provide to Focal Interim Number Portability
via Direct Inward Dial Trunks pursuant to applicable tariffs.
13.4 Procedures for Providing INP Through Now Migration
Where either Party has activated an entire NXX for a single Customer, or
activated a substantial portion of an Now for a single Customer with the
remaining numbers in that NXX
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<PAGE>
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 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 appropriate industry lead-times for movements
of NXXs from one switch to another.
13.5 Receipt of Terminating Compensation on Traffic to INP'ed Numbers
The Parties agree that under IMP terminating compensation on calls to
INP'ed numbers should be received by each Customer's chosen LEC as if each call
to the Customer had been originally addressed by the caller to a telephone
number bearing an NPA-N 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 13.5 whereby terminating
compensation on calls subject to INP will be passed from the Party (the
"Performing Party") which performs the INP to the other Party (the "Receiving
Party") for whose Customer the INP is provided.
13.5.1 The Parties shall individually and collectively track and
quantify INP traffic between their networks based on the CPN of each call by
identifying CPNs which are INP'ed numbers. The Receiving Party shall charge the
Performing Party for each minute of INP traffic at the INP Traffic Rate
specified in Section 13.5.3 in lieu of any other compensation charges for
terminating such traffic.
13.5.2 By the Interconnection Activation Date in each LATA, the
Parties shall jointly estimate for the prospective year, based on historic data
of all traffic in the LATA, the percentages of such traffic that if dialed to
telephone numbers bearing NPA-NXXs directly assigned to a Receiving Party (as
opposed to the INP'ed number) would have been subject to (i) Reciprocal
Compensation ("Recip Traffic"), (ii) intrastate FGD charges ("Intra Traffic"),
(iii) interstate FGD charges ("Inter Traffic"), or (iv) handling as Local
Traffic under transiting arrangements between the Parties ("Transit Traffic").
On the date which is six (6) months after the Interconnection Activation Date,
and thereafter on each succeeding six month anniversary of such Interconnection
Activation Date, the Parties shall establish new INP traffic percentages to be
applied in the prospective six (6) month period, based on actual INP traffic
percentages from the preceding six (6) month period.
13.5.3 The INP Traffic Rate shall be equal to the sum of
(Recip Traffic percentage times the Reciprocal Compensation Rate set
forth in the Pricing Schedule) (Intra Traffic percentage times
Ameritech's effective intrastate FGD rates) PILL (Inter Traffic
percentage times Ameritech's effective interstate FGD rates).
A rate of zero shall be applied to the Transit Traffic percentage on the
assumption that some portion of such Transit Traffic would otherwise be subject
to other compensation arrangements
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<PAGE>
and to account for a reasonable level of uncollectibles on terminating
compensation. Interstate and intrastate FGD rates shall be calculated utilizing
the effective interstate and intrastate carrier common line (CCL) rates,
residual interconnection charge (RIC) rate elements, local switching (LS) rate
elements, one-half the local transport termination (LTT) rate elements, and one-
half the local transport facility (LTF) rate elements (assuming a five (5) mile
LII).
13.6 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.
14.0 DIALING PARITY--SECTION 251(b)(3).
The Parties shall provide Local Dialing Parity to each other as required
under Section 251(b)(3) of the Act.
15.0 DIRECTORY LISTINGS--SECTION 251(b)(3).
15.1 White Pages Directory Listings
Ameritech's white pages directory publisher (Directory) shall include
Focal's Customer Listings and Resale Listings in its White Pages Directories
under the following terms and conditions:
15.1.1 Publisher will publish the Primary Listing of Focal's
Customers and resale Customers located within the geographic scope of
Publisher's directories at no charge.
15.1.2 Listings of Focal's Customers and resale Customers will be
interfiled with listings of subscribers of Ameritech and other LCCs serving the
same geographic area where such listings are included within a directory.
15.1.3 Upon reasonable request, Publisher shall provide Focal with
copies 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.
15.1.4 Publisher must receive all Focal's Customer Listings and
Resale Listings prior to the service order close date for the directory in which
those listings are to appear. Publisher will provide Focal with appropriate
service order close dates within thirty (30) days of this information becoming
available.
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15.1.5 Publisher may include, at no charge, Focal Customer Listings
and Resale Listings in other directories published by Publisher or its
affiliate.
15.1.6 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.
15.2 Listing and Listing Dates
Focal will provide Customer Listings and Listing Updates to Publisher on a
non-exclusive basis as follows
15.2.1 Focal shall provide its Customer Listings to Publisher in a
form and format acceptable to Publisher.
15.2.2 Within one 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 a
Customer, Focal shall provide Listing Updates to Publisher in a form and format
acceptable to Publisher.
15.2.3 Focal will cooperate with Publisher to develop a cost-
effective, mutually satisfactory, mechanized or electronic process for the
provision of Focal's Listing Updates to Publisher. Mechanization shall be
completed within six (6) months.
15.2.4 Publisher may sell or license the use of Customer Listings,
Resale Listings or Listing Updates to third parties without the prior written
consent of Focal, provided, however, that Publisher will not
15.2.4.1 disclose non-listed name and address information to
any third party except as may be necessary to undertake delivery of directories,
or to perform other services contemplated under this Agreement;
15.2.4.2 disclose to any third party the identity of a
Customer's or resale Customer's LEC;
15.2.4.3 sell or license such Customer listing information
sorted by carrier.
15.2.5 Focal shall provide its Resale Listings for inclusion in
White Pages Directories to Ameritech as part of Focal's purchase of Resale Local
Exchange Service in a form and format as may be required by Ameritech.
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16.0 ACCESS TO RIGHTS-OF-WAY--SECTION 251(b)(4).
Each Party shall provide the other Party access to the poles, ducts,
rights-of-way and conduits it owns or controls on terms, conditions and prices
comparable to those offered to any other entity pursuant to each Party's
applicable tariffs and/or standard agreements.
17.0 DATABASE ACCESS.
In accordance with Section 271 of the Act, Ameritech shall provide Focal
with interfaces to access Ameritech's databases and associated signaling
necessary for the routing and completion of Focal's traffic. Access to such
databases, and the appropriate interfaces, shall be made available to Focal via
a Bona Fide Request.
18.0 REFERRAL ANNOUNCEMENT.
When a Customer changes its service provider from Ameritech to Focal, or
from Focal 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 either the other Party or the Customer,
for a period of not less than four (4) months after the date the Customer
changes its telephone number in the case of business Customers and not less than
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 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.
19.0 OTHER SERVICES.
Focal and Ameritech provide other services to each other as required under
the Act pursuant to the following Agreements
(a) Agreement by and between Focal Communications Corporation and
Ameritech for Enhanced 9-1-1 Service, dated October 28, 1996; and
(b) Directory Assistance Services Agreement dated October 26, 1998.
GENERAL PROVISIONS
20.0 GENERAL RESPONSIBILITIES OF THE PARTIES.
20.1 Each of Ameritech and Focal shall use its best efforts to comply
with the Implementation Schedule.
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<PAGE>
20.2 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. Focal, for the
purpose of ubiquitous connectivity, network diversity and alternate routing,
shall connect to at least one Tandem Office Switch for the receipt/completion of
traffic to any Ameritech End Office Switches.
20.3 Thirty (30) days after the Effective Date and each month during the
term of this Agreement, each Party shall provide the other Party with a rolling,
six (6) calendar month, nonbinding forecast of its traffic and volume
requirements for the services and Network Elements provided under this Agreement
in the form and in such detail as agreed by the Parties. Notwithstanding Section
29.6.1, the Parties agree that each forecast provided under this Section 20.3
shall be deemed "Proprietary Information" under Section 29.6.
20.4 Any Party that is required pursuant to this Agreement to provide a
forecast (the "Forecast Provider") or the Party that is entitled pursuant to
this Agreement to receive a forecast (the "Forecast Recipient") with respect to
traffic and volume requirements for the services and Network Elements provided
under this Agreement may request in addition to non-binding forecasts required
by Section 20.3 that the other Party enter into negotiations to establish a
forecast (a "Binding Forecast") that commits such Forecast Provider to purchase,
and such Forecast Recipient to provide, a specified volume to be utilized as set
forth in such Binding Forecast. The Forecast Provider and Forecast Recipient
shall negotiate the terms of such Binding Forecast in good faith and shall
include in such Binding Forecast provisions regarding price, quantity, liability
for failure to perform under a Binding Forecast and any other terms desired by
such Forecast Provider and Forecast Recipient. Notwithstanding Section 28.6.1,
the Parties agree that each forecast provided under this Section 20.4 shall be
deemed "Proprietary Information" under Section 28.6.
20.5 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 in the standard format compatible with Ameritech's
network 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 20.2 and 20.3 above. 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.
20.6 Each Party may use reasonable 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. Both Parties shall use commercially
reasonable efforts to alleviate points in their respective Networks which cause
such congestion.
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<PAGE>
20.7 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.
20.8 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.
20.9 Neither Party shall use any service related to or using any of the
services provided in this Agreement in any maimer that interferes with third
parties in the use of their service, prevents third parties from using their
service, impairs the quality of 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
(individually and collectively, a "Network Harm"). If a Network Harm shall
occur or if a Party reasonably determines that a Network Harm is imminent, such
Party shall, where practicable, notify the other Party that temporary
discontinuance or refusal of service may be required; provided, however,
wherever prior notice is not practicable, such Party may temporarily discontinue
or refuse service forthwith, if such action is reasonable under the
circumstances. In case of such temporary discontinuance or refusal, such Party
shall:
(a) Promptly notify the other Party of such temporary discontinuance
or refusal;
(b) Afford the other Party the opportunity to correct the situation
which gave rise to such temporary discontinuance or refusal; and
(c) Inform the other Party of its right to bring a complaint to the
Commission or FCC.
20.10 Each Party is solely responsible for the services it provides to its
Customers and to other Telecommunications Carriers.
20.11 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.
20.12 Each Party is responsible for administering NXX codes assigned to
it.
20.13 Each Party is responsible for obtaining Local Exchange Routing Guide
("LERG") listings of CLLI codes assigned to its switches.
20.14 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.
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<PAGE>
20.15 Each Party shall program and update its own Central Office Switches
and End Office switches and network systems to recognize and route traffic to
and from the other Party's assigned Now 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.
20.16 At all times during the term of this Agreement, each Party shall
keep and maintain in force at each Party's expense all insurance required by law
(e.g., workers' compensation insurance) as well as general liability insurance
for personal injury or death to any one person, property damage resulting from
any one incident, automobile liability with coverage for bodily injury for
property damage. 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).
20.17 In addition to its indemnity obligations under Section 25.3, each
Party shall 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 others retained by such parties be liable to any Customer or
third party for (i) any Loss relating to or arising out of this Agreement,
whether in contract or tort, that exceeds the amount such Party would have
charged the applicable Customer for the service(s) or function(s) that gave rise
to such Loss, and (id) any Consequential Damages (as defined in Section 25.4
below).
20.18 Each Party is responsible for obtaining two-way 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.
20.19 Each Party is responsible for requesting Interconnection to the
other Party's Common Channel Interoffice Signaling ("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 which is connected to the
other Party's signaling network. The Parties shall establish Interconnection at
the STP, and other points, as necessary and as jointly agreed to by the Parties.
21.0 TERM AND TERMINATION
21.1 The initial term of this Agreement shall be three (3) years (the
"Term") which shall commence on the Effective Date. Absent the receipt by one
Party of written notice from the other Party at least sixty (60) days prior to
the expiration of the Term to the effect that such Party does not intend to
extend the Term of this Agreement, this Agreement shall automatically renew and
remain in full force and effect on and after the expiration of the Term until
terminated by either Party pursuant to Section 21.3.
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<PAGE>
21.2 Either Party may terminate this Agreement in the event that the
other Party (i) fails to pay any amount when due hereunder (excluding Disputed
Amounts pursuant to Section 29.11) and fails to cure such nonpayment within
sixty (60) days after receipt of written notice thereof; or (ii) fails to
perform any other material obligation required to be performed by it pursuant to
this Agreement and fails to cure such material nonperformance within forty-five
(45) days after written notice thereof.
21.3 If pursuant to Section 21.1 this Agreement continues in full force
and effect after the expiration of the Term, either Party may terminate this
Agreement ninety (90) days after delivering written notice to the other Party of
its intention to terminate this Agreement. Neither Party shall have any
liability to the other Party for termination of this Agreement pursuant to this
Section 21.3 other than to pay to the other Party any amounts owed under this
Agreement.
21.4 Upon termination or expiration of this Agreement in accordance with
this Section 21.0
(a) each Party shall comply immediately with its obligations set
forth in Section 29.6.3;
(b) each Party shall continue to perform its obligations and provide
the services as described herein until such time as a successor agreement
between the Parties is entered into; provided, however, that the Parties
shall renegotiate the rates, fees and charges contained herein; and
(c) each Party shall promptly pay all amounts (including any late
payment charges) owed under this Agreement.
21.5 Except as set forth in Section 27.5, 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.
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTS.
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES,
FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT AND
THE PARTIES DISCLAIM THE PLED WARRANT OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE.
23.0 CANCELLATION CHARGES.
Except as provided in Sections 9.6.4 and 20.4 and pursuant to a Bona Fide
Request, or as otherwise provided in any applicable tariff or contract
referenced herein, no cancellation
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charges shall apply.
24.0 NON-SEVERABILITY.
24.1 The services, arrangements, Interconnection, Network Elements, terms
and conditions of this Agreement were mutually negotiated by the Parties as a
total arrangement and are intended to tee non-severable, subject only to Section
29.14 of this Agreement.
24.2 Nothing in this Agreement shall be construed as requiring or
permitting either Party to contravene any mandatory requirement of federal or
state law, or any regulations or orders adopted pursuant to such law.
25.0 INDEMNIFICATION.
25.1 Each Party shall be responsible only for service(s) and
facility(ies) which are provided by that Party, its 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,
its agents, subcontractors, or others retained by such parties.
25.2 Except as otherwise provided in Sections 25.3, 25.4 and 26.2, and to
the extent not prohibited by law and not otherwise controlled by tariff, each
Party (the "Indemnifying Party") shall defend and indemnify the other Party (the
"Indemnified Party") and hold such Indemnified Party harmless against any Loss
to a third party arising out of the negligence or willful misconduct by such
Indemnifying Party, its agents, its Customers, contractors, or others retained
by such parties, in connection with its provision of services or functions under
this Agreement.
25.3 In the case of any Loss alleged or made by a Customer of either
Party, the Party ("Indemnifying Party") whose Customer alleged or made such Loss
shall defend and indemnify the other Party (the "Indemnified Party") and hold
such Indemnified Party harmless against any or all of such Loss alleged by each
and every Customer.
25.4 Each Party ("Indemnified Party") shall be indemnified, defended and
held harmless by the other Party ("Indemnifying Party") against any Loss arising
from such Indemnifying Party's use of services offered under this Agreement,
involving:
(1) Claims for libel, slander, invasion of privacy, or infringement
of copyright arising from the Indemnifying Party's own communications or
the communications of such Indemnifying Party's Customers; or
(2) Claims for patent, trademark, copyright infringement or other
infringement of intellectual property rights, arising from the Indemnifying
Party's acts combining or using the service furnished by the Indemnified
Party in connection with
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<PAGE>
facilities or equipment furnished by the Indemnifying Party or its
Customers, agents, subcontractors or others retained by such parties.
25.5 The Indemnifying Party agrees to defend any suit brought against the
Indemnified Party for any Loss identified in this Section 25.0. The Indemnified
Party agrees to notify the Indemnifying Party promptly in writing of any written
claims, lawsuits, or demand for which such Indemnifying Party is or may be
responsible and of which the Indemnified Party has knowledge and to cooperate in
every reasonable way to facilitate defense or settlement of claims. The
Indemnifying Party shall have the exclusive right to control and conduct the
defense and settlement of any such actions or 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.
26.0 LIMITATION OF LIABILITY.
26.1 Except as otherwise provided in Section 25.0, no Party shall be
liable to the other Party for any Loss, defect or equipment failure caused by
the conduct of the other Party, the other Party's agents, servants, contractors
or others acting in aid or concert with the other Party.
26.2 Except for Losses alleged or made by a Customer of either Party, in
the case of any Loss arising from the negligence or willful misconduct of both
Parties, each Party shall bear, arid its obligations under this Section 26.0
shall be limited to, that portion (as mutually agreed to by the Parties) of the
resulting expense caused by its (including that of its agents, servants,
contractors or others acting in aid or concert with it) negligence or willful
misconduct.
26.3 Except for indemnity obligations under Sections 25.2 and 25.4, each
Party's liability to the other Party for any Loss relating to or arising out of
any negligent act or omission in its performance of this Agreement, whether in
contract or in tort, shall be limited to the total amount that is or would have
been charged to the other Party by such negligent or breaching Party for the
service(s) or function(s) not performed or improperly performed.
26.4 In no event shall either Party have any liability whatsoever to the
other Party for any indirect, special, consequential, incidental or punitive
damages, including but not limited to 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 a Party's obligation under Section 25.2 to indemnify,
defend and hold the other Party harmless against any amounts payable to a third
party, including any losses, costs, fines, penalties, criminal or civil
judgments or settlements, expenses (including attorneys' fees) and Consequential
Damages of such third party.
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27.0 LIQUIDATED DAMAGES FOR SPECIFIED ACTIVITIES.
27.1 Certain Definitions. When used in this Section 27.0, the following
terms shall have the meanings indicated
27.1.1 "Specified Performance Breach" means the failure by
Ameritech to meet the Performance Criteria for any Specified Activity for a
period of three (3) consecutive calendar months.
27.1.2 "Specified Activity" means any of the following activities
(i) the installation by Ameritech of unbundled Loops for Focal
("Unbundled Loop Installation");
(ii) Ameritech's provision of Interim Telecommunications Number
Portability ("INP Provisioning"); or
(iii) the repair of out of service problems for Focal ("Out of
Service Repairs").
27.1.3 "Performance Criteria" means, with respect to each calendar
month during the term of this Agreement, the performance by Ameritech during
such month of each Specified Activity shown below within the time interval shown
in at least eighty percent (80%) of the covered instances:
<TABLE>
<CAPTION>
=============================================================================================
SPECIFIED ACTIVITY PERFORMANCE INTERVAL
<S> <C>
(i) Unbundled Loop Installation
- ---------------------------------------------------------------------------------------------
1-10 Loops per Service Order 5 days from Ameritech's Receipt of valid
Service Order
- ---------------------------------------------------------------------------------------------
11-20 Loops per Service Order 10 days from Ameritech's Receipt of valid
Service Order
- ---------------------------------------------------------------------------------------------
21 Loops per Service Order to be Negotiated
- ---------------------------------------------------------------------------------------------
(ii) INP Provisioning 5 days from Ameritech's Receipt of valid
1-10 Numbers per Service Order Service Order
- ---------------------------------------------------------------------------------------------
11-20 Numbers per Service Order 10 days from Ameritech's Receipt of valid
Service Order
- ---------------------------------------------------------------------------------------------
21 + Numbers per Service Order to be Negotiated
- ---------------------------------------------------------------------------------------------
(iii) Out-of-Service Repairs Less than 24 hours from Ameritech's Receipt
of Notification of Out-of Service Condition
=============================================================================================
</TABLE>
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27.1.4 The Performance Criteria shall be calculated on a calendar-
month basis as follows
(a) Unbundled Loop Installation and INP Provisioning
Total Number of Service Orders Completed within applicable
Performance Interval Date x 100 Total Number of Service
Orders Received
(b) Out-of-Service Repairs
Number of Out-of-Service Repairs Restored within Performance
Interval Date x 100 Total Number of Out-of-Service Repairs
per month
27.2 Specified Performance Breach. In recognition of the (1) loss of
Customer opportunities, revenues and goodwill which Focal might sustain in the
event of a Specified Performance Breach; (2) the uncertainty, in the event of
such a Specified Performance Breach, of Focal having available to it customer
opportunities similar to those opportunities currently available to Focal; and
(3) the difficulty of accurately ascertaining the amount of damages Focal would
sustain in the event of such a Specified Performance Breach, Ameritech agrees to
pay Focal, subject to Section 27.4 below, damages as set forth in Section 27.3
below in the event of the occurrence of a Specified Performance Breach.
27.3 Liquidated Damages. The damages payable by Ameritech to Focal as a
result of a Specified Performance Breach shall be $75,000 for each Specified
Performance Breach (collectively, the "Liquidated Damages"). Focal and Ameritech
agree and acknowledge that (a) the Liquidated Damages are not a penalty and have
been determined based upon the facts and circumstances of Focal and Ameritech at
the time of the negotiation and entering into of this Agreement, with due regard
given to the performance expectations of each Party; (b) the Liquidated Damages
constitute a reasonable approximation of the damages Focal would sustain if its
damages were readily ascertainable; and (c) Focal-shall not be required to
provide any proof of the Liquidated Damages.
27.4 Limitations. In no event shall Ameritech be liable to pay the
Liquidated Damages if Ameritech's failure to meet or exceed any of the
Performance Criteria is caused, directly or indirectly, by a Delaying Event. A
"Delaying Event" means (a) a failure by Focal to perform any of its obligations
set forth in this Agreement (including, without limitation, the Implementation
Schedule and the Grooming Plan), (b) any delay, act or failure to act by a
Customer, agent or subcontractor of Focal or (c) any Force Majeure Event. If a
Delaying Event (it prevents Ameritech from performing a Specified Activity, then
such Specified Activity shall be excluded from the calculation of Ameritech's
compliance with the Performance Criteria, or (ii) only suspends Ameritech's
ability to timely perform the Specified Activity, the applicable time frame in
which Ameritech's compliance with the Performance Criteria is measured shall
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be extended on an hour-for-hour or day-for-day basis, as applicable, equal to
the duration of the Delaying Event.
27.5 Sole Remedy. The Liquidated Damages shall be the sole and exclusive
remedy of Focal under this Agreement for Ameritech's breach of the Performance
Criteria and a Specified Performance Breach as described in this Section 27.0.
27.6 Records. Ameritech shall maintain complete and accurate records, on
a monthly basis, of its performance under this Agreement of each Specified
Activity and its compliance with the Performance Criteria. Ameritech shall
provide to Focal such records in a self-reporting format on a monthly basis.
Notwithstanding Section 29.6.1, the Parties agree that such records shall be
deemed "Proprietary Information" under Section 29.6.
28.0 REGULATORY APPROVAL.
The Parties understand and agree that this Agreement will be filed with the
Commission and may thereafter be filed with the FCC. The Parties covenant and
agree that this Agreement is satisfactory to them as an agreement under Section
251 of the Act. Each Party covenants and agrees to fully support approval of
this Agreement by the Commission or the FCC under Section 252 of the Act without
modification. The Parties, however, reserve the right to seek regulatory relief
and otherwise seek redress from each other regarding performance and
implementation of this Agreement. In the event the Commission 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. 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.
29.0 MISCELLANEOUS.
29.1 Authorization.
29.1.1 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 Ameritech Illinois.
29.1.2 Focal is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder.
29.2 Compliance. Each Party shall comply with all applicable federal,
state, and local laws, rules, and regulations applicable to its performance
under this Agreement.
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29.3 Compliance with the Communications Law Enforcement Act of 1994
("CALEA"). Each Party represents and warrants that any equipment, facilities or
services provided to the other Party under this Agreement comply with CALEA.
Each Party shall indemnify and hold the other Party harmless from any and all
penalties imposed upon the other Party for such noncompliance and shall at the
non-compliant Party's sole cost and expense, modify or replace any equipment,
facilities or services provided to the other Party under this Agreement to
ensure that such equipment, facilities and services fully comply with CALEA.
29.4 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.
29.5 Force Majeure. Neither Party shall be liable for any delay or
failure in performance of any part of this Agreement from any cause beyond its
control and without its fault or negligence including, without limitation, acts
of nature, acts of civil or military authority, government regulations,
embargoes, epidemics, terrorist acts, riots, insurrections, Foss, explosions,
earthquakes, nuclear accidents, floods, work stoppages, equipment failure, power
blackouts, volcanic action, other major environmental disturbances, unusually
severe weather conditions, inability to secure products or services of other
persons or transportation facilities or acts or omissions of transportation
carriers (individually or collectively, a "Force Majeure Event").
29.6 Confidentiality.
29.6.1 Any information such as specifications, drawings, sketches,
business information, forecasts, models, samples, data, computer programs and
other software and documentation of one Party (a "Disclosing Party") that is
furnished or made available or otherwise disclosed to the other Party or any of
its employees, contractors, agents or Affiliates (its "Representatives" and with
a Party, a "Receiving Party") pursuant to this Agreement ("Proprietary
Information") shall be deemed the property of the Disclosing Party. Proprietary
Information, if written, shall be marked "Confidential" or "Proprietary" or by
other similar notice, and, if oral or visual, shall be confirmed in writing as
confidential by the Disclosing Party to the Receiving Party within ten (10) days
after disclosure. Unless Proprietary Information was previously known by the
Receiving Party free of any obligation to keep it confidential, or has been or
is subsequently made public by an act not attributable to the Receiving Party,
or is explicitly agreed in writing not to be regarded as confidential, it (a)
shall be held in confidence by each Receiving Party; (b) shall be disclosed to
only those Representatives who have a need for it in connection with the
provision of services required to fulfill this Agreement and shall be used only
for such purposes; and (c) may be used for other purposes only upon such terms
and conditions as may be mutually agreed to in advance of use
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<PAGE>
in writing by the Parties. Notwithstanding the foregoing sentence, a Receiving
Party shall be entitled to disclose or provide Proprietary Information as
required by any governmental authority or applicable law only in accordance with
Section 29.6.2.
29.6.2 If any 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. The
Disclosing Party may then either seek appropriate protective relief from all or
part of such requirement or, if it fails to successfully do so, it shall be
deemed to have waived the Receiving Party's compliance with Section 29.6 with
respect to all or part of such requirement. 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 obtain.
29.6.3 In the event of the expiration or termination of this
Agreement for any reason whatsoever, each Party shall return to the other Party
or destroy all Proprietary Information and other documents, work papers and
other material (including all copies thereof) obtained from the other Party in
connection with this Agreement and shall use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act, omission or fault of such
Party, in any manner making it available to the general public.
29.7 Governing Law. For all claims under this Agreement that are based
upon issues within the jurisdiction (primary or otherwise) of the FCC, the
exclusive jurisdiction and remedy for all such claims shall be provided for by
the FCC and the Act. For all claims under this Agreement that are based upon
issues within the jurisdiction (primary or otherwise) of the Commission, the
exclusive jurisdiction for all such claims shall be with such Commission, and
the exclusive remedy for such claims shall be as provided for by such
Commission. In all other respects, this Agreement shall be governed by the
domestic laws of the State of Illinois without reference to conflict of law
provisions.
29.8 Taxes. Each Party purchasing services hereunder shall pay or
otherwise be responsible for all federal, 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 tax exemption, 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.
- 48 -
<PAGE>
29.9 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 party without the prior written consent of the other
Party; provided that each Party may assign this Agreement to a corporate
Affiliate or an entity under its common control or an entity acquiring all or
substantially all of its assets or equity by providing prior written notice to
the other Party of such assignment or transfer. 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.
29.10 Non-Waiver. 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.
29.11 Disputed Amounts.
29.11.1 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 within sixty (60) days
of its receipt of the invoice containing such disputed amount give notice to the
Billing Party of the amounts it disputes ("Disputed Amounts") and include in
such notice the specific details and reasons for disputing each item. The Non-
Paying Party shall pay when due (i) all undisputed amounts to the Billing Party
and (ii) all Disputed Amounts into an interest bearing escrow account with a
third party escrow agent mutually agreed upon by the Parties.
29.11.2 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.
29.11.3 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 29.11.2, 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
release of any or all funds (including any accrued interest) in the escrow
account, plus applicable late fees, to be paid to either Party.
- 49 -
<PAGE>
29.11.4 The Parties agree that all negotiations pursuant to this
Section 29.11 shall remain confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
29.11.5 Any undisputed amounts not paid when due shall accrue
interest from the date such amounts were due 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.
29.12 Notices. Notices given by one Party to the other Party under this
Agreement shall be in writing and 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
to the following addresses of the Parties:
To Focal
Focal Communications Corporation
300 West Washington Street
Suite 1408
Chicago, IL 60606
Attn: Executive Vice President and Chief Operating Officer
Facsimile: 312/578-8403
To Ameritech:
Ameritech Information Industry Services
350 North Orleans, Floor 3
Chicago, IL 60654
Attn: Vice President - Network Providers
Facsimile 312/335-2927
with a copy to
Ameritech Information Industry Services
350 North Orleans, Floor 3
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, (id) 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.
- 50 -
<PAGE>
29.13 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 promotional materials without such Party's
prior written consent.
29.14 Section 242(i) Obligations. If either Party enters into an agreement
(the "Other Agreement") approved by the Commission pursuant to Section 252 of
the Act which provides for the provision of any Interconnection, service or
Network Element arrangement covered in this Agreement to another requesting
Telecommunications Carrier, including itself or its Affiliate, such Party shall
make available to the other Party such arrangements upon the same rates, terms
and conditions as those provided in the Other Agreement. At its sole option, the
other Party may avail itself of either (i) the Other Agreement in its entirety
or (ii) the prices, terms and conditions of the Other Agreement that directly
relate to any of the following duties as a whole
(1) Interconnection - Section 251(c)(2) of the Act (Sections 4.0 and 5.0
of this Agreement); or
(2) Exchange Access - Section 251(c)(2) of the Act (Section 6.0 of this
Agreement); or
(3) Unbundled Access - Section 251(c)(3) of the Act (Section 9.0 of this
Agreement) (loops); or
(4) Unbundled Access - Section 251 (c)(3) of the Act (Section 9.0 of
this Agreement) (ports); or
(5) Resale - Section 251(c)(4) of the Act (Section 10.0 of this
Agreement); or
(6) Collocation - Section 251(c)(6) of the Act (Section 12.0 of this
Agreement); or
(7) Number Portability - Section 251(b)(2) of the Act (Section 13.0 of
this Agreement); or
(8) Directory Listing - Section 251(b)(3) of the Act (Section 15.0 of
this Agreement), or
(9) Access to Rights of Way - Section 251(b)(4) of the Act (Section 17.0
of this Agreement).
29.15 Jolt 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
- 51 -
<PAGE>
in accordance with its terms and, in the event of any ambiguities, no inferences
shall be drawn against either Party.
29.16 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. Except for provisions herein expressly authorizing
a Party to act for another, nothing in this Agreement shall constitute a Party
as a 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.
Except as otherwise expressly provided in this Agreement, 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.
29.17 No License. No license under patents, copyrights or any other
intellectual property right (other than the limited license to use 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.
29.18 Technology Upgrades. Nothing in this Agreement shall limit
Ameritech's ability to upgrade its network through the incorporation of new
equipment, new software or otherwise. Ameritech shall provide Focal written
notice at least ninety (90) days prior to the incorporation of any such upgrades
in Ameritech's network which will materially impact Focal's service. Focal shall
be solely responsible for the cost and effort of accommodating such changes in
its own network.
29.19 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 without limitation, Sections 21.4, 22.0, 23.0, 25.0, 26.0, 29.3, 29.6,
29.11, 29.13 and 29.17.
29.20 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.
29.21 Entire Agreement. The terms contained in this Agreement and any
Schedules, Exhibits, tariffs 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 preprinted
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
- 52 -
<PAGE>
communications. This Agreement may only be modified by a writing signed by an
officer of each Party.
- 53 -
<PAGE>
IN WITNESS-WHEREOF, the Parties hereto have caused this Agreement to be
executed as of this 28th day of October, 1996.
FOCAL COMMUNICATIONS CORPORATION AMERITECH INFORMATION INDUSTRY SERVICES,
A DIVISION OF AMERITECH SERVICES, INC., ON
BEHALF OF AMERITECH ILLINOIS
By: /s/ John R. Barnicle By: /s/ Neil E. Cox
-------------------- ----------------
Printed: John R. Barnicle Printed: Neil E. Cox
----------------- ------------
Title: Executive Vice President Title: President
------------------------- ----------
- 54 -
<PAGE>
SCHEDULE 3.0
IMPLEMENTATION SCHEDULE
LATA Ameritech Focal Interconnection
Interconnection Interconnection Activation Date
Wire Center Wire Center
(AIWC) (FIWC)
Chicago Wabash Tandem
CHCGILWB12T
<PAGE>
PRICING SCHEDULE -- ILLINOIS
I. Reciprocal Compensation
Rate = $0.009 per minute
II. Information Services Billing & Collection
Fee = $0.03 per massage
III. BLV/BL\1 Traffic
Rate = $0.90 per Busy Line Verification
$1.10 per Busy Line Verification Interrupt
(in addition to $0.90 for Busy Line Verification)
IV. Transiting
Rate = $0.002 per minute
V. Unbundled Network Elements
A. Unbundled Loop Rates
<TABLE>
<CAPTION>
Monthly Rates
Loop Type Access Area
<S> <C> <C> <C>
A B C
Analog 2W $ 6.95 $11.10 $13.60
Analog 4W $13.90 $22.20 $27.20
ADS1 2W/HDS1 2W $ 6.95 $11.10 $13.60
ADS1 4W/HDS1 4W $13.90 $22.20 $27.20
BRI ISDN $ 6.95 $11.10 $13.60
PBX Ground Start Coin $ 6.95 $11.60 $14.10
Coin $ 6.95 $11.60 $14.10
Electronic Key Line $ 6.95 $11.60 $14.10
</TABLE>
- ----------------------
* Common Line Charges and cross-connection charges are included in the
referenced Loop rates.
/1/ "Access Area" is as defined in Ameritech's applicable tariffs for business
and residential Exchange Line Services.
<PAGE>
B. Non-Recurring Charges
1. Unbundled Loops
<TABLE>
<CAPTION>
======================================================================
Date of Acceptance
of Service Order Service Order Charge/2/ Line Connection Charge/3/
----------------------------------------------------------------------
<S> <C> <C>
Prior to 6/1/97 $30 $50
----------------------------------------------------------------------
On or after 6/1/97 $30 $50
======================================================================
</TABLE>
C. Additional Loop Conditioning Charges/4/
<TABLE>
<CAPTION>
=====================================================
Loop Type Additional Charges per Loop
<S> <C>
-----------------------------------------------------
Electronic Key Line Rates based on cost
-----------------------------------------------------
ISDN $22.50 per month per Loop
-----------------------------------------------------
HDSL 2W Rates based on cost
-----------------------------------------------------
HDSL 4W Rates based on cost
-----------------------------------------------------
ADSL 2W Rates based on cost
=====================================================
</TABLE>
- ------------------
/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 purchase.
/4/ The Additional Loop Conditioning Charges are only applicable if the
distance required on an ordered Loop exceeds such Loop's transmission
characteristics as set forth in Section 9.4.5.
<PAGE>
SCHEDULE 9.4.5
FORM OF REPRESENTATION OF AUTHORIZATION
[Focal/Ameritech] hereby represents to [Ameritech/Focal], 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 for its Customers upon the terms and conditions
contained herein.
1. With respect to requests for CPNI regarding prospective Customers of [Focal
Ameritech], [Focal Ameritech] acknowledges that it must obtain written or
electronic authorization in the form of a signed letter, tape-recorded
conversation, password verification, or other means ("Documentation of
Authorization") which explicitly authorizes [Focal/Ameritech] to have
access to the prospective Customer's CPNI. 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, [Focal/Ameritech] must submit to [Ameritech/Focal]
the Documentation of Authorization. If [Focal Ameritech] cannot provide
Documentation of Authorization, [Ameritech/Focal] cannot provide CPNI to
[Focal/Ameritech].
2. [Ameritech/Focal] will only disclose CPNI to agents of [Focal/Ameritech]
identified in the Documentation of Authorization.
3. If [Focal Ameritech] has already obtained Documentation of Authorization
for the Customer to place an order for Telephone Exchange Service for the
Customer, [Focal 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 for
a Customer, [Focal/Ameritech] acknowledges that it must obtain
Documentation of Authorization which explicitly authorizes
[Focal/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. [Focal Ameritech] need not submit
the Document of Authorization to process a service order. However,
[Focal/Ameritech] hereby represents that it will not submit a service order
to [Ameritech/Focal] unless it has 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
Focal Ameritech and the prospective Customer.
6. [Focal/Ameritech] shall retain all Documentation of Authorization in its
files for as long as [Focal/Ameritech] provides Telephone Exchange Service
to the Customer, or for as long as [Focal/Ameritech] makes requests for
information on behalf of the Customer.
<PAGE>
7. [Focal Ameritech] shall make Documentation of Authorization available for
inspection by [Ameritech/Focal] during normal business hours. In addition,
[Focal/Ameritech] shall provide Documentation of Authorization for
Customers or prospective Customers to [Ameritech/Focal] upon request.
8. [Focal Ameritech] is responsible for, and shall hold [Ameritech/Focal]
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 October 28th, 1996 by and
between Ameritech Information Industry Services, a division of Ameritech
Services, Inc. on behalf of Ameritech Illinois and Focal Communications
Telecom Services (the "Interconnection Agreement") resulting from
[Ameritech/Focal]'s reliance upon [Focal 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 [Focal Ameritech] fails to abide by the procedures set forth herein,
[Ameritech Focal] 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 28th day of October, 1996.
Focal Communications Corporation
By: /s/ John R. Barnicle
---------------------
Name Printed: John R. Barnicle
-----------------
Its: Executive Vice President
-------------------------
<PAGE>
EXHIBIT A
BONAFIDE REQUEST
1. Each Party shall promptly consider and analyze the submission of a
Bona Fide Request that such Party provide Interconnection or, if Focal is the
requesting Party, access to an unbundled Network Element, not otherwise provided
hereunder by such Party at the time of such request or an Interconnection or
Network Element that is superior or lesser in quality to that which such Party
provides itself.
2. A Bona Fide Request shall be submitted in writing and shall include a
technical description of each requested Interconnection and/or Network Element.
3. The requesting Party may cancel a Bona Fide Request at any time, but
shall pay the other Party's reasonable and demonstrable costs of processing
and/or implementing the Bona Fide Request up to the date of cancellation.
4. Within ten (10) business days of its receipt, the receiving Party
shall acknowledge receipt of the Bona Fide Request.
5. Except under extraordinary circumstances, within thirty (30) days of
its receipt of a Bona Fide Request, the receiving Party shall provide to the
requesting Party a preliminary analysis of such Interconnection, Network Element
or requested level of quality thereof that is the subject of the Bona Fide
Request. The preliminary analysis shall confirm that the receiving Party will
offer access to such Interconnection or Network Element or will provide a
detailed explanation that access to such Interconnection or Network Element is
not technically feasible and/or that the request does not qualify as an
Interconnection or Network Element that is required to be provided under the
Act.
6. If the receiving Party determines that the Interconnection or Network
Element that is the subject of the Bona Fide Request is technically feasible and
otherwise qualifies under the Act, it shall promptly proceed with developing the
Bona Fide Request upon receipt of written authorization from the requesting
Party. When it receives such authorization, the receiving Party shall promptly
develop the requested services, determine their availability, calculate the
applicable prices and establish installation intervals.
7. The Interconnection or Network Element that is the subject of the Bona
Fide Request must be priced in accordance with 47 C.F.R. (S)(S) 51.501 through
51.515.
8. As soon as feasible, but not more than ninety (90) days after its
receipt of authorization to proceed with developing the Interconnection or
Network Element that is the subject of the Bona Fide Request, the receiving
Party shall provide to the requesting Party a Bona Fide Request quote which will
include, at a minimum, a description of such Interconnection and/or Network
Element, the availability, the applicable rates and the installation intervals.
<PAGE>
9. Within thirty (30) days of its receipt of the Bona Fide Request quote,
the requesting Patty must Other 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 Act, exercise its rights under Section 29.18.
10. 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 29.18.
<PAGE>
Exhibit 10.2
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 (this "Agreement"), dated as of October 31, 1997,
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
Metro, Inc. ("AIM") and Focal Communications Corporation of Illinois, a Delaware
corporation with offices at 200 North LaSalle Street, Chicago, Illinois 60601
("Focal").
RECITALS
A. AIM is party to an Asset Purchase Agreement, dated as of April 8,
1997, and as amended, between AIM and Central Telephone Company of Illinois (the
"Asset Purchase Agreement").
B. Subject to and upon the occurrence of the Closing (as defined in the
Asset Purchase Agreement), AIM will be authorized to provide certain
Telecommunications Services (such term and each other term with initial capital
letter(s) which is not defined herein having the definition set forth in Exhibit
I attached hereto, as modified by Sections 2 and 3 hereof) within Illinois.
C. Subject to and upon the occurrence of the Closing, AIM will be engaged
in the business of providing, among other things, local Telephone Exchange
Service within Illinois.
D. Focal has been granted authority to provide certain local Telephone
Exchange Services within Illinois and is a Local Exchange Carrier as.
E. Subject to and upon and after the occurrence of the Closing, AIM and
Focal desire to Interconnect their telecommunications networks and facilities to
comply with the Act, and exchange traffic so that their respective residential
and business Customers may communicate with each other over, between and through
such networks and facilities.
F. AIM and Focal are entering into this Agreement to set forth their
respective obligations and the terms and conditions under which, subject to and
upon and after the occurrence of the Closing, AIM and Focal will Interconnect
their networks and facilities and provide to each other Telecommunications
Services as required by the Act as set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Focal and AIM hereby agree as
follows:
1. This Agreement shall become effective as of the date of the Closing
(the "Effective Date").
2. AIM and Focal agree to be bound by the terms of Exhibit I attached
hereto, and agree that Focal shall have all of the rights and obligations of
Focal set forth therein and agree that AIM shall have all of the rights and
obligations of Ameritech Illinois set forth therein, all as though such Exhibit
I were set forth in full in this Agreement, except that each reference therein
to "Ameritech Illinois" or "Ameritech" shall be deemed changed to be a reference
to "Ameritech Illinois Metro, Inc." or "AIM," respectively.
3. The terms of Exhibit I attached hereto are identical to the terms of
the Interconnection Agreement under Section 251 and 252 of the
Telecommunications Act of 1996, dated as of October 28, 1996, by and between
Ameritech Information Industry Services, a division of Ameritech Services, Inc.,
on behalf of and as agent for Ameritech Illinois and Focal (the "Ameritech
Illinois Interconnection Agreement"). If the parties to the Ameritech Illinois
Interconnection Agreement at any time amend, change, supplement or otherwise
modify the Ameritech Illinois Interconnection Agreement, Exhibit I attached
hereto shall be deemed to have been simultaneously amended, changed,
supplemented or modified in the same manner with the same effect as though the
parties to this Agreement had executed an agreement so amending, changing,
supplementing or modifying Exhibit I attached hereto.
4. This Agreement shall terminate upon a merger of AIM with and into
Ameritech Illinois.
5. This Agreement does not amend or otherwise affect in any manner the
Ameritech Illinois Interconnection Agreement.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first set forth above.
FOCAL COMMUNICATIONS AMERITECH INFORMATION INDUSTRY
CORPORATION OF ILLINOIS SERVICES, A DIVISION OF AMERITECH
SERVICES, INC., ON BEHALF OF AND AS
AGENT FOR AMERITECH ILLINOIS METRO, INC.
By: /s/ John R. Barnicle By: /s/ Neil E. Cox
----------------------------- ------------------------------------
Printed: John R. Barnicle Printed: Neil Cox
------------------------ ------------------------------------
Title: Executive Vice President Title: President
------------------------ ------------------------------------
- 3 -
<PAGE>
Exhibit 10.3
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
Dated as of November 10, 1997
by and between
NEW YORK TELEPHONE COMPANY
and
FOCAL COMMUNICATIONS CORPORATION OF NEW YORK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
1.0 DEFINITIONS 1
2.0 INTERPRETATION AND CONSTRUCTION 8
3.0 SCOPE 8
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2) 8
4.1 Scope 9
4.2 Physical Architecture 9
4.3 Technical Specifications 10
4.4 Interconnection in Additional LATAs 10
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE
TRAFFIC PURSUANT TO SECTION 2S1(c)(2) 11
5.1 Scope of Traffic 11
5.2 Switching System Hierarchy 11
5.3 Trick Group Architecture and Traffic Routing 12
5.4 Signaling 12
5.5 Grades of Service 13
5.6 Measurement and Billing 13
5.7 Reciprocal Compensation Arrangements Section 251(b)(5). 14
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC
PURSUANT TO 251(c)(2) 15
6.1 Scope of Traffic 15
6.2 Trunk Group Architecture and Traffic 15
6.3 MeetPoint Billing Arrangements 15
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC 16
7.1 Information Services Traffic 16
7.2 Tandem Transient Service ("Transit Service") 20
7.3 Dedicated Transit Service 21
7.4 911/E911 Arrangements 21
8.0 JOINT NETWORK CONFIGURATION AND GROOMING PLAN; AND
INSTALLATION, MAINTENANCE, TESTING AND REPAIR. 22
8.1 Joint Network Configuration and Grooming Plan 22
8.2 Installation, Maintenance, Testing and Repair 22
9.0 UNBUNDLED ACCESS -- SECTION 251(c)(3) 23
9.1 Local Link Transmission Types 23
9.2 ADSL and HDSL 24
9.3 Port Types 24
9.4 Private Lines, Special Access and Switched Transport 25
9.5 Limitations on Unbundled Access 25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9.6 Availability of Other Network Elements on an Unbundled Basis 26
9.7 Provisioning of Unbundled Links 26
9.8 Maintenance of Unbundled Network Elements 28
9.9 Acknowledgments Related to Unbundled Network Elements 28
10.0 RESALE--SECTIONS 251(c)(4) and 251(b)(1) 28
10.1 Availability of Wholesale Rates for Resale 28
10.2 Availability of Retail Rates for Resale 29
10.3 Term and Volume Discounts 29
11.0 NOTICE OF CHANGES--SECTION 251(c)(5) 29
12.0 COLLOCATION--SECTION 251(c)(6) 29
13.0 NUMBER PORTABILITY--SECTION 251(b)(2) 30
13.1 Scope 30
13.2 Procedures for Providing INP Through Remote Call Forwarding 30
13.3 Procedures for Providing INP Through Route Indexing 31
13.4 Procedures for Providing INP Through Full NXX Code Migration 31
13.5 Other Interim Number Portability Options 31
13.6 Receipt of Terminating Compensation on Traffic to INP'ed Numbers 31
13.7 TrueUp of Monthly INP Costs 32
14.0 NUMBER RESOURCES ASSIGNMENTS 33
15.0 DIALING PARITY--SECTION 251(b)(3) 33
16.0 ACCESS TO RIGHTSOFWAY--SECTION 251(b)(4) 33
17.0 DATABASES AND SIGNALING 33
18.0 REFERRAL ANNOUNCEMENT 33
19.0 DIRECTORY SERVICES ARRANGEMENTS 34
19.1 Directory Listings and Directory Distributions 34
19.2 Directory Assistance (DA) and Operator Services 35
20.0 GENERAL RESPONSIBILITIES OF THE PARTIES 36
21.0 TERM AND TERMINATION 38
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES 39
23.0 CANCELLATION CHARGES 39
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24.0 NONSEVERABILITY 39
25.0 INDEMNIFICATION 40
26.0 LIMITATION OF LIABILITY 41
27.0 LIQUIDATED DAMAGES FOR SPECIFIED ACTIVITIES 41
27.1 Certain Definitions 41
27.2 Specified Performance Breach 42
27.3 Liquidated Damages 42
27.4 Limitations 42
27.5 Sole Remedy 43
27.6 Records 43
27.7 Start Date 43
28.0 REGULATORY APPROVAL 43
29.0 MISCELLANEOUS 44
29.1 Authorization 44
29.2 Compliance 44
29.3 Compliance with the Communications Law Enforcement Act of 1994
("CALEA") 44
29.4 Independent Contractor 44
29.5 Force Majeure 44
29.6 Confidentiality 45
29.7 Governing Law 46
29.8 Taxes 46
29.9 NonAssignment 46
29.10 NonWaiver 47
29.11 Disputed Amounts 47
29.12 Notices 48
29.13 Publicity and Use of Trademarks or Service Marks 48
29.14 Section 252(i) Obligations 48
29.15 Joint Work Product 49
29.16 No Third Party Beneficiaries; Disclaimer of Agency 49
29.17 No License 49
29.18 Technology Upgrades 50
29.19 Survival 50
29.20 Scope of Agreement 50
29.21 Entire Agreement 50
29.22 Power and Authority 50
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LIST OF SCHEDULES AND EXHIBIT
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Schedule 1.0 Certain Terms as Defined in the Act
Schedule 4.0 Network Interconnection Schedule
Schedule 8.2 BA Intervals for Installation
Schedule 27.0 BA Performance Criteria for Liquidated Damages
Schedule 27.4.1 FOCAL Service Quality Criteria for Liquidated Damages
Schedule 27.3 Liquidated Damages Schedule
Exhibit
EXHIBIT A Network Element Bona Fide Request
</TABLE>
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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 10th day of
November, 1997 (the "Effective Date"), by and between Focal Communications
Corporation of New York ("FOCAL") with offices North LaSalle Street, Chicago,
Suite 820, Illinois 60601 and New York Telephone Company d/b/a BA ("BA" or
"NYT"), a New York corporation with offices at 1095 Avenue of the Americas, New
York NY 10036.
WHEREAS, the Parties want to interconnect their networks at mutually agreed
upon points of interconnection to provide Telephone Exchange Services (as
defined below) and Exchange Access (as deemed below) to their respective
Customers.
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
the Parties will interconnect their networks and provide other services as
required by the Act (as defined below) and additional services as set forth
herein.
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, FOCAL and BA hereby agree as follows:
1.0 DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
specified below in this Section 1.0. For convenience of reference only, the
definitions of certain terms that are As Defined in the Act (as defined below)
are set forth on Schedule 1.0. Schedule 1.0 sets forth the definitions of such
terms as of the date specified on such Schedule and neither Schedule 1.0 nor any
revision, amendment or supplement thereof intended to reflect any revised or
subsequent interpretation of any term that is set forth in the Act is intended
to be a part of or to affect the meaning or interpretation of this Agreement.
1.1 "Act" means the Communications Act of 1934 (47 U.S.C. 153(R)), as
amended by the Telecommunications Act of 1996, and as from time to time
interpreted in the duly authorized rules and regulations of the FCC or a
Commission within its state of jurisdiction.
1.2 "ADSL" or "Asymmetrical Digital Subscriber Line" means a transmission
technology which transmits an asymmetrical digital signal using one of a variety
of line codes as specified in ANSI standards T1.413-1995-007R2.
1.3 "Affiliate" is As Defined in the Act.
1.4 "Agreement for Switched Access Meet Point Billing" means the Agreement
for Switched Access Meet Point Billing between the Parties.
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1.5 "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.
1.6 "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.
1.7 "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.
1.8 "Busy Line Verification/Busy Line Verification Interrupt Traffic" or
"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.
1.9 "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.
1.10 "Central Office Switch" or "Tandems" means a switch used to provide
Telecommunications Services, including, but not limited to:
(a) "End Office Switches" which are used to terminate Customer station
Links for the purpose of interconnection to each other and to trunks; and
(b) "Tandem Office Switches" 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.
1.11 "CCS" means one hundred (100) call seconds.
1.12 "CLASS Features" means certain CCIS-based features available to
Customers including, but not limited to: Automatic Call Back; Call Trace; Caller
Identification; Call Return and future CCIS-based offerings.
1.13 "Collocation" means an arrangement whereby one Party's (the
"Collocating Party") facilities are terminated in its equipment necessary for
Interconnection or for access to Network Elements on an unbundled basis which
has been installed and maintained at the premises of a second Party (the
"Housing Party"). For purposes of Collocation, the "premises" of a Housing
Party is limited to the occupied structure or portion thereof in which such
Housing Party has the exclusive right of occupancy. Collocation will be
"physical," unless physical collocation is not practical for technical reasons
or because of space/limitations, in which case
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virtual collocation will be provided, subject to PSC approval. In "Physical
Collocation," the Collocating Party installs and maintains its own equipment in
the Housing Party's premises.
1.14 "Commission" or "PSC" means the New York State Public Service
Commission.
1.15 "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.
1.16 "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 Collocating Party's equipment and (ii) the
equipment or facilities of the Housing Party.
1.17 "Customer" means a third-Party residence or business that subscribes
to Telecommunications Services provided by either of the Parties.
1.18 "Dialing Parity" is As Defined in the Act. As used in this Agreement,
Dialing Parity refers to both Local Dialing Parity and Toll Dialing Parity.
"Local Dialing Parity" means the ability of Telephone Exchange Service Customers
of one LEC to select a provider and make local calls without dialing extra
digits. "Toll Dialing Parity" means the ability of Telephone Exchange Service
Customers of a LEC to place toll calls (inter or intraLata) which are routed to
a toll carrier (intraLATA or interLATA) of their selection without dialing
access codes or additional digits and with no unreasonable dialing delay.
1.19 "Digital Signal Level" means one of several transmission rates in the
time-division multiplex hierarchy.
1.20 "Digital Signal Level 0" or "DS0" means the 64 Kbps zero-level signal
in the time-division multiplex hierarchy.
1.21 "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, DS 1 is the initial level of
multiplexing.
1.22 "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.
1.23 "Direct Customer Access Service" or "DCAS" is an electronic interface
system provided by BA to facilitate the ordering, provisioning and maintenance
of various interconnection arrangements.
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1.24 "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.
1.25 "Exchange Access" is As Defined in the Act.
1.26 "FCC" means the Federal Communications Commission.
1.27 "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.
1.28 "HDSL" or "High-Bit Rate Digital Subscriber Line" means a transmission
technology which transmits up to a DS 1-level signal, using any one of the
following line codes: 2 Binary / 1 Quartenary ("2B 1 Q"), Carrierless AM/PM,
Discrete Multitone ("DMT"), or 3 Binary / 1 Octel ("3BO").
1.29 "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).
1.30 "Integrated Digital Loop Carrier" means a subscriber loop carrier
system which integrates within the switch, at a DS1 level, twenty-four (24)
local Link transmission paths combined into a 1.544 Mbps digital signal.
1.31 "Interconnection" is As Described in the Act and refers to the
connection of a network, equipment, or facilities, of one carrier with the
network, equipment, or facilities of another for the purpose of transmission and
routing of Telephone Exchange Service traffic and Exchange Access traffic.
1.32 "Interexchange Carrier" or "IXC" means a carrier that provides,
directly or indirectly, interLATA or intraLATA Telephone Toll Services.
1.33 "Interim Telecommunications Number Portability" or "INP" is As
Described in the Act.
1.34 "InterLATA Service" is As Defined in the Act.
1.35 "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).
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1.36 "Local Access and Transport Area" or "LATA" is As Defined in the Act.
1.37 "Local Exchange Carrier" or "LEC" is As Defined in the Act.
1.38 "Local Link Transmission" or "Link" means the entire transmission path
which extends from the network interface/demarcation point at a Customer's
premises to the Main Distribution Frame or other designated frame or panel in a
Party's Wire Center which serves the Customer. Links are defined by the
electrical interface rather than the type of facility used.
1.39 "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).
1.40 "Main Distribution Frame" or "MDF" means the distribution frame of the
Party providing the Link used to interconnect cable pairs and line and trunk
equipment terminals on a switching system.
1.41 "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 as agreed to in the Agreement for Switched Access Meet
Point Billing.
1.42 "Network Element" is As Defined in the Act.
1.43 "Network Element Bona Fide Request" means the process described on
Exhibit A that prescribes the terms and conditions relating to a Party's request
that the other Party provide a Network Element not otherwise provided by the
terms of this Agreement.
1.44 "North American Numbering Plan" or "NANP" means the numbering plan
used in the United States, Canada, Bermuda, Puerto Rico and certain Caribbean
Islands. The NANP format is a 1 0-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.
1.45 "Number Portability" is As Defined in the Act.
1.46 "NXX" means the three-digit code which appears as the first three
digits of a seven digit telephone number.
1.47 "Party" means either BA or FOCAL and Parties means BA and FOCAL.
1.48 "Port" means a termination on a Central Office Switch that permits
Customers to send or receive Telecommunications over the public switched
network, but does not include switch features or switching functionality.
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1.49 "POT Bay" or "Point of Termination Bay" means the intermediate
distributing frame system which serves as the point of demarcation for
collocated interconnection. 1.49
1.50 "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. Rate Centers will be identical for each Party until such time as
FOCAL is permitted by an appropriate regulatory body or elects to create its own
Rate Centers within an area.
1.51 "Reciprocal Compensation" is As Described in the Act, and refers to
the payment arrangements that recover costs incurred for the transport and
termination of Telecommunications originating on one Party's network and
terminating on the other Party's network.
1.52 "Reciprocal Compensation Call" or "Reciprocal Compensation Traffic" a
Telephone Exchange Service Call completed between the Parties, which qualifies
for Reciprocal Compensation pursuant to the terms of this Agreement and
prevailing Commission rules that may exist.
1.53 "Route Indexing" means the provision of Interim Number Portability
through the use of direct trunks provisioned between end offices of BA and FOCAL
over which inbound traffic to a ported number will be routed.
1.54 "Routing Point" means a location which a 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 Bell Communications Research, Inc. ("Bellcore") Practice
BR 795-100-100 (the "Bellcore Practice"), the Routing Point (referred to as the
"Rating Point" in such Bellcore Practice) may be an End Office Switch location.
or a "LEC Consortium Point of Interconnection." Pursuant to such Bellcore
Practice, each "LEC Consortium Point of Interconnection" shall be designated by
a common language identifier ("CLLI") code with (x) KD in positions 9, 10, 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.
1.55 "Service Control Point" or "SCP" means a component of the signaling
network that acts as a database to provide information to another component of
the signaling network
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(i.e., Service Switching Point or another SCP) for processing or routing certain
types of network calls. A query/response mechanism is typically used in
communicating with an SCP.
1.56 "Signaling Transfer Point" or "STP" means a component of the signaling
network that performs message routing functions and provides information for the
routing of messages between signaling network components. An STP transmits,
receives and processes CCIS messages.
1.57 "Single Bill/Multiple Tariff" shall mean that one bill is rendered to
the IXC from all LECs who are jointly providing access service. A single bill
consists of all rate elements applicable to access services billed on one
statement of charges under one billing account number using each Party's
appropriate access tariffs. The bill could be rendered by or on behalf of,
either of the Parties.
1.58 "Strapping" means the act of installing a permanent connection between
a point of termination bay and a collocated interconnector's physical
collocation node.
1.59 "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.
1.60 "Synchronous Optical Network" or "SONET" means an optical interface
standard that allows inter-networking of transmission products from multiple
vendors. The base transmission rate is 51.84 Mbps (OC-1/STS-1) and higher rates
are direct multiples of the base rate.
1.61 "Technically Feasible Point" is As Described in the Act.
1.62 "Telecommunications" is As Defined in the Act. J
1.63 "Telecommunications Act" means the Telecommunications Act of 1996 and
any rules and regulations promulgated thereunder.
1.64 "Telecommunications Carrier" is As Defined in the Act.
1.65 "Telecommunications Service" is As Defined in the Act.
1.66 "Telephone Exchange Service" is As Defined in the Act.
1.67 "Telephone Exchange Service Call" or "Telephone Exchange Service
Traffic" means a call completed between two Telephone Exchange Service Customers
of the Parties located in the same LATA, originated on one Party's network and
terminated on the other
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Party's network where such call was not carried by a third Party as either a
presubscribed call (1+) or a casual dialed (10X=) or (101XX) call. Telephone
Exchange Service Traffic is transported over Traffic Exchange Trunks.
1.68 "Telephone Toll Service" is As Defined in the Act.
1.69 "Wire Center" means an occupied structure or portion thereof in which
a Party has the exclusive right of occupancy and which serves as a Routing Point
for Switched Exchange Access Service.
2.0 INTERPRETATION AND CONSTRUCTION
2.1 All references to Sections, Exhibits and Schedules shall be deemed to
be references to Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. The headings of the Sections and
the terms defined in Schedule 1.0 are inserted for convenience of reference only
and are not intended to be a part of or to affect the meaning of this Agreement.
Unless the context shall otherwise require, any reference to any agreement,
other instrument (including BA or other third Party offerings, guides or
practices), statute, regulation, rule or tariff is to such agreement,
instrument, statute, regulation, convenience of reference only and are not
intended to be a part of or to affect the meaning or 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).
2.2 The Parties recognize that FOCAL has elected to adopt in this
Agreement the terms and conditions of the Interconnection Agreement between KMC
Telecom and New York Telephone Company approved by the Commission on September
23, 1997 ("KMC Agreement") pursuant to section 252(i) of the Act. The Parties
agree that if any term or condition of the KMC Agreement is subsequently
amended, upon the written request of either Party, the Parties shall take all
steps to immediately effect the same amendment to this Agreement.
3.0 SCOPE
This Agreement sets forth the terms and conditions under which FOCAL and BA
will interconnect their respective networks to enable FOCAL to provide
telecommunications services consistent with the rights and obligations set forth
in Section 251 of the Act
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)
Subject to the terms and conditions of this Agreement, Interconnection of
the Parties' facilities and equipment pursuant to Section 4.0 for the
transmission and routing of Telephone Exchange Service traffic and Exchange
Access traffic shall be established on or before the corresponding
"Interconnection Activation Date" shown for each such LATA within the State of
New York on Schedule 4.0. Schedule 4.0 may be revised and supplemented from
time to time upon the mutual agreement of the Parties to reflect the
Interconnection in additional LATAs
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in New York State pursuant to Section 4.4 by attaching one or more supplementary
schedules to such schedule. Interconnection in the LATA shall be accomplished
through either (i) a Fiber Meet as provided in Section 4.2, (ii) Collocation as
provided in Section 12.0, (iii) any other Interconnection method provided by
applicable tariff, law, rule or regulation, or (iv) any other Interconnection
method to which the Parties may agree.
4.1 Scope
Section 4.0 describes the physical architecture for Interconnection of the
Parties' facilities and equipment for the transmission and routing of local
traffic and IntraLATA toll traffic pursuant to Section 251(c)(2) of the Act.
Sections 5.0 and 6.0 prescribe the specific logical trunk groups (and traffic
routing parameters) which will be configured over the physical connections
described in this Section 4.0 related to the transmission and routing of local
traffic and Exchange Access traffic, respectively. Other trunk groups, as
described in this Agreement, may be configured using this architecture.
4.2 Physical Architecture
In each LATA identified on Schedule 4.0, FOCAL and BA shall configure
existing network interconnection arrangements under a joint network
configuration and grooming plan ("Joint Grooming Plan" as defined in Section
8.1). Both Parties will endeavor to provision a diverse, reliable network that
incorporates the most practicable technologies.
4.2.1 Network architecture under the Joint Grooming Plan shall be
established under the following minimum criteria:
(a) The Parties shall establish physical interconnection points at the
locations designated on Schedule 4.0. Points on the FOCAL network
from which FOCAL will provide transport and termination of traffic are
designated as the FOCAL Interconnection Points ("F-IP"). Points on
the BA network from which BA will provide transport and termination of
traffic are designated as the BA Interconnection Points ("BA-IP").
Additional interconnection points may be established by mutual
agreement of both parties at any technically feasible points
consistent with Act.
(b) Each Party will provide owned or leased facilities to deliver
traffic originated on its respective networks to the designated
interconnection points of the other Party's network. The Party
terminating the traffic will be responsible for all transport and
termination of calls beyond the designated interconnection point.
4.2.2 The Parties may implement one of the following configurations
as part of the Joint Grooming Plan, unless an alternative plan is mutually
agreed to by both parties.
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(a) a jointly maintained SONET network, in which each Party is
responsible for the procurement, installation, and maintenance of
mutually agreed-upon Optical Line Terminating Multiplexer ("OLTM")
equipment at its respective premises. Additionally, each Party will
be responsible for the installation and maintenance of one-half of a
fiber optic ring;
(b) interconnection of networks at an optical level via a Fiber Meet
or other comparable means.
4.2.3 The Parties agree to allow interim alternatives to the
architecture described in Section 4.2, utilizing electrical hand-offs, provided
the Parties mutually develop and agree on a plan to fully transition to an
arrangement reflective of Section 4.2 within one hundred and eighty (180) days
following the Interconnection Activation Date listed in Schedule 4.0.
4.3 Technical Specifications
4.3.1 FOCAL and BA shall work cooperatively to install and maintain a
reliable network. FOCAL and BA 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.
4.3.2 FOCAL and BA shall work cooperatively to apply sound network
management principles by invoking network management controls to alleviate or to
prevent congestion.
4.3.3 The publication "Bellcore Technical Publication GR-342-CORE;
High Capacity Digital Special Access Service, Transmission Parameter Limits and
Interface Combinations" describes the practices, procedures, specifications and
interfaces generally utilized by BA and is referenced herein to assist the
Parties in meeting their respective Interconnection responsibilities related to
Electrical/Optical Interfaces.
4.4 Interconnection in Additional LATAs
4.4.1 If FOCAL determines to offer Telephone Exchange Services in any
other LATA in which BA also offers Telephone Exchange Services in New York
State, FOCAL shall provide written notice to BA of the need to establish
Interconnection in such LATA pursuant to this Agreement.
4.4.2 The notice provided in Section 4.5.1 shall include (i) the
initial Routing Point FOCAL has designated in the new LATA; (ii) FOCAL's
requested Interconnection Activation Date; and (iii) a non-binding forecast of
FOCAL's bunking requirements.
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4.4.3 Unless otherwise agreed by the Parties, the Parties shall
designate the Wire Center FOCAL has identified as its initial Routing Point in
the LATA as the F-IP in that LATA and shall designate the BA Tandem Office Wire
Center within the LATA nearest to the F-IP (as measured in airline miles
utilizing the V&H coordinates method) as the BA-IP in that LATA.
4.4.4 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 one-hundred and fifty (150) days
after the date on which FOCAL delivered notice to BA pursuant to Section 4.4.1.
Within ten (10) business days of BA's receipt of FOCAL's notice, BA and FOCAL
shall confirm the BA-IP, the F-IP and the Interconnection Activation Date for
the new LATA by attaching a supplementary schedule to Schedule 4.0.
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT TO
SECTION 2S1(c)(2)
5.1 Scope of Traffic
Section 5.0 prescribes parameters for trunk groups (the "Traffic Exchange
Trunks") to be effected over the Interconnections specified in Section 4.0 for
the transmission and routing of Telephone Exchange Service Traffic between the
Parties' respective Telephone Exchange Service Customers.
5.2 Switching System Hierarchy
5.2.1 For purposes of this Section 5.0, each of the following Central
Office Switches shall be designated as a "Primary Switch":
(a) Each Access Tandem BA operates in the LATA;
(b) The initial switch FOCAL employs to provide Telephone Exchange
Service in the LATA;
(c) Any Access Tandem FOCAL may establish for provision of Exchange
Access in the LATA;
(d) Any additional switch FOCAL may subsequently employ to provide
Telephone Exchange Service in the LATA which FOCAL may at its
sole option designate as a Primary Switch; provided that the
total number of FOCAL Primary Switches for a LATA may not exceed
the total number of BA Primary Switches for that LATA. To the
extent FOCAL chooses to designate any additional switch as a
Primary Switch, it shall provide notice to BA of such designation
at least ninety (90) days in advance of the date on which FOCAL
activates such switch as a Primary Switch; and
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(e) Any additional tandem switch BA may subsequently employ to
provide access and/or sector traffic capacity within a LATA.
Traffic destined to sub-tending Secondary Switches routed via
such a tandem(s) would be determined by network requirements and
notice made available to all LECs at least one hundred and eighty
(180) days prior to service introduction.
5.2.2 Each Central Office operated by the Parties which is not
designated as a Primary Switch pursuant to Section 5.2.1 shall be designated as
a "Secondary Switch".
5.2.3 For purposes of FOCAL routing traffic to BA, sub-tending
arrangements between BA Primary Switches and BA Secondary Switches shall be the
same as the Access Tandem/End Office sub-tending arrangements which BA maintains
for those switches. For purposes of BA routing traffic to FOCAL, subtending
arrangements between FOCAL Primary Switches and FOCAL Secondary Switches shall
be the same as the Access Tandem/End Office sub-tending arrangements which FOCAL
maintains for those switches.
5.3 Trick Group Architecture and Traffic Routing
The Parties shall jointly engineer and configure Traffic Exchange Trunks
over the physical Interconnection arrangements for the transport and termination
of Telephone Exchange Service Traffic as follows:
5.3.1 The Parties shall each initially configure a separate two-way
trunk group as direct transmission path between each FOCAL Primary Switch and
each BA Primary Switch.
5.3.2 Notwithstanding anything to the contrary in this Section 5.0,
if the individual trunk group volumes between any two Central Office Switches
(whether Primary Primary, Primary-Secondary, or Secondary-Secondary)
consistently exceed the blocking parameters established in the Joint Grooming
Plan, the Parties will augment such trunk groups so as to achieve established
service objectives. Such augmentation shall be consistent with established
network design methods using modular trunk engineering techniques where
practical.
5.3.3 BA and FOCAL will allow each other to route their intrastate
and interstate switched access service traffic over the Traffic Exchange Trunk
Groups, pursuant to the rates, terms and conditions specified in each Party's
effective intrastate and interstate access tariffs or at generally available and
prevailing rates, terms and conditions.
5.4 Signaling
5.4.1 Where available, CCIS signaling shall be used by the Parties to
set up calls between the Parties' Telephone Exchange Service networks. If CCIS
signaling is unavailable, ME (Multi-Frequency) signaling shall be used by the
Parties. Each Party shall charge the other Party equal and reciprocal rates for
CCIS signaling in accordance with applicable tariffs. During
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the term of this Agreement neither Party shall charge the other Party additional
usage-sensitive rates for SS7 queries (TCAP and ISUP) made for Local Traffic.
5.4.2 The publication "Bellcore Special Report SR-TSV-002275, BOC Notes on
the LEC Networks - Signaling" describes the practices, procedures and
specifications generally utilized by BA for signaling purposes and is referenced
herein to assist the Parties in meeting their respective Interconnection
responsibilities related to signaling.
5.4.3 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.
5.4.4 Each Party shall provide trunk groups where available that are
configured utilizing the B8ZS ESF protocol for 64 Kbps clear channel
transmission to allow for ISDN -interoperability between the Parties' respective
networks.
5.5 Grades of Service
The Parties shall engineer and shall jointly monitor and enhance all trunk
groups consistent with the Joint Grooming Plan.
5.6 Measurement and Billing
5.6.1 For billing purposes, each Party shall pass Calling Party
Number (CPN) information on each call carried Trunks; provided that so long as
the percentage of calls passed with CPN is greater than ninety percent (90%),
all calls exchanged without CPN information shall be billed as either Local
Traffic or IntraLATA Toll Traffic in direct proportion to the minutes of use of
calls exchanged with CPN information.
5.6.2 Measurement of billing minutes (except for originating 800/888
calls) shall be in actual conversation seconds. Measurement of billing minutes
for originating 800/888 calls shall be in accordance with applicable tariffs.
5.6.3 Where CPN is not available in a LATA for greater than 10% of
the traffic, the Party sending the traffic shall provide factors to determine
the jurisdiction, as well as local vs. toll distinction, of the traffic. Such
factors shall be supported by call record details that will be made available
for review upon request. Where parties are passing CPN but the receiving Party
is not properly receiving or recording the information, the Parties shall
cooperatively work to correctly identify the traffic, and establish a mutually
agreeable mechanism that will prevent improperly rated traffic..
Notwithstanding this, if any improperly rated traffic occurs, the Parties agree
to reconcile it.
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5.7 Reciprocal Compensation Arrangements -- Section 251(b)(5).
5.7.1 Reciprocal Compensation only applies to the transport and
termination of Reciprocal Compensation Traffic by BA or FOCAL which a Telephone
Exchange Service Customer originates on BA's or FOCAL's network for termination
on the other Party's network except as provided in Section 5.7.6 below.
5.7.2 The Parties shall compensate each other for transport and
termination of Reciprocal Compensation Traffic in an equal and symmetrical
manner at the rate provided in the -[Pricing Schedule. This rate is to be
applied at the F-IP for traffic delivered by BA, and at the BA-IP for traffic
delivered by FOCAL. No additional charges, including port or transport charges,
shall apply for the termination of Reciprocal Compensation Traffic delivered to
the F-IP or the BA-IP. When Reciprocal Compensation Traffic is terminated over
the same trunks as intraLATA or interLATA toll, any port or transport or other
applicable access charges related to the toll traffic shall be prorated to be
applied only to the such other toll traffic.
5.7.3 The Reciprocal Compensation arrangements set forth in this Agreement
are not applicable to Switched Exchange Access Service or to any other intraLATA
calls originated on a third Party carrier's network on a 1+ presubscribed basis
or a casual dialed (10X or 101XX=) basis. 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.
5.7.4 The rates for termination of Reciprocal Compensation Traffic are set
forth in Pricing Schedule which is incorporated by reference herein.
5.7.5 Compensation for transport and termination of all traffic which is
subject to performance of INP by one Party for the other Party pursuant to
Section 13.0 shall be as specified in Section 13.6.
5.7.6 When either Party delivers seven (7) or ten (10) digit translated
intraLATA 800/888 service to the other Party for termination, the originating
Party shall provide the terminating Party with billing records in industry
standard format (EMR) if required by the terminating Party. The originating
Party may bill the terminating Party for the delivery of the traffic at local
Reciprocal Compensation rates. The terminating Party may not bill the
originating Party Reciprocal Compensation under this Agreement. The Party that
is providing the 800/888 service shall pay the database inquiry charge per the
Pricing Schedule to the Party that performed the database inquiry.
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6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO 251(c)(2)
6.1 Scope of Traffic
Section 6.0 prescribes parameters for certain trunk groups ("Access Toll
Connecting Trunks") to be established over the Interconnections specified in
Section 4.0 for the transmission and routing of Exchange Access traffic between
FOCAL's Telephone Exchange Service Customers and Interexchange Carriers
("IXCs").
6.2 Trunk Group Architecture and Traffic
6.2.1 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/to FOCAL 's Customers.
6.2.2 Access Toll Connecting Trunks shall be used solely for the
transmission and routing of Exchange Access to allow FOCAL's Customers to
connect to or be connected to the Interexchange trunks of any Interexchange
Carrier which is connected to an BA Access Tandem.
6.2.3 The Access Toll Connecting Trunks shall be two-way trunks
connecting an End Office Switch FOCAL utilizes to provide Telephone Exchange
Service and Switched Exchange Access in a given LATA to an Access Tandem Switch
BA utilizes to provide Exchange Access in such LATA.
6.2.4 The Parties shall jointly determine which BA Access Tandem(s)
will be sub-tended by each FOCAL End Office Switch. FOCAL end office switch
shall subtend the BA Access Tandem that would have served the same rate center
on BA's network. Alternative configurations will be discussed as part of the
Joint Grooming Plan.
6.3 Meet-Point Billing Arrangements
6.3.1 Meet-Point Billing arrangements between the Parties for
jointly-provided Switched Exchange Access Services on Access Toll Connecting
Trunks will be governed by the terms and conditions of a mutually agreeable
arrangement which the Parties will work to develop.
6.3.2 With respect to the Meet Point Billing arrangements, until and
unless changed by the FCC on a going forward basis, FOCAL shall retain 100% of
the Residual Interconnection Charge in instances in which FOCAL provides the end
office switching as of the date this agreement is signed.
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7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
7.1.1 Bundled IP Billing Arrangement:
7.1.1.1 Routing and Provisioning
Each Party shall route Information Service Traffic originates on its own
network to the appropriate information services platform(s) connected to the
other Party's network. Where the FOCAL uses its own network facilities, the
FOCAL will establish a direct trunk group to the BA information services tandem
switch. This trunk group will be utilized to allow the FOCAL to route
Information Service Traffic originated on its network to BA. Where BA routing
plans permit a combination of POTS and IP traffic on such direct trunk groups,
the FOCAL may route a combination of POTS and IP traffic without establishing a
separate direct trunk group exclusively for IP data. However, where BA requires
direct trunks dedicated to IP traffic, the FOCAL must establish direct,
dedicated bunking for its IP traffic. Such determinations will be at the sole
discretion of BA, on a par with its established routing requirements in each
LATA, and are subject to change.
Where the FOCAL utilizes the BA network through the purchase of unbundled
network elements, Information Service Traffic may be routed over BA information
service trunks on a shared basis.
7.1.1.2 Information Mass Announcement Services
a) For Information Mass Announcement Service, the Party
('Originating Party') on whose network the Information Services Traffic
originated shall bill and collect such Information Provider charges and remit an
amount equal to such charges to the Party ('Terminating Party') to whose
information platform the Information Service Traffic terminated less the
Information Service Billing and Collection fee set forth in the Pricing
Schedule. The Terminating Party may bill the Originating Party for such
charges. The Originating Party shall pay the Terminating party in full
regardless of uncollectible items. This shall apply whether the originating
party uses its own network or utilizes the other party's network through the
purchase of unbundled network elements.
b) Upon request, the Party (Originating Party) on whose network the
Information Service Traffic originated shall provide via electronic file
transfer or magnetic tape or other means as available all recorded call detail
information to the Party (Terminating Party) to whose information platform the
Information Service Traffic terminated, at the standard price for record
transmission. This data shall be in unrated EMR format per OBF/Bellcore
standard.
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7.1.1.3 Variable Rated Information Services
a) The Party (Originating Party) on whose network the Information
Service Traffic originated shall provide via electronic file transfer or
magnetic tape or other means as available all recorded call detail information
to the Party (Terminating Party) to whose information platform the Information
Service Traffic terminated, at the standard price for record transmission. This
data shall be in unrated EMR format per OBF/Bellcore standard. This shall apply
whether the originating party uses its own network or utilizes the other party's
network through the purchase of unbundled network elements.
b) The Terminating Party shall provide to the Originating Party via
electronic file transfer or magnetic tape or other means as available all
necessary information to bill the Information Service Traffic to the Originating
Party's Customers pursuant to the Terminating Party's agreements with each
Information Provider, at the standard price for record transmission.
Information shall be provided in as timely a fashion as practical in order to
facilitate record review and reflect actual prices set by the individual
Information Providers. This data will consist of the EMR records previously
delivered by the Originating Party, returned to the Originating Party in rated
format where possible, or with appropriate indicators populated on error
messages. No Billing and Collection fees will be applied to error messages. No
taxes will be calculated or paid on the Originating Party's traffic.
c) The Originating Party shall bill and collect such Information
Provider charges and remit the amounts collected to the Terminating Party less:
(1) The Information Services Billing and Collection fees set
forth on the Pricing Schedule;and
(2) Customer adjustments provided by the Originating Party.
Adjustments are made for subscriber-priced traffic only.
d) The Terminating Party shall calculate these charges and bill them
to the Originating Party for remittance.
e) The Originating Party shall provide to the Terminating Party
sufficient information regarding uncollectibles and customer adjustments. The
Terminating Party shall pass through the adjustments to the Information
Provider. However, if the Information Provider disputes such adjustments and
refuses to accept such adjustments, the Originating Party shall reimburse the
Terminating Party for all such disputed adjustments. Final resolution regarding
all disputed adjustments shall be solely between the Originating Party and the
Information Provider.
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7.1.1.4 Blocking
Nothing in this Agreement shall restrict either Party from offering to
its Exchange Service Customers the ability to block the completion of
Information Service Traffic, whether Information Mass Announcement Services or
Variable Rated Information Services.
7.1.1.5 Billing and Usage Specifications
The Parties shall adopt an Information Provider Usage and Billing
Specification Agreement prior to implementation of this billing arrangement.
With the mutual consent of both Parties, the Information Provider Usage and
Billing Specification Agreement may be modified in the future.
7.1.2 Unbundled IP Billing Arrangement:
7.1.2.1 Routing and Provisioning
Each Party shall route Information Service Traffic which originates on
its own network to the appropriate information services platform(s) connected to
the other Party's network. Where the FOCAL uses its own network facilities, the
FOCAL will establish a direct trunk group to the BA information services tandem
switch. This trunk group will be utilized to allow the FOCAL to route
Information Service Traffic originated on its network to BA. Where BA routing
plans permit a combination of POTS and IP traffic on such direct trunk groups,
the FOCAL may route a combination of POTS and IP traffic without establishing a
separate direct trunk group exclusively for IP data. However, where BA requires
direct trunks dedicated to IP traffic, FOCAL must establish direct, dedicated
bunking for its IP traffic.. Such determinations will be at the sole discretion
of BA, on a par with its established routing requirements in each LATA, and are
subject to change.
Where the FOCAL utilizes the BA network through the purchase of unbundled
network elements, Information Service Traffic may be routed over BA information
service trunks on a shared basis.
7.1.2.2 Information Mass Announcement Services
a) For Information Mass Announcement Service, the Party
('Originating Party') on whose network the Information Services Traffic
originated shall bill and collect such Information Provider charges and remit an
amount equal to such charges to the Party ('Terminating Party') to whose
information platform the Information Service Traffic terminated less the
Information Service Billing and Collection fee set forth in the Pricing
Schedule. The Terminating Party may bill the Originating Party for such
charges. The Originating Party shall pay the Terminating party in full
regardless of uncollectible items. This shall apply whether the originating
party uses its own network or utilizes the other party's network through the
purchase of unbundled network elements.
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b) Upon request, the Party (Originating Party) on whose network the
Information Service Traffic originated shall provide via electronic file
transfer or magnetic tape or other means as available all recorded call detail
information to the Party (Terminating Party) to whose information platform the
Information Service Traffic terminated, at the standard price for record
transmission. This data shall be in unrated EMR format per OBF/Bellcore
standard.
7.1.2.3 Variable Rated Information Services
a) The Terminating Party shall charge the originating Party $.03 per
minute of use for transport and switching. These charges shall be calculated by
the Terminating Company and billed to the Originating Company. These charges
shall apply whether the Originating Party uses its own network or utilizes the
other party's network through the purchase of unbundled network elements. End
user customer adjustments shall not apply to these charges.
b) Upon request from the Originating Party, the Terminating Party
shall make available its Rating Service at a charge of $.03 per message plus a
$15,000 non-recurring charge. Under Rating Service, the Originating Party shall
provide to the Terminating Party via electronic file transfer or magnetic tape
or other means as available recorded call detail information in unrated EMR
format per OBF/Bellcore standard; the Terminating Party shall rate such calls
placed by the Originating Party's Customers and terminating to Information
Provider services contracted with the Terminating Party, according to the rates
established by such Information Providers. The Terminating Party shall then
return the call records to the Originating Party, in rated format where
possible, or with appropriate indicators populated on error messages. The
Rating Service fee will be applied to all messages. In addition to the charges
for Rating Service, standard charges will be made by the Terminating Party for
the transmission and delivery of such records and files. The Terminating Party
will not bill and collect for such rated calls. The Terminating Party will not
calculate or pay taxes for such rated calls.
c) Alternatively, at the originating Party's option, it may purchase
a rating table from the Terminating Party at the rate set forth in the Pricing
Schedule.
d) The Originating Party is responsible for all payments due the
Information Providers to whose programs that Party's Customer places calls, and
other obligations and relationships with such Information Providers.
e) Resolution regarding all customer adjustments shall be solely
between the Originating Party and the Information Provider.
7.1.2.4 Blocking
Nothing in this Agreement shall restrict either Party from offering to
its Exchange Service Customers the ability to block the completion of
Information Service Traffic, whether Information Mass Announcement Services or
Variable Rated Information Services.
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7.1.2.5 Billing and Usage Specifications
The Parties shall adopt an Information Provider Usage and Billing
Specification Agreement prior to implementation of this billing arrangement.
With the mutual consent of both Parties, the Information Provider Usage and
Billing Specification Agreement may be modified in the future.
7.2 Tandem Transient Service ("Transit Service")
7.2.1 "Transit Service" means the delivery of certain traffic between
FOCAL and a LEC by BA over the Telephone Exchange Service Tanks. The following
traffic types will be delivered: (i) Local Traffic or IntraLATA Toll originated
from FOCAL to such LEC and (ii) Local or IntraLATA Toll Traffic originated from
such LEC and terminated to FOCAL where BA carries such traffic pursuant to the
Commission's primary toll carrier plan or other similar plan.
7.2.2 Subject to Section 7.2.4, the Parties shall compensate each
other for Transit Service as follows:
(a) FOCAL shall pay BA for Local Traffic originates over the Transit
Service at the rate specified in Pricing Schedule plus any
additional charges or costs such terminating LEC imposes or
levies on BA for the delivery or termination of such traffic,
including any switched access charges; and
(b) BA shall pay FOCAL for Local, InterLATA, or IntraLATA Toll
Traffic terminated to FOCAL from such LEC at the appropriate
reciprocal compensation rates described in Section 5.7, InterLATA
access rates, or (where BA delivers such traffic pursuant to the
Commission's primary toll carrier plan or other similar plan) at
FOCAL's applicable switched access rates or local termination
rate, whichever is appropriate.
7.2.3 While the Parties agree that it is the responsibility of FOCAL
to enter into arrangements to deliver Local Traffic to LECs, they acknowledge
that such arrangements are not currently in place and an interim arrangement is
necessary to ensure traffic completion. Accordingly, until the earlier of (i)
the date on which FOCAL has entered into an arrangement with such LEC to deliver
Local Traffic to FOCAL or (ii) one-hundred and eighty (180) days after the
Interconnection Activation Date, BA will deliver and FOCAL will terminate Local
Traffic originated from such LEC without charge to one another.
7.2.4 BA 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 of those services supported by BA as noted in section 1.12 and
billing functions. In all cases, FOCAL is responsible to
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follow the Exchange Message Record ("EMR") standard and exchange records with
both BA and the terminating LEC to facilitate the billing process to the
originating network.
7.2.5 For purposes of this Section 7.2, BA agrees that it shall make
available to FOCAL, at FOCAL's sole option, any transiting arrangement BA offers
to another LEC at the same rates, terms and conditions provided to such other
LEC.
7.3 Dedicated Transit Service
7.3.1 "Dedicated Transit Service" provides for the dedicated
connection between a FOCAL collocation arrangement established pursuant to
applicable tariffs and/or license agreements at a BA premises and a collocation
arrangement of a third Party carrier that maintains a collocation arrangement at
the same premises. Dedicated Transit Service shall be provided using a cross-
connection (dedicated connection) using suitable BA-provided cable or
transmission facilities or any other mutually agreed upon arrangement.
7.3.2 The carrier that requests the Dedicated Transit Service shall
be the customer of record for both ends of the service in terms of ordering,
provisioning, maintenance, and billing. Alternative arrangements may be
utilized if agreed upon by all three parties.
7.4 911/E911 Arrangements
7.4.1 FOCAL will interconnect to the BA 91 l/E911 selective
router/911 tandems which serve the areas in which FOCAL provides exchange
services, for the provision of 911/E911 services and for access to all sub-
tending Public Safety Answering Points ("PSAPs"). BA will provide FOCAL with
the appropriate CLLI codes and specifications of the tandem serving area.
7.4.2 Path and route diverse interconnections for 911/E911 shall be
made at the F-IP, the BA-IP, or other points as necessary and mutually agreed.
7.4.3 BA will provide FOCAL with an electronic interface through
which FOCAL shall input and provide a daily update of 911/E911 database
information related to appropriate FOCAL customers. BA will provide as
permitted by the PSC, FOCAL with the Master Street Address Guide (MSAG) so that
FOCAL can ensure the accuracy of the data transfer. Additionally, BA shall
assist FOCAL in identifying the appropriate person in each municipality for the
purpose of obtaining the ten-digit Subscriber number of each PSAP.
7.4.4 BA and FOCAL will use their best efforts to facilitate the
prompt, robust, reliable and efficient interconnection of FOCAL systems to the
91 1/E911 platforms.
7.4.5 BA and FOCAL will work cooperatively to arrange meetings with
PSAPs to answer any technical questions the PSAPs, or county or municipal
coordinators may have regarding the 91 l/E911 arrangements.
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7.4.6 FOCAL will compensate BA for connections to its 911/E911
pursuant to the Pricing Schedule.
7.4.7 FOCAL will comply with all applicable rules and regulations
pertaining to the provision of 91 1/E911 services in the state of New York.
8.0 JOINT NETWORK CONFIGURATION AND GROOMING PLAN; AND INSTALLATION,
MAINTENANCE, TESTING AND REPAIR.
8.1 Joint Network Configuration and Grooming Plan. On or before January
1, 1998, FOCAL and BA shall jointly develop a grooming plan (the "Joint Grooming
Plan") which shall define and detail, inter alia,
(a) agreement on Physical Architecture consistent with the guidelines
defined in Section 4.0;
(b) standards to ensure that Interconnection trunk groups experience a
grade of service, availability and quality which is comparable to that
achieved on interoffice trunks within BA's network and in accord with
all appropriate relevant industry-accepted quality, reliability and
availability standards;
(c) the respective duties and responsibilities of the Parties with respect
to the administration and maintenance of the trunk groups, including
but not limited to standards and procedures for notification and
discoveries of trunk disconnects,
(d) disaster recovery provision escalations; and
(e) such other makers as the Parties may agree.
The initial mutual interconnection is not dependent upon completion of the
Grooming Plan.
8.2 Installation, Maintenance, Testing and Repair. BA's standard
intervals as defined in BA's New York Tariff P.S.C. No. 914 will be utilized
in connection with the establishment of all interconnection bunking arrangements
between the Parties. FOCAL shall meet the same intervals for comparable
installations, maintenance, joint testing, and repair of its facilities and
services associated with or used in conjunction with Interconnection. If either
Park is unable to meet the intervals specified herein, that Party shall notify
the other and will negotiate additional intervals in good faith.
8.3 The Parties will carefully review the Network Reliability Council's
recommendations and, as part of the Joint Grooming Plan, implement such
recommendations where technically and economically feasible pursuant to the
NYPSC Order in Case 96-C-0917, released December 2, 1996.
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9.0 UNBUNDLED ACCESS -- SECTION 251(c)(3)
9.1 Local Link Transmission Types
Subject to Section 9.5, BA shall allow FOCAL to access the following Link
types (in addition to those Links available under applicable tariffs) unbundled
from local switching and local transport in accordance with the terms and
conditions set forth in this Section 9.
9.1.1 "2-Wire Analog Voice Grade Links" or "Analog 2W" which support
analog transmission of 300-3000 Hz, repeat link start, link 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).
Analog 2W include Links sufficient for the provision of PBX trunks, pay
telephone lines and electronic key system lines.
9.1.2 "4-Wire Analog Voice Grade Links" or "Analog 4W" which support
transmission of voice grade signals using separate transmit and receive paths
and terminate in a 4-wire electrical interface.
9.1.3 "2-Wire ISDN Digital Grade Links" or "BRI ISDN" (Premium Link)
which support digital transmission of two 64 Kbps bearer channels and one 16
Kbps data channel. BRI ISDN is a 2B+D Basic Rate Interface-Integrated Services
Digital Network (BRI-ISDN) Link which will meet national ISDN standards and
conform to ANSI T1.601-1992 & T1E1.4 90-004R3.
9.1.4 DS-1 Digital Grade Link provides a channel which provides 1.544
Mbps digital transmission path between a Customer premises and a BA central
office, and is capable of operating in a full duplex, time division (digital)
multiplexing mode. A DS-1 Digital Grade Link provides transmission capacity
equivalent to 24 voice grade channels with associated signaling, twenty-four 56
Kbps digital channels when in band signaling is provided or twenty-four 64 Kbps
channels with the selection of the Clear Channel signaling option.
9.1.1 Extended Link service is a channel which enables FOCAL when its
is physically collocated in a given BA central office to access unbundled links
served from another BA central office.. Extended Link service is a designed
service (similar to special access and private line services) which requires
detailed engineering to assure that the service provided conforms to specific
transmission performance standards unique to the specific service, e.g., voice
grade DS0, DS1 and DS3.
9.1.6 Links will be offered on the terms and conditions specified
herein and on such other terms in applicable tariffs that are not inconsistent
with the terms and conditions set forth herein. BA shall make Links available
to FOCAL at the rates specified in the Pricing Schedule, as amended from time to
time, or as subsequently determined by the PSC.
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9.2 ADSL and HDSL
9.2.1 The Parties acknowledge that ADSL is not currently deployed for
use in the BA network. If the issues surrounding deployment of ADSL in BA's
network are satisfactorily resolved and ADSL is deployed, BA shall allow FOCAL
to access ADSL links unbundled from local switching and local transport in
accordance with the terms and conditions set forth in this Section 9.
9.2.2 "2-Wire ADSL-Compatible Link" 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-
1995-007R2. An ADSL-2W terminates in a 2-wire electrical interface at the
Customer premises and at the BA Central Office frame. ADSL technology can only
be deployed over Links which extend less than 18 Kft. from BA's Central
Office.. ADSL compatible Links are only available where existing copper
facilities can meet the ANSI T1.413-1995-007R2 specifications.
9.2.3 "2-Wire HDSL-Compatible Link" 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 / T1E1.4/92-002R3. HDSL compatible Links
are available only where existing copper facilities can meet the T1E1 Technical
Report Number 28 specifications.
9.2.4 "4-Wire HDSL-Compatible Link" 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. HDSL compatible Links are available only
where existing copper facilities can meet the specifications.
9.2.5 HDSL and ADSL compatible links will be offered on the terms and
conditions specified herein and on such other terms in applicable tariffs that
are not inconsistent with the terms and conditions set forth herein. BA shall
make Links available to FOCAL at the rates specified by the Commission, as
amended from time to time, subject to the provisions of Section 9.9.
9.3 Port Types
BA shall make available to FOCAL unbundled Ports in accordance with the
terms and conditions of and at the rates specified in applicable tariffs.
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9.4 Private Lines, Special Access and Switched Transport
BA shall provide unbundled private lines, special access and switched
transport local transport from the trunk side of its switches in accordance with
the terms and conditions of and at the rates specified in applicable tariffs.
9.5 Limitations on Unbundled Access
9.5.1 Unless otherwise allowed by the FCC or PSC, FOCAL may not cross
connect a BA-provided Link to a BA- provided Port but instead shall purchase a
network access line under applicable tariffs.
9.5.2 BA shall only be required to provide Links and Ports where such
Links and Ports are available.
9.5.3 FOCAL shall access BA's unbundled Network Elements specifically
identified in this Agreement via Collocation in accordance with Section 12 at
the BA Wire Center where those elements exist and each Link or Port shall be
delivered to FOCAL's Collocation node by means of a Cross Connection or
strapping which in the case of Links, is included in the rates set forth in the
Pricing Schedule or via such other alternative arrangement(s) as the Parties may
mutually agree, or FCC rules, the Act or PSC rules may otherwise require.
9.5.4 BA shall provide FOCAL access to its unbundled Links at each of
BA's Wire Centers. In addition, if FOCAL requests one or more Links serviced by
Integrated Digital Link Carrier or Remote Switching technology deployed as a
Link concentrator, BA shall, where available, move the requested Link(s) to a
spare, existing physical Link at no charge to FOCAL. If, however, no spare
physical Link is available, BA shall within three (3) Business days of FOCAL's
request notify FOCAL of the lack of available facilities. FOCAL may then at its
discretion make a Network Element Bona Fide Request to BA to provide the
unbundled Link through the demultiplexing of the integrated digitized Link(s).
FOCAL may also make a Network Element Bona Fide Request for access to unbundled
Links at the Link concentration site point. Notwithstanding anything to the
contrary in this Agreement, the provisioning intervals set forth in Section 9.7
and the Performance Interval Dates and Performance Criteria set forth in Section
27.0 shall not apply to unbundled Links provided under this Section 9.5.4.
9.5.5 If FOCAL orders a Link type and the distance requested on such
Link -exceeds the transmission characteristics as referenced in the
corresponding Technical Reference specified below, distance extensions may be
required and additional rates and charges shall apply as set forth on the
Pricing Schedule. Parties agree that full technical solutions may not be
available for HDSL and ADSL for these arrangements at the signing of this
agreement, but will make a good faith effort to implement such solutions.
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<TABLE>
<CAPTION>
Link Type Technical Reference/Limitation
<S> <C>
Electronic Key Line 2.5 miles
ISDN Bellcore TA-NWT-000393
HDSL 2W T1 E 1 Technical Report Number 28
HDSL 4W T1 E 1 Technical Report Number 28
ADSL 2W ANSI T1.413-1995 Specification
</TABLE>
9.6 Availability of Other Network Elements on an Unbundled Basis
9.6.1 BA shall, upon request of FOCAL, at any technically feasible
point provide to FOCAL access to its Network Elements on an unbundled basis for
the provision of FOCAL's Telecommunications Service. Any request by FOCAL for
access to an BA Network Element that is not already available shall be treated
as a Network Element Bona Fide Request. FOCAL shall provide BA access to its
Network Elements as mutually agreed by the Parties or as required by the Act,
Commission or FCC.
9.6.2 A Network Element obtained by one Party from the other Party
under this Section 9.6 may be used in combination with the facilities of the
requesting Party only to provide a Telecommunications Service, including
obtaining billing and collection, transmission, and routing of the
Telecommunications Service.
9.6.3 Notwithstanding anything to the contrary in this Section 9.6, a
Party shall not be required to provide a proprietary Network Element to the
other Party under this Section 9.6 except as required by the Act, Commission or
FCC.
9.7 Provisioning of Unbundled Links
The following coordination procedures shall apply for new unbundled Links
and the conversions of "live" Telephone Exchange Services to unbundled Links
(herein after referred to as "hot cuts"):
9.7.1 FOCAL shall request unbundled Links from BA by delivering to BA
a valid electronic transmittal Service Order using the BA electronic ordering
platform (as cooperatively designed and implemented to meet the minimum
requirements for information exchange needed to order and provision services to
certified local exchange carriers and enhanced to support industry standards as
developed for interconnection services) or another mutually agreed upon system.
Within two (2) business days of BA's receipt of a Service Order, BA shall
provide FOCAL the firm order commitment ("FOC") date according to the applicable
Performance Interval Dates set forth in Schedule 27.0 by which the Link(s)
covered by such Service Order will be installed.
9.7.2 BA agrees to accept from FOCAL at the time the service request
is submitted for scheduled conversion of hot cut unbundled link orders, a
desired date and time (the
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"Scheduled Conversion Time") in the "A.M." (12:01A.M. to 12:00 noon) or "P.M."
(12:01 P.M. to 12:00 midnight) (as applicable, the "Conversion Window") for the
hot cut.
9.7.3 BA shall test for FOCAL dial tone at the POT bay by testing
through the tie cable provisioned between the BA main distributing frame and the
FOCAL expanded interconnection node forty-eight (48) hours prior to the
Scheduled Conversion Time.
9.7.4 Not less than one 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 Conversion Window, no charges shall be assessed on or waived
by either Party. If, however, the New Conversion Time is outside of the
Conversion Window, the Party requesting such New Conversion Time shall be
subject to the following:
If BA requests the New Conversion Time, the applicable Line Connection
Charge shall be waived; and
If FOCAL requests the New Conversion Time, FOCAL shall be assessed a
Line Connection Charge in addition to the Line Connection Charge that
will be incurred for the New Conversion Time.
9.7.5 Except as otherwise agreed by the Parties for a specific
conversion, the Parties agree that the time interval expected from disconnection
of BA's "live" Telephone Exchange Service to the connection of an unbundled
Network Element at the FOCAL Collocation node's POT bay will be accomplished
within a window of time of sixty (60) minutes or less. If a conversion interval
exceeds sixty (60) minutes and such delay is caused solely by BA (and not by a
contributing Delaying Event (as defined in Section 26.4)), BA shall waive the
applicable tariffed Line Connection Charge for such element. If FOCAL has
ordered INP with the installation of a Link, BA will coordinate the
implementation of INP with the Link conversion during with the above stated
intervals at no additional charge.
9.7.6 If FOCAL requests or approves a BA technician to perform
services in excess of or not otherwise contemplated by the Line Connection
Service charge BA may charge FOCAL for any additional and reasonable labor
charges to perform such services.
9.7.7 If as the result of end user actions, (e.g. Customer not ready
CAR), BA cannot complete requested work activity when technician has been
dispatched to the site FOCAL will be assessed a non-recurring charge associated
with this visit. This charge will be the sum of the Service Order Charge and
Premises Visit Charge as specified in the NYPSC Tariffs Nos. 900/914.
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9.8 Maintenance of Unbundled Network Elements
If (i) FOCAL reports to BA a Customer trouble, (ii) FOCAL requests a
dispatch, (iii) BA dispatches a technician, and (iv) such trouble was not caused
by BA's facilities or equipment in whole or in part, then FOCAL shall pay BA a
trip charge of $60.00 and $29.15 per quarter hour for time associated with said
dispatch beyond the first 1/2 hour. In addition this charge also applies when
the end user contact as designated by FOCAL is not available at the appointed
time. FOCAL accepts responsibility for initial trouble isolation and providing
BA with appropriate dispatch information based on their test results. If as the
result of FOCAL instructions, BA is erroneously requested to dispatch within a
BA Central Office or to a POT Bay ("dispatch in"), a charge of $100.00 per
occurrence will be assessed to FOCAL by BA. BA agrees to respond to FOCAL
trouble reports on a non-discriminatory basis consistent with the manner in
which it provides service to its own retail customers or to any other similarly
initiated Telecommunications Carrier.
9.9 Acknowledgments Related to Unbundled Network Elements
9.9.1 FOCAL acknowledges that BA's provision of unbundled links
provides it with local loop transmission from the central office to the
customer's premises, unbundled from local switching or other services
9.9.2 FOCAL acknowledges that BA's provision of unbundled switched
transport provides it with local transport from the trunk side of a wireline
local exchange carrier switch unbundled from switching or other services.
9.9.3 FOCAL acknowledges that BA's provision of unbundled line-side
ports and unbundled trunk-side ports provides them local switching unbundled
from transport, local loop transmission and other services.
9.9.4 FOCAL acknowledges that the Network Element Bona Fide Request
Process established pursuant to this Agreement satisfies the requirements of the
Act to provide unbundled network elements.
10.0 RESALE--SECTIONS 251(c)(4) and 251(b)(1)
10.1 Availability of Wholesale Rates for Resale
BA shall offer to FOCAL for resale at wholesale rates its local exchange
telecommunications services, as described in Section 251 (c)(4) of the Act,
pursuant to the rates, terms and conditions of BA's NYPSC No. 915 tariff, as
may be amended from time to time.
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10.2 Availability of Retail Rates for Resale
Each Party shall make available its Telecommunications Services for resale
at retail rates to the other Party in accordance with Section 251(b)(1) of the
Act in accordance with each Party's applicable approved tariffs.
10.3 Term and Volume Discounts
Upon request, BA agrees to offer term and volume discount for resold
initial services.
11.0 NOTICE OF CHANGES -- SECTION 251(c)(5)
If a Party makes a change in its network which it believes will materially
affect the inter-operability of its network with the other Party, the Party
making the change shall provide at least ninety (90) days advance written notice
of such change to the other Party. In addition, the Parties will comply with
the Network Disclosure rules adopted by the FCC in CC Docket No. 86-79 as may
be amended from time to time.
12.0 COLLOCATION -- SECTION 251(c)(6)
12.1 BA shall provide to FOCAL Physical Collocation for its transport
facilities and equipment pursuant to the terms and conditions of BA's applicable
tariffs on file with the appropriate regulatory agency and License Agreements as
necessary for Interconnection (pursuant to Section 4.0) or for access to
unbundled Network Elements (pursuant to Section 9.0). BA may provide for
Virtual Collocation if BA demonstrates to the Commission that Physical
Collocation is not practical for technical reasons or because of space
limitations, as provided in Section 25 l(c)(6) of the Act. Upon request by
FOCAL and to the extent technically feasible and as space permits, BA shall
provide Collocation at additional locations for placement of such equipment and
alternative physical Collocation arrangements.
12.2 Although not required to do so by Section 251(c)(6) of the Act, by
this Agreement, FOCAL agrees to provide to BA upon BA's Network Element Bona
Fide Request, Collocation of equipment for purposes of Interconnection (pursuant
to Section 4.0) on a non-discriminatory basis and at comparable rates, terms and
conditions as FOCAL may provide to other common carriers. FOCAL shall provide
such Collocation subject to applicable tariffs or contracts.
12.3 The Collocating Party shall provide its own or third-Party leased
transport facilities and terminate those transport facilities in equipment
located in its Physical Collocation space at the Housing Party's premises as
described in applicable tariffs or contracts and purchase Cross Connection to
services or facilities as described in applicable tariffs or contracts.
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13.0 NUMBER PORTABILITY--SECTION 251(b)(2)
13.1 Scope
13.1.1 The Parties shall provide Number Portability on a reciprocal
basis to each other to the extent-technically feasible, and in accordance with
rules and regulations as from time to time prescribed by the FCC and/or the
Commission.
13.1.2 Until Number Portability is implemented by the industry
pursuant to regulations issued by the FCC or the Commission, the Parties agree
to provide Interim Telecommunications Number Portability ("INP") to each other
through remote call forwarding, route indexing, and full Now code migration at
the prices listed in the Pricing Schedule.
13.1.3 Once Number Portability is implemented pursuant to FCC or
Commission regulation, either Party may withdraw, at any time and at its sole
discretion, its INP offerings, subject to advance notice to the other Party and
coordination to allow the seamless and transparent conversion of INP Customer
numbers to Number Portability. Upon implementation of Number Portability
pursuant to FCC regulation, both Parties agree to conform and provide such
Number Portability.
13.2 Procedures for Providing INP Through Remote Call Forwarding
FOCAL and BA will provide INP through Remote Call Forwarding as follows:
13.2.1 A Customer of one Party ("Party A") elects to become a
Customer of the other Party ("Party B"). The Customer elects to utilize the
original telephone number(s) corresponding to the Exchange Service(s) it
previously received from Party A, in conjunction with the Exchange Service(s) it
will now receive from Party B. Upon receipt of confirmation of a signed letter
of agency ("LOA") from the Customer (and an associated service order) assigning
the number to Party B. Party A will implement an arrangement whereby all calls
to the original telephone number(s) will be forwarded to a new telephone
number(s) designated by Party B. It is Party B's responsibility to maintain a
file of all LOAs and Party A may request, upon reasonable notice, a copy of the
LOA. Party A will route the forwarded traffic to Party B over the appropriate
Telephone Exchange Service Trunks as if the call had originated on Party A's
network.
13.2.2 Party B will become the customer of record for the original
Party A telephone numbers subject to the INP arrangements. Party A shall use
its reasonable efforts to consolidate into as few billing statements as possible
for all collect, calling card, and 3rd-number billed calls associated with those
numbers, with sub-account detail by retained number. At Party B's sole
discretion, such billing statement shall be delivered to Party B in an agreed-
upon format via either electronic file transfer, daily magnetic tape, or monthly
magnetic tape.
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13.2.3 Party A will update its Line Information Database ("LIDB")
listings for retained numbers, and restrict or cancel calling cards associated
with those forwarded numbers as directed by Party B.
13.2.4 Within two (2) business days of receiving notification from
the Customer, Party B shall notify Party A of the Customer's termination of
service with Party B. and shall further notify Party A as to that Customer's
instructions regarding its telephone number(s). Party --A will reinstate
service to that Customer, cancel the INP arrangements for that Customer's
telephone number(s), or redirect the INP arrangement to another INP-
participating-LEC pursuant to the Customer's instructions at that time.
13.3 Procedures for Providing INP Through Route Indexing
Upon mutual agreement, BA will deploy a Route Index arrangement which
combines direct trunks, provisioned between BA's and FOCAL's end offices, with
trunk side routing translations and full functionality for those CLASS services
deployed in the specific BA switch. Under this arrangement, inbound calls to a
ported number will be pointed at a route index that sends the call to a
dedicated trunk group, built as a direct final, for the sole purpose of
facilitating completion of calls to a ported number. BA will coordinate with
FOCAL to provide this solution in a mutually agreeable and administratively
manageable manner (e.g. NXX level) so as to minimize switch resource
utilization for both Parties.
13.4 Procedures for Providing INP Through Full NXX Code Migration
Where either 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 Now 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 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
appropriate industry lead-times for movements of News from one switch to
another.
13.5 Other Interim Number Portability Options
FOCAL may also request Direct Inward Dial Trunks pursuant to applicable
tariffs. If information or interim number portability is made available to any
Party for information services tariff(e.g., 976), it will be made available to
FOCAL.
13.6 Receipt of Terminating Compensation on Traffic to INP'ed Numbers
The Parties agree that the prices set forth in the Pricing Schedule shall
apply for each number ported.
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The Parties agree that under INP terminating compensation on calls to
INP'ed numbers should be received by each Customer's chosen LEC 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 13.6 whereby terminating
compensation on calls subject to INP will be passed from the Party (the
"Performing Party") which performs the INP to the other Party (the "Receiving
Party") for whose Customer the INP is provided.
13.6.1 The Parties shall individually and collectively track and
quantify INP traffic between their networks based on the CPN of each call by
identifying CPNs which are INP'ed numbers. The Receiving Party shall charge the
Performing Party for each minute of INP traffic at the INP Traffic Rate
specified in Section 13.6.3 in lieu of any other compensation charges for
terminating such traffic.
13.6.2 By the Interconnection Activation Date in each LATA, the
Parties shall jointly estimate for the prospective year, based on historic data
of all traffic in the LATA, the percentages of such traffic that if dialed to
telephone numbers bearing NPA-NXXs directly assigned to a Receiving Party (as
opposed to the INP'ed number) would have been subject to (i) Reciprocal
Compensation ("Reciprocal Traffic"), (ii) appropriate intrastate FGD charges
("Intra Traffic"), (iii) interstate FGD charges ("Inter Traffic"), or (iv)
handling as Local Traffic under transiting arrangements between the Parties
("Transit Traffic"). On the date which is six (6) months after the
Interconnection Activation Date, and thereafter on each succeeding six month
anniversary of such Interconnection Activation Date, the Parties shall establish
new INP traffic percentages to be applied in the prospective six (6) month
period, based on actual INP traffic percentages from the preceding six (6) month
period.
13.6.3 The INP Traffic Rate shall be equal to the sum of:
(Local Traffic Reciprocal Traffic percentage times the Reciprocal
Compensation Rate set forth in the Pricing Schedule) plus (IntraLATA Toll
Reciprocal Traffic percentage times the Reciprocal Compensation rate set forth
in the Pricing Schedule) plus (Intra LATA Traffic percentage times BA's
effective intrastate FGD rates) plus (Inter LATA Traffic percentage times BA's
effective interstate FGD rates).
A rate of zero shall be applied to the Transit Traffic percentage.
13.7 True-Up of Monthly INP Costs
BA and FOCAL each agree to provide the other with a true-up of the monthly
INP rates contained in the Pricing Schedule based on PSC action in establishing
a competitively neutral cost recovery mechanism for INP costs. Provided,
however, that if the PSC does not act before January 1, 1998, the Parties shall
renegotiate the charges for INP to apply for the remainder of term of this
Agreement.
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14.0 NUMBER RESOURCES ASSIGNMENTS
BA shall assign to FOCAL Now codes in accordance with national guidelines
at no charge.
15.0 DIALING PARITY--SECTION 251(b)(3)
BA shall provide Local Dialing Parity as required under Section 25 l(b)(3)
of the Act in the following manner: Telephone numbers are provided pursuant to
Section 14.0; Directory Assistance is provided pursuant to Section 19.2;
Directory Listings are provided pursuant to Section 19.1; and Operator Services
are provided to Sections 19.2.4 and 19.2.6.
16.0 ACCESS TO RIGHTS-OF-WAY--SECTION 251(b)(4)
Each Party shall provide the other Party access to its poles, ducts,
rights-of-way and conduits it owns or controls, to the extent permitted by law
and as required by Section 224 of the Act or Commission Order, on terms,
conditions and prices comparable to those offered to any other entity pursuant
to each Party's applicable tariffs and/or standard agreements with such
entities.
17.0 DATABASES AND SIGNALING
BA shall provide FOCAL with interfaces to access BA's databases, including
LIDB and 800/888, as well as DCAS for ordering and provisioning purposes, and
associated signaling necessary for the routing and completion of FOCAL's traffic
through the provision of SS7 under its applicable tariffs.
18.0 REFERRAL ANNOUNCEMENT
When a Customer changes its service provider from BA to FOCAL, or from
FOCAL to BA, 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 either the other Party or the Customer,
for a period of not less than one hundred and eighty days (180) days after the
date the Customer changes its telephone number in the case of business Customers
and not less than ninety (90) days after the date the Customer changes its
telephone number in the case of residential Customers or other time periods as
may be required by the Commission. The periods for referral announcement may be
shorter if a number shortage conditions is in effect for a particular NXX code.
However, if either Party provides Referral Announcements for a period different
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.
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19.0 DIRECTORY SERVICES ARRANGEMENTS
BA will provide certain directory services to FOCAL as defined herein. In
this Section 19 of this Agreement, references to FOCAL customer telephone
numbers means telephone numbers falling within NXX codes directly assigned to
FOCAL and to numbers which are retained by FOCAL on the customer's behalf
pursuant to Interim Telephone Number Portability arrangements described in
Section 13 of this Agreement.
19.1 Directory Listings and Directory Distributions
19.1.1 BA will include FOCAL's customers telephone numbers in all of
its "White Pages" and "Yellow Pages" directory listings (including electronic
directories) and directory assistance databases associated with the areas in
which FOCAL provides services to such customers, and will distribute such
directories to such customers, in an identical and transparent manner in which
it provides those functions for its own customers' telephone numbers.
19.1.2 BA will include all FOCAL NXX codes on appropriate existing
calling charts in the BA customer Guide section of the directory in the same
manner as it provides this conformation for its own NXX Codes.
19.1.3 FOCAL will provide BA with its directory listings and daily
updates to those listings (including new, changed, and deleted listings) in a
mutually agreed upon format at no charge.
19.1.4 BA will accord FOCAL's directory listing information the same
level of confidentiality which BA accords its own directory listing information.
19.1.5 BA shall provide FOCAL at no charge with (i) one basic single
line white and yellow page directory listing per business Customer number, or
one basic single line white page directory listing per residence Customer
number, (ii) directory distribution for FOCAL customers, and (iii) listings of
FOCAL customers in the directory assistance database.
19.1.6 BA will provide FOCAL with a report of all FOCAL customer
listings 90 days prior to directory publication in such form and format as may
be mutually agreed to by both parties. Both Parties shall use their best
efforts to ensure the accurate listing of such information.
19.1.7 Yellow Page Maintenance
BA will work cooperatively with FOCAL so that Yellow Page advertisements
purchased by customers who switch their service to FOCAL (including customers
utilizing Interim Telephone Number Portability) are maintained without
interruption. BA will allow FOCAL customers to purchase new yellow pages
advertisements without discrimination, under the identical rates, terms and
conditions that apply to BA's customers.
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19.1.8 Information Pages
BA will include in the "Information Pages" or comparable section of its White
Pages Directories for areas served by FOCAL, listings provided by FOCAL for
FOCAL's installation, repair and customer service and other service-oriented
information, including appropriate identifying logo. Such listings shall appear
in the manner that such information appears for subscribers of BA and other
LECs. BA shall not charge FOCAL for inclusion of this information.
19.2 Directory Assistance (DA) and Operator Services
19.2.1 BA will provide FOCAL's operators an on-line access to BA
directory assistance database, when and where such access becomes available to
organizations outside BA.
19.2.2 At FOCAL's option, BA will provide FOCAL with IntraLATA FOCAL
branded Directory Assistance and Directory Assistance Call Completion (DACC),
which are functionary equivalent in every way to the Directory Assistance
service BA makes available to its own end users, at the prices set forth in the
Pricing Schedule. At FOCAL's request, BA will provide call detail records in
EMR format for these services at the prices set forth in the Pricing Schedule.
19.2.3 When BA provides to FOCAL DA or Operator Services, BA requires
that such services will be provided to FOCAL over dedicated operator services
trunk groups, utilizing Feature Group-C Modified Operator Services Signaling
when interconnecting to the BA operator services network.
19.2.4 FOCAL (or its operator service provider) and BA will provide
LEC to LEC Busy Line Verification and Interrupt (BLV/I) trunks to one another,
in conjunction with POTS traffic, to enable each Party to support this
functionality. (This option is provisioned subject to technical limitations,
such as those that apply on ported numbers).
19.2.5 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. 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, and a charge shall apply whether or not the
called Party releases the line.
19.2.6 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 for the Customer
initiating the BLVI request. The operator bureau will make only one BLVI
attempt per Customer operator bureau call and the applicable charge applies
whether or not the called Party releases the line.
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19.2.7 Each Party's operator bureau shall accept BLV and BLVI
inquires from the operator bureau of the other Party in order to allow
transparent provision of BLV/BLVI Traffic between the Parties' networks.
19.2.8 Each Party shall route BLV/BLVI Traffic inquires over the
existing network established between the Parties' respective operator bureaus.
Each Party shall compensate the other Party for BLV/BLVI Traffic as set forth in
the Pricing Schedule.
19.2.9 BA will provide operator services call completion to FOCAL's
operators and Customers, for the termination of calls from FOCAL's subscribers
for completion of calls on BA's network to BA's Customers. BA will provide
operator services call completion for its Customer to enable the non-
discriminatory termination of calls from BA's Customers to FOCAL's Customers on
FOCAL's network.
20.0 GENERAL RESPONSIBILITIES OF THE PARTIES
20.1 Each of BA and FOCAL shall use its best efforts to comply with the
Implementation Schedule.
20.2 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. FOCAL, for the
purpose of ubiquitous connectivity, network diversity and alternate routing,
shall connect to at least one Tandem Office Switch for the receipt/completion of
traffic to any BA End Of flee Switches.
20.3 Thirty (30) days after the Effective Date and each quarter during the
term of this Agreement, each Party shall provide the other Party with a rolling,
six (6) calendar month, non binding forecast of its traffic and volume
requirements for the services and Network Elements provided under this Agreement
in the form and in such detail as agreed by the Parties. Notwithstanding
Section 29.6.1, the Parties agree that each forecast provided under this Section
20.3 shall be deemed "Proprietary Information" under Section 29.6.
20.4 Any Party that is required pursuant to this Agreement to provide a
forecast (the "Forecast Provider") or the Party that is entitled pursuant to
this Agreement to receive a forecast (the "Forecast Recipient") with respect to
traffic and volume requirements for the services and Network Elements provided
under this Agreement may request in addition to non-binding forecasts required
by Section 20.3 that the other Party enters into negotiations to establish a
forecast (a "Binding Forecast") that commits such Forecast Provider to purchase,
and such Forecast Recipient to provide, a specified volume to be utilized as set
forth in such Binding Forecast. The Forecast Provider and Forecast Recipient
shall negotiate the terms of such Binding Forecast in good faith and shall
include in such Binding Forecast provisions regarding price, quantity, liability
for failure to perform under a Binding Forecast and any other terms desired by
such Forecast Provider and Forecast Recipient. Notwithstanding Section 29.6.1,
the
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Parties agree that each forecast provided under this Section 20.4 shall be
deemed "Proprietary Information" under Section 29.6.
20.5 Each Party is individually responsible to provide facilities within
its network which are necessary for routing, transporting, and billing traffic
from the other Party's network and for delivering such traffic to the other
Party's network in the standard format compatible with BA's network and to
terminate the traffic it receives in that standard format to Me proper address
on its network. See BOC Notes on the Network (SR-TSV-002275) for a general
description of the design of local exchange carrier network. Such facility
shall be designed based upon the description and forecasts provided under
Sections 20.2 and 20.3 above. 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.
20.6 Neither Party shall use any service related to or using any of the
Services provided -in this Agreement in any manner that interferes with other
persons in the use of their service, prevents other persons from using their
service, or otherwise impairs the quality of service to other carriers or to
either Party's Customers, and either Party may discontinue or refuse service if
the other Party violates this provision. Upon such violation, either Party
shall provide the other Party notice, if practicable, at the earliest
practicable time.
20.7 Each Party is solely responsible for the services it provides to its
Customers and to other Telecommunications Carriers.
20.8 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.
20.9 Each Party is responsible for administering NXX codes assigned to it.
20.10 Each Party is responsible for obtaining Local Exchange Routing Guide
("LERG") listings of CLLI codes assigned to its switches.
20.11 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.
20.12 Each Party shall program and update its own Central Office Switches
and End Office 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.
20.13 At all times during the term of this Agreement, each Party shall
keep and maintain in force at each Party's expense all insurance required by law
(e.g. workers' compensation insurance) as well as general liability insurance
for personal injury or death to any one person, property damage resulting from
any one incident, automobile liability with coverage for bodily
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injury for property damage. 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).
20.14 End User Repair Calls. The Parties will employ the following
procedures for handling misdirected repair calls:
20.14.1 In answering repair calls, neither Party shall make
disparaging remarks about each other, nor shall they use these repair calls as
the basis for internal referrals or to solicit customers to market services.
Either Party will respond with factual information in answering customer
questions.
20.14.2 Each Party will notify its customers as to the correct
telephone numbers to call in order to access its repair bureaus.
20.14.3 To the extent possible, where the correct local exchange
carrier can be determined, misdirected repair calls to one Party will be
immediately referred to the other Party, as appropriate, in a courteous manner,
at no charge provided that the other Party has provided the appropriate
telephone number to the referring Party.
20.14.4 The Parties will provide their respective repair contact
numbers to one another on a reciprocal basis.
21.0 TERM AND TERMINATION
21.1 The initial term of this Agreement shall commence on the Effective
Date and terminate June 2, 2000 (the "Term"). Absent the receipt by one Party
of written notice from the other Party at least sixty (60) days prior to the
expiration of the Term to the effect that such Party intends to extend the Term
of this Agreement, this Agreement shall automatically renew and remain in full
force and effect on and after the expiration of the Term until terminated by
either Party as set forth below.
21.1.1 If pursuant to Section 21.1 the Agreement continues in full
force and effect after the expiration of the Term, either Party may terminate
the Agreement ninety (90) days after delivering written notice to the other
Party of the intention to terminate this Agreement. Neither Party shall have
any liability to the other Party for termination of this Agreement pursuant to
this Section 21.1 other than to pay to the other Party any amounts under this
Agreement.
21.2 Disputed amounts will be resolved pursuant to the NYPSC Tariff No.
914.
21.3 Upon termination or expiration of this Agreement in accordance with
this Section 21.0:
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(a) each Party shall comply immediately with its obligations set forth
in Section 29.6.3;
(b) each Party shall promptly pay all amounts (including any late
payment charges) owed under this Agreement;
(c) each Party's indemnification obligations shall survive termination
or expiration of this Agreement.
(d) each Party shall continue to perform its obligations and provide
its services described herein until such time as a survivor Agreement
between the Parties is entered into; provided however, that if the Parties
are unable to reach agreement within six (6) months after the termination
or expiration of this Agreement, either Party has the right to submit this
matter to the Commission for resolution. Until a survivor agreement is
reached or the Commission resolves this matter, whichever is sooner, the
terms, conditions, rates and charges stated herein will continue to apply,
subject to a true-up based on the Commission action, if any.
21.4 Except as set forth in Section 27.5 and Section 26.4, 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.
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES,
FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT AND
THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
A PARTICULAR PURPOSE.
23.0 CANCELLATION CHARGES
Except as provided in Sections 9.7.4 and 20.4 and pursuant to a Network
Element Bona Fide Request, or as otherwise provided in any applicable tariff or
contract referenced herein, no cancellation charges shall apply.
24.0 NON-SEVERABILITY
24.1 The services, arrangements, Interconnection, Network Elements, terms
and conditions of this Agreement were mutually negotiated by the Parties as a
total arrangement and are intended to be non-severable, subject only to Section
29.14 of this Agreement.
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24.2 Nothing in this Agreement shall be construed as requiring or
permitting either Party to contravene any mandatory requirement of federal or
state law, or any regulations or orders adopted pursuant to such law.
25.0 INDEMNIFICATION
25.1 Each Party (the "Indemnifying Party") shall indemnify and hold
harmless the other Party ("Indemnified Party") from and against loss, cost,
claim liability, damage, and expense (including reasonable attorney's fees) to
third parties for:
(1) damage to tangible personal property or for personal injury
proximately caused by the negligence or willful misconduct of the
Indemnifying Party, its employees, agents or contractors; or
(2) claims for libel, slander, infringement of copyright arising from
the material transmitted over the Indemnified Party's facilities arising
from the Indemnifying Party's own communications or the communications of
such Indemnifying Party's Customers; or
(3) claims for infringement of patents arising from combining the
Indemnified Party's facilities or services with, or the using of the
Indemnified Party's services or facilities in connection with, facilities
of the Indemnifying Party.
Notwithstanding this indemnification provision or any other provision in
the Agreement, neither Party, nor its parent, subsidiaries, employees or agents
shall be liable to the other for "Consequential Damages" as that term is
described in Section 26.3 below.
25.2 The Indemnified Party will notify the Indemnifying Party promptly in
writing of any claims, lawsuits, or demands by third parties for which the
Indemnified Party alleges that the Indemnifying Party is responsible under this
Section, and, if requested by the Indemnifying Party, will tender the defense of
such claim, lawsuit or demand.
(1) In the event the Indemnifying Party does not promptly assume or
diligently pursue the defense of the tendered action, then the Indemnified
Party may proceed to defend or settle said action and the Indemnifying
Party shall hold harmless the Indemnified Party from any loss, cost
liability, damage and expense.
(2) In the event the Party otherwise entitled to indemnification from
the other elects to decline such indemnification, then the Party making
such an election may, at its own expense, assume defense and settlement of
the claim, lawsuit or demand.
(3) The parties will cooperate in every reasonable manner with the
defense or settlement of any claim, demand, or lawsuit.
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25.3 Notwithstanding any other provisions of this Agreement, FOCAL shall
defend and indemnify BA and shall hold BA harmless from and against any and all
Loss alleged to have been incurred by a customer of FOCAL or any other third
Party where such Loss arises or is attributable to BA's performance or failure
to perform a "Specified Activity" as that tenn is defined in Section 27, below.
26.0 LIMITATION OF LIABILITY
26.1 Except as otherwise provided in Section 25.0, no Party shall be liable
to the other Party for any Loss, defect or equipment failure caused by the
conduct of the other Party, the other Party's agents, servants, contractors or
others acting in aid or concert with the other Party, except for gross
negligence or willful misconduct.
26.2 Except for Losses alleged or incurred by a Customer of either Party,
in the case of any Loss arising from the negligence or willful misconduct of
both Parties, each Party shall bear, and its obligations under this Section 26.0
shall be limited to, that portion (as mutually agreed to by the Parties) of the
resulting expense caused by its (including that of its agents, servants,
contractors or others acting in aid or concert with it) negligence or willful
misconduct.
26.3 Each Party's liability to the other Party for any Loss relating to or
arising out of an negligent act or omission in its performance of this
Agreement, whether in contract or in tort, shall be limited t-o the amount that
is or would have been charged to the other Party by such negligent or breaching
Party for the specific service(s) or function(s) not performed or improperly
performed, and only for the period of time such service of function was not
performed or improperly performed.
26.4 In no event shall either Party have any liability whatsoever to the
other Party for any indirect, special, consequential, incidental or punitive
damages, including but not limited to 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.
27.0 LIQUIDATED DAMAGES FOR SPECIFIED ACTIVITIES
27.1 Certain Definitions. When used in this Section 27.0, the following
terms shall have the meanings indicated:
27.1.1 "Specified Performance Breach" means the failure by BA to meet
the Performance Criteria for any of the three Specified Activities as defined
below, for a period of three (3) consecutive calendar months.
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27.1.2 "Specified Activity" means any of the following activities:
(i) the installation by BA of unbundled Links for FOCAL
("Unbundled Link Installation");
(ii) BA's provision of Interim Telecommunications Number
Portability to FOCAL or
(iii) the repair of out of service problems for FOCAL ("Out
of Service Repairs").
27.1.3 "Performance Criteria" means, with respect to each calendar
month during the term of this Agreement, the performance by BA during each month
of each Specified Activity shown in Schedule 27.0, subparagraph 1 and 2, within
the time interval shown in at least eighty percent (80%) of the covered
instances, except as otherwise for in the Schedule in subparagraph 3.
27.2 Specified Performance Breach. In recognition of the (1) loss of
Customer opportunities, revenues and goodwill which FOCAL might sustain in the
event of a Specified Performance Breach; (2) the uncertainty, in the event of
such a Specified Performance Breach, of FOCAL having available to it customer
opportunities similar to those opportunities currently available to FOCAL; and
(3) the difficulty of accurately ascertaining the amount of damages FOCAL would
sustain in the event of such a Specified Performance Breach, BA agrees to pay
FOCAL, subject to Section 27.4 below, damages as set forth in Section 27.3 below
in the event of the occurrence-of a Specified Performance Breach. Such payments
would only apply after a minimum of 250 links were installed for FOCAL in New
York.
27.3 Liquidated Damages. The damages payable by BA to FOCAL as a result of
a Specified Performance Breach shall be subject to a sliding scale set forth in
Schedule 27.3 for each Specified Performance Breach (collectively, the
"Liquidated Damages"). FOCAL and BA agree and acknowledge that (a) the
Liquidated Damages are not a penalty and have been determined based upon the
facts and circumstances of FOCAL and BA at the time of the negotiation and
entering into of this Agreement, with due regard given to the performance
expectations of each Party; (b) the Liquidated Damages constitute a reasonable
approximation of the damages FOCAL would sustain if its damages were readily
ascertainable; and (c) FOCAL shall not be required to provide any proof of the
Liquidated Damages.
27.4 Limitations. In no event shall BA be liable to pay the Liquidated
Damages if BA's failure to meet or exceed any of the Performance Criteria is
caused, directly or indirectly, by a Delaying Event. A "Delaying Event" means
(a) a failure by FOCAL to perform any of its obligations set forth in this
Agreement (including, without limitation, the Implementation Schedule and the
Joint Grooming Plan), (b) any delay, act or failure to act by a Customer, agent
or subcontractor of FOCAL, (c) any Force Majeure Event (d) or such other delay,
act or failure to act as upon which the parties may agree. If a Delaying Event
(i) prevents BA from
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performing a Specified Activity, then such Specified Activity shall be excluded
from the calculation of BA's compliance with the Performance Criteria, or (ii)
only suspends BA's ability to timely perform the Specified Activity, the
applicable time frame in which BA's compliance with the Performance Criteria is
measured shall be extended on an hour-for-hour or day-for-day basis, as
applicable, equal to the duration of the Delaying Event.
27.4.1 FOCAL agrees to meet the specific performance standards
associated with quality of service requests as specified in Schedule 27.4.1 in
the same percentages as set forth in Schedule 27.0. Should FOCAL fail to meet
these service quality standards, during a period corresponding to that measured
in calculation of Liquidated Damages payable by BA to FOCAL, BA will not be
liable for payment of any applicable Liquidated Damages for that time period.
27.5 Sole Remedy. The Liquidated Damages shall be the sole and exclusive
remedy of FOCAL under this Agreement for BA's breach of the Performance Criteria
and a Specified Performance Breach as described in this Section 27.0.
27.6 Records. BA will endeavor to maintain complete and accurate records,
on a monthly basis, of its performance under this Agreement of each
Specified Activity and its compliance with the Performance Criteria.
BA shall provide to FOCAL such records in a self reporting format on a
monthly basis. Notwithstanding Section 29.6.1, the Parties agree that
such records shall be deemed "Proprietary Information" under Section
29.6.
27.7 Start Date. BA and FOCAL shall jointly agree on appropriate
measurements for the enforcement of this Section 27 within thirty (30)
days of this Agreement. Performance monitoring and liquidated damages
shall begin after the in-service requirements are met.
28.0 REGULATORY APPROVAL
The Parties understand and agree that this Agreement will be filed with the
Commission and may thereafter be filed with the FCC. The Parties covenant and
agree that this Agreement is satisfactory to them as an agreement under Section
251 of the Act. Each Party covenants and agrees to fully support approval of
this Agreement by the Commission or the FCC under Section 252 of the Act without
modification. The Parties, however, reserve the right to seek regulatory relief
and otherwise seek redress from each other regarding performance and
implementation of this Agreement. In the event the Commission or FCC rejects
this Agreement in whole or in part, the Parties agree to meet and negotiate in
good faith to arrive at a mutually acceptable modification of the rejected
portion(s); provided that such rejected portion(s) shall not affect the validity
of the Remainder of this Agreement.
This Agreement is subject to change, modification, or cancellation as may
be required by regulatory authority or court in the exercise of its lawful
jurisdiction or as may be required
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by either Party based on any significant change in FCC or Commission rules which
may impact the provision of service under this Agreement or the rights and
obligations of the Parties under the Act.
29.0 MISCELLANEOUS
29.1 Authorization.
29.1.1 New York Telephone Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder.
29.1.2 FOCAL is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. FOCAL represents that it intends to be a provider of telephone
exchange service to residential and business subscribers offered exclusively
over its own telephone exchange service facilities or predominantly over its own
telephone exchange service facilities or in combination with the resale of the
telecommunications services of other carriers.
29.2 Compliance. Each Party shall comply with all applicable federal,
state, and local laws, rules, and regulations applicable to its performance
under this Agreement.
29.3 Compliance with the Communications Law Enforcement Act of 1994
("CALEA"). Each Party represents and warrants that any equipment, facilities or
services provided to the other Party under this Agreement comply with CALEA.
Each Party shall indemnify and hold the other Party harmless from any and all
penalties imposed upon the other Party for such noncompliance and shall at the
non-compliant Party's sole cost and expense, modify or replace any equipment,
facilities or services provided to the other Party under this Agreement to
ensure that such equipment, facilities and services fully comply with CALEA.
29.4 Neither this Agreement, nor any actions taken by BA or FOCAL in
compliance with this Agreement, shall be deemed to create an agency or joint
venture relationship between FOCAL and BA, or any relationship other than that
of purchaser and seller of services.
Neither this Agreement, nor any actions taken by BA or FOCAL in compliance
with this Agreement, shall create a contractual, agency, or any other type of
relationship or third Party liability between BA and FOCAL's end users or
others.
29.5 Force Majeure. Neither Party shall be liable for any delay or failure
in performance of any part of this Agreement from any cause beyond its control
and without its fault or negligence including, without limitation, acts of
nature, acts of civil or military authority, government regulations, embargoes,
epidemics, terrorist acts, riots, insurrections,
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fires, explosions, earthquakes, nuclear accidents, floods, work stoppages,
equipment failure, power blackouts, volcanic action, other major environmental
disturbances, unusually severe weather conditions, inability to secure products
or services of other persons or transportation facilities or acts or omissions
of transportation carriers (collectively, a "Force Majeure Event").
If any force majeure condition occurs, the Party delayed or unable to
perform shall give immediate notice to the other Party and shall take all
reasonable steps to correct the force majeure condition. During the pendency of
the force majeure, the duties of the Parties under this Agreement affected by
the force majeure condition shall be abated and shall resume without liability
thereafter.
29.6 Confidentiality.
29.6.1 Any information such as specifications, drawings, sketches,
business information, forecasts, models, samples, data, computer programs and
other software and documentation of one Party (a "Disclosing Party") that is
furnished or made available or otherwise disclosed to the other Party or any of
its employees, contractors, agents or Affiliates (its "Representatives" and with
a Party, a "Receiving Party") pursuant to this Agreement ("Proprietary
Information") shall be deemed the property of the Disclosing Party. Proprietary
Information, if written, shall be marked "Confidential" or "Proprietary" or by
other similar notice, and, if oral or visual, shall be confirmed in writing as
confidential by the Disclosing Party to the Receiving Party within ten (10) days
after disclosure. Unless Proprietary Information was previously known by the
Receiving Party free of any obligation to keep it confidential, or has been or
is subsequently made public by an act not attributable to the Receiving Party,
or is explicitly agreed in writing not to be regarded as confidential, it (a)
shall be held in confidence by each Receiving Party; (b) shall be disclosed to
only those persons who have a need for it in connection with the provision of
services required to fulfill this Agreement and shall be used only for such
purposes; and (c) may be used for other purposes only upon such terms and
conditions as may be mutually agreed to in advance of use in writing by the
Parties. Notwithstanding the foregoing sentence, a Receiving Party shall be
entitled to disclose or provide Proprietary Information as required by any
governmental authority or applicable law only in accordance with Section 29.6.2.
29.6.2 If any 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. The
Disclosing Party may then either seek appropriate protective relief from all or
part of such requirement or, if it fails to successfully do so, it shall be
deemed to have waived the Receiving Party's compliance with Section 29.6 with
respect to all or part of such requirement. 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 obtain.
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29.6.3 In the event of the expiration or termination of this
Agreement for any reason whatsoever, each Party shall return to the other Party
or destroy all Proprietary Information and other documents, work papers and
other material (including all copies thereof) obtained from the other Party in
connection with this Agreement and shall use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act, omission or fault of such
Party, in any manner making it available to the general public.
29.7 Governing Law. For all claims under this Agreement that are based
upon issues within the jurisdiction (primary or otherwise) of the FCC, the
exclusive jurisdiction and remedy for all such claims shall be as provided for
by the FCC and the Act. For all claims under this Agreement that are based upon
issues within the jurisdiction (primary or otherwise) of the Commission, the
exclusive jurisdiction for all such claims shall be with the Commission, and the
exclusive remedy for such claims shall be as provided for by such Commission.
In all other respects, this Agreement shall be governed by the domestic laws of
the state of New York without reference to conflict of law provisions.
29.8 Taxes. 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 tax exemption,
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.
29.9 Non-Assignment. This Agreement shall be binding upon every subsidiary
and affiliate of either Party that is engaged in providing telephone exchange
and exchange access services in the State of New York within which BA is an
Incumbent Local Exchange Carrier as of the date of this Agreement (the "BA
Territory"), and shall continue to be binding upon all such entities regardless
of any subsequent change in their ownership. Each Party covenants that, if it
sells or otherwise transfers to a third Party its telephone exchange and
exchange access network facilities within the BA Territory, or any portion
thereof, to a third Party, it will require as a condition of such transfer that
the transferee agree to be bound by this Agreement with respect to services
provided over the transferred facilities. Except as provided in the paragraph,
neither Party may assign or transfer (whether by operation of law or otherwise)
this Agreement (or any rights or obligations hereunder) to a third Party without
the prior written consent of the other Party which consent will not be
unreasonably withheld; provided that either Party may assign this Agreement to a
corporate Affiliate or an entity under its common control or an entity acquiring
all or substantially all of its assets or equity by providing prior written
notice to the
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other Party of such assignment or transfer. 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.
29.10 Non-Waiver. 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.
29.11 Disputed Amounts.
29.11.1 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 within thirty (30) days
of its receipt of the invoice containing such disputed amount give notice to the
Billing Party of the amounts it disputes ("Disputed Amounts") and include in
such notice the specific details and reasons for disputing each item. The Non-
Paying Party shall pay when due (i) all undisputed amounts to the Billing Party
and (ii) all Disputed Amounts into an interest bearing escrow account with a
third Party escrow agent mutually agreed upon by the Parties.
29.11.2 If the Parties are unable to resolve the issues related to
the Disputed Amounts in the normal course of business within ninety (90) 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.
29.11.3 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 29.11.2, 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 may direct release of
any or all funds (including any accrued interest) in the escrow account, plus
applicable late fees, to be paid to either Party.
29.11.4 The Parties agree that all negotiations pursuant to this
Section 29.11 shall remain confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
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29.11.5 Any undisputed amounts not paid when due shall accrue
interest from the date such amounts were due 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.
29.12 Notices. Notices given by one Party to the other Party under this
Agreement shall be in writing and 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 to the following addresses of the Parties:
To FOCAL:
FOCAL Communications Corporation
200 North LaSalle Street
Suite 820
Chicago, IL 60601
Attn: Executive VP and Chief Operating Officer
Facsimile: (312) 895-8403
To BA:
BA
1095 Avenue of the Americas
40th Floor
New York NY 10036
Attn:Vice President - Wholesale Markets
Facsimile: (212) 597-2585
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.
29.13 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 promotional materials without such Party's
prior written consent.
29.14 Section 252(i) Obligations. If either Party enters into an
agreement (the "Other Agreement") approved by the Board or FCC pursuant to
Section 252 of the Act which provides for the provision in the State of New York
of arrangements covered in this Agreement to another requesting
Telecommunications Carrier, including itself or its affiliate, such Party shall
make available to the other Party such arrangements upon the same rates, terms
and conditions as those provided in the Other Agreement. At its sole option,
the other Party may avail itself of
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either (i) the Other Agreement in its entirety or (ii) all of the prices, terms
and conditions contained in the Other Agreement that relate to any one or
combination of the following:
(1) Interconnection - Section 251(c)(2) of the Act (Section 4.0 and 5.0 of
this Agreement); or
(2) Exchange Access - Section 251(c)(2) of the Act (Section 6.0 of this
Agreement); or
(3) Unbundled Access - Section 251 (c)(3) of the Act (Section 9.0 of this
Agreement); or
(4) Resale - Section 251 (c)(4) of the Act (Section 10.0 of this
Agreement); or
(5) Collocation - Section 251(c)(6) of the Act (Section 12.0 of this
Agreement); or
(6) Number Portability - Section 251(b)(2) of the Act (Section 13.0 of
this Agreement); or
(7) Access to Rights of Way - Section 251(b)(4) of the Act (Section 16.0
of this Agreement); or
(8) Directory Services - Section 251(b)(3) of the Act (Section 19.0 of the
Agreement).
29.15 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.
29.16 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. Except for provisions herein expressly
authorizing a Party to act for another, nothing in this Agreement shall
constitute a Party as a 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. Except as otherwise expressly provided in this Agreement, 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.
29.17 No License. No license under patents, copyrights or any other
intellectual property right (other than the limited license to use consistent
with the terms, conditions and
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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.
29.18 Technology Upgrades. Nothing in this Agreement shall limit BA's
ability to upgrade its network through the incorporation of new equipment, new
software or otherwise. BA shall provide FOCAL written notice at least one
hundred-twenty (120) days prior to the incorporation of any such upgrades in
BA's network which will materially impact FOCAL's service. BA shall provide as
much as one hundred-eighty (180) days prior notice if it is reasonably practical
to do so. Additionally, as noted in Section 11.0, the Parties will comply with
the FCC's Network Disclosure Rule. FOCAL shall be solely responsible for the
cost and effort of accommodating such changes in its own network.
29.19 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 without limitation, Sections 21.4, 22.0, 23.0, 25.0,26.0,29.3, 29.6,
29.11, 29.13 and 29.17.
29.20 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 for herein.
29.21 Entire Agreement. The terms contained in this Agreement and any
Schedules, Exhibits, tariffs and other documents or instruments referred to
herein, hereby incorporated into this Agreement by this reference as if set
forth fully herein and, 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 preprinted 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.
29.22 Power and Authority. Each Party has full power and authority to
enter into and perform this Agreement, and the person signing this Agreement on
behalf of each has been properly authorized and empowered to enter into this
Agreement.
-50-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of this 10th day of November, 1997.
Focal Communications Corporation New York Telephone Company
of New York
By: /s/ John R. Barnicle By: /s/ Jacob J. Goldberg
---------------------------- --------------------------------------
Printed: John R. Barnicle Printed: Jacob J. Goldberg
----------------------- ---------------------------------
Title: Executive Vice President Title: Vice President - Wholesale Markets
------------------------ ----------------------------------
-51-
<PAGE>
PRICING SCHEDULE
I. Reciprocal Compensation shall equal the rate set forth in the Parties'
applicable tariffs as determined by the weighted average call volume
distribution by time of day. Such rate for the first six months shall be:
Rate = $.008518 per minute
The rate for reciprocal compensation is to be adjusted bi-annually based
upon the rates and formula set forth in this Pricing Schedule. The first
adjustment shall occur on January 1, 1998 and future adjustments every six (6)
months thereafter.
II. Information Services Billing and Collection
Fee = $.05 per message
III. BLV/BLVI Traffic
Rate = $1.00 per Busy Line Verification
$1.50 per Busy Line Verification Interrupt (in addition to $1.00
for Busy Line Verification)
IV. Transit Service
A. Transit Service
Rate = $.005053 per minute
B. Dedicated Transiting Service
Rate is twice the applicable Service Access Charge ("SAC") as set
forth in NYPSC No. 916 Tariff, as amended from time to time. The SAC rates are
currently:
DS0 = $1.90/mo.
DS1 = $3.51/mo.
DS3 = $35.87/mo.
V. Interim Telecommunications Number Portability
A. Monthly Recurring Charges
Rate per Business Number = $2
Rate per Residential Number = $1
-1-
<PAGE>
No additional charges shall apply for interim number portability,
including additional per-path, per-port, or usage-related charges, except for
third Party and collect calls.
B. Non-recurring charge
Rate = $20 per ported number
Non-recurring charges only apply when interim number portability is
ordered separately from an unbundled link.
VI. IntraLata &00
Reciprocal Compensation (refer to I above).
Compensation for records exchanged = $.00415 per record
800 Database inquiry = $.001265 per database inquiry
VII. Unbundled Links
Rates for all unbundled links described in Section 9 will be the rates
specified by the Commission and, as amended from time to time
VIII. Unbundled Ports
A. Monthly rate = $8.00
Monthly rates, for all unbundled Ports described in Section 9 will be the
rates specified - by the PSC, as amended from time to time, subject to the
provisions of Section 9 and Section 29.14.
IX. 911/E911 Interconnection
Monthly Rate = $252 per month for an unequipped DS1 Port and $100 per
month per voice grade trunk activated and equipped on the DS1 port.
X. Wholesale Discounts
a. Month-to-month discounts
Discounts are set forth in the NYPSC Tariff No. 915, as amended from time
to time.
b. Term and Volume Discounts
To be negotiated on receipt of a Bona Fide Request.
-2-
<PAGE>
XI. Directory Assistance
Base Rate Unbranded = $ .45 per message
Branded Rate = $ .50 per message
Base Rate with Directory Assistance
Call Completion (DACC) = $ .55 per message*
Branded Rate with DACC = $ .60 per message*
(*plus a flat rate change per MOU for call completion)
Directory Assistance Volume/Term Discounts
<TABLE>
<CAPTION>
Monthly Billed -------------------Term Commitments-----------------
DA Volume 1 Year 18 Months 2 Years 3 Years
<S> <C> <C> <C> <C>
$0- 1999 5% 10% 14% 18%
$2000 - 5999 7% 12% 16% 20%
$6000 - 9999 10% 15% 19% 23%
Above $10,000 13% 18% 22% 26%
</TABLE>
Discounts apply only for amounts in the applicable range. For example,
under a one year term commitment with a monthly billed DA volume of $2,500, the
first $1,999 would be discounted at five percent (5%) and the remaining $501 at
seven percent (7%). Discount will apply to branded DA and the DA portion of
DACC.
Operator Services - Call Completion Services
0+ / Mechanized Call Completion
Calling Card $.20 per call
Collect $.40 per call
Bill to Third Number $.40 per call
0- / Operator Assisted Call Completion $.0214 per operator work second
Record Charges
EMR format - per record charge $.0102
-3-
<PAGE>
PRICING SCHEDULE
Reciprocal Compensation Calculation
I. Time of Day Definitions - Tariff NYT PSC No. 914 Section 4.1.7 (A) (1)
II. Base Rates - Per Minute of Use as set forth in NYPSC No. 914 Tariff, as
amended from - time to time.
III. Formula for determining Reciprocal Compensation ( % Day Traffic +
% Evening Traffic + % Night Traffic = 100% for each Party)
(FOCAL-originated Day Minutes + BA-originated Day Minutes) * Day Rate
---------------------------------------------------------------------
Total FOCAL + BA Minutes
+
(FOCAL-originated Evening Minutes + BA-originated Evening Minutes) * Evening
----------------------------------------------------------------------------
Rate
----
Total FOCAL + BA Minutes
+
(FOCAL-originated Night Minutes + BA-originated Night Minutes) * Night Rate
---------------------------------------------------------------------------
Total FOCAL + BA Minutes
-4-
<PAGE>
SCHEDULE 1.0
CERTAIN TERMS AS DEFINED IN THE ACT
"Affiliate" means a person that (directly or indirectly) owns or controls,
is owned or controlled by, or is under common ownership or control with, another
person. For purposes of this-paragraph, the term "own" means to own an equity
interest (or the equivalent thereof) of more than ten percent (10%).
"Dialing Parity" means that a person that is not an Affiliate of LEC is
able to provide Telecommunications Services in such a manner that Customers have
the ability to route automatically, without the use of any access code, their
Telecommunications to the Telecommunications Services provider of the Customer's
designation from among two (2) or more Telecommunications Services providers
(including such LEC).
"Exchange Access" means the offering of access to Telephone Exchange
Services or facilities for the purpose of the origination or termination of
Telephone Toll Services.
"InterLATA Service" means Telecommunications between a point located in a
local access and transport area and a point located outside such area.
"Local Access and Transport Area" or "LATA" means a contiguous geographic
area: (a) established before the date of enactment of the Act by a Bell
operating company such that no Exchange Area includes points within more than
one (1) metropolitan statistical area, consolidated metropolitan statistical
area, or State, except as expressly permitted under the AT&T Consent Decree; or
(b) established or modified by a Bell operating company after such date of
enactment and approved by the FCC.
"Local Exchange Carrier" means any person that is engaged in the provision
of Telephone Exchange Service or Exchange Access. Such term does not include a
person insofar as such person is engaged in the provision of a commercial mobile
service under Section 332(c) of the Act, except to the extent that the FCC finds
that such service should be included in the definition of such term.
"Network Element" means a facility or equipment used in the provision of a
Telecommunications Service. Such term also includes features, functions, and
capabilities that are provided by means of such facility or equipment, including
subscriber numbers, databases, signaling systems, and information sufficient for
billing and collection or used in the transmission, routing, or other provision
of a Telecommunications Service.
"Number Portability" means the ability of users of telecommunications
services to retain, at the same location, existing telecommunications numbers
without impairment of quality, reliability, or convenience when switching from
one telecommunications carrier to another.
-5-
<PAGE>
"Telecommunications" means the transmission, between or among points
specified by the user, of information of the user's choosing, without change in
the form or content of the information as sent and received.
"Telecommunications Carrier" means any provider of Telecommunications
Services, except that such term does not include aggregators of
Telecommunications Services (as defined in Section 226 of the Communications
Act).
"Telecommunications Service" means the offering of Telecommunications for a
fee directly to the public, or to such classes of users as to be effectively
available directly to the public, regardless of the facilities used.
"Telephone Exchange Service" means (a) service within a telephone exchange
within a connected system of telephone exchanges within the same exchange area
operated to furnish subscribers intercommunicating service of the- character
ordinarily furnished by a single exchange, and which is covered by the exchange
service charge, or (b) comparable service provided through a system of switches,
transmission equipment, or other facilities (or combination thereof) by which a
subscriber can originate and terminate a telecommunications service.
"Telephone Toll Service" means telephone service between stations in
different exchange areas for which there is made a separate charge not included
in contracts with subscribers for exchange service.
-6-
<PAGE>
Schedule 4.0 Network Interconnection Schedule*
LATA F-IP BA-IP Activation Date**
* Complete, accurate and verifiable information to be provided by the Parties
at a date to be determined by the Parties.
** This is the earliest date on which "live" customer traffic between FOCAL
and BA will occur.
-7-
<PAGE>
SCHEDULE 27.0 BA Performance Criteria for Liquidated Damages/1/
SPECIFIED ACTIVITY PERFORMANCE INTERVAL DATE
1. Unbundled Link Installation
a) New Link Installation:
i) Installation Less-than 10 links 5 business days
ii) Installation Greater-than
or = 10 links
Facilities Confirmation 5 business days
If Available Facilities
Less-than 20 links 10 business days from
Facilities Confirmation
Greater-than or equal 20 links negotiated interval/2/
b) "Hot Cutover" Installation
i) Installation Less-than 10 links 5 business days
ii) Installation Greater-than or = 10 links
negotiated interval/2/
2. Interim Number Portability Installation
i) Installation Less-than 10 numbers 5 business days
ii) Installation Greater-than or equal
10 numbers negotiated interval/2/
/1/ As stated in Section 27.2, liquidated damages are not applicable until
after a minimum of 250 link are in service for FOCAL in New York.
/2/ BA will provide the same negotiated intervals it provides to any carrier,
customer or Party that are similarly situated.
-8-
<PAGE>
3. Out-of-Service Repairs Less than 24 hours from BA's Receipt
of Notification of Out-of Service
Condition (*)(**)
* Subject to the following percentage limitations:
<TABLE>
<CAPTION>
5/1/97 6/1/97 1/1/98 7/1/98
thru thru thru thru
5/31/97 12/31/97 6/30/98 thereafter
-------------------------------------------
<S> <C> <C> <C> <C>
Zone (Manhattan,
south of 59 st.) 75% 75% 80% 80%
Zone (LATA 131,
outside Zone 1) 70% 75% 75% 80%
Zone 3 (Outside
Zones 1 and 2) 70% 70% 70% 75%
</TABLE>
** Excludes Residence customers in single and two-family homes until 6/1/98.
By March 31, 1998, BA and FOCAL will develop service performance criteria
applicable to Residence customers in single and two-family homes based on
experience of the Parties in providing these Residence services to all
CLEC's in New York, which will become effective on 6/1/98. Note: Liquidated
damages do not commence until FOCAL has 250 unbundled Links in service in
New York.
-9-
<PAGE>
Schedule 27.4.1 FOCAL Service Quality Criteria for Liquidated Damages
1 New Unbundled Link (SVGALS) Orders
1.0 ANI to FOCAL number, verification successful from DEMARC by BA field
technician.
1.1 All order information submitted by FOCAL is valid (e.g. street
address, end user LCON, floor/unit number, cable pair assignment)
1.2 Customer (end user) available at appointed date.
1.3 Orders completed as submitted without cancellation after FOC
2 Hot Cut Unbundled Link (SVGALS) Orders
2.0 Verifiable FOCAL dial tone at POT bay testable by BA through
appropriate tie cable pair as provided by FOCAL on the service request.
2.1 Accurate account and end user information submitted on service request
2.3 Accurate SVGAL tie cable and pair assignment provided by FOCAL on
service request
2.4 Orders completed as submitted without cancellation after FOC
-10-
<PAGE>
EXHIBIT A
NETWORK ELEMENT BONA FIDE REQUEST
1. Each Party shall promptly consider and analyze access to a new
unbundled Network Element with the submission of a Network Element Bona Fide
Request hereunder. The Network Element Bona Fide Request process set forth
herein does not apply to those services requested pursuant to Report & Order and
Notice of Proposed Rulemaking 91-141 (ref. Oct. 19, 1992) 259 and n.603 or
subsequent orders.
2. A Network Element Bona Fide Request shall be submitted in writing and
shall include a technical description of each requested Network Element.
3. The requesting Party may cancel a Network Element Bona Fide Request at
any time, but shall pay the other Party's reasonable and demonstrable costs of
processing and/or implementing the Network Element Bona Fide Request up to the
date of cancellation.
4. Within ten (10) business days of its receipt, the receiving Party
shall acknowledge receipt of the Network Element Bona Fide Request.
5. Except under extraordinary circumstances, within thirty (30) days of
its receipt of a Network Element Bona Fide Request, the receiving Party shall
provide to the requesting Party a preliminary analysis of such Network Element
Bona Fide Request. The preliminary analysis shall confirm that the receiving
Party will offer access to the Network Element or will provide a detailed
explanation that access to the Network Element is not technically feasible
and/or that the request does not qualify as a Network Element that is required
to be provided under the Act.
6. If the receiving Party determines that the Network Element Bona Fide
Request is technically feasible and otherwise qualifies under the Act, it shall
promptly proceed with developing the Network Element Bona Fide Request upon
receipt of written authorization from the requesting Party. When it receives
such authorization, the receiving Party shall promptly develop the requested
services, determine their availability, calculate the applicable prices and
establish installation intervals.
7. Unless the Parties otherwise agree, the Network Element Requested must
be priced in accordance with Section 252(d)( 1) of the Act.
8. As soon as feasible, but not more than ninety (90) days after its
receipt of authorization to proceed with developing the Network Element Bona
Fide Request, the receiving Party shall provide to the requesting Party a
Network Element Bona Fide Request quote which will include, at a minimum, a
description of each Network Element, the availability, the applicable rates and
the installation intervals.
-11-
<PAGE>
9. Within thirty (30) days of its receipt of the Network Element Bona Fide
Request. quote, the requesting Party must either confirm its order for the
Network Element Bona Fide Request pursuant to the Network Element Bona Fide
Request quote or seek arbitration by the Commission pursuant to Section 252 of
the Act.
10. If a Party to a Network Element Bona Fide Request believes that the
other Party is not requesting, negotiating or processing the Network Element
Bona Fide Request in good faith, or disputes a determination, or price or cost
quote, or is failing to act in accordance with Section 251 of the Act, such
Party may seek mediation or arbitration by the Commission pursuant to Section
252 of the Act.
-12-
<PAGE>
Schedule 8.2 BA Intervals for Installation
<TABLE>
<CAPTION>
Service Order Standard Intervals
- --------------------------------
Number of Standard Interval
DS1 Systems (Business Days)
----------- ---------------
<S> <C> <C>
Establishment of
New Trunk Groups 1-10 60
over 10 negotiated
Additions to Existing
Trunk Groups 1 - 4 30
over 4 negotiated
</TABLE>
-13-
<PAGE>
SCHEDULE 27.3 LIQUIDATED DAMAGES SCHEDULE
I. Such payments only apply after a minimum of 250 links are installed for
FOCAL in New York./1/
II. Liquidated Damages Schedule:*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Links installed for Monthly Specified Liquidated Damages (per
FOCAL in New York Activity Threshold performance breach)
- ---------------------------------------------------------------------
<S> <C> <C>
250 - 499 50 $ 2,500
- ---------------------------------------------------------------------
500 - 999 100 $ 7,500
- ---------------------------------------------------------------------
1,000 - 1,999 150 $15,000
- ---------------------------------------------------------------------
2,000 - 2,999 300 $30,000
- ---------------------------------------------------------------------
3,000 - 3,999 450 $45,000
- ---------------------------------------------------------------------
4,000 - 4,999 650 $60,000
- ---------------------------------------------------------------------
over 5,000 750 $75,000
- ---------------------------------------------------------------------
</TABLE>
* The minimum number of requested "specified activities" must meet or equal
the threshold quantities shown in the table above per activity per month to
qualify for the level of damages associates with the number of Unbundled
Links in service for FOCAL in New York.
- -----------
/1/ Excludes unbundled link installation "misses" resulting from the provision
of extended link service so long as installation of the link facilities
themselves meet the performance intervals set forth in Schedule 27.0.
-14-
<PAGE>
Exhibit 10.4
AMENDED AND RESTATED
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252
OF THE TELECOMMUNICATIONS ACT OF 1996
Dated as of March 16, 1998/1/
by and between
AMERITECH INFORMATION INDUSTRY SERVICES,
a division of Ameritech Services, Inc.
on behalf of Ameritech Indiana
and
FOCAL COMMUNICATIONS CORPORATION OF ILLINOIS
- --------------------------------------------------------------------------------
/1/ See Footnote 2 on signature page.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.0 DEFINITIONS............................................... 1
2.0 INTERPRETATION AND CONSTRUCTION........................... 7
3.0 IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION
DATES..................................................... 8
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)............. 8
4.1 Scope................................................ 8
4.2 Physical Architecture................................ 8
4.3 Interim Alternative Physical Architecture............ 10
4.4 Technical Specifications............................. 11
4.5 Interconnection in Additional LATAs.................. 11
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE
SERVICE TRAFFIC PURSUANT TO SECTION 251(c)(2.............. 12
5.1 Scope of Traffic..................................... 12
5.2 Switching System Hierarchy........................... 12
5.3 Trunk Group Architecture and Traffic Routing......... 13
5.4 Interim Use of 1-Way Trunks.......................... 13
5.5 Signaling............................................ 13
5.6 Grades of Service.................................... 14
5.7 Measurement and Billing.............................. 14
5.8 Reciprocal Compensation Arrangements--Section
251(b)(5)............................................ 14
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC
PURSUANT TO 251(c)(2)..................................... 15
6.1 Scope of Traffic..................................... 15
6.2 Trunk Group Architecture and Traffic Routing......... 15
6.3 Meet-Point Billing Arrangements...................... 16
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC....... 16
7.1 Information Services Traffic......................... 16
7.2 BLV/BLVI Traffic..................................... 17
7.3 Transit Service...................................... 17
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
8.0 JOINT GROOMING PLAN AND INSTALLATION, MAINTENANCE,
TESTING AND REPAIR.................................................... 18
8.1 Joint Grooming Plan............................................. 19
8.2 Installation, Maintenance, Testing and Repair................... 19
9.0 UNBUNDLED ACCESS--SECTION 251(c)(3)................................... 19
9.1 Access to Network Elements...................................... 19
9.2 Network Elements................................................ 20
9.3 Combination of Network Elements................................. 21
9.4 Nondiscriminatory Access to and Provision of Network Elements... 22
9.5 Provisioning of Network Elements................................ 23
9.6 Availability of Additional or Different Quality Network Elements 23
9.7 Pricing of Unbundled Network Elements........................... 23
9.8 Maintenance of Unbundled Network Elements....................... 25
9.9 Standards of Performance........................................ 25
10.0 RESALE--SECTIONS 251(c)(4) and 251(b)(1).............................. 26
10.1 Availability of Wholesale Rates for Resale...................... 26
10.2 Availability of Retail Rates for Resale......................... 27
11.0 NOTICE OF CHANGES--SECTION 251(c)(5).................................. 27
12.0 COLLOCATION--SECTION 251(c)(C)........................................ 27
13.0 NUMBER PORTABILITY--SECTION 251(b)(2)................................. 28
13.1 Scope........................................................... 28
13.2 Procedures for Providing INP Through Remote Call Forwarding.....
13.3 Procedures for Providing INP Through Direct Inward Dial......... 29
13.4 Procedures for Providing INP Through NXX Migration.............. 29
13.5 Receipt of Terminating Compensation on Traffic to INP'ed Numbers 30
14.0 DIALING PARITY -- SECTION 251(b)(3)................................... 31
15.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4).......................... 31
16.0 DATABASE ACCESS....................................................... 31
17.0 REFERRAL ANNOUNCEMENT................................................. 31
18.0 OTHER SERVICES........................................................ 31
19.0 GENERAL RESPONSIBILITIES OF THE PARTIES............................... 32
20.0 TERM AND TERMINATION.................................................. 33
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
21.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES.......................... 34
22.0 CANCELLATION CHARGES.................................................. 34
23.0 NON-SEVERABILITY...................................................... 34
24.0 INDEMNIFICATION....................................................... 34
25.0 LIMITATION OF LIABILITY............................................... 35
26.0 AMENDMENT OR OTHER CHANGES TO THE ACT; RESERVATION OF
RIGHTS................................................................ 36
27.0 REGULATORY APPROVAL................................................... 37
28.0 MISCELLANEOUS......................................................... 37
28.1 Authorization.................................................. 37
28.2 Compliance..................................................... 37
28.3 Compliance with the Communications Law Enforcement
("CALEA") Act of 1994.......................................... 37
28.4 Independent Contractor......................................... 37
28.5 Force Majeure.................................................. 38
28.6 Confidentiality................................................ 38
28.7 Governing Law.................................................. 39
28.8 Taxes.......................................................... 39
28.9 Non-Assignment................................................. 39
28.10 Non-Waiver..................................................... 39
28.11 Disputed Amounts............................................... 39
28.12 Notices........................................................ 40
28.13 Publicity and Use of Trademarks or Service Marks............... 41
28.14 Section 252(i) Obligations..................................... 41
28.15 Additional Right to Modification............................... 42
28.16 Joint Work Product............................................. 42
28.17 No Third Party Beneficiaries; Disclaimer of Agency............. 42
28.18 No License..................................................... 42
28.19 Technology Upgrades............................................ 42
28.20 Survival....................................................... 43
28.21 Scope of Agreement............................................. 43
28.22 Entire Agreement............................................... 43
SCHEDULE 1.0 CERTAIN TERMS AS DEFINED THE ACT AS OF MAY 16,
1996
SCHEDULE 3.0 IMPLEMENTATION SCHEDULE
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SCHEDULE 9.2.1 LOCAL LOOPS
SCHEDULE 9.2.2 UNBUNDLED ACCESS TO NETWORK INTERFACE DEVICES
SCHEDULE 9.2.3 SWITCHING
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 9.5.3 FORM OF REPRESENTATION OF AUTHORIZATION
SCHEDULE 9.8 LOOP MAINTENANCE PROCEDURES
SCHEDULE 9.9 NETWORK ELEMENT PERFORMANCE BENCHMARKS
SCHEDULE 9.9.6 CREDIT ALLOWANCES INDIANA
</TABLE>
PRICING SCHEDULE - INDIANA
EXHIBIT A NETWORK ELEMENT BONA FIDE REQUEST
(iv)
<PAGE>
AMENDED AND RESTATED
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
This Amended and Restated Interconnection Agreement under Sections 251 and
252 of the Telecommunications Act of 1996 ("Agreement"), is effective as of the
16th day of March, 1998, by and between Ameritech Information Industry Services,
a division of Ameritech Services, Inc., a Delaware Corporation with offices at
350 N. Orleans, Third Floor, Chicago, Illinois 60654, on behalf of Ameritech
Indiana ("Ameritech") and Focal Communications Corporation of Illinois ("Focal")
a Delaware corporation with offices at 200 North LaSalle Street, Chicago,
Illinois 60601.
WHEREAS, the Parties want to interconnect their networks at mutually agreed
upon points of interconnection to provide Telephone Exchange Services (as
defined below) and Exchange Access (as defined below) to their respective
Customers.
WHEREAS, the Parties entered into an Interconnection Agreement dated as of
May 17, 1996 (the "Effective Date") (the "Existing Interconnection Agreement")
that set forth the respective obligations of the Parties and the terms and
conditions under which the Parties interconnected their networks and provided
other services as required by the Act (as defined below) and additional services
as set forth in such Existing Interconnection Agreement.
WHEREAS, Focal has exercised its rights under Section 28.14 of the Existing
Interconnection Agreement and Section 252(i) of the Act to incorporate the terms
and conditions of an Other Agreement (as defined in the Existing Interconnection
Agreement) as provided in Section 28.14 of the Existing Interconnection
Agreement, and the Parties are entering into this Amended and Restated
Interconnection Agreement to reflect such terms and conditions of such Other
Agreement and certain other amendments mutually agreed upon by the Parties.
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Focal and Ameritech hereby agree as follows:
1.0 DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
specified below in this Section 1.0. For convenience of reference only, the
definitions of certain terms that are As Defined in the Act (as defined below)
are set forth on Schedule 1.0. Schedule 1.0 sets forth the definitions of such
terms as of the date specified on such Schedule and neither Schedule 1.0 nor any
revision, amendment or supplement thereof which is prepared by the Parties to
reflect any amended or additional term set forth or subsequent interpretation of
any term that is in the Act is intended to be a part of or to affect the meaning
or interpretation of this Agreement.
-2-
<PAGE>
1.1 "Act" means the Communications Act of 1934 (47 U.S.C. (S)151 et seq.),
as amended by the Telecommunications Act of 1996, and as from time to time
interpreted in the duly authorized rules and regulations of the FCC or a
Commission within its state of jurisdiction.
1.2 "ADSL" or "Asymmetrical Digital Subscriber Line" means a transmission
technology which transmits an asymmetrical digital signal using one of a variety
of line codes.
1.3 "Affiliate" is As Defined in the Act.
1.4 "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.
1.5 "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.
1.6 "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.
1.7 "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.
1.8 "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.
1.9 "Central Office Switch" means a switch used to provide
Telecommunications Services, including, but not limited to:
(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.
1.10 "CCS" means one hundred (100) call seconds.
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1.11 "CLASS Features" means certain CCIS-based features available to
Customers including, but not limited to: Automatic Call Back; Call Trace;
Caller Identification related blocking features; Distinctive Ringing/Call
Waiting; Selective Call Forward; and Selective Call Rejection.
1.12 "Collocation" means an arrangement whereby one Party's (the
"Collocating Party") facilities are terminated in its equipment necessary for
Interconnection or for access to Network Elements on an unbundled basis which
has been installed and maintained at the premises of a second Party (the
"Housing Party"). For purposes of Collocation, the "premises" of a Housing Party
is limited to occupied structure or portion thereof in which such Housing Party
has the exclusive right of occupancy. Collocation may be "physical" or
"virtual". In Physical Collocation," the Collocating Party installs and
maintains its own equipment in the Housing Party's premises. In "Virtual
Collocation," the Housing Party installs and maintains the Collocating Party's
equipment in the Housing Party's premises.
1.13 "Commission" or "IURC" means the Indiana Utility Regulatory
Commission.
1.14 "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.
1.15 "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 Collocating Party's equipment and (ii) the
equipment or facilities of the Housing Party.
1.16 "Customer" means a third-party residence or business that subscribes
to Telecommunications Services provided by either of the Parties.
1.17 "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), 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.
1.18 "Dialing Parity" is As Defined in the Act. As used in this Agreement,
Dialing Parity refers to both Local Dialing Parity and Toll Dialing Parity.
"Local Dialing Parity" means the ability of Telephone Exchange Service Customers
of one LEC to place local calls to Telephone Exchange Service Customers of
another LEC, without the use of any access code and with no unreasonable dialing
delay. "Toll Dialing Parity" means the ability of Telephone Exchange Service
Customers of a LEC to have their toll calls (inter or intraLata) routed to a
toll carrier (intraLATA or interLATA) of their selection without dialing access
codes or additional digits and with no unreasonable dialing delay.
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1.19 "Digital Signal Level" means one of several transmission rates in the
time-division multiplex hierarchy.
1.20 "Digital Signal Level 0" or "DS0" means the 64 Kbps zero-level signal
in the time-division multiplex hierarchy.
1.21 "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.
1.22 "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 the third level of
multiplexing.
1.23 "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.
1.24 "Exchange Access" is As Defined in the Act.
1.25 "FCC" means the Federal Communications Commission.
1.26 "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.
1.27 "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").
1.28 "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).
1.29 "Integrated Digital Loop Carrier" means a subscriber loop carrier
system which integrates within the switch at a DS1 level that is twenty-four
(24) local Loop transmission paths combined into a 1.544 Mbps digital signal.
1.30 "Interconnection" is As Described in the Act and refers to the
connection of separate pieces of equipment, facilities, or platforms between or
within networks for the purpose of transmission and routing of Telephone
Exchange Service traffic and Exchange Access traffic.
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1.31 "Interexchange Carrier" or "IXC" means a carrier that provides,
directly or indirectly, interLATA or intraLATA Telephone Toll Services.
1.32 "Interim Telecommunications Number Portability" or "INP" is As
Described in the Act.
1.33 "InterLATA" is As Defined in the Act.
1.34 "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).
1.35 "IntraLATA Toll Traffic" means all intraLATA calls other than Local
Traffic calls.
1.36 "Local Access and Transport Area" or "LATA" is As Defined in the Act.
1.37 "Local Traffic" means those calls as deemed by Ameritech's local
service areas as defined in 170 IAC 7-1.1-2(21); provided that, during the term
of this Agreement, in no event shall a Local Traffic call be less than the local
service areas as defined on the Effective Date.
1.38 "Local Exchange Carrier" or "LEC" is As Defined in the Act.
1.39 "Local Loop Transmission" or "Loop" means the entire transmission path
which extends from the network interface 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 which serves the Customer. Loops are defined by the
electrical interface rather than the type of facility used.
1.40 "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).
1.41 "Main Distribution Frame" or "MDF" 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.
1.42 "Network Element" is As Deemed in the Act.
1.43 "Network Element Bona Fide Request" means the process described on
Exhibit A that prescribes the terms and conditions relating to a Party's request
that the other Party provide a Network Element not otherwise provided by the
terms of this Agreement.
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1.44 "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 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.
1.45 "Number Portability" is As Defined in the Act.
1.46 "NXX" means the three-digit code which appears as the first three
digits of a seven digit telephone number.
1.47 "Party" means either Ameritech or Focal, and "Parties" means Ameritech
and Focal.
1.48 "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. Rate Centers will be identical for each Party until such time as Focal
is permitted by an appropriate regulatory body to create its own Rate Centers
within an area.
1.49 "Reciprocal Compensation" is As Described in the Act, and refers to
the payment arrangements that recover costs incurred for the transport and
termination of Telecommunications originating on one Party's network and
terminating on the other Party's network.
1.50 "Routing Point" means a location which a 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 Bell Communications Research, Inc. ("Bellcore") Practice
BR 795-100 100 (the "Bellcore Practice"), the Routing Point (referred to as the
"Rating Point" in such Bellcore Practice) may be an End Office Switch location,
or a "LEC Consortium Point of Interconnection." Pursuant to such Bellcore
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,
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.
1.51 "Service Control Point" or "SCP" means a Signaling End Point that acts
as a database to provide information to another signaling end point (i.e.,
Service Switching Point or
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another SCP) for processing or routing certain types of network calls. A
query/response mechanism is typically used in communicating with an SCP.
1.52 "Signaling End Point" or "SEP" means a signaling point, other than an
STP, which seines as a source or a repository for CCIS messages.
1.53 "Signaling Transfer Point" or "STP" means a signaling point that
performs message routing functions and provides information for the routing of
messages between SEPs. An STP transmits, receives and processes CCIS messages.
1.54 "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.
1.55 "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.
1.56 "Technically Feasible Point" is As Described in the Act.
1.57 "Telecommunications" is As Defined in the Act.
1.58 "Telecommunications Act" means the Telecommunications Act of 1996 and
any rules and regulations promulgated thereunder.
1.59 "Telecommunications Carrier" is As Defined in the Act.
1.60 "Telecommunications Service" is As Defined in the Act.
1.61 "Telephone Exchange Service" is As Defined in the Act.
1.62 "Telephone Toll Service" is As Defined in the Act.
1.63 "Wire Center" means an occupied structure or portion thereof in which
a Party has the exclusive right of occupancy and which serves as a Routing Point
for Switched Exchange Access Service.
2.0 INTERPRETATION AND CONSTRUCTION.
All references to Sections, Exhibits and Schedules shall be deemed to be
references to Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise
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require. The headings of the Sections and the terms defined in Schedule 1.0 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. Unless the context
shall otherwise require, any reference to any agreement, other instrument
(including Ameritech 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).
3.0 IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION DATES.
Subject to the terms and conditions of this Agreement, Interconnection of
the Parties' facilities and equipment pursuant to Section 4.0 for the
transmission and routing of Telephone Exchange Service traffic Exchange Access
traffic shall be established on or before the corresponding "Interconnection
Activation Date" shown for each such LATA on Schedule 3.0. Schedule 3.0 may be
revised and supplemented from time to time upon the mutual agreement of the
Parties to reflect the Interconnection of additional LATAs pursuant to Section
4.5 by attaching one or more supplementary schedules to such schedule.
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2).
4.1 Scope
Section 4.0 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 pursuant to Section
251(c)(2) of the Act. Sections 5.0 and 6.0 prescribe the specific logical trunk
groups (and traffic routing parameters) which will be configured over the
physical connections described in this Section 4.0 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.
4.2 Physical Architecture
In each LATA identified on Schedule 3.0, Focal and Ameritech shall jointly
engineer and operate a single Synchronous Optical Network ("SONET") transmission
system by which they shall Interconnect their networks for the transmission and
routing of Telephone Exchange Service traffic and Exchange Access traffic
pursuant to Section 251(c)(2) of the Act. Unless otherwise mutually agreed, this
SONET transmission system shall be configured as illustrated in Exhibit B, and
engineered, installed, and maintained as described in this Section 4.0 and in
the Joint Grooming Plan (as defined in Section 8.1).
4.2.1 The Parties shall jointly determine and agree upon the specific
Optical Line Terminating Multiplexer ("OLTM") equipment to be utilized at each
end of the SONET
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transmission system. If the Parties cannot agree on the OLTM, the following
decision criteria shall apply to the selection of the OLTM:
(a) First, the type of OLTM equipment utilized by both Parties
within the LATA. Where more than one type of OLTM equipment
is used in common by the Parties within the LATA, the
Parties shall choose from among the common types of OLTM
equipment according to the method described in subsection
(c) below;
(b) Second, the type of OLTM equipment utilized by both Parties
anywhere outside the LATA. Where more than one type of OLTM
equipment is used in common by the Parties outside the LATA,
the Parties shall choose from among the common types of OLTM
equipment according to the method described in subsection
(c) below; and
(c) Third, the Party first selecting the OLTM equipment shall be
determined by lot and the choice to select such OLTM
equipment shall thereafter alternate between the Parties.
4.2.2 Ameritech shall, wholly at its own expense, procure, install
and maintain the agreed upon OLTM equipment in the Ameritech Interconnection
Wire Center ("AIWC") identified for each LATA set forth on Schedule 3.0, in
capacity sufficient to provision and maintain all logical trunk groups
prescribed by Sections 5.0 and 6.0.
4.2.3 Focal shall, wholly at its own expense, procure, install and
maintain the agreed upon OLTM equipment in the Focal Interconnection Wire Center
("FIWC") identified for that LATA in Schedule 3.0, in capacity sufficient to
provision and maintain all logical trunk groups prescribed by Sections 5.0 and
6.0.
4.2.4 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 Focal to deliver,
fiber optic facilities into that manhole with sufficient spare length to reach
the OLTM equipment in the AIWC. Focal shall deliver and maintain such strands
wholly at its own expense.
4.2.5 Focal shall designate a manhole or other suitable entry-way
immediately outside the FIWC 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 FIWC. Ameritech shall deliver and maintain such
strands wholly at its own expense.
4.2.6 Focal shall pull the fiber optic strands from the Focal-
designated manhole/entry-way into the FIWC and through appropriate internal
conduits Focal utilizes for
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fiber optic facilities and shall connect the Ameritech strands to the OLTM
equipment Focal has installed in the FIWC.
4.2.7 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 Focal strands to the OLTM equipment Ameritech has installed in the
AIWC.
4.2.8 Each Party shall use its best efforts to ensure that fiber
received from the other Party will enter the Party's Wire Center through a point
separate from that which the Party's own fiber exited.
4.2.9 The Parties shall jointly coordinate and undertake maintenance
of the SONET transmission system. Each Party shall be responsible for
maintaining the components of the SONET transmission system as illustrated on
Exhibit B.
4.3 Interim Alternative Physical Architecture
4.3.1 Either Party may unilaterally elect, by providing notice to the
other Party not less than seventy-five (75) days in advance of an applicable
Interconnection Activation Date, to interconnect on or before such
Interconnection Activation Date via an electrical DS3 (or multiples thereof)
interface instead of the SONET transmission system for an interim period (the
"Interim Period") not to exceed one-hundred eighty (180) days after the
Interconnection Activation Date.
4.3.2 The Party which did not elect such alternative architecture
shall have the option of specifying that such alternative architecture shall
occur over a Collocation at either Party's premises in accordance with Section
12.0 or any other arrangement to which the Parties may agree.
4.3.3 During any Interim Period, specific logical trunk groups (and
traffic routing parameters) will be configured over the alternate physical
architecture for transmission and routing of Telephone Exchange Service traffic
and for transmission and routing of Exchange Access traffic pursuant to Section
5.0 and Section 6.0, respectively.
4.3.4 During any Interim Period, neither Party shall charge the other
Party for Collocation Cross Connection for trunk groups delivered via
Collocation.
4.3.5 Unless otherwise mutually agreed, the Parties shall transition
to a SONET transmission system for the applicable LATA pursuant to Section 4.2
no later than the last day of the Interim Period.
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4.4 Technical Specifications
4.4.1 Focal and Ameritech shall work cooperatively to install and
maintain a reliable network. Focal 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.
4.4.2 Focal and Ameritech shall work cooperatively to apply sound
network management principles by invoking network management controls to
alleviate or to prevent congestion.
4.4.3 The following list of publications describe the practices,
procedures, specifications and interfaces generally utilized by Ameritech and
are listed herein to assist the Parties in meeting their respective
Interconnection responsibilities related to Electrical/Optical Interfaces:
(a) Bellcore Technical Publication TR-INS-000342; High Capacity
Digital Special Access Service, Transmission Parameter
Limits and Interface Combinations; and
(b) Ameritech Technical Publication AM-TR-TMO-000072; Service
Description and Interface Requirements for Ameritech's
Optical Service.
4.5 Interconnection in Additional LATAs
4.5.1 If Focal determines to offer Telephone Exchange Services in any
other LATA in which Ameritech also offers Telephone Exchange Services, Focal
shall provide written notice to Ameritech of the need to establish
Interconnection in such LATA pursuant to this Agreement.
4.5.2 The notice provided in Section 4.5.1 shall include (i) the
initial Routing Point Focal has designated in the new LATA; (ii) Focal's
requested Interconnection Activation Date; and (iii) a non-binding forecast of
Focal's bunking requirements.
4.5.3 Unless otherwise agreed by the Parties, the Parties shall
designate the Wire Center Focal has identified as its initial Routing Point in
the LATA as the FIWC in that LATA and shall designate the Ameritech Tandem
Office Wire Center within the LATA nearest to the FIWC (as measured in airline
miles utilizing the V&H coordinates method) as the AIWC in that LATA.
4.5.4 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
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date that is one-hundred fifty (150) days after the date on which Focal
delivered notice to Ameritech pursuant to Section 4.5.1. Within ten (10)
business days of Ameritech's receipt of Focal's notice, Ameritech and Focal
shall confirm the AIWC, the FIWC and the Interconnection Activation Date for the
new LATA by attaching a supplementary schedule to Schedule 3.0.
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE
SERVICE TRAFFIC PURSUANT TO SECTION 251(c)(2)
5.1 Scope of Traffic
Section 5.0 prescribes parameters for trunk groups (the "Local/IntraLATA
Trunks") to be effected over the Interconnections specified in Section 4.0 for
the transmission and routing of Local Traffic and IntraLATA Toll Traffic between
the Parties' respective Telephone Exchange Service Customers and where such
traffic is not presubscribed for carriage by a third party carrier.
5.2 Switching System Hierarchy
5.2.1 For purposes of this Section 5.0, each of the following Central
Office Switches shall be designated as a "Primary Switch":
(a) Each Access Tandem Ameritech operates in the LATA;
(b) The initial switch Focal employs to provide Telephone
Exchange Service in the LATA;
(c) Any Access Tandem Focal may establish for provision of
Exchange Access in the LATA; and
(d) Any additional switch Focal may subsequently employ to
provide Telephone Exchange Service in the LATA which Focal
may at its sole option designate as a Primary Switch;
provided that the total number of Focal Primary Switches for
a LATA may not exceed the total number of Ameritech's
Primary Switches for that LATA. To the extent Focal chooses
to designate any additional switch as a Primary Switch, it
shall provide notice to Ameritech of such designation at
least ninety (90) days in advance of the date on which Focal
activates such switch as a Primary Switch.
5.2.2 Each Central Office Switch operated by the Parties which is not
designated as a Primary Switch pursuant to Section 5.2.1 shall be designated as
a "Secondary Switch".
5.2.3 For purposes of Focal routing traffic to Ameritech, subtending
arrangements between Ameritech Primary Switches and Ameritech Secondary Switches
shall be
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the same as the Access Tandem/End Office sub-tending arrangements which
Ameritech maintains for those switches. For purposes of Ameritech routing
traffic Focal, subtending arrangements between Focal Primary Switches and Focal
Secondary Switches shall be the same as the Access Tandem/End Office sub-tending
arrangements which Focal maintains for those switches.
5.3 Trunk Group Architecture and Traffic Routing
The Parties shall jointly engineer and configure Local/IntraLATA Trunks
over the physical Interconnection arrangements as follows:
5.3.1 The Parties shall initially configure a separate two-way trunk
group as a direct transmission path between each Focal Primary Switch and each
Ameritech Primary Switch.
5.3.2 Notwithstanding anything to the contrary in this Section 5.0,
if the two-way traffic volumes between any two Central Office Switches (whether
Primary-Primary, Primary-Secondary or Secondary-Secondary) at any time exceeds
the CCS busy hour equivalent of one DS1, the Parties shall within sixty (60)
days after such occurrence add trunks or establish new direct trunk groups
consistent with the grades of service and quality parameters set forth in the
Joint Grooming Plan; provided, however, nothing in this Section 5.3 shall
require a Party to establish new direct trunk groups on or before the date which
is one-hundred twenty (120) days after the applicable Interconnection Activation
Date; provided, however, that if such traffic volume is exceeded within such
one-hundred twenty (120) day period, such Party shall establish new direct trunk
groups on the date which is the later of (i) sixty (60) days after such
occurrence or (ii) one-hundred twenty-one (121) days after the Interconnection
Activation Date.
5.4 Interim Use of 1-Way Trunks
Either Party may unilaterally elect, by providing notice to the other Party
not less than seventy-five (75) days in advance of an applicable Interconnection
Activation Date, to employ 1-way trunk groups for an interim period (the "1-Way
Trunk Periods) not to exceed one-hundred twenty (120) days after the
Interconnection Activation Date; provided that the Parties shall transition all
1-way trunks established under this Section 5.4 to 2-way trunks on or before the
last day of such 1-Way Trunk Period.
5.5 Signaling
5.5.1 Where available, CCIS signaling shall be used by the Parties to
set up calls between the Parties' Telephone Exchange Service networks. If CCIS
signaling is unavailable, MF (Multi-Frequency) signaling shall be used by the
Parties. Each Party shall charge the other Party equal and reciprocal rates for
CCIS signaling in accordance with applicable tariffs. During the tenn of this
Agreement neither Party shall charge the other Party additional usage-sensitive
rates for SS7 queries made for Local Traffic.
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5.5.2 The following list of publications describe the practices,
procedures and specifications utilized by Ameritech for signaling purposes and
are listed herein to assist the Parties in meeting their respective
Interconnection responsibilities related to Signaling:
(a) Bellcore Special Report SR-TSV 002275, BOC Notes on the
LEC Networks - Signaling.
(b) Ameritech Supplement AM-TR-OAT 000069, Common Channel
Signaling Network Interface Specifications.
5.5.3 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, without limitation, calling party number (CPN), originating line
information (OLI), calling party category and charge number.
5.5.4 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.
5.6 Grades of Service
The Parties shall initially engineer and shall jointly monitor and enhance
all trunk groups consistent with the Joint Grooming Plan.
5.7 Measurement and Billing
5.7.1 For billing purposes, each Party shall pass Calling Party
Number (CPN) information on each call carried over the Local/IntraLATA Trunks;
provided that so long as the percentage of calls passed with CPN is greater than
ninety percent (90%), all calls exchanged without CPN information shall be
billed as either Local Traffic or IntraLATA Toll Traffic in direct proportion to
the minutes of use of calls exchanged with CPN information.
5.7.2 Measurement of billing minutes shall be in actual conversation
seconds.
5.8 Reciprocal Compensation Arrangements--Section 251(b)(5).
5.8.1 Reciprocal Compensation applies for transport and termination
of Local Traffic billable by Ameritech or Focal which a Telephone Exchange
Service Customer originates on Ameritech's or Focal's network for termination on
the other Party's network.
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5.8.2 The Parties shall compensate each other for transport and
termination of Local Traffic the rates provided in the Pricing Schedule.
5.8.3 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.
5.8.4 Each Party shall charge the other Party its effective tariffed
intraLATA FGD switched access rates for the transport and termination of all
IntraLATA Toll Traffic.
5.8.5 Compensation for transport and termination of all traffic which
has been subject to performance of INP by one Party for the other Party pursuant
to Section 13.0 shall be as specified in Section 13.5.
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO 251(c)(2).
6.1 Scope of Traffic
Section 6.0 prescribes parameters for certain trunk groups ("Access Toll
Connecting Trunks") to be established over the Interconnections specified in
Section 4.0 for the transmission and routing of Exchange Access traffic between
Focal Telephone Exchange Service Customers and Interexchange Carriers.
6.2 Trunk Group Architecture and Traffic Routing
6.2.1 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/to Focal's Customers.
6.2.2 Access Toll Connecting Trunks shall be used solely for the
transmission and routing of Exchange Access to allow Focal's Customers to
connect to or be connected to the Interexchange trunks of any Interexchange
Carrier which is connected to an Ameritech Access Tandem.
6.2.3 The Access Toll Connecting Trunks shall be two-way trunks
connecting an End Office Switch Focal utilizes to provide Telephone Exchange
Service and Switched Exchange Access in a given LATA to an Access Tandem Switch
Ameritech utilizes to provide Exchange Access in such LATA.
6.2.4 The Parties shall jointly determine which Ameritech access
Tandem(s) will be sub-tended by each Focal End Office Switch. Except as
otherwise agreed by the Parties,
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Ameritech shall allow each Focal End Office Switch to subtend the access Tandem
nearest to the Routing Point associated with the NXX codes assigned to that End
Office Switch and shall not require that a single Focal End Office Switch
subtend multiple access Tandems, even in those cases where such End Office
Switch serves multiple Rate Centers.
6.3 Meet-Point Billing Arrangements
Meet-Point Billing Arrangements between the Parties for jointly-provided
Switched Exchange Access Services on Access Toll Connecting Trunks will be
governed by the terms and conditions of the Agreement For Switched Access Meet
Point Billing and shall be billed at each Party's applicable access rates.
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
7.1.1 Each Party shall route Information Service Traffic which
originates on its own network to the appropriate information services
platform(s) connected to the other Party's network over the Local/IntraLATA
Trunks.
7.1.2 The Party ("Originating Party") on whose network the
Information Services Traffic originated shall provide an electronic file
transfer or monthly magnetic tape containing recorded call detail information to
the Party ("Terminating Party") to whose information platform the Information
Services Traffic terminated.
7.1.3 The Terminating Party shall provide to the Originating Party
via electronic file transfer or magnetic tape all necessary information to rate
the Information Services Traffic to the Originating Party's Customers pursuant
to the Terminating Party's agreements with each information provider.
7.1.4 The Originating Party shall bill and collect such information
provider charges and remit the amounts collected to the Terminating Party less:
(a) The Information Services Billing and Collection fee set
forth on the Pricing Schedule; and
(b) An uncollectibles reserve calculated based on the
uncollectibles reserve in the Terminating Party's billing
and collection agreement with the applicable information
provider; and
(c) Customer adjustments provided by the Originating Party.
The Originating Party shall provide to the Terminating Party sufficient
information regarding uncollectibles and Customer adjustments. The Terminating
Party shall pass through the
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adjustments to the information provider. However, if the information provider
disputes such adjustments and refuses to accept such adjustments, the
Originating Party shall reimburse the Terminating Party for all such disputed
adjustments. Final resolution regarding all disputed adjustments shall be solely
between the Originating Party and the information provider.
7.1.5 Nothing in this Agreement shall restrict either Party from
offering to its Exchange Service Customers the ability to block the completion
of Information Service Traffic.
7.2 BLV/BLVI Traffic
7.2.1 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, 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, and a charge shall apply whether or not the
called party releases the line.
7.2.2 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.
7.2.3 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.
7.2.4 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 Section 4.0, consistent with the Joint Grooming Plan. Each Party
shall compensate the other Park for BLV/BLVI Traffic as set forth on the Pricing
Schedule.
7.3 Transit Service
7.3.1 Ameritech shall provide Focal Transit Service as provided in
this Section 7.3.
7.3.2 Transit Services means the delivery of certain traffic between
Focal and a third party LEC by Ameritech over the Local/IntraLATA Trunks. The
following traffic types will be delivered: (i) Local Traffic originated from
Focal to such third party LEC and (ii) IntraLATA Toll Traffic originated from
such third party LEC and terminated to Focal where
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Ameritech carries such traffic pursuant to the Commission's primary toll carrier
plan or other similar plan.
7.3.3 Subject to Section 7.3.4, the Parties shall compensate each
other for Transit Service as follows:
(a) Focal shall pay Ameritech for Local Traffic originates
over the Transit Service at the rate specified in the
Pricing Schedule plus any additional charges or costs such
terminating third party LEC imposes or levies on Ameritech
for the delivery or termination of such traffic, including
any switched access charges; and
(b) Ameritech shall pay Focal for IntraLATA Toll Traffic
terminated to Focal from such third party LEC (where
Ameritech delivers such traffic pursuant to the
Commission's primary toll carrier plan or other similar
plan) at Focal's applicable switched access rates.
7.3.4 While the Parties agree that it is the responsibility of each
third party LEC to enter into arrangements to deliver Local Traffic to Focal,
they acknowledge that such arrangements are not currently in place and an
interim arrangement is necessary to ensure traffic completion. Accordingly,
until the earlier of (i) the date on which either Party has entered into an
arrangement with such third party LEC to deliver Local Traffic to Focal and (ii)
one-hundred and eighty (180) days after the Interconnection Activation Date,
Ameritech will deliver and Focal will terminate Local Traffic originated from
such third party LEC without charge to one another. If an arrangement is not
entered into by the 180th day, either Party may block such Local Traffic.
7.3.5 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. In all cases, Focal is responsible to
follow the Exchange Message Record ("EMR") standard and exchange records with
both Ameritech and the terminating LEC to facilitate the billing process to the
originating network.
7.3.6 For purposes of this Section 7.3, Ameritech agrees that it
shall make available to Focal, at Focal's sole option, any transiting
arrangement Ameritech's offers to another LEC at the same rates, terms and
conditions provided to such other LEC.
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8.0 JOINT GROOMING PLAN AND INSTALLATION, MAINTENANCE, TESTING AND REPAIR.
8.1 Joint Grooming Plan
On or before August 16, 1996, Focal and Ameritech shall jointly develop a
grooming plan (the "Joint Grooming Plan") which shall define and detail, inter
alia,
(a) standards to ensure that Interconnection trunk groups experience
a grade of service, availability and quality which is comparable
to that achieved on interoffice trunks within Ameritech's network
and in accord with all appropriate relevant industry-accepted
quality, reliability and availability standards;
(b) the respective duties and responsibilities of the Parties with
respect to the administration and maintenance of the trunk
groups, including but not limited to standards and procedures for
notification and discoveries of trunk disconnects;
(c) maintenance of the SONET transmission system;
(d) disaster recovery provision escalations; and
(e) such other matters as the Parties may agree.
8.2 Installation, Maintenance, Testing and Repair
Ameritech's standard intervals for Feature Group D Exchange Access Services
will be used for Interconnection as specified in the Ameritech Dedicated and
Switched Common Service Switched Access and Exchange Interval Guide, AM-TR-MKT
000066. Focal shall meet the same intervals for comparable installations,
maintenance, joint testing, and repair of its facilities and services associated
with or used in conjunction with Interconnection or shall notify Ameritech of
its inability to do so and will negotiate such intervals in good faith.
9.0 UNBUNDLED ACCESS--SECTION 251(c)(3)
9.1 Access to Network Elements
9.1.1 Ameritech shall provide Focal access to Ameritech's Network
Elements on an unbundled basis at any technically feasible point in accordance
with the terms and conditions of this Section 9.0 and the requirements of the
Act. Ameritech shall provide Focal 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 Section 3.0 and as
required by the Act, in a manner that shall allow Focal to provide any
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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.
9.1.2 Notwithstanding anything to the contrary in this Section 9.0,
Ameritech shall not be required to provide Network Elements beyond those
identified in 47 C.F.R. (S) 51.319 to Focal if:
(1) The Commission concludes that:
(A) such Network Element is proprietary or contains proprietary
information that will be revealed if such Network Element is
provided to Focal on an unbundled basis; and
(B) Focal could offer the same proposed Telecommunications
Service through the use of other, nonproprietary Network
Elements within Ameritech's network; or
(2) 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 Focal seeks to offer, compared
with providing that service over other unbundled Network Elements
in Ameritech's network.
9.1.3 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, Focal shall pay to Ameritech
any applicable special construction charges.
9.2 Network Elements
At the request of Focal, Ameritech shall provide Focal access to the
following Network Elements on an unbundled basis:
9.2.1 Local Loops, as more fully described on Schedule 9.2.1;
9.2.2 The Network Interface Device, as more fully described on
Schedule 9.2.2;
9.2.3 Switching Capability, as more fully described on Schedule
9.2.3;
9.2.4 Interoffice Transmission Facilities, as more fully described on
Schedule 9.2.4;
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9.2.5 Signaling Links and Call-Related Databases, as more fully
described on Schedule 9.2.5;
9.2.6 Operations Support Systems ("OSS") functions, to be used in
conjunction with other Network Elements, as more fully described on Schedule
9.2.6; and
9.2.7 Operator Services and Directory Assistance, as more fully
described on Schedule 9.2.7.
9.3 Combination of Network Elements
9.3.1 Ameritech shall provide Network Elements to Focal in a manner
that shall allow Focal to combine such Network Elements (a "Combination") in
order to provide a Telecommunications Service. When purchasing a Combination,
Focal 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, except to
the extent not technically feasible given the specific manner in which Focal has
requested that the elements be combined.
9.3.2 Except upon the request of Focal, Ameritech shall provide
Network Elements separately from each other, and shall not separate Network
Elements it normally provides in combination into separate Network Elements.
9.3.3 Upon Focal's request, Ameritech shall perform the functions
necessary to combine Ameritech's Network Elements in any manner, 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 a request of
Focal that is consistent with the above criteria, Ameritech shall perform the
functions necessary to combine Ameritech's Network Elements with elements
possessed by Focal in any technically feasible manner to allow Focal to provide
a Telecommunications Service.
9.3.4 Ameritech shall make available to Focal 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.
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9.3.4.4 Unbundled Element Platform without Operator Services and
Directory Assistance. This Combination is described on
Schedule 9.3.4.
9.3.5 The following Network Elements and Combinations shall be
requested by Focal in accordance with Section 9.6:
9.3.5.1 Unbundled Loop - Distribution.
9.3.5.2 Unbundled Loop - Concentrators/Multiplexers.
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.
9.3.6 Any request by Focal 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 Focal, or to perform any other function under this
Section 9.3 shall be made by Focal in accordance with Section 9.6.
9.4 Nondiscriminatory Access to and Provision of Network Elements
9.4.1 Subject to Section 9.4.4, the quality of an unbundled Network
Element as well as the quality of the access to such unbundled Network Element
that Ameritech provides to Focal shall be the same for all Telecommunications
Carriers requesting access to such Network Element.
9.4.2 Subject to Section 9.4.4, the quality of a Network Element, as
well as the quality of the access to such Network Element, that Ameritech
provides to Focal hereunder shall be at least equal in quality to that which
Ameritech provides to itself, its subsidiaries, Affiliates and any other person,
unless Ameritech proves to the Commission that it is not technically feasible to
provide the Network Element requested by Focal, or access to such Network
Element at a level of quality that is equal to that which Ameritech provides to
itself.
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9.4.3 Ameritech shall provide Focal access to Network Elements and
Operations Support Systems functions, including the time within which Ameritech
provisions such 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, except as
may be provided by the Commission pursuant to Section 9.1.2.
9.4.4 Upon the request of Focal, Ameritech shall provide to Focal a
Network Element and access to such Network Element that is different in quality
to that required under Sections 9.4.2 and 9.4.3, 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 Focal for Ameritech to provide any Network Element or access thereto
that is different in quality shall be made by Focal in accordance with Section
9.6.
9.5 Provisioning of Network Elements
9.5.1 Ameritech shall provide Focal unbundled Network Elements as set
forth on Schedule 9.5.
9.5.2 Ameritech shall provide Focal 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 Focal purchases hereunder. Access to such functionalities
for the Operations Support Systems functions shall be as provided in Schedule
9.2.6 and the Grooming Plan.
9.5.3 Prior to submitting an order for a Network Element which
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, Focal shall deliver to Ameritech a representation of authorization in
the form set forth on Schedule 9.5.3.
9.6 Availability of Additional or Different Quality Network Elements
Any request by Focal 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 and shall be subject to the payment by Focal of all applicable costs in
accordance with Section 252(d)(1) of the Act to process, develop, install and
provide such Network Element, Combination or access.
9.7 Pricing of Unbundled Network Elements
9.7.1 Ameritech shall charge Focal the non-recurring 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 Focal
requests or approves an Ameritech technician to perform
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services in excess of or not otherwise contemplated by the Line Connection
Service, Ameritech may charge Focal for any additional and reasonable labor
charges to perform such services.
9.7.2 In addition to any other applicable charges under this Section
9.0, if Focal purchases unbundled Local Switching elements, Focal 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. (S) 69.105 and a charge equal to
seventy-five percent (75%) of the interconnection charge
described in 47 C.F.R. (S) 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 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 Indiana 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 Indiana pursuant to Section
271 of the Act.
9.7.3 If Focal 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, Focal shall be required to compensate Ameritech for any
costs incurred to provide access to such Combination.
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9.8 Maintenance of Unbundled Network Elements
9.8.1 Ameritech shall provide maintenance of Loops, or Combinations
which include Loops, as set forth in Schedule 9.8.
9.8.2 If (i) Focal reports to Ameritech a suspected failure of a
Network Element, (ii) Focal requests a dispatch, (iii) Ameritech dispatches a
technician, and (iv) such trouble was not caused by Ameritech's facilities or
equipment, then Focal shall pay Ameritech a trip charge and time charges as set
forth at Item V of the Pricing Schedule.
9.9 Standards of Performance
9.9.1 Ameritech shall provide to Focal access to unbundled Network
Elements (i) in accordance with Section 9.4 as determined by this Section 9.9
(including any Combinations, service levels and intervals that may be requested
by Focal 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").
9.9.2 To determine Ameritech's compliance with the Ameritech Network
Element Performance Benchmarks, Ameritech shall maintain records of (i) specific
criteria listed on Schedule 9.9, 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 Focal and provided by Ameritech
pursuant to Section 9.6 and a Bona Fide Request (each, a "Network Element
Performance Activity"). Ameritech shall maintain 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) Focal (the "Focal NE
Records") and (y) other LECs in the aggregate (the "Other LEC NE Records").
The criteria will be revised in accordance with the procedures as agreed
upon by the Parties if Ameritech no longer measures a criterion in assessing its
performance in providing Network Elements or begins measuring additional
criteria.
9.9.3 Ameritech shall provide to Focal for each Reporting Period, by
the twenty-second (22nd) day of the following month, in a self-reporting format
the Ameritech NE Records, the Focal 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
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statistically significant, then Ameritech shall have committed a "Specified
Performance Breach". Notwithstanding anything to the contrary in this Section
9.9.3, the Parties acknowledge that (x) Ameritech shall not be required to
provide to Focal 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 another LEC pursuant to 47 C.F.R. (S) 51.311(c)
and Section 9.6 and which are superior to that which Ameritech provides to Focal
hereunder, (y) the Other LEC NE Records shall be provided to Focal on an
aggregate basis and (z) such Other LEC NE Records shall be provided to Focal in
a manner that preserves the confidentiality of each other LEC and any of such
LEC's proprietary information (including CPNI).
9.9.4 In no event shall Ameritech be deemed to have committed a
Specified Performance Breach if Ameritech's failure to meet or exceed a 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.
9.9.5 Upon the occurrence of a Specified Performance Breach by
Ameritech, Focal may forego the dispute escalation procedures set forth in
Section 28.11 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.
9.9.6 Focal shall also be entitled to (i) credits for delays by
Ameritech in provisioning Network Elements pursuit to the terms and conditions
agreed upon by the Parties and (ii) any Credit Allowances pursuant to the same
terms and conditions that Ameritech offers Credit Allowances to its Customers,
including those described on Schedule 9.9.6.
9.9.7 The Parties' agreement to the procedures set forth in this
Section 9.9 shall not (i) relieve either Party of its obligations to perform any
other duties under this Agreement or (ii) constitute a waiver of a right of
either Party to claim that the parity requirements of this Agreement and of the
Act have or have not been met.
10.0 RESALE--SECTIONS 251(c)(4) and 251(b)(1)
10.1 Availability of Wholesale Rates for Resale
Ameritech shall offer to Focal for resale at wholesale rates Ameritech's
local exchange telecommunications services, as described in Section 251(c)(4) of
the Act, in accordance with
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the terms and conditions of and at the rates specified in Ameritech's then
effective Resale Local Exchange Service Tariff and other applicable tariffs. If
the Parties decide to enter into a separate agreement to set forth the terms and
conditions governing such resale, the Parties shall file such agreement with the
Commission for approval by such Commission as a condition to the effectiveness
of such agreement.
10.2 Availability of Retail Rates for Resale
Each Party shall make available its Telecommunications Services for resale
at retail rates to the other Party in accordance with Section 251(b)(1) of the
Act.
11.0 NOTICE OF CHANGES--SECTION 251(c)(5)
If a Party makes a change in its network which it believes will materially
affect the inter operability of its network with the other Party, the Party
making the change shall provide at least ninety (90) days advance written notice
of such change to the other Party.
12.0 COLLOCATION--SECTION 251(c)(C)
12.1 Ameritech shall provide to Focal Physical Collocation of equipment
necessary for Interconnection (pursuant to Section 4.0) or for access to
unbundled Network Elements (pursuant to Section 9.0), except that Ameritech may
provide for Virtual Collocation 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 such Collocation for the purpose of Interconnection or access to
unbundled Network Elements, except as otherwise mutually agreed to in writing by
the Parties or as required by the FCC or the appropriate Commission subject to
applicable federal and state tariffs.
12.2 Although not required to do so by Section 251(c)(6) of the Act, by
this Agreement, Focal agrees to provide to Ameritech upon Ameritech's Network
Element Bona Fide Request by Ameritech, Collocation (at Focal's option either
Physical or Virtual) of equipment for purposes of Interconnection (pursuant to
Section 4.0) on a non-discriminatory basis and at comparable rates, terms and
conditions as Focal may provide to other third parties. Focal shall provide such
Collocation subject to applicable tariffs or contracts.
12.3 Where Focal is Virtually Collocated on the Effective Date in a
premises that was initially prepared for Physical Collocation, Focal may elect
to (i) retain its Virtual Collocation in that premises and expand that Virtual
Collocation according to current procedures and applicable tariffs, or (ii)
revert to Physical Collocation, in which case Focal shall coordinate with
Ameritech for rearrangement of its equipment (transmission and IDLC) and
circuits, for which Ameritech shall impose no conversion charge. All applicable
Physical Collocation recurring charges shall apply.
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12.4 Where Focal is Virtually Collocated in a premises which was initially
prepared for Virtual Collocation, Focal may elect to (i) retain its Virtual
Collocation in that premises and expand that Virtual Collocation according to
current procedures and applicable tariffs, or (ii) unless it is not practical
for technical reasons or because of space limitations, convert its Virtual
Collocation to Physical Collocation at such premises in which case Focal shall
coordinate the construction and rearrangement with Ameritech of its equipment
(IDLC and transmission) and circuits for which Focal shall pay Ameritech at
applicable tariff rates. In addition, all applicable Physical Collocation
recurring charges shall apply.
12.5 For both Physical Collocation and Virtual Collocation, the Collocating
Party shall provide its own or third-party leased transport facilities and
terminate those transport facilities in equipment located in its Physical
Collocation space at the Housing Party's premises as described in applicable
tariffs or contracts and purchase Cross Connection to services or facilities as
described in applicable tariffs or contracts.
SECTION 251(b) PROVISIONS
13.0 NUMBER PORTABILITY--SECTION 251(b)(2)
13.1 Scope
13.1.1 The Parties shall provide Number Portability on a reciprocal
basis to each other to the extent technically feasible, and in accordance with
rules and regulations as from time to time prescribed by the FCC and/or the
Commission.
13.1.2 Until Number Portability is implemented by the industry
pursuant to regulations issued by the FCC or the Commission, the Parties agree
to provide Interim Telecommunications Number Portability ("INP") to each other
through remote call forwarding, direct inward dialing and NXX migration.
13.1.3 Once Number Portability is implemented pursuant to FCC or
Commission regulation, either Party may withdraw, at any time and at its sole
discretion, its INP offerings, subject to advance notice to the other Party and
coordination to allow the seamless and transparent conversion of INP Customer
numbers to Number Portability. Upon implementation of Number Portability
pursuant to FCC regulation, both Parties agree to conform and provide such
Number Portability.
13.2 Procedures for Providing INP Through Remote Call Forwarding
Focal and Ameritech will provide INP through Remote Call Forwarding as
follows:
13.2.1 A Customer of one Party ("Party A") elects to become a
Customer of the other Party ("Party B"). The Customer elects to utilize the
original telephone number(s) corresponding to the Exchange Service(s) it
previously received from Party A, in conjunction
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with the Exchange Service(s) it will now receive from Party B. Upon receipt of a
signed letter of agency from the Customer (and an associated service order)
assigning the number to Party B. Party A will implement an arrangement whereby
all calls to the original telephone number(s) will be forwarded to a new
telephone number(s) designated by Party B. Party A will route the forwarded
traffic to Party B over the appropriate Local/IntraLATA Trunks as if the call
had originated on Party A's network.
13.2.2 Party B will become the customer of record for the original
Party A telephone numbers subject to the INP arrangements. Party A shall use its
reasonable efforts to consolidate into as few billing statements as possible for
all collect, calling card, and 3rd-number billed calls associated with those
numbers, with sub-account detail by retained number. At Party B's sole
discretion, such billing statement shall be delivered to Party B in an agreed-
upon format via either electronic file transfer, daily magnetic tape, or monthly
magnetic tape.
13.2.3 Party A will update its Line Information Database ("LIDB")
listings for retained numbers, and restrict or cancel calling cards associated
with those forwarded numbers as directed by Party B.
13.2.4 Within two (2) business days of receiving notification from
the Customer, Party B shall notify Party A of the Customer's termination of
service with Party B, and shall further notify Party A as to that Customer's
instructions regarding its telephone number(s). Party A will reinstate service
to that Customer, cancel the INP arrangements for that Customer's telephone
Dumber(s), or redirect the INP arrangement to another INP-participating-LEC
pursuant to the Customer's instructions at that time.
13.3 Procedures for Providing INP Through Direct Inward Dial
Upon request, Ameritech shall provide to Focal Interim Number Portability
via Direct Inward Dial Trunks pursuant to applicable tariffs.
13.4 Procedures for Providing INP Through NXX Migration
Where either 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 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
appropriate industry lead-times for movements of NXXs from one switch to
another.
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13.5 Receipt of Terminating Compensation on Traffic to INP'ed Numbers
The Parties agree that under INP terminating compensation on calls to
INP'ed numbers should be received by each Customer's chosen LEC 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 13.5 whereby term meting
compensation on calls subject to INP will be passed from the Party (the
"Performing Party") which performs the INP to the other Party (the "Receiving
Party") for whose Customer the INP is provided.
13.5.1 The Parties shall individually and collectively track and
quantify INP traffic between their networks based on the CPN of each call by
identifying CPNs which are INP'ed numbers. The Receiving Party shall charge the
Performing Party for each minute of INP traffic at the INP Traffic Rate
specified in Section 13.5.3 in lieu of any other compensation charges for
terminating such traffic.
13.5.2 By the Interconnection Activation Date in each LATA, the
Parties shall jointly estimate for the prospective year, based on historic data
of all traffic in the LATA, the percentages of such traffic that if dialed to
telephone numbers bearing NPA-NXXs directly assigned to a Receiving Party (as
opposed to the INP'ed number) would have been subject to (i) Reciprocal
Compensation ("Recip Traffic"), (ii) intrastate FGD charges ("Intra Traffic"),
(iii) interstate FGD charges ("Inter Traffic"), or (iv) handling as Local
Traffic under transiting arrangements between the Parties ("Transit Traffic").
On the date which is six (6) months after the Interconnection Activation Date,
and thereafter on each succeeding six month anniversary of such Interconnection
Activation Date, the Parties shall establish new INP traffic percentages to be
applied in the prospective six (6) month period, based on actual INP traffic
percentages from the preceding six (6) month period.
13.5.3 The INP Traffic Rate shall be equal to the sum of:
(Recip Traffic percentage times the Reciprocal Compensation Rate set
forth in the Pricing Schedule) plus (Intra Traffic percentage times
Ameritech's effective intrastate FGD rates) EM (Inter Traffic
percentage times Ameritech's effective interstate FGD rates).
A rate of zero shall be applied to the Transit Traffic percentage on the
assumption that some portion of such Transit Traffic would otherwise be subject
to other compensation arrangements and to account for a reasonable level of
uncollectibles on terminating compensation. Interstate and intrastate FGD rates
shall be calculated utilizing the effective interstate and intrastate carrier
common line (CCL) rates, residual interconnection charge (RIC) rate elements,
local switching (LS) rate elements, one-half the local transport termination
(LTT) rate elements, and one-half the local transport facility (LTF) rate
elements (assuming a five (5) mile LTF).
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14.0 DIALING PARITY -- SECTION 251(b)(3)
The Parties shall provide Local Dialing Parity to each other as required
under Section 251(b)(3) of the Act.
15.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4)
Each Party shall provide the other Party access to the poles, ducts,
rights-of-way and conduits it owns or controls on terms, conditions and prices
comparable to those offered to any other entity pursuant to each Party's
applicable tariffs and/or standard agreements.
16.0 DATABASE ACCESS
In accordance with Section 271 of the Act, Ameritech shall provide Focal
with interfaces to access Ameritech's databases and associated signaling
necessary for the routing and completion of Focal's traffic. Access to such
databases, and the appropriate interfaces, shall be made available to Focal via
a Network Element Bona Fide Request.
17.0 REFERRAL ANNOUNCEMENT
When a Customer changes its service provider from Ameritech to Focal, or
from Focal 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 either the other Party or the Customer,
for the period specified in 170 IAC 7-1.1-11(I)(3)(a) and (b). However, if
either Party provides Referral Announcements for a period 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.
18.0 OTHER SERVICES
Focal and Ameritech provide other services to each other as required under
the Act pursuant to the following Agreements:
(a) Agreement by and between Focal and Ameritech for Enhanced 9-1-1
Service, dated March 16, 1998, and
(b) Listing and Directory Services Agreement between Ameritech
Advertising Services and Focal, dated February 4, 1998.
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GENERAL PROVISIONS
19.0 GENERAL RESPONSIBILITIES OF THE PARTIES
19.1 Each of Ameritech and Focal shall use its best efforts to comply with
the Implementation Schedule.
19.2 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. Focal, for the
purpose of ubiquitous connectivity, network diversity and alternate routing,
shall connect to at least one Tandem Office Switch for the receipt/completion of
traffic to any Ameritech End Office Switches.
19.3 Thirty (30) days after the Effective Date and each month during the
term of this Agreement, each Party shall provide the other Party with a rolling,
six (6) calendar month, non binding forecast of its traffic and volume
requirements for the services and Network Elements provided under this Agreement
in the form and in such detail as agreed by the Parties. Notwithstanding
Section 28.6.1, the Parties agree that each forecast provided under this Section
19.3 shall be deemed "Proprietary Information" under Section 28.6.
19.4 Any Party that is required pursuant to this Agreement to provide a
forecast (the "Forecast Provider") or the Party that is entitled pursuant to
this Agreement to receive a forecast (the "Forecast Recipient") with respect to
traffic and volume requirements for the services and Network Elements provided
under this Agreement may request in addition to non-binding forecasts required
by Section 19.3 that the other Party enter into negotiations to establish a
forecast (a "Binding Forecast") that commits such Forecast Provider to purchase,
and such Forecast Recipient to provide, a specified volume to be utilized as set
forth in such Binding Forecast. The Forecast Provider and Forecast Recipient
shall negotiate the terms of such Binding Forecast in good faith and shall
include in such Binding Forecast provisions regarding price, quantity, liability
for failure to perform under a Binding Forecast and any other terms desired by
such Forecast Provider and Forecast Recipient. Notwithstanding Section 28.6.1,
the Parties agree that each forecast provided under this Section 19.4 shall be
deemed "Proprietary Information" under Section 28.6.
19.5 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 in the standard format compatible with Ameritech's
network 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 19.2 and 19.3 above. 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.
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19.6 Neither Party shall use any service related to or using any of the
services provided in this Agreement in any manner that interferes with other
persons in the use of their service, prevents other persons from using their
service, or otherwise impairs the quality of service to other carriers or to
either Party's Customers, and either Party may discontinue or refuse service if
the other Party violates this provision. Upon such violation, either Party
shall provide the other Party notice, if practicable, at the earliest
practicable time.
19.7 Each Party is solely responsible for the services it provides to its
Customers and to other Telecommunications Carriers.
19.8 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.
19.9 Each Party is responsible for administering NXX codes assigned to it.
20.0 TERM AND TERMINATION
20.1 The initial term of this Agreement shall be the period terminating on
May 17, 1999 (the "Term"). Absent the receipt by one Party of written notice
from the other Party at least sixty (60) days prior to the expiration of the
Term to the effect that such Party does not intend to extend the Term of this
Agreement, this Agreement shall automatically renew and remain in full force and
effect on and after the expiration of the Term until terminated by either Party
pursuant to Section 20.3.
20.2 Either Party may terminate this Agreement in the event that the other
Party (i) fails to pay any amount when due hereunder (excluding Disputed Amounts
pursuant to Section 28.11) and fails to cure such nonpayment within sixty (60)
days after receipt of written notice thereof; or (ii) fails to perform any other
material obligation required to be performed by it pursuant to this Agreement
and fails to cure such material nonperformance within forty-five (45) days after
written notice thereof.
20.3 If pursuant to Section 20.1 this Agreement continues in full force and
effect after the expiration of the Term, either Party may terminate this
Agreement ninety (90) days after delivering written notice to the other Party of
its intention to terminate this Agreement. Neither Party shall have any
liability to the other Party for termination of this Agreement pursuant to this
Section 20.3 other than to pay to the other Party any amounts owed under this
Agreement.
20.4 Upon termination or expiration of this Agreement in accordance with
this Section 20.0:
(a) each Party shall comply immediately with its obligations set forth
in Section 28.6.3;
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(b) each Party shall continue to perform its obligations and provide
the services as described herein until such time as a successor agreement
between the Parties is entered into; provided, however, that the Parties shall
renegotiate the rates, fees and charges contained herein; and
(c) each Party shall promptly pay all amounts (including any late
payment charges) owed under this Agreement.
20.5 Except as set forth in Section 26.5, 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.
21.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES,
FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT AND
THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
A PARTICULAR PURPOSE.
22.0 CANCELLATION CHARGES
Except as, provided in Sections 9.6.4 and 19.4 and pursuant to a Network
Element Bona Fide Request, or as otherwise provided in any applicable tariff or
contract referenced herein, no cancellation charges shall apply.
23.0 NON-SEVERABILITY
23.1 The services, arrangements, Interconnection, Network Elements, terms
and conditions of this Agreement were mutually negotiated by the Parties as a
total arrangement and are intended to be non-severable, subject only to Section
28.14 of this Agreement.
23.2 Nothing in this Agreement shall be construed as requiring or
permitting either Party to contravene any mandatory requirement of federal or
state law, or any regulations or orders adopted pursuant to such law.
24.0 INDEMNIFICATION
24.1 Each Party shall be responsible only for service(s) and facility(ies)
which are provided by that Party, its 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, its agents,
subcontractors, or others retained by such parties.
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24.2 Except as otherwise provided in Sections 24.3, 24.4 and 25.2, and to
the extent not prohibited by law and not otherwise controlled by tariff, each
Party (the "Indemnifying Party) shall defend and indemnify the other Party (the
Indemnified Party") and hold such Indemnified Party harmless against any Loss to
a third party arising out of the negligence or willful misconduct by such
Indemnifying Party, its agents, its Customers, contractors, or others retained
by such parties, in connection with its provision of services or functions under
this Agreement.
24.3 In the case of any Loss alleged or made by a Customer of either Party,
the Party (Indemnifying Party") whose Customer alleged or made such Loss shall
defend and indemnify the other Party (the "Indemnified Party") and hold such
Indemnified Party harmless against any or all of such Loss alleged by each and
every Customer.
24.4 Each Party ("Indemnified Party") shall be indemnified, defended and
held harmless by the other Party ("Indemnifying Party") against any Loss arising
from such Indemnifying Party's use of services offered under this Agreement,
involving:
(1) Claims for libel, slander, invasion of privacy, or infringement of
copyright arising from the Indemnifying Party's own communications or the
communications of such Indemnifying Party's Customers; or
(2) Claims for patent, trademark, copyright infringement or other
infringement of intellectual property rights, arising from the Indemnifying
Party's acts combining or using the service furnished by the Indemnified
Party in connection with facilities or equipment furnished by the
Indemnifying Party or its Customers, agents, subcontractors or others
retained by such parties.
24.5 The Indemnifying Party agrees to defend any suit brought against the
Indemnified Party for any Loss identified in this Section 24.0. The Indemnified
Party agrees to notify the Indemnifying Party promptly in writing of any written
claims, lawsuits, or demand for which such Indemnifying Party is or may be
responsible and of which the Indemnified Party has knowledge and to cooperate in
every reasonable way to facilitate defense or settlement of claims. The
Indemnifying Party shall have the exclusive right to control and conduct the
defense and settlement of any such actions or 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.
25.0 LIMITATION OF LIABILITY
25.1 Except as otherwise provided in Section 24.0, no Party shall be liable
to the other Party for any Loss, defect or equipment failure caused by the
conduct of the other Party, the other Party's agents, servants, contractors or
others acting in aid or concert with the other Party.
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25.2 Except for Losses alleged or made by a Customer of either Party, in
the case of any Loss arising from the negligence or willful misconduct of both
Parties, each Party shall bear, and its obligations under this Section 25.0
shall be limited to, that portion (as mutually agreed to by the Parties) of the
resulting expense caused by its (including that of its agents, servants,
contractors or others acting in aid or concert with it) negligence or willful
misconduct.
25.3 Except for indemnity obligations under Sections 24.2 and 24.4, each
Party's liability to the other Party for any Loss relating to or arising out of
any negligent act or omission in its performance of this Agreement, whether in
contract or in tort, shall be limited to the total amount that is or would have
been charged to the other Party by such negligent or breaching Party for the
service(s) or function(s) not performed or improperly performed.
25.4 In no event shall either Party have any liability whatsoever to the
other Party for any indirect, special, consequential, incidental or punitive
damages, including but not limited to 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 a Party's obligation under Section 24.2 to indemnify,
defend and hold the other Party harmless against any amounts payable to a third
party, including any losses, costs, fines, penalties, criminal or civil
judgments or settlements, expenses (including attorneys' fees) and Consequential
Damages of such third party.
26.0 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 of the Act, or any
legislative, regulatory, judicial order, rule or regulation or 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, such amendment shall be
retroactively effective as determined by the Commission and 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.
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27.0 REGULATORY APPROVAL
The Parties understand and agree that this Agreement will be filed with the
Commission and may thereafter be filed with the FCC. The Parties covenant and
agree that this Agreement is satisfactory to them as an agreement under Section
251 of the Act. Each Party covenants and agrees to fully support approval of
this Agreement by the Commission or the FCC under Section 252 of the Act without
modification. The Parties, however, resend the right to seek regulatory relief
and otherwise seek redress from each other regarding performance and
implementation of this Agreement. In the event the Commission 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.
28.0 MISCELLANEOUS
28.1 Authorization.
28.1.1 Ameritech Information Industry Services, a division of
Ameritech Services, Inc., is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full power and
authority to execute and deliver this Agreement and to perform the obligations
hereunder on behalf of Ameritech Indiana.
28.1.2 Focal is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder.
28.2 Compliance. Each Party shall comply with all applicable federal,
state, and local laws, rules, and regulations applicable to its performance
under this Agreement.
28.3 Compliance with the Communications Law Enforcement Act of 1994
("CALEA"). Each Party represents and warrants that any equipment, facilities or
services provided to the other Party under this Agreement comply with CALEA.
Each Party shall indemnify and hold the other Party harmless from any and all
penalties imposed upon the other Party for such noncompliance and shall at the
non-compliant Party's sole cost and expense, modify or replace any equipment,
facilities or services provided to the other Party under this Agreement to
ensure that such equipment, facilities and services fully comply with CALEA.
28.4 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.
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28.5 Force Majeure. Neither Party shall be liable for any delay or failure
in performance of any part of this Agreement from any cause beyond its control
and without its fault or negligence including, without limitation, acts of
nature, acts of civil or military authority, government regulations, embargoes,
epidemics, terrorist acts, riots, insurrections, fires, explosions, earthquakes,
nuclear accidents, floods, work stoppages, equipment failure, power blackouts,
volcanic action, other major environmental disturbances, unusually severe
weather conditions, inability to secure products or services of other persons or
transportation facilities or acts or omissions of transportation carriers
(collectively, a "Force Majeure Event").
28.6 Confidentiality.
28.6.1 Any information such as specifications, drawings, sketches,
business information, forecasts, models, samples, data, computer programs and
other software and documentation of one Party (a "Disclosing Party") that is
furnished or made available or otherwise disclosed to the other Party or any of
its employees, contractors, agents or Affiliates (its "Representatives" and with
a Party, a "Receiving Party") pursuant to this Agreement (proprietary
Information") shall be deemed the property of the Disclosing Party. Proprietary
Information, if written, shall be marked "Confidential" or "Proprietary" or by
other similar notice, and, if oral or visual, shall be confirmed in writing as
confidential by the Disclosing Party to the Receiving Party within ten (10) days
after disclosure. Unless Proprietary Information was previously known by the
Receiving Party free of any obligation to keep it confidential, or has been or
is subsequently made public by an act not attributable to the Receiving Party,
or is explicitly agreed in writing not to be regarded as confidential, it (a)
shall be held in confidence by each Receiving Party; (b) shall be disclosed to
only those Representatives who have a need for it in connection with the
provision of services required to fulfill this Agreement and shall be used only
for such purposes; and (c) may be used for other purposes only upon such terms
and conditions as may be mutually agreed to in advance of use in writing by the
Parties. Notwithstanding the foregoing sentence, a Receiving Party shall be
entitled to disclose or provide Proprietary Information as required by any
governmental authority or applicable law only in accordance with Section 28.6.2.
28.6.2 If any 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. The
Disclosing Party may then either seek appropriate protective relief from all or
part of such requirement or, if it fails to successfully do so, it shall be
deemed to have waived the Receiving Party's compliance with Section 28.6 with
respect to all or part of such requirement. 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 obtain.
28.6.3 In the event of the expiration or termination of this
Agreement for any reason whatsoever, each Party shall return to the other Party
or destroy all Proprietary Information and other documents, work papers and
other material (including all copies thereof)
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obtained from the other Party in connection with this Agreement and shall use
all reasonable efforts, including instructing its employees and others who have
had access to such information, to keep confidential and not to use any such
information, unless such information is now, or is hereafter disclosed, through
no act, omission or fault of such Party, in any manner making it available to
the general public.
28.7 Governing Law. For all claims under this Agreement that are based
upon issues within the jurisdiction (primary or otherwise) of the FCC, the
exclusive jurisdiction and remedy for all such claims shall as provided for by
the FCC and the Act. For all claims under this Agreement that are based upon
issues within the jurisdiction (primary or otherwise) of the Commission, the
exclusive jurisdiction for all such claims shall be with such Commission, and
the exclusive remedy for such claims shall be as provided for by such
Commission. In all other respects, this Agreement shall be governed by the
domestic laws of the State of Indiana without reference to conflict of law
provisions.
28.8 Taxes. 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 tax exemption, 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.
28.9 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 park without the prior written consent of the other Party;
provided that each Party may assign this Agreement to a corporate Affiliate or
an entity under its common control or an entity acquiring all or substantially
all of its assets or equity by providing prior written notice to the other Party
of such assignment or transfer. 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.
28.10 Non-Waiver. 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.
28.11 Disputed Amounts.
28.11.1 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
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Non-Paying Party") shall within sixty (60) days of its receipt of the invoice
containing such disputed amount give notice to the Billing Party of the amounts
it disputes (Disputed Amounts) and include in such notice the specific details
and reasons for disputing each item. The Non-Paying Party shall pay when due (i)
all undisputed amounts to the Billing Party and (ii) all Disputed Amounts into
an interest bearing escrow account with a third party escrow agent mutually
agreed upon by the Parties.
28.11.2 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.
28.11.3 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 28.11.2, 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 may direct release of any
or all funds (including any accrued interest) in the escrow account, plus
applicable late fees, to be paid to either Party.
28.11.4 The Parties agree that all negotiations pursuant to this
Section 28.11 shall remain confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
28.11.5 Any undisputed amounts not paid when due shall accrue
interest from the date such amounts were due 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.
28.12 Notices. Notices given by one Party to the other Party under this
Agreement shall be in writing and 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
to the following addresses of the Parties:
To Focal:
Focal Communications Corporation of Illinois
200 N. LaSalle, Suite 820
Chicago, Illinois 60601
Attn: Executive Vice President and COO
Facsimile: (312) 895-8403
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<PAGE>
To Ameritech:
Ameritech Information Industry Services
350 North Orleans, Floor 3
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.
28.13 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 promotional materials without such Party's
prior written consent.
28.14 Section 252(i) Obligations. If either Party enters into an
agreement (the "Other Agreement") approved by the Commission pursuant to Section
252 of the Act which provides for the provision of arrangements covered in this
Agreement to another requesting Telecommunications Carrier, including itself or
its affiliate, such Party shall make available to the other Party such
arrangements upon the same rates, terms and conditions as those provided in the
Other Agreement. At its sole option, the other Party may avail itself of either
(i) the Other Agreement in its entirety or (ii) the prices, terms and conditions
of the Other Agreement that directly relate to any of the following duties as a
whole:
(1) Interconnection - Section 251(c)(2) of the Act (Section 4.0 and 5.0 of
this Agreement); or
(2) Exchange Access - Section 251(c)(2) of the Act (Section 6.0 of this
Agreement); or
(3) Unbundled Access - Section 251(c)(3) of the Act (Section 9.0 of this
Agreement); or
-42-
<PAGE>
(4) Resale - Section 251(c)(4) of the Act (Section 10.0 of this
Agreement); or
(5) Collocation - Section 251(c)(6) of the Act (Section 12.0 of this
Agreement); or
(6) Number Portability - Section 251(b)(2) of the Act (Section 13.0 of
this Agreement); or
(7) Access to Rights of Way - Section 251(b)(4) of the Act (Section 15.0
of this Agreement).
28.15 Additional Right to Modification. The Parties acknowledge and agree
that this Agreement contains provisions substantially similar to those in an
Interconnection Agreement by and between Ameritech Indiana and AT&T
Communications of Indiana, Inc., which was approved by the Commission on March
26, 1997. To the extent that any provisions in the AT&T Interconnection
Agreement are modified as a result of any order or finding by the FCC, the
Commission or a court of competent jurisdiction, either Party shall have the
right to modify the corresponding provisions in this Agreement consistent with
such order or finding.
28.16 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.
28.17 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. Except for provisions herein expressly authorizing
a Party to act for another, nothing in this Agreement shall constitute a Party
as a 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.
Except as otherwise expressly provided in this Agreement, no Party undertakes to
perform any obligation of the other Party, whether regulatory or corral, or to
assume any responsibility for the management of the other Party's business.
28.18 No License. No license under patents, copyrights or any other
intellectual property right (other than the limited license to use 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.
28.19 Technology Upgrades. Nothing in this Agreement shall limit
Ameritech's ability to upgrade its network through the incorporation of new
equipment, new software or otherwise. Ameritech shall provide Focal written
notice at least ninety (90) days prior to the incorporation of any such upgrades
in Ameritech's network which will materially impact Focal's service.
-43-
<PAGE>
Focal shall be solely responsible for the cost and effort of accommodating such
changes in its own network.
28.20 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 without limitation, Sections 20.4, 21.0, 22.0, 24.0, 25.0, 28.3, 28.6,
28.11, 28.13 and 28.18.
28.21 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.
28.22 Entire Agreement. The terms contained in this Agreement and any
Schedules, Exhibits, tariffs 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 preprinted
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.
-44-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of this 16th day of March 1998./2/
FOCAL COMMUNICATIONS AMERITECH INFORMATION
CORPORATION OF ILLINOIS INDUSTRY SERVICES, A DIVISION OF
AMERITECH SERVICES, INC., ON BEHALF
OF AMERITECH INDIANA
By: /s/ John R. Barnicle By: /s/ Theodore A. Edwards
-------------------------------- ---------------------------------
Printed: John R. Barnicle Printed: Theodore A. Edwards
--------------------------- ----------------------------
Title: Executive Vice President Title: Vice President
----------------------------- ------------------------------
- --------------------------------------------------------------------------------
/2/ This Agreement is the result of Focal's adoption in its entirety of the
terms of that certain Amended and Restated Agreement under Sections 251 and
252 of the Telecommunications Act of 1996 dated April, 1997 by and between
Ameritech Indiana and MFS Intelenet of Indiana, Inc. ("MFS Agreement").
This Agreement does not represent a voluntary or negotiated agreement under
Section 252 of the Act but instead merely represents Ameritech's compliance
with Focal's statutory rights under Section 252(i) of the Act. If any
provision in the MFS Agreement is amended or modified as a result of any
order or finding by the FCC, the Commission or a court of competent
jurisdiction, this Agreement shall be deemed to be amended consistent with
such order or finding, including the date such amendment is deemed
effective. The term "Effective Date" as used herein refers to the
Effective Date of the MFS Agreement. This Agreement is not effective
between Ameritech and Focal until it is approved by the Commission and does
not obligate either Party with respect to the period prior to approval.
-45-
<PAGE>
SCHEDULE 1.0
CERTAIN TERMS AS DEFINED THE ACT AS OF MAY 16, 1996
"Affiliate" means a person that (directly or indirectly) owns or controls,
is owned or controlled by, or is under common ownership or control with, another
person. For purposes of this paragraph, the term "own" means to own an equity
interest (or the equivalent thereof) of more than ten percent (10%).
"Dialing Parity" means that a person that is not an Affiliate of LEC is
able to provide Telecommunications Services in such a manner that Customers have
the ability to route automatically, without the use of any access code, their
Telecommunications to the Telecommunications Services provider of the Customer's
designation from among two (2) or more Telecommunications Services providers
(including such LEC).
"Exchange Access" means the offering of access to Telephone Exchange
Services or facilities for the purpose of the origination or termination of
Telephone Toll Services.
"InterLATA" means Telecommunications between a point located in a local
access and transport area and a point located outside such area.
"Local Access and Transport Area" or "LATA" means a contiguous geographic
area: (a) established before the date of enactment of the Act by a Bell
operating company such that no Exchange Area includes points within more than
one (1) metropolitan statistical area, consolidated metropolitan statistical
area, or State, except as expressly permitted under the AT&T Consent Decree; or
(b) established or modified by a Bell operating company after such date of
enactment and approved by the FCC.
"Local Exchange Carrier" means any person that is engaged in the provision
of Telephone Exchange Service or Exchange Access. Such term does not include a
person insofar as such person is engaged in the provision of a commercial mobile
service under Section 332(c) of the Act, except to the extent that the FCC finds
that such service should be included in the definition of such term.
"Network Element" means a facility or equipment used in the provision of a
Telecommunications Service. Such term also includes features, functions, and
capabilities that are provided by means of such facility or equipment, including
subscriber numbers, databases, signaling systems, and information sufficient for
billing and collection or used in the transmission, routing, or other provision
of a Telecommunications Service.
"Number Portability" means the ability of end users of telecommunications
services to retain, at the same location, existing telecommunications numbers
without impairment of quality, reliability, or convenience when switching from
one telecommunications carrier to another.
Sch. 1.0 - 1
<PAGE>
"Telecommunications" means the transmission, between or among points
specified by the user, of information of the user's choosing, without change in
the form or content of the information as sent and received.
"Telecommunications Carrier" means any provider of Telecommunications
Services, except that such term does not include aggregators of
Telecommunications Services (as defined in Section 226 of the Communications
Act).
"Telecommunications Service" means the offering of Telecommunications for a
fee directly to the public, or to such classes of users as to be effectively
available directly to the public, regardless of the facilities used.
"Telephone Exchange Service" means (a) service within a telephone exchange
or within a connected system of telephone exchanges within the same exchange
area operated to furnish subscribers intercommunicating service of the character
ordinarily furnished by a single exchange, and which is covered by the exchange
service charge, or (b) comparable service provided through a system of switches,
transmission equipment, or other facilities (or combination thereof) by which a
subscriber can originate and terminate a telecommunications service.
"Telephone Toll Service" means telephone service between stations in
different exchange areas for which there is made a separate charge not included
in contracts with subscribers for exchange service.
Sch. 1.0 - 2
<PAGE>
SCHEDULE 3.0
IMPLEMENTATION SCHEDULE
<TABLE>
<CAPTION>
LATA Ameritech Focal Interconnection
Interconnection Interconnection Activation
Wire Center Wire Center Date
(AIWC) (FIWC)
<S> <C> <C> <C>
Chicago 358 Wabash 200 N. LaSalle The later of March 27,
CHCGILWB12T CHCGILABDSO 1998 or the approval date
of this Agreement by the
Commission*
</TABLE>
- --------------------------------------------------------------------------------
/*/ Based on pre-existing interconnection arrangements between the Parties
Sch. 3.0 - 1
<PAGE>
SCHEDULE 9.2.1
LOCAL LOOPS
Subject to Section 1.1 of Schedule 9.5, Ameritech shall allow Focal to access
the following Loop types (in addition to those Loops available under applicable
tariffs) unbundled from switching and local transport.
"2-Wire Analog Voice Grade Loop" or "Analog 2W," which supports analog
transmission of 303000 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
Sch. 9.2.1 - 1
<PAGE>
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.
"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 - 2
<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 Focal to connect Focal's loop to the inside wiring of
the Customer's premises through Ameritech's NID, where necessary. Focal must
establish the connection to Ameritech's NID through an adjoining NID which
serves as the network interface or demarcation for Focal'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.
Sch. 9.2.2 - 1
<PAGE>
SCHEDULE 9.2.3
SWITCHING
1.0 Local Switching. The local switching capability of a Network Element
("Unbundled Local Switching") 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, and dial tone;
(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.
When local switching is provided by Ameritech, Focal will receive Customer Usage
Data and billing information in accordance with the requirements of Section 3.0
of this Schedule 9.2.3.
2.0 Tandem Switching.
2.1 The Tandem Switching Capability Network Element is defined as:
(1) 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;
(2) the basic switching function of creating a temporary transmission path
that connects Focal's trunks to the trunks of Ameritech, IXCs, ICOs,
CMRS, and other LECs interconnected to the Tandem Switch.
Sch. 9.2.3 - 1
<PAGE>
2.2 Interconnecting trunk types which can be switched include FOB, 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 Focal
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:
1. Routing of calls from an inbound trunk to an outbound trunk based
on destination digits.
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 available (i.e., features that the switch is capable
of providing) 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 Focal to pay the applicable recurring and
nonrecurring 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.
3.0 Exchange of Billing Information.
3.1 Ameritech shall provide Focal a specific Daily Usage File ("DUF") for
Unbundled Local Switching 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, and shall include sufficient detail to enable Focal to bill its
facilities-based Customers who utilize Unbundled Local Switching that Focal
purchases from Ameritech. Ameritech will provide to Focal detailed
specifications which will enable Focal to develop an interface for the exchange
of Customer Usage Data. Procedures and processes for implementing the interface
will be included in the Grooming Plan. Except as provided in this Section 3.0,
no other detailed billing shall be provided by Ameritech to Focal.
3.2 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 Focal. This call detail will be returned to the IXC
with a transaction code indicating
Sch. 9.2.3 - 2
<PAGE>
that the returned call originated from a resold account. Billing for 976 calls
or other Information Services Traffic will be passed through when Ameritech
records the message. If Focal does not wish to be responsible for 976 calls, it
must order blocking for resold lines. When the IXC records the 976 calls, the
call detail will be returned to the IXC. Upon Focal's request, Ameritech will
recourse charges on 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 Focal, and Focal, at its option and expense, may
pursue any rights which Ameritech may have under such agreements to contest such
charge. If Focal elects not to contest such charges or such Information Service
provider does not accept the recourse, Focal will promptly pay Ameritech for
such charges and the dispute shall be solely between Focal and the Information
Service provider.
3.3 Ameritech shall not be responsible for providing any billing
information to Focal Customers.
Sch. 9.2.3 - 3
<PAGE>
SCHEDULE 9.2.4
INTEROFFICE TRANSMISSION FACILITIES
Interoffice Facilities are Ameritech transmission facilities dedicated to a
particular Customer or carrier, or shared by more than one Customer or carrier,
used to provide Telecommunications Services between Wire Centers owned by
Ameritech or Focal, or between Switches owned by Ameritech or Focal.
1. Ameritech provides several varieties of unbundled transport facilities:
1.1. Unbundled dedicated interoffice transmission facility ("Dedicated
Transport") is a dedicated facility connecting two Ameritech Central Offices
buildings via Ameritech transmission equipment. In each Central Office building,
Focal 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 provided that 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 Focal's transmission equipment in Focal's Wire Center for the purposes of
providing Telecommunications Services.
1.3. Shared interoffice 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. 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)
dedicated to Focal.
2.2. As a shared transmission path as described in Section 1.3 above.
3. 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 Focal,
at additional costs:
Sch 9.2.4 - 1
<PAGE>
3.2.1. Clear Channel Capability per 1.544 Mbps (DS1) bit stream.
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 Focal, 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. Technical Requirements.
This Section sets forth technical requirements for all Interoffice
Transmission Facilities:
4.1. When Ameritech provides Dedicated Transport as a circuit, the entire
designated transmission facility (e.g., DS1, DS3, and where available, STS-1)
shall be dedicated to Focal designated traffic.
4.2. Ameritech shall offer Dedicated Transport in all then currently
available technologies including DS1 and DS3 transport systems, SONET
Bidirectional 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, Dedicated Transport 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 and, where available, STS-1 facilities and higher rate
facilities, Dedicated Transport 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.
Sch. 9.2.4 - 2
<PAGE>
4.5. When requested by Focal, Dedicated Transport 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.
4.6. When physical diversity is requested by Focal, Ameritech shall provide
the maximum feasible physical separation between intra-office and inter-office
transmission paths (unless otherwise agreed by Focal).
4.7. Any request by Focal for diversity shall be subject to additional
charges.
4.8. Upon Focal's request and its payment of any additional charges,
Ameritech shall provide immediate and continuous remote access to performance
monitoring and alarm data affecting, or potentially affecting, Focal's traffic.
4.9. Ameritech shall offer the following interface transmission rates for
Dedicated Transport:
4.9.1. DS1 (Extended SuperFrame - ESF, D4, and unframed applications
(if used by Ameritech));
4.9.2. DS3 (C-bit Parity and M13 and unframed applications (if used
by Ameritech) shall be provided);
4.9.3. SONET standard interface rates in accordance with the
applicable ANSI technical references set forth under Dedicated and Shared
Transport in the Technical Reference Schedule. In particular, where STS-1 is
available, VT1.5 based STS-ls will be the interface at an Focal service node.
4.10. Upon Focal's request, Ameritech shall provide Focal with electronic
provisioning control of an Focal specified Dedicated Transport through Ameritech
Network Reconfiguration Service (ANRS) on the rates, terms and conditions in
F.C.C. Tariff No. 2.
4.11. Ameritech shall permit, at applicable rates, Focal 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 Focal requests additional functionality,
such request shall be made through the Bona Fide Request process.
Sch. 9.2.4 - 3
<PAGE>
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;
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 Focal 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 Focal 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:
Sch. 9.2.5 - 1
<PAGE>
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 O
(basic connectionless) service, as specified in ANSI T1.112. In particular,
this includes Global Title Translation (OTT) 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 Focal 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 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.
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 Focal 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 retirement
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 Focal-designated Signaling
Points of Interconnection (SPOI) that provides appropriate physical diversity.
Sch. 9.2.5 - 2
<PAGE>
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:
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 following:
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 Focal-designated SPOI. Each 56 Kbps transmission path shall
appear as a DS0 channel within the DS1 interface.
Sch. 9.2.5 - 3
<PAGE>
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.
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.
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. Focal may choose the 800 Carrier
Identification service to obtain toll-free number screening. With this service,
Focal 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.
Focal's SS7 network is used to transport the query from its End Office to
the Ameritech SCP. Once Focal's identification is provided, Focal 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 Focal. The
toll-free carrier ID data may not be stored for Focal's future use.
2.1.4. Number Administration. Focal, 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 Focal does not
select NAS, Focal will perform the Responsible Organization service.
Sch. 9.2.5 - 4
<PAGE>
2.2. LIDB Database Service.
2.2.1. The Line Information Database (LIDB) Query Response Service is a
validation database system. It enables Focal 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 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 flame, 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. CNDS Database Service.
2.3.1 Caller ID identifies a calling party's telephone number through
a switch-based feature installed in Ameritech's Central Office. CNDS is a
CCIS/SS7 network based feature that accesses a CNDS database within the LIDB to
provide a name associated with the calling party's telephone number. This
service is provided using TR1188 protocol.
2.3.2 A Customer who subscribes to Caller ID with Name will see the
listed name associated with the calling party's telephone line displayed on
his/her Caller ID display unit. The telephone number associated with the
telephone line of the calling party will also be displayed.
2.3.3 Ameritech shall charge Focal for the CNDS Database Service in a
similar manner to that which Ameritech charges Focal for the LIDB Database
Service, including a per query charge.
2.4 Local Number Portability.
2.4.1 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.
2.4.2 Ameritech is fully prepared to provide LNP database access to Focal.
However, in adopting its Number Portability Order, the FCC referred certain
technical and other 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.
Sch. 9.2.5 - 5
<PAGE>
Nonetheless, Ameritech is willing to begin discussions with Focal to discuss
Focal's access to Ameritech's LNP databases in lieu of constructing Focal's own.
2.5. Unbundled AIN Application Process.
2.5.1. 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.
2.5.2. Ameritech's Unbundled AIN (Advanced Intelligent Network)
Applications Access service will be provided on a nondiscriminatory basis and
enable Focal (whether it purchases unbundled switching capabilities from
Ameritech or owns its own SSP (Service Switching Point)) to offer its Customers
AIN services. Ameritech will make available existing AIN retail applications,
as well as newly created services that Focal 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 applications execution. This
includes the SS7 transport and SCP processing of the query associated with the
specific service.
2.5.3. 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.
2.5.4. 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 Focal purchases
Unbundled Switching from Ameritech, the AIN Service Switching Point (SSP).
Focal 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 Focal SSP with the Ameritech SS7 network is required, and
can be accomplished in a number of ways.
2.5.5. Activation of the desired application at the Ameritech SCP requires
subscription by both the ordering carrier Focal and the end-user. In general,
AIN operations require close cooperation between Ameritech and the requesting
Carrier.
2.5.6. 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.
Sch. 9.2.5 - 6
<PAGE>
3.1. AIN Service Creation Environment Access Service.
Access to Ameritech's AIN service creation functionality will be provided in a
nondiscriminatory manner to Focal to enable it to create new AIN services on
Ameritech's network. If Focal has a new AIN service concept, it can utilize all
or some of the features below to obtain a fully functional AIN service.
Ameritech will furnish Focal with a list of AIN Applications and the switches on
which such applications are available, including the software version of AIN on
such switch type. The following is a list of AIN service creation functions
available via this service offering:
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. The AIN service creation functions made available to Focal
must be the same ones Ameritech uses, subject to any third party restrictions
Ameritech may be subject to.
3.1.2. Creation of Technical Specification: Translation of a new service
description into a technical specification including engineering requirements
for 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 to
SCE to ensure accuracy of compilation and code development and compliance with
Ameritech's AIN environment.
3.1.6. SMS Interface Requirements: Development of Focal SMS interface
access including screens, flow-through interface and reports. This is required
to allow Focal to activate, update, modify, and administer Customer data
associated with the new service.
3.1.7. Platform Access Logic Configuration: Service specific 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. Resources must be made available to
Focal on a nondiscriminatory basis.
Sch 9.2.5 - 7
<PAGE>
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 a live switch
environment, possibly at Focal'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 nondiscriminatory manner to Focal 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 sewed from Focal's AIN-compatible SSP. Upon request of Focal,
Ameritech shall provide Focal the unbundled AIN Applications Access service
product description and a list of existing Ameritech AIN applications.
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.
Mediated access to SMS functionality will be provided through interface programs
that will be developed for specific services. Focal 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 is mutually agreed upon by
Ameritech and Focal.
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.
Sch 9.2.5 - 8
<PAGE>
It may be necessary for Focal 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. Focal will receive timing and supply of service
specific data in a nondiscriminatory manner.
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. Any
changes to the data representation of the Ameritech network, which impact one or
more carrier services will be administered by Ameritech. Other Focal specific or
service specific data changes will be identified and administered by Focal.
Sch. 9.2.5 - 9
<PAGE>
SCHEDULE 9.2.6
OPERATIONS SUPPORT SYSTEMS FUNCTIONS
1.0 Pre-Ordering, Ordering and Provisioning.
(a) Ameritech will provide an electronic interface for the transfer and
receipt of data necessary to perform each of the pre-ordering,
ordering, and provisioning functions (e.g., order entry, telephone
number selection, and due date selection) associated with Unbundled
Network Elements. 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. 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 Section 4.0 of this Schedule
9.2.6 and 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) The Access Services Request (ASR) interface will be used for the
transfer of information concerning the Network Elements and
Combinations which Focal intends to order in a specific Wire Center
("Footprint" or "Trunk Side Information").
2.0 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. 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
Sch 9.2.6 - 1
<PAGE>
an industry standard interface is developed by the appropriate industry forum,
and generally accepted for implementation by the industry, Ameritech shall
implement such interface./1/
3.0 Billing. Ameritech will provide appropriate usage data to Focal to
facilitate Customer billing with attendant acknowledgments and status reports
and exchange information to process claims and adjustments.
4.0 Functionality of Ordering and Provisioning Interface. To the extent the
functionalities set forth below are utilized for the ordering and provisioning
of unbundled Network Elements, electronic interfaces will provide Focal with the
ability to:
a) Obtain, during sales discussions with a Customer, access to the
following Ameritech Customer service record data in a manner which 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 Focal Customer order for all desired features and services;
d) Determine if a service call is needed to install the line or service;
e) Schedule dispatch and installation, if applicable;
f) Provide installation dates to Customer;
- --------------------------------------------------------------------------------
/1/ Focal shall implement such interface as soon as technically feasible, but
in no event later then December 31, 1998, provided, however, that if Focal
submits to Ameritech more than fifteen (15) orders for maintenance and
repair associated with Unbundled Network Elements in any calendar month, it
must immediately implement such interface.
Sch. 9.2.6 - 2
<PAGE>
g) Order local intraLATA toll service and enter Focal Customer's choice
of primary interexchange carrier on a single, unified order; and
h) Suspend, terminate or restore service to an Focal Customer.
Sch. 9.2.6 - 3
<PAGE>
SCHEDULE 9.2.7
OPERATOR SERVICES AND DIRECTORY SERVICES
1.0 Operator Services. Operator Services consist of the following services.
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;
(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:
Sch. 9.2.7 - 1
<PAGE>
(a) Automated calling card service ("ACCS") - the Customer dials 0
and a telephone number, and responds to prompts to complete the billing
information.
(b) Automated Alternate Billing Service ("AABS") -
(1) 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).
(2) ACCS calculates charges, relates the charge to the Customer,
and monitors coins deposited before connecting the 1 +
intraLATA or InterLATA call.
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 used in the provisioning of Operator Services via
Focal'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 dial digits
designated by Focal to obtain Directory Assistance for local numbers located
within his/her NPA. Two listings will be provided per call.
2.2 Branding - the ability to put messages on the front end of a DA call
that is directly bunked into Ameritech's DA switch.
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 only available to Focal if
it direct trunks its DA calls to Ameritech.
2.4 Upon request, and through a technically feasible arrangement,
Ameritech will provide access to databases used in the provisioning of DA via
Focal'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 Focal's Telephone Exchange Service DA listing
in the area placed into Ameritech's DA database, or to enable Focal to read DA
listing in the database so that Focal can provide its own DA service.
3.0 Rate Application. Ameritech shall bill Focal the applicable rates on a
monthly basis, in accordance with the following methodology:
Sch. 9.2.7 - 2
<PAGE>
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 Focal for those calls for
which there are no records. Likewise, Ameritech shall not be held responsible by
Focal for lost revenue. However, if within ninety (90) days, actual data should
become available, Ameritech will bill Focal 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
4. 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
The price for each Combination shall include the applicable charges (including
any applicable usage charges) for each unbundled Network Element provided as
part of each Combination.
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
Tandem Switching
Sch. 9.3.5 - 1
<PAGE>
SCHEDULE 9.5
PROVISIONING OF NETWORK ELEMENTS
1.0 General Provisioning Requirements.
1.1 Subject to the terms of Section 9.0, Focal may order and/or request
Elements either individually or as Combinations.
1.2 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 shall be identified and described by Focal
so that they 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
Focal shall specify on each order the type of service to be provided
as well as the engineering and routing characteristics (e.g.,
redundancy requirements and data transfer rates) Focal requests for
such Combination.
1.3 Focal may order from Ameritech multiple individual Network Elements on
a single order without the need to have Focal 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.
1.4 Ameritech shall provide provisioning services to Focal Monday through
Friday from 8:00 a.m. to 5:00 p.m. CST. Focal may request Ameritech
to provide Saturday, Sunday, holiday, and/or off-hour provisioning
services. If Focal 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 Focal accepts
Ameritech's quote, Ameritech shall perform such provisioning services.
1.5 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 Focal 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.
1.6 Ameritech shall provide to Focal 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
Sch. 9.5 - 1
<PAGE>
Friday. This Unbundling Ordering Center is responsible for order
acceptance, order issuance, and return of the Firm Order Commitment
(FOC) to Focal as specified in this Schedule 9.5.
In addition, Ameritech shall provide to Focal 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 a.m. CST Monday
through Friday. Out of hours maintenance questions are handled by a
"Fold Down Center."
1.7 Ameritech will recognize Focal as the Customer of Record of all
Network Elements and agreed to Combinations ordered by Focal and will
send all notices, invoices and pertinent Customer information directly
to Focal.
1.8 Ameritech may not initiate any disconnection or rearrangement of any
Focal ordered Element or Combination, except as directed by Focal or
as otherwise provided in this Agreement.
1.9 When requested by Focal, Ameritech will schedule installation
appointments with Ameritech's representative on the line with Focal's
representative until Focal has access to Ameritech's scheduling
system.
1.10 Ameritech will provide Focal with a Firm Order Confirmation (FOC) for
each order, within twenty-four (24) hours of Ameritech's receipt of
that order, or within a different time interval agreed upon by the
Parties. The FOC must contain an enumeration of Focal'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 nondiscriminatory basis with respect to installation
dates for comparable orders at such time.
1.11 Upon work completion, Ameritech will provide Focal electronically
(unless otherwise notified by Focal) 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.
1.12 Ameritech will perform pre-testing of Network Elements and
Combinations in accordance with Ameritech's standards. At Focal's
request, Ameritech will make available to Focal on a weekly batch
basis any available test and turn-up results in support of the Network
Elements or Combinations ordered by Focal. Focal shall be responsible
for any costs incurred by Ameritech to provide copies of any available
results. If Focal requests Ameritech to provide Focal with any test
or
Sch. 9.5 - 2
<PAGE>
turn-up results which Ameritech does not then generate, Focal shall
request such results through the Bona Fide Request process.
1.13 As soon as identified, Ameritech shall provide notification
electronically of Focal orders that are incomplete or incorrect and
therefore cannot be processed.
1.14 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.
1.15 Within twenty-four (24) hours of Focal's request, Ameritech will
perform cooperative testing with Focal (including trouble shooting to
isolate any problems) to test Network Elements or Combinations
purchased by Focal in order to identify any performance problems.
1.16 Subject to Section 9.0, Network Elements and Combinations will be
provisioned with a combination of customer-specific and bulk orders as
specified by Focal.
1.17 When Focal orders Network Elements or Combinations that 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 of such Network Elements. There shall be
no charge for such interconnection. Consequently, for Ameritech
retail Customers who simply wish to switch their local service
providers and keep the same type of service provided through the same
equipment, this method of ordering will accomplish this with no
physical changes required in the existing Network Elements. Under
these circumstances, it shall not be necessary for Focal to collocate
equipment in Ameritech Central Offices to connect the unbundled
Network Element. If shared Network Elements are used, Ameritech will
be responsible for all engineering, provisioning and maintenance of
these components to ensure they support the agreed-upon grade of
service.
1.18 Ameritech shall provide to Focal upon request:
(a) a list of all services and features technically available from
each switch that Ameritech may use to provide Local Switching, by
switch CLLI;
(b) a listing by street address detail, of the service coverage area
of each switch CLLI;
Sch. 9.5 - 3
<PAGE>
(c) when available, all engineering design and layout information for
each Network Element and Combination; provided that Focal shall
pay Ameritech for the costs incurred by Ameritech to provide
Focal 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.
1.19 Promptly after the Effective Date, Ameritech shall provide Focal 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
Focal as changes are made to such information.
1.20 For orders of Network Elements (and INP with the installation of a
Loop) that require coordination among Ameritech, Focal and Focal's Customer,
Focal shall be responsible for any necessary coordination with the Focal
Customer.
2.0 Unbundled Local Loop Transmission
2.1 Access to Unbundled Local Loops.
2.1.1 Focal shall access Ameritech's Unbundled Local Loops via
Collocation or in accordance with Section 9.0 of this Agreement at the Ameritech
Wire Center where that element exists and each Loop shall be delivered to
Focal's Collocation by means of a Cross-Connection, which shall be an additional
charge.
2.1.2 Ameritech shall provide Focal access to its unbundled Loops at
each of Ameritech's Wire Centers. In addition, if Focal 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 Focal. If,
however, no spare physical Loop is available, Ameritech shall within forty-eight
(48) hours of Focal's request notify Focal of the lack of available facilities.
Focal 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
Sch. 9.5-4
<PAGE>
set forth in Schedule 9.9 of this Agreement shall not apply to unbundled Loops
provided under this Section 2.1.2.
2.1.3 If Focal 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
- ------------------------------------------------------
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 Focal shall request unbundled Loops 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. Within twenty-four (24) hours of Ameritech's receipt of a Service
Order, Ameritech shall provide Focal the firm order commitment ("FOC") date
according to the applicable Ameritech Network Element Performance
Benchmarks set forth in Section 9.9 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 9.9 or within such other intervals as
agreed upon by the Parties.
2.2.3 Ameritech agrees to coordinate with Focal at least fortnight
(48) 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 "Conversion
Window").
Sch. 9.5-5
<PAGE>
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 Conversion Window, no charges shall be
assessed on or waived by either Party. If, however, the New Conversion Time
is outside of the 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 Focal requests the New Conversion Time, Focal 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 Ameritech shall test for Focal dial-tone ("Dial Tone Test") at
Ameritech's MDF for Focal'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 termination of this Agreement.
2.2.6 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 Focal Collocation interface point will be
sixty (60) minutes or less. If a conversion interval exceeds sixty (60)
minutes and such delay is caused solely by Ameritech (and not by a Delaying
Event), Ameritech shall waive the applicable Line Connection Charge for
such element. If Focal has ordered INP with the installation of a Loop,
Ameritech will coordinate the implementation of INP with the Loop
conversion during the sixty (60) minute interval at no additional charge.
2.2.7 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.
3.0 Network Interface Device Capability.
3.1 Ameritech will provide Focal access to NIDs in a manner that will
permit Focal to connect its loop facilities to the Customer's inside wiring
through Ameritech's NID, as required. Focal shall establish this connection
through an adjoining NID provided by Focal.
3.2 Due to the wide variety of NIDs utilized by Ameritech (based on
Customer size and environmental considerations), Focal may access the Customer's
inside wire by any of the following means:
Sch. 9.5-6
<PAGE>
(a) Where an adequate length of inside wire is present and
environmental conditions permit, Focal may remove the inside wire from
Ameritech's NID and connect that wire to Focal'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;
(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 Focal'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., Focal, its agent, the
building owner or the Customer).
3.3 If Focal 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., Focal, the building owner or the Customer).
3.4 In no case shall Focal remove or disconnect Ameritech's loop
facilities from Ameritech's NIDs, enclosures, or protectors.
3.5 In no case shall Focal 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 Focal 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 Focal shall access Ameritech's Unbundled Local Switching via
Collocation or in accordance with Section 9.0 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 Focal's Collocation by means of a
Cross-Connection, which shall be an additional charge.
Sch. 9.5-7
<PAGE>
4.1.2 Ameritech shall provide Focal access to its Unbundled Local
Switching at each of Ameritech's Wire Centers and will provide Focal all
available basic local switching functions and basic capabilities the switch
is capable of providing which Ameritech currently makes available to its
local Customers, or for which Ameritech OSS 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.
Focal has the 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 Centrex features.
(c) Centrex features.
4.1.4 Other basic and for additional capabilities, functions and
features that are not then available for activation on the switch may be
requested as optional special capabilities. Ameritech will provide these
special capabilities if technically feasible and upon Focal's Bona Fide
Request. Focal will pay the applicable recurring and nonrecurring costs of
developing, installing, providing and maintaining the requested capability.
4.1.5 Unless already provided by Ameritech as a service offering, and
if not, upon Focal's Bona Fide Request, Ameritech will 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
Focal to pay recurring and nonrecurring 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.
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 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 Focal to specify special routing, by
Sch. 9.5-8
<PAGE>
class of call, of some or all traffic incoming 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 basis through the Bona Fide Request process and will be
installed, updated, maintained and provided following Focal's agreement to
pay the applicable costs.
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 Focal 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
twenty-four (24) hours of Ameritech's receipt of a Service Order, Ameritech
shall provide Focal the firm order commitment ("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 Focal, the specific custom routing
pattern desired must already exist. In those instances where the custom
routing pattern does not already exist, Focal may request the development
and establishment of such customer routing pattern via a Bona Fide Request.
While the custom routing pattern is being developed, Focal 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 Focal 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 Focal 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 "Conversion
Window").
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 Conversion Window, no charges shall be
assessed on or waived by either Party. If, however, the New Conversion
Time is outside of the Conversion Window, the Party requesting such New
Conversion Time shall be subject to the following:
Sch. 9.5-9
<PAGE>
If Ameritech requests the New Conversion Time, the applicable Line
Connection Charge shall be waived; and
If Focal requests the New Conversion Time, Focal shall be assessed a
Line Connection Charge in addition to the Line Connection Charge that
will be incurred for the New Conversion Time.
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 Focal Collocation interface point will be
sixty (60) minutes or less. If a conversion interval exceeds sixty (60)
minutes and such delay is caused solely by Ameritech (and not by a Delaying
Event), Ameritech shall waive the applicable Line Connection Charge for
such element.
If Focal has ordered INP with the installation of a Loop, Ameritech
will coordinate the implementation of INP with the Loop conversion during
the sixty (60) minute interval at no additional coordination charge (other
than the applicable standard service order and line connection charges).
Ameritech shall provide to Focal equivalent functionality of blocking calls
(e.g., 900, 976 and international calls) as provided to Ameritech's retail
Customers.
4.2.5 When ordering a Local Switching Element, Focal may order from
Ameritech separate interLATA and intraLATA capabilities (i.e., 2 PICs where
available) on a line or trunk basis.
4.2.6 Unless otherwise directed by Focal and to the extent
technically feasible, when Focal 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. 9.5-10
<PAGE>
4.3.2 Ameritech will service, operate, and maintain the unbundled
Tandem Switching for Focal 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, internals,
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 Focal 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 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 Focal exclusive use of Interoffice Transmission Facilities
dedicated to Focal, or use of the features, functions, and capabilities of
Interoffice Transmission Facilities shared by more than one Customer or carrier,
including Focal;
5.2 Provide all technically feasible transmission facilities, features,
functions, and capabilities that Focal could use to provide Telecommunications
Services;
5.3 Permit, to the extent technically feasible, Focal to connect such
interoffice facilities to equipment designated by Focal, including Focal's
Collocated facilities; and
5.4 Permit, to the extent technically feasible, Focal to obtain the
functionality provided by Ameritech's digital cross-connect systems separate
from dedicated transport.
Sch. 9.5 - 11
<PAGE>
6.0 Signaling Networks and Call-Related Databases
6.1 Signaling Networks.
6.1.1 If Focal 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 Focal access to Ameritech's signaling
network for each of Focal's switches when Focal 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 Focal to link its own
STPs directly to Ameritech's switch or call-related databases.
6.1.2 If Focal has its own switching facilities, Ameritech shall
provide Focal access to STPs to each of Focal'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
Focal's switch to Ameritech's STP, or linking Focal's switch to its own STP
and then connecting that STP to Ameritech'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 Focal's own
STPs to Ameritech'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 Focal's switch is compatible with Ameritech's SS7
network;
. Certification that Focal's switch is compatible with Ameritech's AIN
SCP;
. Certification that Focal's switch is compatible with a desired AIN
application residing on Ameritech's SCP;
. Agreement on procedures for handling maintenance and troubleshooting
related to AIN services;
. Usage of forecasts provided by Focal, so that Ameritech can provide
sufficient SS7 resources for Focal 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;
Sch. 9.5 - 12
<PAGE>
. 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 Focal 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 Focal purchases Unbundled Local Switching, Focal may, upon
request, use Ameritech's SCP in the same manner, and via the same signaling
links, as Ameritech. If Focal has deployed its own switch, and has linked
that switch to Ameritech's signaling system, Focal shall be given access to
Ameritech's SCP in a manner that allows Focal to provide any call-related,
database-supported services to Customers served by Focal's switch. If the
Parties are unable to agree in the Grooming 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 Focal
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;
. Agreement on procedures for handling maintenance and troubleshooting
related to AIN services;
. Usage of forecasts provided by Focal, so that Ameritech can provide
sufficient SS7 resources for Focal 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;
Sch. 9.5 - 13
<PAGE>
. 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.
6.3 Service Management Systems.
6.3.1 Ameritech shall provide Focal 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 Focal equivalent access to design, create, test, and deploy
Advanced Intelligent Network.
6.3.2 Access will provided in an equivalent manner to that which
Ameritech currently uses to provide such access to itself (e.g., submitting
magnetic tapes if Focal inputs magnetic tapes, or through an electronic
interface equivalent to that used by Focal). The Parties shall set forth in
the Grooming Plan the terms and conditions relating to such access. If
Parties are 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 Focal access to Operations Support Systems
functions on or before the dates set forth on the Implementation Schedule.
7.2 Ameritech shall also provide Focal 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 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 Focal 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 Focal in conjunction with Telephone Exchange
Service provided to Focal as a purchaser of Resale Services and as an Unbundled
Local Switching Network Element or
Sch. 9.5 - 14
<PAGE>
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 Focal and will be updated as such DA
services are provided in additional NPA/Exchange Areas.
8.3 Focal will obtain any required custom routing and obtain or provide
the necessary direct bunking and termination facilities to the mutually agreed
upon meet point with Ameritech facilities for access to unbundled OS and DA
services. Focal is responsible for delivering its OS and DA traffic to
Ameritech's operator service switch. Specifically, Focal 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
Focal 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 Focal to deliver its OS or DA traffic to the operator service
switch most closely located to the Focal'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. Focal 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 regarding speed of answer, average work time
and, for DA only, abandon from queue measurements.
8.7 Focal is solely responsible for providing all equipment and facilities
to deliver OS and DA traffic to the point of Interconnection with Ameritech
facilities.
8.8 Focal 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 are in effect in Ameritech's DA and OS
offices. Focal 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
Focal, so Focal can provide its own OS or DA service or obtain it from a third
party. Also, upon request, Ameritech will provide unbundled OS and/or DA as a
stand alone unbundled Network Element to Focal. In either case, Focal is
required to obtain any required custom routing and to 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.
Sch. 9.5 - 15
<PAGE>
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 purpose of enabling Focal 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 Focal to
pay to Ameritech its costs of developing, installing, providing and maintaining
such Network Element.
8.11 Specifically, upon request, Ameritech will provide through an
electronic interface, unbundled access to its DA database to permit Focal 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 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 Focal to pay to Ameritech its costs of developing, installing, providing and
maintaining such network element.
8.12 Access of resellers and Focal 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 uses for other customers of its
DA and OS services. Upon request, Ameritech will, as technically feasible,
provide a different quality of service, upon agreement by Focal 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.
8.13 Focal 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.
Focal will furnish to Ameritech all information necessary for the provision of
OS and DA.
8.13.1 To the extent that Focal does not mirror Ameritech's operator
surcharge rates, then Ameritech will, if technically feasible, enter
Focal's surcharge rates into Ameritech's rate tables, and will charge Focal
for changing those tables at the rates then charged by Ameritech for such
service.
8.13.2 For DA services, Focal 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 sewed by Ameritech and
network information necessary to provide for the direct bunking of the DA
calls.
Sch. 9.5 - 16
<PAGE>
8.13.3 Focal 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. Focal will inform Ameritech of other
changes in the records on a mutually agreed-upon schedule.
8.14 Upon request, and as technically feasible, Ameritech will re-brand
such OS and DA services based upon Focal's obtaining or providing any required
facilities, services, Network Elements and custom routing, and their agreement
to pay rates that compensate Ameritech for any costs it incurs in developing,
installing, providing and maintaining such rebranded service. For branding of
calls, Focal must provide two (2) cassette tapes of an announcement, no longer
than three (3) seconds, for installation on each OS and DA switch seeing Focal's
Customers.
8.15 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.
(1) Such calls can be manually handled and branded.
(2) If Customer desires mechanized branding, the feature can be
installed if Focal pays for feature purchase and
installation.
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 Focal,
and as technically feasible, Ameritech will re-brand OS and DA traffic from
Focal's telephone exchange lines, or to Focal's unbundled OS or DA network
element. Re-branded service requires that Focal 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 facilities.
Re-branding is provided at rates that recover Ameritech's costs of
developing, installing, providing and maintaining such service.
8.16 Focal grants to Ameritech during the term of this Agreement a non-
exclusive license to use the DA listings provided pursuant to this Agreement. DA
listings provided to Ameritech by Focal under this Agreement will be maintained
by Ameritech only for providing DA information, and will not be disclosed to
third parties. This section does not prohibit Ameritech and Focal from entering
into a separate agreement which would allow Ameritech to
Sch. 9.5 - 17
<PAGE>
provide or sell Focal's DA listing information to third parties, but such
provision or sale would only occur under the terms and conditions of the
separate agreement.
8.17 Ameritech will supply Focal with call detail information so that
Focal can rate and bill the call. This information excludes rating and invoicing
of Customers, unless negotiated on an individual case basis.
Sch. 9.5 - 18
<PAGE>
SCHEDULE 9.5.3
FORM OF REPRESENTATION OF AUTHORIZATION
Focal hereby represents to Ameritech, 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 Focal,
Focal acknowledges that it must obtain written or electronic authorization
in the form of a signed letter, tape-recorded conversation, password
verification, or other means, in each case to the extent allowed by
Applicable Law ("Documentation of Authorization"), which explicitly
authorizes Focal to have access to the prospective Customer's CPNI. 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, Focal must submit to Ameritech the
Documentation of Authorization. If Focal cannot provide applicable
Documentation of Authorization, then Ameritech shall not provide CPNI to
Focal.
2. If Focal has already obtained Documentation of Authorization for the
Customer to place an order for Telephone Exchange Service for the Customer,
Focal need not submit Documentation of Authorization to obtain the
Customer's CPNI.
3. With respect to placing a service order for Telephone Exchange Service for
a Customer, Focal acknowledges that it must obtain Documentation of
Authorization which explicitly authorizes Focal to provide Telephone
Exchange Service to such Customer. The Documentation of Authorization must
be made by the prospective Customer or Customer's authorized
representative. Focal need not submit the Documentation of Authorization to
process a service order. However, Focal hereby represents that it will not
submit a service order to Ameritech unless it has obtained appropriate
Documentation of Authorization from the prospective Customer and has such
Documentation of Authorization in its possession.
4. The Documentation of Authorization must clearly and accurately identify
Focal and the prospective Customer.
5. Focal shall retain all Documentation of Authorization in its files for as
long as Focal provides Telephone Exchange Service to the Customer, or for
as long as Focal makes requests for information on behalf of the Customer.
Sch. 9.5.3 - 1
<PAGE>
6. Focal shall make Documentation of Authorization available for inspection by
Ameritech during normal business hours. In addition, Focal shall provide
Documentation of Authorization for Customers or prospective Customers to
Ameritech upon request.
7. Focal is responsible for, and shall hold Ameritech 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
March 16, 1998 by and between Ameritech Information Industry Services, a
division of Ameritech Services, Inc. on behalf of and as agent for
Ameritech Illinois and Focal Communications Corporation of Illinois (the
"Interconnection Agreement")) resulting from Ameritech's reliance upon
Focal'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.
8. If Focal fails to repeatedly and materially abide by the procedures set
forth herein, Ameritech reserves the right to insist upon the submission of
Documentation of Authorization for each Customer in connection with a
request for a service order.
9. 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 16th day of March, 1998.
Focal Communications Corporation of Illinois
By: /s/ John R. Barnicle
---------------------
Title: Executive Vice President - Chief Operating Officer
Printed Name: John R. Barnicle
Sch. 9.5.3 - 2
<PAGE>
SCHEDULE 9.8
LOOP MAINTENANCE PROCEDURES
The Parties shall agree upon the processes to be used for maintenance of
Unbundled Loops. These processes will address the implementation of the
requirements of this Schedule 9.8.
1. Ameritech shall provide repair, maintenance, and testing, for all
Unbundled Loops in accordance with the terms and conditions of this Schedule
9.8.
2. Ameritech technicians shall provide repair service that is at least
equal in quality to that provided to Ameritech Customers; trouble calls from
Focal 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 Focal Customer or an Ameritech Customer.
3. Ameritech shall provide Focal with the same scheduled and non-
scheduled maintenance, including required and recommended maintenance intervals
and procedures, for all unbundled Loops provided to Focal under this Schedule
that it currently provides for the maintenance of its own network. Ameritech
shall provide Focal notice of any scheduled maintenance activity which may
impact Focal's Customers on the same basis it provides such notice to its
subsidiaries, Affiliates, other resellers and 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 Focal Customers. Ameritech shall provide maintenance as promptly
as possible to maintain or restore service and shall advise Focal promptly of
any such actions it takes.
5. If service is provided to Focal Customers before an electronic
interface ("EI") is established between Focal and Ameritech, Focal will transmit
repair calls to Ameritech repair bureau by telephone.
6. Ameritech repair bureau, including the EI to be established by the
Parties, 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 Focal a twenty-four
(24) hour advanced notification of such out-of-service conditions.
7. Ameritech shall provide progress reports and status-of-repair efforts
to Focal upon request, and at a frequency interval to be determined by Focal.
Ameritech shall inform Focal of restoration of service after an outage has
occurred.
Sch. 9.8 - 1
<PAGE>
8. Maintenance charges for premises visits by Ameritech technicians shall
be billed by Focal to its Customer, and not by Ameritech. The Ameritech
technician shall, however, present the Customer with 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.
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 Focal Customer premises shall
be accomplished by Ameritech pursuant to a request received from Focal. The EI
established between the Parties shall have the capability of allowing Focal 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 Focal, 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, using the same
criteria as Ameritech uses to expedite intervals for itself and its
subsidiaries, Affiliates and retail Customers. If Ameritech will be unable to
meet an Focal expedited request, Ameritech will notify Focal and Focal will have
the option to implement any escalation process agreed upon by the Parties.
Sch. 9.8 - 2
<PAGE>
SCHEDULE 9.9
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
1. Facilities Available 7 Business Days
Facilities or Force Negotiated Interval
Not Available
C. DS3-Unbundled Local Transport Negotiated Interval
D. OC-N-Unbundled Local Transport Negotiated Interval
Sch. 9.9 - 1
<PAGE>
SCHEDULE 9.9.6
CREDIT ALLOWANCES
INDIANA
Interruption of Service - If a service being provided pursuant to Articles IV
and V and Section 9.9 is interrupted otherwise than by negligence or willful act
of the Party receiving such service or such Party's Customer, charges for the
affected service will be abated on a pro rata basis for the period such
interruption continues after twenty-four (24) hours' notice thereof to the Party
providing such service.
Sch. 9.9.6 - 1
<PAGE>
PRICING SCHEDULE - INDIANA
I. Reciprocal Compensation
Rate = $0.009 per minute
II. Information Services Billing and Collections
Fee = $0.03 per message
III. BLV/BLVI Traffic
Rate = $0.90 per Busy Line Verification
$1.10 per Busy Line Interrupt
(in addition to $0.90 for Busy Line Verification)
IV. Transiting
Rate = $0.002 per minute
V. Unbundled Network Elements/1/
A. Unbundled Loop Rates
1. Recurring Rates
- --------------------------------------------------------------------------------
/1/ The rates, charges and prices set forth below for unbundled Network
Elements are "interim rates" and shall be replaced by the rates, charges
and prices established by the Commission in IURC Cause No. 40611 or any
other Commission or FCC proceeding to establish permanent rates, charges or
prices for unbundled Network Elements (the Permanent Rate Dockets) within
Indiana. If the Permanent Rate Docket does not establish a rate, charge or
price for any element or service set forth below the rate, charge or vice
for such service or element shall be as mutually agreed upon by the
Parties. If the Parties are unable to agree, such disagreement shall be
resolved in accordance with Section 28.11.
Indiana Pricing Schedule - 1
<PAGE>
Monthly Rates
Exchange Rate Classification/2/
<TABLE>
<CAPTION>
1 2 3
Analog
<S> <C> <C> <C>
- - 2-Wire Interface Loop Basic $ 12.19 $ 12.19 $ 12.19
- - PBX Ground Start $ 17.55 $ 16.51 $ 16.78
- - Electronic Key Line (EKL)
Interface Loop $ 28.18 $ 24.74 $ 23.89
- - 4-Wire Interface Loop $ 37.65 $ 34.21 $ 34.13
Digital
- - 4-Wire 65 Kbps Interface Loop $ 95.65 $ 93.62 $ 91.59
- - 2-Wire 160 Kpbs ISDN-BRI Interface Loop $ 20.03 $ 18.41 $ 18.41
- - 4-Wire 1.544 Mbps Interface Loop $164.47 $166.34 $174.98
- - 2-Wire ADSL/HDSL Compatible Interface Loop $ 15.66 $ 15.04 $ 13.51
- - 4-Wire HDSL Compatible Interface Loop $ 37.65 $ 34.21 $ 34.13
Cross Connect Charge (additional,
per cross connect):
2-wire interface $ .21
4-wire interface $ .41
6-wire interface $ .62
8-wire interface $ .83
DS1 interface $ 8.01
DS3 interface $ 1.17
Service Coordination fee per carrier,
per central office $ .91
2. Non-Recurring Rates
Service Order--Establish:
(Business or Residence) $ 46.42/1/
</TABLE>
- --------------------------------------------------------------------------------
/2/ Exchange Rate Classifications, by Exchange, are shown in IURC No. 20 at
Part 4, Section 2.
/1/ The Service Order Charge is a per occasion charge applicable to any number
of Loops ordered for the same location and same Customer account.
Indiana Pricing Schedule - 2
<PAGE>
<TABLE>
<S> <C>
Line Connection:
(Business or Residence) $ 20.00/2/
Record Change $ 13.00
Provision Change $ 13.50
</TABLE>
B. NID/3/ No Charge
C. Switching
<TABLE>
<CAPTION>
1. Unbundled Local Switching Non-Recurring Monthly
------------- -------
<S> <C> <C>
a. Custom Routing $217.00
- per new LCC, per switch
b. ULS Ports
- Line Port, without vertical $ 60.11 $ 1.61
features
- Basic Line Port, per port $ 60.11 $ 9.63
- Ground Start Line Port,
per port $ 60.11 $ 10.31
- ISDN-Direct Port
per port $ 60.11 $ 35.80
per telephone number - $ .01
- DID Trunk Port,
per port $ 60.11 $ 21.03
per telephone number $ .01
add/rearrange each termination $ 27.25
- ISDN Prime Trunk Port,
per port $666.67 $203.94
per telephone number - $ .01
add/rearrange channels $ 27.25 -
</TABLE>
- --------------------------------------------------------------------------------
/2/ The Line Connection Charge applies to each Loop.
/3/ Access to Network Interface Device for Accessing Customer Premises Wiring
(Inside Wire).
Indiana Pricing Schedule - 3
<PAGE>
<TABLE>
<S> <C> <C>
- Digital Trunking Trunk Port,
per port $666.67 $187.02
- Custom Routing Port,
per port $666.67
per individual trunk
termination - $ 95.32
- Centrex Basic Line Port,
per port $ 60.11 $ 16.35
- Centrex ISDN Line Port,
per port $ 60.11 $ 66.05
- Centrex EKL Line Port,
per port $ 60.11 $ 48.95
- Centrex Attendant Console
Line Port, per port $120.21 $154.94
c. Centrex System Charges
- System Features, per
common block - $542.62
- Common Block establishment,
each $429.15 -
- System features change or
rearrangement, per feature
per occasion $ 62.98 -
- System feature activation,
per feature, per occasion $250.57 -
2. Service Charges
Service Ordering Charges
- - Initial
-------
Line port, per occasion $ 16.96 -
Trunk port, per occasion $367.66 -
- - Subsequent
----------
per occasion $ 16.96 -
</TABLE>
Indiana Pricing Schedule - 4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Record Order per occasion $ 14.93 -
Conversion Charge
- change from one type of line-port
to another, per each changed $ 55.34 -
Ameritech Cross-Connection Service
per carrier transport facility,
- 2-Wire (Line port), each $ .21
- DS1 (trunk port),
(each individual trunk) $ 8.01
3. Service Coordination Fee
- per carrier bill, per switch - $ .91
4. Subsequent Training
- per Company person, per hour $ 74.86 -
5. ULS Usage
- Billing Development, per carrier,
per switch $33,009.89 -
Per Minute
----------
- Usage, per minute of use or fraction thereof $ .0004
- Daily usage feed per message $ .000896
Unbundled Tandem Switching
Non-Recurring Monthly
------------- -------
Tandem Switch Trunk Port $688.41 $177.64
DS-1 Cross-Connect $ 8.01
Service Order Charge $371.94
Subsequent Changes $ 27.31
Per Minute
----------
Usage (Without Tandem Trunk Ports) $ 0.0007
</TABLE>
Indiana Pricing Schedule - 5
<PAGE>
<TABLE>
<CAPTION>
Monthly Nonrecurring Charge
------- -------------------
<S> <C> <C>
D. Dedicated Transport
1. DSI Rates Rates, charges and prices proxied
from F.C.C. Tariff No. 2, Section
7.5.9
2. DS3 Rates Rates, charges and prices proxied
from F.C.C. Tariff No. 2, Section
7.5.9
3. OC-3 Rates Rates, charges and prices proxied
from F.C.C. Tariff No. 2, Section
7.5.10
4. OC-12 Rates Rates, charges and prices proxied
from F.C.C. Tariff No. 2, Section
7.5.10
5. OC-48 Rates Rates, charges and prices proxied
from F.C.C. Tariff No. 2, Section
7.5.10
E. Shared Transport
DS1 TBD
DS3 TBD
F. Common Transport $.000324/min.
</TABLE>
G. Transiting
The Transit Service Charge shall consist of the sum of the Tandem Switching
Usage rate, as set forth on Item V of this Pricing Schedule, the applicable FCC
Interstate Access Tariff rate for Interoffice Transmission as set forth on Item
V of this Pricing Schedule, and a billing charge of $.002 per minute.
H. Signaling Networks and Call-Related Databases
1. Signaling Networks
Signaling Link See IURC No. 20, Part 21 Ameritech
F.C.C. No. 2, Section No. 8
Indiana Pricing Schedule - 6
<PAGE>
Port Termination $468.94 (monthly)
Signaling Switching ISUP $.000240 per message
Signal Transport ISUP $.000141 per message
Signal Formulation ISUP $.000202 per message
Signal Tandem Switching ISUP $.000517 per message
Signal Switching TCAP $.000194 per message
Signal Transport TCAP $.000095 per message
Signal Formulation TCAP $.000444 per message
<TABLE>
<CAPTION>
Non-Recurring Costs NRCs
----
<S> <C> <C>
Port Termination $614.50
Originating Point Code per service
added or changed $ 22.77
Global Title Address Transfer
per service added or changed $ 12.24
2. Call-Related Databases
Database Query Using Ameritech Provided Facilities
--------------------------------------------------
-800DB Call-Routing Query $0.004035
-800DB Routing Options Query $0.001231
Local STP Database Query Using Carrier Provided Facilities between the
Carrier's Switch and Ameritech's STP and Ameritech Provided Facilities
between Ameritech's local and regional STP
-800DB Carrier-ID-Only Query $0.001785
-800DB Routing Options Query $0.000292
Regional STP Database Query Using Carrier Provided Facilities
-------------------------------------------------------------
-800DB Carrier-ID-Only Query $0.001641
-800DB Routing Options Query $0.000149
3. LIDB Queries
------------
Query at Local STP Using Carrier Provided Facilities
----------------------------------------------------
-LIDB Validation Query $0.017732
-LIDB Transport Query $0.000173
-Out-of-Region Query $0.056899
</TABLE>
Indiana Pricing Schedule - 7
<PAGE>
<TABLE>
<CAPTION>
Query at regional STP Using Carrier Provided Facilities
-------------------------------------------------------
<S> <C>
-LIDB Validation Query $0.017732
-LIDB Transport Query $0.000020
Ameritech Provided Services Using LIDB Queries
----------------------------------------------
-LIDB Validation Query $0.017732
-LIDB Transport Query $0.000515
-LIDB to LIDB Query $0.057240
</TABLE>
4. Service Management Systems
Access to Databases - to the extent technically feasible, based on
TELRIC costs, via the Bona Fide Request process.
I. Operator Services and Directory Assistance
1. Operator Services
Manual Assistance Occurrences - rates will apply based on the total
monthly volume and a LIDB charge will apply separately to all
occurrences requiring billing validation.
$.48 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.
$.04 per occurrence (non-branded)
$.05 per occurrence (branded)
2. Directory Assistance
Branding is a one time charge assessed, on a per trunk group per
recording basis, for the mechanized front-end branding of Directory
Assistance calls.
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.
Indiana Pricing Schedule - 8
<PAGE>
Rates do not include custom routing, unbundled network elements, end
office or tandem switching (where requested).
Non-Recurring Charge Price Per Call
-------------------- --------------
Information Call Completion, per completed call $.023
Branding per trunk group/1/ per recording $872.72
Term Payment Plan
<TABLE>
<CAPTION>
36 1 12 24
Description Months Month Months Months
- ------------------ ----- ------ ------
<S> <C> <C> <C>
Directory Assistance, $.265 $.30 $.275 $.270
Term Payment Plan, rate
per call
</TABLE>
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.
J. Combinations.
The price for each Combination (as set forth on Schedule 9.3.4) shall
include the applicable charges (including any applicable usage charges) for
each for each unbundled Network Element provided as a part of such
Combination.
K. Rates for Maintenance.
1. Trip Charge - $51.00 per trouble dispatch
- --------------------------------------------------------------------------------
/1/ When branding service is provided on a combined toll and assist
Operator Service and Directory Assistance tank 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.
Indiana Pricing Schedule - 9
<PAGE>
2. Time Charge - $21.00 per quarter hour with a quarter hour minimum and
quarter hour increments.
VI. Interim Telecommunications Number Portability
Section VI, Interim Telecommunications Number Portability, of the Pricing
Schedule is hereby amended in its entirety to be read as follows:
Each Party shall comply with the methodology (including record keeping)
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.
Indiana Pricing Schedule - 10
<PAGE>
EXHIBIT A
NETWORK ELEMENT 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 Element 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. Focal 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 such costs or
cost categories representing such charges are not included in the prices Focal
pays for the services provided by Ameritech under this Agreement.
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 Focal 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 Focal 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 sixty (60) days from the
date Ameritech received such Bona Fide Request.
Exh. A - 1
<PAGE>
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 28.11.
7. Unless Focal 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 28.11.1
Exh. A - 2
<PAGE>
Exhibit 10.7
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Lease
200 North LaSalle
Chicago, Illinois
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Between
Focal Communications Corporation
(Tenant)
and
Teachers Insurance and Annuity
Association of America
(Landlord)
<PAGE>
Lease
200 North LaSalle
Chicago, Illinois
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. LEASE AGREEMENT...............................................................1
2. RENT..........................................................................2
A. Types of Rent............................................................2
(1) Base Rent...........................................................2
(2) Operating Cost Share Rent...........................................2
(3) Tax Share Rent......................................................2
(4) Additional Rent.....................................................2
(5) Rent................................................................2
B. Payment of Operating Cost Share Rent and Tax Share Rent..................2
(1) Payment of Estimated Operating Cost Share Rent and Tax Share
Rent................................................................2
(2) Correction of Operating Cost Share Rent.............................3
(3) Correction of Tax Share Rent........................................3
C. Definitions..............................................................3
(1) Taxes...............................................................3
(3) Fiscal Year.........................................................6
D. Computation of Base Rent and Rent Adjustments............................6
(1) Prorations..........................................................6
(2) Default Interest....................................................6
(3) Intentionally deleted...............................................6
(4) Books and Records...................................................6
(5) Miscellaneous.......................................................7
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF
PREMISES......................................................................7
A. Condition of Premises....................................................7
B. Tenant's Possession......................................................7
C. Maintenance..............................................................7
D. Ownership of Improvements................................................7
E. Removal at Termination...................................................8
4. PROJECT SERVICES..............................................................8
A. Heating and Air Conditioning.............................................8
B. Elevators................................................................8
C. Electricity..............................................................8
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C>
E. Janitorial Service................................................ 9
F. Telephone Service................................................. 9
G. Natural Gas....................................................... 9
H. Interruption of Services.......................................... 9
5. ALTERATIONS AND REPAIRS................................................. 10
A. Landlord's Consent and Conditions................................. 10
B. Electronic Systems................................................ 11
C. Damage to Systems................................................. 11
D. No Liens.......................................................... 11
6. USES OF PREMISES.................................................. 11
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES............................ 13
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE............................ 14
A. Waiver of Claims.................................................. 14
B. Indemnification................................................... 14
C. Insurance Coverage................................................ 14
D. Insurance Certificates............................................ 14
9. FIRE AND OTHER CASUALTY................................................. 15
A. Termination....................................................... 15
B. Restoration....................................................... 15
10. EMINENT DOMAIN.......................................................... 15
11. RIGHTS RESERVED TO LANDLORD............................................. 15
A. Name.............................................................. 15
B. Signs............................................................. 16
C. Window Treatments................................................. 16
D. Service Contracts................................................. 16
E. Keys.............................................................. 16
F. Access............................................................ 16
G. Preparation for Reoccupancy....................................... 16
H. Heavy Articles.................................................... 16
I. Show Premises..................................................... 16
J. Restrict Access................................................... 16
K. Intentionally deleted............................................. 16
L. Use of Lockbox.................................................... 16
M. Repairs and Alterations........................................... 17
N. Landlord's Agents................................................. 17
O. Building Services................................................. 17
P. Other Actions..................................................... 17
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
12. TENANT'S DEFAULT...................................................... 17
A. Rent Default..................................................... 17
B. Assignment/Sublease or Hazardous Substances Default.............. 17
C. Other Performance Default........................................ 17
D. Credit Default................................................... 18
13. LANDLORD REMEDIES..................................................... 18
A. Termination of Lease or Possession............................... 18
B. Lease Termination Damages........................................ 18
C. Possession Termination Damages................................... 18
D. Landlord's Remedies Cumulative................................... 19
E. WAIVER OF TRIAL BY JURY.......................................... 19
F. Litigation Costs................................................. 19
14. SURRENDER............................................................. 19
15. HOLDOVER.............................................................. 19
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.......................... 20
A. Subordination.................................................... 20
B. Termination of Ground Lease or Foreclosure of Mortgage........... 20
C. Security Deposit................................................. 20
D. Notice and Right to Cure......................................... 20
E. Definitions...................................................... 20
17. ASSIGNMENT AND SUBLEASE............................................... 21
A. Consent Required................................................. 21
C. Chance of Management or Ownership................................ 22
D. Excess Payments.................................................. 22
18. CONVEYANCE BY LANDLORD................................................ 22
19. ESTOPPEL CERTIFICATE.................................................. 22
20. SECURITY DEPOSIT...................................................... 22
21. FORCE MAJEURE......................................................... 23
22. Intentionally deleted................................................. 23
23. NOTICES............................................................... 23
A. Landlord......................................................... 24
B. Tenant........................................................... 24
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C>
24. QUIET POSSESSION...................................................... 24
25. REAL ESTATE BROKER.................................................... 24
26. MISCELLANEOUS......................................................... 24
A. Successors and Assigns........................................... 24
B. Date Payments Are Due............................................ 24
C. Meaning of "Landlord", "ReEntry, "including" and "Affiliate"..... 25
D. Time of the Essence.............................................. 25
E. No Option........................................................ 25
F. Severability..................................................... 25
G. Governing Law.................................................... 25
H. Lease Modification............................................... 25
I. No Oral Modification............................................. 25
J. Landlord's Right to Cure......................................... 25
K. Cautions......................................................... 25
M. Landlord's Enforcement of Remedies............................... 25
N. Entire Agreement................................................. 26
O. Landlord's Title................................................. 26
P. Light and Air Rights............................................. 26
Q. Consents......................................................... 26
R. Singular and Plural.............................................. 26
S. No Recording by Tenant........................................... 26
T. Exclusivity...................................................... 26
U. No Construction Against Drafting Party........................... 26
V. Survival......................................................... 26
W. Rent Not Based on Income......................................... 26
X. Building Manager and Service Providers........................... 26
Y. Interest on Late Payments........................................ 27
27. UNRELATED BUSINESS INCOME............................................. 27
28. HAZARDOUS SUBSTANCES.................................................. 27
29. EXCULPATION........................................................... 27
30. BASE RENT............................................................. 27
32. TENANT'S IMPROVEMENTS PRIOR TO THE COMMENCEMENT DATE................... 30
</TABLE>
APPENDIX A - PLAN OF THE PREMISES
APPENDIX A-1 - LOCATION OF GENERATOR
- iv -
<PAGE>
APPENDIX B - CLEANING SCHEDULE
APPENDIX C - RULES AND REGULATIONS
APPENDIX D - [Intentionally Deleted]
APPENDIX E - MORTGAGES CURRENTLY AFFECTING THE PROJECT
- v -
<PAGE>
LEASE
200 NORTH LASALLE
CHICAGO, ILLINOIS
THIS LEASE (the "Lease") is made as of December 31, 1996 between Teachers
Insurance and Annuity Association of America, a New York corporation (the
"Landlord") and the Tenant as named in the Schedule below. The term "Project"
means the building (the "Building") known as "200 North LaSalle Street" and the
land (the "Land") located at the northwest corner of Lake and LaSalle Streets,
Chicago, Illinois. "Premises" means that part of the Project leased to Tenant
described in the Schedule and outlined on Appendix A.
The following schedule (the "Schedule") is an integral part of this Lease.
Terms defined in this Schedule shall have the same meaning throughout the Lease.
SCHEDULE
1. TENANT: Focal Communications Corporation.
2. PREMISES: A portion of the lower level.
3. RENTABLE SQUARE FEET OF THE PREMISES: Approximately 10,236 square feet.
4. TENANT'S PROPORTIONATE SHARE: 1.6438% (based upon a total of 622,667
rentable square feet in the Building).
5. SECURITY DEPOSIT: A Letter of Credit with a face amount of $115,000.
6. TENANT'S IMPROVEMENTS: See Section 32.
7. TENANT'S ADDRESS FOR NOTICES BEFORE POSSESSION DATE: 300 West Washington,
Suite 1408, Chicago, Illinois 60606.
8. TENANT'S REAL ESTATE BROKER FOR THIS LEASE: The Galbreath Company.
9. COMMENCEMENT DATE: See Section 32.
10. TERMINATION DATE/TERM: January 31, 2006; Ten (10) years after the
Commencement Date.
11. BASE RENT: See Section 30.
12. RENT ABATEMENT: Two (2) months of Base Rent.
13. BASE OPERATING COSTS: Operating Costs for the year 1997.
14. BASE TAXES: Taxes for the year 1997.
15. GUARANTOR: None.
1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases
the Premises to Tenant, and Tenant leases the Premises from Landlord, for the
Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.
<PAGE>
2. RENT.
A. Types of Rent. Tenant shall pay the following Rent in the form of
-------------
a check to Landlord's building manager at the office of the Building, or in such
other manner as Landlord may notify Tenant:
(1) Base Rent in monthly installments in advance on or before the
---------
first day of this Lease and the first day of each month of the Term
thereafter in the amount set forth in Section 30.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
-------------------------
Proportionate Share of the excess (the "Excess Operating Costs") of
Operating Costs for the applicable fiscal year of the Lease over Base
Operating Costs, paid monthly in advance in an estimated amount.
Definitions of Operating Costs and Tenant's Proportionate Share, and the
method for billing and payment of Operating Cost Share Rent are set forth
in Sections 2B, 2C and 2D.
(3) Tax Share Rent in an amount equal to the Tenant's
--------------
Proportionate Share of the excess (the "Excess Taxes") of Taxes for the
applicable fiscal year of this Lease over the Base Taxes, paid monthly in
advance in an estimated amount. Definitions of Taxes and the method for
billing and payment of Tax Share Rent are set forth in Sections 2B, 2C and
2D.
(4) Additional Rent in the amount of all costs, expenses,
---------------
liabilities, and amounts which Tenant is required to pay under this Lease,
excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but
including any interest for late payment of any item of Rent.
(5) Rent as used in this Lease means Base Rent, Operating Cost
----
Share Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay
Rent is an independent covenant, with no right of setoff, deduction or
counterclaim of any kind.
B. Payment of Operating Cost Share Rent and Tax Share Rent.
-------------------------------------------------------
(1) Payment of Estimated Operating Cost Share Rent and Tax Share
------------------------------------------------------------
Rent. Landlord shall estimate the Operating Costs and Taxes of the Project
----
each fiscal year, generally after the beginning of the year. Landlord may
revise these estimates whenever it obtains more accurate information, such
as the final real estate tax assessment or tax rate for the Project.
Within ten (10) days after notice from Landlord setting forth (a)
an estimate of Operating Costs for a particular fiscal year, (b) the Base
Operating Costs, and (c) the resulting estimate of Excess Operating Costs
for such fiscal year, Tenant shall pay Landlord an amount equal to one-
twelfth (1/12th) of Tenant's Proportionate Share of
-2-
<PAGE>
such estimated Excess Operating Costs for such fiscal year, multiplied by
the number of months that have elapsed in the applicable fiscal year to the
date of such payment including the current month, minus payments previously
made by Tenant for the months elapsed. Thereafter on the first day of each
month, Tenant shall pay monthly until a new estimate of Operating Costs is
applicable, one-twelfth (1/12th) of Tenant's Proportionate Share of the
estimated Excess Operating Costs.
Within ten (10) days after notice from Landlord setting forth (a)
an estimate of Taxes for a particular fiscal year, (b) the Base Taxes, and
(c) the resulting estimate of Excess Taxes, Tenant shall pay Landlord an
amount equal to one-twelfth (1/12th) of Tenant's Proportionate Share of
such estimated Excess Taxes, multiplied by the number of months that have
elapsed in the applicable fiscal year to the date of such payment,
including the current month, minus payments previously made by Tenant for
the months elapsed. Thereafter on the first day of each month, Tenant shall
pay monthly until a new estimate of Taxes is applicable, one-twelfth
(l/12th) of Tenant's Proportionate Share of the estimated Excess Taxes.
(2) Correction of Operating Cost Share Rent. As soon as
---------------------------------------
reasonably possible after the end of each fiscal year, Landlord shall
deliver to Tenant a report for such year (the "Operating Cost Report")
setting forth (a) the actual Operating Costs incurred, (b) the Base
Operating Costs, (c) the amount of Operating Cost Share Rent due from
Tenant, and (d) the amount of Operating Cost Share Rent paid by Tenant.
Within twenty (20) days after such delivery, Tenant shall pay to Landlord
the amount due minus the amount paid. If the amount paid exceeds the amount
due, Landlord shall apply the excess to Tenant's next month's payment of
Operating Cost Share Rent, refunding any overage directly to Tenant.
(3) Correction of Tax Share Rent. As soon as reasonably possible
----------------------------
after the end of each fiscal year, Landlord shall deliver to Tenant a
report for such fiscal year (the "Tax Report") setting forth (a) the actual
Taxes, (b) the Base Taxes, (c) the amount of Tax Share Rent due from
Tenant, and (d) the amount of Tax Share Rent paid by Tenant. Within twenty
(20) days after such delivery, Tenant shall pay to Landlord the amount due
from Tenant minus the amount paid by Tenant. If the amount paid exceeds the
amount due, Landlord shall apply any the excess as a credit against
Tenant's next month's payment of Tax Share Rent, refunding any overage to
Tenant.
C. Definitions.
-----------
(1) Taxes. "Taxes" means any and all taxes, assessments and
-----
charges of any kind, general or special, ordinary or extraordinary, levied
by any governmental entity, which Landlord shall pay or become obligated to
pay in connection with the ownership, leasing, renting, management, control
or operation of the Project or of the personal property, fixtures,
machinery, equipment, systems and apparatus used in connection therewith.
Taxes shall include real estate taxes, personal property taxes, sewer
-3-
<PAGE>
rents, water rents, special or general assessments, transit taxes, ad
valorem taxes, and any tax levied on the rents hereunder or the interest of
Landlord under this Lease (the "Rent Tax"). Taxes shall also include all
legal fees and other costs and expenses paid by Landlord in seeking a
refund or reduction of any Taxes, whether or not the Landlord is ultimately
successful.
For any year, the amount to be included in Taxes (a) from taxes
or assessments payable in installments, shall be the amount of the
installments (with any interest) due and payable during such year, and (b)
from all other Taxes, shall at Landlord's election be the amount accrued,
assessed, or otherwise imposed for such year or the amount due and payable
in such year. Any refund or other adjustment to any Taxes by the taxing
authority, shall apply during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax),
capital, stock, succession, transfer, franchise, gift, estate or
inheritance tax, except to the extent that such tax shall be imposed in
lieu of any portion of Taxes.
(2) Operating Costs. "Operating Costs" means (except as provided
---------------
herein) 100% of the actual expenses, costs and disbursements of any kind
other than Taxes, paid or incurred by Landlord in connection with the
ownership, leasing, management, maintenance, operation and repair of any
part of the Project and of the personal property, fixtures, machinery,
equipment, systems and apparatus used in connection therewith, including
the cost of providing those services required to be furnished by Landlord
under this Lease. Operating Costs shall not include (a) costs of
alterations of tenant premises; (b) costs of capital improvements, except
those intended to reduce Operating Costs, and those made to keep the
Project in compliance with governmental requirements applicable from time
to time, amortized by Landlord in accordance with sound accounting and
management principles; (c) interest and principal payments on mortgages or
any other debt costs, or rental payments on any ground lease of the Project
("Ground Lease"); (d) real estate brokers' leasing commissions; (e) any
cost or expenditure for which Landlord is reimbursed by insurance proceeds
or otherwise, except by Operating Cost Share Rent; (f) the cost of any
service furnished to any office tenant of the Project which Landlord does
not make available to Tenant; (g) depreciation or amortization of any
improvements, except as specifically set forth in this Lease; (h) costs of
repairs, alterations or replacements caused by the exercise of the rights
of imminent domain to the extent Landlord receives net condemnation
proceeds therefor; (i) costs of electricity for individual tenant spaces,
(j) costs of any special services rendered or costs reimbursed to other
tenants which are not generally reimbursed or rendered to either retail or
office tenants in the Building; (k) costs and expenses incurred in
connection with leasing space in the Building, such as legal fees for the
preparation of leases, tenant allowances, space planner fees and
advertising and promotional expenses (1) court costs and legal fees
incurred with regard to enforcing the obligations of tenants under other
leases; (m) any expenses for services or items for
-4-
<PAGE>
which Tenant directly reimburses Landlord (other than as a component of
Operating Expenses) or pays to third parties at Landlord's request; (n)
costs and expenses incurred as a result of a violation by Landlord of the
terms and conditions of any lease in the Building or of any law, statute or
ordinance, or any debt agreement or ground lease; (o) costs and expenses of
relocation of any tenants in the Building; (p) costs, fines or penalties
incurred due to violation by Landlord of any governmental rule or law
except as incurred by Landlord in challenging any law; (q) overhead and
profit paid to subsidiaries of Landlord or entitles under common control
with Landlord for services on or to the Building, but only to the extent
that the cost of such services exceeds normal rates being paid for such
services by owners of other first class office buildings in the Chicago
metropolitan area; (r) wages, salaries or fringe benefits related to any
employee above the rank of Building manager; (s) amounts of any political
and charitable contributions paid by Landlord; (t) compensation paid to
clerks or attendants in commercial concessions operated by Landlord, if
any, except that Operating Expenses shall include such compensation if
landlord deducts from the computation of Operating Expenses any profits
derived by Landlord from such concession; (u) rentals or other related
expenses incurred by Landlord in leasing Building systems and major
Building components; and (v) costs of acquiring sculptures, paintings or
other objects of art for the Building.
If the Project is not fully leased during any portion of any
fiscal year, Landlord may adjust (an "Equitable Adjustment") Operating
Costs to equal what would have been incurred by Landlord had the Project
been fully leased. For example, assume (i) the Building has ten floors;
(ii) the Tenant occupies one floor and Tenant's Proportionate Share is ten
percent (10%); (iii) the other nine floors are vacant; (iv) the cost of
providing a particular service for Tenant's floor is $1,000. If Tenant paid
Tenant's Proportionate Share of that cost, Tenant would pay $100. Instead,
Landlord shall estimate the cost of such service for the Building if it
were one hundred percent (100%) leased. Landlord would take into account
any economies of scale; for example, the cost for the entire Building might
be $9,000. The Landlord's estimate ($9,000) minus the actual cost incurred
by the Landlord ($1000) equals the Equitable Adjustment ($8000). The
Equitable Adjustment is added to the actual cost and Tenant pays Tenant's
Proportionate Share of the total; in this example, Tenant would pay $9,000
times 10% or $900. This Equitable Adjustment shall apply only to Operating
Costs which are variable and therefore increase as leasing of the Project
increases. Landlord may incorporate the Equitable Adjustment in its
estimates of Operating Costs.
If Landlord does not furnish any particular service whose cost
would have constituted an Operating Cost to a tenant who has undertaken to
perform such service itself, Operating Costs shall be increased by the
amount which Landlord would have incurred if it had furnished the service
to such tenant.
"Lease Year" means each consecutive twelve-month period beginning
with the Commencement Date, except that if the Commencement Date is not the
first day of
-5-
<PAGE>
a calendar month, then the first Lease Year shall be the period from the
Commencement Date through the final day of the twelve months after the
first day of the following month, and each subsequent Lease Year shall be
the twelve months following the prior Lease Year.
(3) Fiscal Year. "Fiscal Year" means the calendar year, except
-----------
that the first fiscal year and the last fiscal year of the Term may be a
partial calendar year.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than the
----------
first day of a month, the Base Rent, Operating Cost Share Rent and Tax
Share Rent shall be prorated for such partial month. If this Lease begins
on a day other than the first day, or ends on a day other than the last
day, of the fiscal year, Operating Cost Share Rent and Tax Share Rent shall
be prorated for the applicable fiscal year.
(2) Default Interest. Any sum due from Tenant to Landlord not
----------------
paid when due shall bear interest from the date due until paid at the
annual rate equal to the greater of: (i) twelve percent (12%), or (ii) five
percent (5%) plus the "Corporate Base Rate" at the time of such nonpayment.
"Corporate Base Rate" means the rate of interest most recently announced by
the First National Bank of Chicago, or its successor (the "First") as its
corporate base rate. If the First ceases to use the term corporate base
rate, then the Corporate Base Rate shall be the rate used by the First as a
base rate of interest for commercial loans, however this rate is designated
by the First. A certificate by an officer of the First stating the
corporate base rate (or such designated rate) in effect shall be conclusive
evidence thereof.
(3) Intentionally deleted.
(4) Books and Records. Landlord shall maintain books and records
-----------------
reflecting the Operating Costs and Taxes in accordance with sound
accounting and management practices. Tenant, and its agents and
representatives, may inspect Landlord's records at Landlord's office upon
one day's prior notice during normal business hours during the thirty (30)
days following delivery of either the Operating Cost Report or the Tax
Report. Tenant and any agent or representative must agree, in their
contract for such services, that the results of any such inspection shall
be kept entirely confidential and shall specifically not be made available
to any other tenant of the Building. Unless Tenant sends to Landlord any
written exception to either such report within said thirty (30) day period,
such report shall be deemed final and accepted by Tenant. Tenant shall pay
the amount shown on both reports in the manner prescribed in this Lease,
whether or not Tenant takes any such written exception, without any
prejudice to such exception. If Tenant makes a timely exception, Landlord
shall cause its independent certified public accountant to issue a final
and conclusive resolution of Tenant's exception. Tenant shall
-6-
<PAGE>
pay the cost of such certification unless Landlord's original determination
of annual Operating Costs or Taxes was in error by more than five percent
(5%).
(5) Miscellaneous. So long as Tenant is in default of any
-------------
obligation under this Lease, Tenant shall not be entitled to any refund of
any amount from Landlord. If this Lease is terminated for any reason prior
to the annual determination of Operating Cost Share Rent or Tax Share Rent,
either party shall pay the full amount due to the other within fifteen (15)
days after Landlords notice to Tenant of the amount when it is determined.
Landlord may commingle any payments made with respect to Operating Cost
Share Rent or Tax Share Rent, without payment of interest.
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF
PREMISES.
A. Condition of Premises. Except to the extent of the Tenant
---------------------
Improvements item on the Schedule, Landlord is leasing the Premises to Tenant
"As Is," without any representations or warranties, including any express or
implied warranties of merchantability, fitness or habitability, and without any
obligation to alter, remodel, improve, repair, decorate or clean any part of the
Premises.
B. Tenant's Possession. Tenant's taking possession of any portion
-------------------
of the Premises shall be conclusive evidence that such portion was in good
order, repair and condition. If Landlord authorizes Tenant to take possession of
any part of the Premises prior to the Commencement Date for purposes of doing
business, all terms of this Lease shall apply to such pre-Term possession,
including Base Rent at the rate set forth for the First Lease Year in Section 2A
prorated for any partial month.
C. Maintenance. Throughout the Term, Tenant shall maintain the
-----------
Premises in their condition as of the Completion Date, loss or damage caused by
the elements, ordinary wear, and fire and other casualty excepted, and at the
termination of this Lease, or Tenant's right to possession, Tenant shall return
the Premises to Landlord in broom-clean condition. To the extent Tenant fails to
perform either obligation, Landlord may, but need not, restore the Premises to
such condition and Tenant shall pay the cost thereof.
D. Ownership of Improvements. All Work as defined in Section 5, 1
-------------------------
partitions, hardware, and all fixtures except Trade Fixtures (defined below),
constructed in the Premises by either Landlord or Tenant, shall become
Landlord's property upon installation without compensation to Tenant, unless
Landlord consents otherwise in writing, or requires Tenant to remove any such
item at the termination of the Lease or of Tenant's right to possession. "Trade
Fixtures" shall include all major equipment and material used to provide
telephone service and operate a telephone company, including the Generator and
Equipment (defined in Section 6).
-7-
<PAGE>
E. Removal at Termination. Tenant shall remove its trade fixtures
----------------------
furniture, moveable equipment and other personal property from the Premises upon
the termination of this Lease or Tenant's right of possession. If Tenant does
not, then Tenant shall be conclusively presumed to have, at Landlord's election
(i) conveyed such property to Landlord without compensation or (ii) abandoned
such property, and Landlord may dispose of any part thereof in any manner
without liability to Tenant or any other person. Landlord shall have no duty to
be a bailee of any such personal property. If Landlord elects abandonment,
Tenant shall pay to Landlord, upon demand, any expenses) incurred for
disposition.
4. PROJECT SERVICES.
Landlord shall furnish the following services (except as provided
below):
A. Heating and Air Conditioning. During the normal business hours
----------------------------
of 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on
Saturday, Landlord shall furnish heating and air conditioning to provide a
comfortable temperature, in Landlord's judgment, for normal business operations,
except to the extent Tenant installs equipment which adversely affects the
temperature maintained by the air conditioning system. Tenant may install
supplementary air conditioning units in the Premises, and Tenant shall pay the
cost of installation, operation and maintenance thereof. Landlord reserves the
right to install additional or supplementary air conditioning systems at
Tenant's sole cost and expense if Tenant's use of the Premises or use of
electrical equipment adversely affects any other tenant in the Building, and to
charge Tenant for any additional expenses in connection with the Building's
water cooling system (including costs of expanding the existing system) if
Tenant's use of cooling water exceeds a 75 ton capacity.
Landlord shall furnish heating and air conditioning after business
hours if Tenant provides Landlord at least twenty-four (24) hours' notice, and
pays Landlord all then current charges for such additional heating or air
conditioning.
B. Elevators. Landlord shall provide passenger elevator service
---------
during normal business hours to Tenant in common with Landlord and all other
tenants. Landlord shall provide limited passenger service at other times, except
in case of an emergency. Landlord shall provide freight elevator service at
reasonable hours at Tenant's request, subject to scheduling by the Landlord and
payment for the service by Tenant.
C. Electricity. Landlord shall pay for the electricity required for
-----------
the operation of the heating and air conditioning systems in the Premises during
the hours specified in Section 4A above, and shall include such payment in
Operating Costs. All other electricity used in the Premises shall be supplied by
the electricity company through a separate meter and paid for by Tenant. Tenant
shall pay for the installation of any sub-meter required on any floor of its
Premises. Any decrease or discontinuance of electric service shall not affect
the parties' rights and obligations under this Lease. Tenant shall not use
electricity at a rate which causes the use by all tenants to exceed the capacity
of the Building or the risers or wiring to the Premises.
-8-
<PAGE>
Landlord shall at Tenant's expense maintain the light fixtures and install
lamps, bulbs, ballasts and starters in the Premises.
Tenant shall pay for all electricity required for janitorial service,
for alterations and repairs to the Premises, to run its Equipment (as defined
herein) and for the operation of any supplementary air conditioning or
ventilating system required for its equipment (including the Generator (as
defined herein) and the Equipment).
D. Water. Landlord shall furnish (i) tap water for dishwasher and
-----
computer room purposes, (ii) cold water for drinking and toilet purposes, and
(iii) cold and hot water for lavatory purposes. Tenant shall pay Landlord for
water furnished for any other purpose as Additional Rent at rates fixed by
Landlord. Tenant shall not permit water to be wasted.
E. Janitorial Service. Landlord shall furnish janitorial service as
------------------
set forth in Appendix B. Tenant may obtain supplementary janitorial service only
at its sole cost and responsibility, with employees or contractors satisfactory
to Landlord, and subject to Landlord's prior written consent, which may be
withheld in Landlord's discretion.
F. Telephone Service. Tenant shall arrange for telephone service in
-----------------
the Premises and shall pay all of costs and charges associated therewith.
G. Natural Gas. Tenant shall arrange for natural gas service for the
-----------
Premises for the purpose of running its Generator and shall pay all of the costs
and charges associated therewith.
H. Interruption of Services. No interruption of services caused by
------------------------
repairs, replacements, or alterations to the service system, or by any other
cause beyond the reasonable control of Landlord, shall be deemed an eviction or
disturbance of Tenant's possession of any part of the Premises, or render
Landlord liable to Tenant for damages, or otherwise affect the rights and
obligations of Landlord and Tenant under this Lease. However, the rent otherwise
payable under this Lease shall abate in the manner described in the last
sentence of this paragraph if all of the following conditions are met: (i) if
Landlord ceases to furnish any service in the Building as a result of a
condition which affects only the Building (i.e. which does not affect office
buildings in general in the vicinity of the Building); and (ii) if Tenant
notifies Landlord in writing within one (1) business days after such cessation;
and (iii) if such cessation is not caused by Force Majeure (as defined in
Section 21 of this Lease); and (iv) if such cessation has not arisen as a result
of an act or omission of Tenant; and (v) as a result of such cessation, the
Premises (or a material portion thereof) is rendered untenantable (meaning that
Tenant is unable to use such space in the normal course of its business) and
Tenant in fact so ceases to use such space in the manner used prior to such
cessation. As Tenant's sole and exclusive remedy for such cessation, on the
sixth day after all of the foregoing conditions have been met, the rent payable
hereunder shall be equitably abated based upon the percentage of the space in
the Premises so rendered untenantable and not being so used by Tenant, and such
abatement shall continue until the date the Premises become tenantable again.
-9-
<PAGE>
5. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions. Tenant shall not make any
---------------------------------
improvements or alterations to the Premises which (i) impact the base structural
components or the heating, air conditioning, ventilation, electrical, plumbing
or mechanical systems (collectively, the "Systems") of the Building (although
Tenant may bolt its Equipment and furniture to the floor of the Premises
provided such bolting does not impact the foregoing) or (ii) impact any other
tenant's premises (collectively, the "Systems/Structure Work"), without
submitting plans and specifications therefor to Landlord, and obtaining
Landlord's prior written consent thereto (which consent Landlord may withhold in
its sole discretion). Tenant shall not make any improvements or alterations in
or additions, changes or installations to the Premises which are not deemed
Systems/Structure Work pursuant to this Section 5A, without submitting plans and
specifications therefor to Landlord, and obtaining Landlord's prior written
consent thereto (which consent shall not be unreasonably withheld), if (a) the
cost thereof, excluding installation of telephone switching equipment, is in
excess of $8,000.00, or (b) such improvements, alterations, additions, changes
or installations are visible from outside the Premises (collectively, the "Non-
Systems Work"). Tenant shall be allowed to make any improvements or alterations
in or additions, changes or installations to the Premises which are not deemed
Systems/Structure Work or Non-Systems Work pursuant to this Section 5A without
Landlord's consent (collectively, the "Non-Consent Work."). For purposes of this
Lease, Systems/Structure Work, Non-Systems Work and Non-Consent Work are
sometimes collectively referred to herein as the "Work". Landlord hereby agrees
to inform Tenant of its approval or disapproval of any such Systems/Structure
Work or NonSystems Work within fifteen (15) days after receipt of a complete set
of plans and specifications therefor. Tenant shall pay Landlord's out of pocket
expenses for review of the plans and all other items submitted by Tenant. At
Tenant's option, the Work shall be performed by Landlord's employees or
contractors. All Work shall become the property of Landlord upon its
installation, except for Tenant's Trade Fixtures and for items which Landlord
requires Tenant to remove at Tenant's cost at the termination of the Lease. The
following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord
building permits, certificates of insurance satisfactory to Landlord, and,
if Landlord's contractors are to perform any Work, at Landlord's request,
security for payment of all costs.
(2) Tenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid
interference with other work to be performed or services to be rendered in
the Project.
(3) The Work shall be performed in a good and workmanlike manner,
meeting the standard for construction and quality of materials in the
Building, and shall comply with all insurance requirements and all
applicable laws, ordinances and regulations.
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<PAGE>
(4) Tenant shall permit Landlord to supervise all Work. Landlord
may charge a supervisory fee not to exceed the lesser of fifteen percent
(15) or $5,000.00, if Tenant's employees or contractors perform the Work.
(5) Upon completion, Tenant shall furnish Landlord with
contractor's affidavits and full and final statutory waivers of liens, as-
built plans and specifications, and receipted bills covering all labor and
materials.
B. Electronic Systems. If Tenant notifies Landlord that Tenant
------------------
requires additional electrical or cable capacity for telegraph, telephone,
burglar alarm, computer, or signal service Landlord shall direct how the
installation shall be done. Tenant shall make no installation of any kind (other
than as may be required from time to time in the normal course of Tenant's
business and provided the same does not adversely affect any other tenant or
Landlord's operation of the Building) except in accordance with Landlord's
direction. At Landlord's election, Landlord may make the installation itself.
Tenant shall pay for the entire cost of both the installation and the service.
C. Damage to Systems. If any part of the mechanical, electrical or
-----------------
other systems in the Premises shall be damaged, Tenant shall promptly notify
Landlord, and Landlord shall repair such damage. Landlord may also at any
reasonable time make any repairs or alterations which Landlord deems necessary
for the safety or protection of the Project, or which Landlord is required to
make by any court or other governmental authority. Tenant shall at its expense
make all other repairs necessary to keep the Premises, and Tenant's fixtures and
personal property, in good order, condition and repair; to the extent Tenant
fails to do so, Landlord may make such repairs itself. The cost of any repairs
made by Landlord on account of Tenant's default, or on account of the mis-use or
neglect by Tenant or its invitees, contractors or agents anywhere in the
Project, shall become Additional Rent payable on demand by Tenant.
D. No Liens. Tenant has no authority to cause or permit any lien or
--------
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) days thereafter either
discharge or contest the lien or claim. If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord adequate
security for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding. If Tenant
does not comply with these requirements, Landlord may discharge the lien or
claim, and the amount paid, as well as attorney's fees and other expenses
incurred by Landlord, shall become Additional Rent payable on demand by Tenant.
6. USES OF PREMISES. Tenant shall use the Premises only for (i)
executive and general administrative offices; and (ii) operating a telephone
switching center (the "Switching Center") through which Tenant will provide
telephone services to clients within an approximate
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<PAGE>
600-mile radius of the Building. As part of the Switching Center, Tenant may, at
Tenant's sole cost and expense, install, operate and maintain in the Premises an
auxiliary power generator run on natural gas (the "Generator"), and a variety of
telecommunications equipment (the "Equipment"). The placement and manner of
installation of the Generator and Equipment shall be mutually agreed upon by
Tenant and Landlord, provided, however, that the Generator shall be located in
the place shown on Appendix A-1. Tenant shall provide evidence satisfactory to
the Landlord that the Generator and Equipment will comply with the Chicago
Zoning Code and Building Ordinance and any other applicable governmental
requirements, and that neither the Generator nor the Equipment will increase the
costs of Landlord's insurance on the Project or Tenant shall pay such increases
immediately upon demand by Landlord. Tenant shall comply with Section 5 hereof
in installing the Generator and Equipment. Tenant shall be fully responsible for
any injury to person or property arising out of the installation, presence or
operation of the Generator and Equipment. Tenant shall not allow any use of the
Premises which would cause the value or utility of any part of the Premises to
diminish or would interfere with any other Tenant or with the operation of the
Project by Landlord. Tenant shall not permit any nuisance or waste upon the
Premises, or allow any offensive noise or odor in or around the Premises. Tenant
shall not place vending or dispensing machines of any kind in the Premises.
Notwithstanding the foregoing, provided Tenant constructs a cinder
block or suitable housing for its Generator to act as a noise buffer and
Landlord approves such housing, Tenant may test its Generator one time per week
for up to sixty minutes between the following hours only: 12:00 a.m. to 6:00
a.m. Friday; 6:00 p.m. Friday to 6:00 a.m. Saturday; and 6:00 p.m Saturday to
6:00 a.m. Sunday. Tenant shall bear all costs expenses and liabilities
(including the cost of Landlord's reasonable attorney's fees) for the violation
of any federal, state or local laws or ordinances associated with the operation
of the Generator.
Tenant shall not permit or cause any party (including Tenant) to bring
any Hazardous Substance upon the Premises or to possess, use, store, handle,
generate, treat, dispose of, or release any Hazardous Substance on or about the
Premises; provided, however, that Tenant may, under the following conditions,
store and use de minimis quantities of Hazardous Substances that are normally
used in the ordinary course of running an administrative office business and
small quantities of Absolyte IIP batteries necessary to run Tenant's Equipment:
(i) Tenant's storage and use of such Hazardous Substances does not violate any
federal, state or local laws, ordinances or regulations; (ii) Tenant transports
all such Hazardous Substances in and out of the Building and the Premises via
the loading dock and the freight elevator, and by no other route whatsoever;
(iii) if the presence of such Hazardous Substances in the Building causes
Landlord to pay increased insurance premiums, Tenant bears the total cost of
such increased insurance premiums; (iv) all such Hazardous Substances are
properly stored, used and disposed of by Tenant; and (v) no disposal of
Hazardous Substances by or on behalf of Tenant occurs on or at the Project.
Tenant, at its sole cost and expense, shall operate its business in the Premises
in strict compliance with all Environmental Requirements and shall remediate in
a manner satisfactory to Landlord any Hazardous Substances released on or from
the Project by Tenant, its agents, employees, contractors, subtenants, or
invitees. Tenant shall complete and certify to disclosure statements as
requested by Landlord from time to time relating
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<PAGE>
to Tenant's transportation, storage, use, generation, manufacture, disposal, or
release of Hazardous Substances on the Premises. The term "Environmental
Requirements" means all applicable present and future statutes, regulations,
ordinances, rules, codes, judgments, orders or other similar enactments of any
governmental authority or agency regulating or relating to health, safety, or
environmental conditions on, under, or about the Premises or the environment,
including without limitation, the following: the Comprehensive Environmental
Response, Compensation and Liability Act; the Resource Conservation and Recovery
Act; and all state and local counterparts thereto, and any regulations or
policies promulgated or issued thereunder. As defined in Environmental
Requirements, Tenant is and shall be deemed to be the "operator" of Tenant's
"facility" and the "owner" of all Hazardous Materials brought on the Premises by
Tenant, its agents, employees, contractors or invitees, and the wastes, by-
products, or residues generated, resulting, or produced therefrom.
Tenant shall indemnify, defend, and hold Landlord harmless from and
against any and all losses (including, without limitation, diminution in value
of the Premises or the Project and loss of rental income from the Project),
claims, demands, actions, suits, damages (including, without limitation,
punitive damages), expenses (including, without limitation, remediation,
removal, repair, corrective action, or cleanup expenses), and costs (including,
without limitation, actual attorneys' fees, consultant fees or expert fees)
which are brought or recoverable against, or suffered or incurred by, Landlord
as a result of any release of Hazardous Materials for which Tenant is obligated
to remediate as provided above or any other breach of the requirements under
this Section 6 by Tenant, its agents, employees, contractors, subtenants,
assignees or invitees, regardless of whether Tenant had knowledge of such
noncompliance. The obligations of Tenant under this Section 6 shall survive any
termination of this Lease.
At the expiration or earlier termination of the Lease, Tenant, at its
sole cost and expense, shall: (i) remove and dispose off-site any Hazardous
Substances and any drums, containers, receptacles, structures, or tanks storing
or containing Hazardous Substances (or which have stored or contained Hazardous
Substances) and the contents thereof; and (ii) restore the Premises to its
original condition. Such activities shall be performed in compliance with all
Environmental Requirements and to the satisfaction of Landlord. Landlord's
satisfaction with such activities or the condition of the Premises does not
waive, or release Tenant from, any obligations hereunder.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall comply
with all governmental laws or regulations applying to its use of the Premises.
Tenant shall also comply with all rules established for the Project from time to
time by Landlord. The present rules are contained in Appendix C. Failure by
another tenant to comply with the rules or failure by Landlord to enforce them
shall not relieve Tenant of its obligation to comply with the rules or make
Landlord responsible to Tenant in any way.
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<PAGE>
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. Waiver of Claims. To the extent permitted by law, Tenant waives
----------------
any claims it may have against the Landlord or its officers, directors, agents,
contractors or employees for business interruption, damage to property, or any
other loss sustained by Tenant as the result of any accident or occurrence in
the Project or of any part of the Building becoming in disrepair.
B. Indemnification. Tenant shall indemnify, defend and hold
---------------
harmless Landlord and its directors, officers, employees, agents and contractors
against any claims by any third party for injury to any person or damage to or
loss of any property occurring in the Project and arising from the use of the
Premises or from any other act or omission of Tenant or any of Tenant's
employees, agents, invitees or contractors.
C. Insurance Coverage. Tenant shall maintain insurance customary
------------------
for an office tenant, with such terms, coverages and insurers, as Landlord shall
reasonably require from time to time. Initially, such insurance shall include:
(1) Comprehensive General Liability Insurance, with (a)
Contractual Liability including the indemnification provisions contained in
this Lease, (b) a severability of interest endorsement, (c) limits of not
less than One Million Dollars ($1,000,000) combined single limit per
occurrence for bodily injury, sickness or death, and property damage, and
umbrella coverage of not less than Five Million Dollars ($5,000,000), and
(d) Landlord and Landlord's building manager named as additional insureds.
(2) Insurance against "All Risks" of physical loss covering the
replacement cost of all of Tenant's fixtures and personal property.
Tenant's property insurance shall include a waiver of subrogation.
Tenant's insurance shall be primary and not contributory.
Landlord shall carry insurance policies in amounts and on terms and
conditions which are normally carried by reasonably prudent owners similar in
size and composition to Landlord of properties similar to the Project.
The insurance policies obtained by Landlord and Tenant shall include a
waiver of subrogation by the insurers and all rights based upon an assignment
from its insured, against Landlord or Tenant, their officers, directors,
employees, managers, agents, invitees and contractors, in connection with any
loss or damage thereby insured against.
D. Insurance Certificates. Tenant shall deliver to Landlord
----------------------
certificates evidencing all required insurance no later than five (5) days prior
to the Commencement Date
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<PAGE>
and each renewal date. Each certificate will provide for the thirty (30) days
prior written notice of cancellation to Landlord and Tenant.
9. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial
-----------
damage to the Building or the Premises, Landlord shall engage a registered
architect to certify within one (1) month of the casualty to both Landlord and
Tenant, the amount of time needed to restore the Building and the Premises to
tenantability, using standard working methods. If the time needed exceeds
eighteen (18) months from the date of the architects certification, or two (2)
months from the beginning of the restoration if the restoration would begin
during the last eighteen (18) months of the Lease, then in the case of the
Premises, either Landlord or Tenant may terminate this lease, and in the case of
the Building, Landlord may terminate this Lease, by notice to the other party
within ten (10) days after the notifying party's receipt of the architects
certificate. The termination shall be effective thirty (30) days from the date
of the notice and Rent shall be paid by Tenant to that date, within an abatement
for any portion of the space which has been untenantable after the casualty.
B. Restoration. If a casualty causes damage to the Building or the
-----------
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current governmental requirements. Tenant shall replace its damaged personal
property and fixtures. Rent shall be abated on a per diem basis during the
restoration for any portion of the Premises which is untenantable, except to the
extent that Tenant's negligence caused the casualty and Landlord's rent loss
insurance would not provide coverage if the Rent were abated.
10. EMINENT DOMAIN. If a part of the Project is taken by eminent domain
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of the Project is taken without affecting the Premises, then
Landlord may terminate this Lease as of the date of such taking. Rent shall
abate from the date of the taking in proportion to any part of the Premises
taken. The entire award for a taking of any kind shall be paid Landlord, and
Tenant shall have no right to share in the award. All obligations accrued to the
date of the taking shall be performed by each party.
11. RIGHTS RESERVED TO LANDLORD.
Landlord may exercise at any time and of the following rights
respecting the operation of the Project without liability to the Tenant of any
kind:
A. Name. To change the name or street address of the Building or
----
the suite numbers of the Premises.
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<PAGE>
B. Signs. To install and maintain any signs on the exterior and in
-----
the interior of the Building, and to approve at its discretion prior to
installation any of the Tenants signs in the Premises visible from the common
areas or the exterior of the Building.
C. Window Treatments. To approve, at its discretion, prior to
-----------------
installation any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building.
D. Service Contracts. To enter into service contracts with all
-----------------
providers furnishing ice and drinking water, towels, toilet supplies, shoe
shines, sign painting, beverage or food services, or other services to the
Premises, provided that the rates charged are reasonably competitive for office
buildings in the Chicago area.
E. Keys. To retain and use passkeys to enter the Premises or any
----
door within the Premises, provided Landlord shall only exercise this right in
the event of an emergency or upon 24 hours notice to Tenant and while
accompanied by a representative of Tenant. Tenant shall not alter or add any
lock or bolt.
F. Access. To have access to inspect the Premises, and to perform
------
its obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease, provided Landlord shall only exercise this right in the
event of an emergency or upon 24 hours notice to Tenant and while accompanied by
a representative of Tenant.
G. Preparation for Reoccupancy. To decorate, remodel, repair, alter
---------------------------
or otherwise prepare the Premises for reoccupancy at any time after Tenant
abandons the Premises, without relieving Tenant of any obligation to pay Rent.
H. Heavy Articles. To approve the weight, size, placement and time
--------------
and manner of movement within the Building of any safe or other heavy article of
Tenant's property. Tenant shall move its property entirely at its own risk.
I. Show Premises. To show the Premises to prospective purchasers or
-------------
brokers at any reasonable time, and to prospective tenants during the final year
of the Term, provided that Landlord gives prior notice to Tenant and does not
materially interfere with Tenant's use of the Premises.
J. Restrict Access. To restrict access to the Project during such
---------------
hours as Landlord shall determine, so long as Landlord shall admit Tenant at all
times, subject to appropriate regulation by Landlord.
K. Intentionally deleted.
---------------------
L. Use of Lockbox. To designate a lockbox collection agent for
--------------
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the
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<PAGE>
date of the agent's receipt of such payment or the date of actual collection if
payment is made in the form of a negotiable instrument thereafter dishonored
upon presentment. However, if Tenant is in default under this Lease, Landlord
may reject any payment for all purposes as of the date of receipt or actual
collection by mailing to Tenant within 21 days after such receipt or collection
a check equal to the amount sent by Tenant.
M. Repairs and Alterations. To make repairs or alterations to the
-----------------------
Project and in doing so transport any required material through the Premises, to
close entrances, doors, corridors, elevators and other facilities in the
Project, to open any ceiling in the Premises, or to temporarily suspend services
or use of common areas in the Building. Landlord may perform any such repairs or
alterations during ordinary business hours, except that Tenant may require any
Work in the Premises to be done after business hours if Tenant pays Landlord for
overtime and any other expenses incurred. Landlord may do or permit any work on
any nearby building, land, street, alley or way.
N. Landlord's Agents. If Tenant is in default under this Lease,
-----------------
possession of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlords agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.
O. Building Services. To install use and maintain through the
-----------------
Premises, pipes, conduits, wires and ducts serving the Building, provided that
such installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises.
P. Other Actions. To take any other action which Landlord deems
-------------
reasonable in connection with the operation, maintenance or preservation of the
Building.
12. TENANT'S DEFAULT
Any of the following shall constitute a default by Tenant:
A. Rent Default. Tenant fails to pay any Rent when due, and in the
------------
case of the second such failure in any 12 consecutive months, this failure
continues for five days after written notice from Landlord;
B. Assignment/Sublease or Hazardous Substances Default. Tenant
---------------------------------------------------
defaults in its obligations under Section 17 Assignment and Sublease or Section
28 Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any other
-------------------------
obligation to Landlord under this Lease, and, in the case of only the first such
failure in any twelve consecutive months, this failure continues for seven days
after written notice from Landlord, except that if Tenant begins to cure its
failure within the seven day period but cannot reasonably complete its cure
within such period, then the seven-day period shall be extended to ninety days,
or such lesser period as is reasonably necessary to complete the cure;
-17-
<PAGE>
D. Credit Default. One of the following credit defaults occurs:
--------------
(1) Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks
appointment of a receiver, trustee, custodian or other similar official for
the Tenant or for any substantial part of its property, or any such
proceeding is commenced against Tenant and either remains undismissed for a
period of thirty days or results in the entry of an order for relief
against Tenant which is not fully stayed within seven days after entry;
(2) Tenant becomes insolvent or bankrupt, does not generally pay
its debts as they become due, or admits in writing its inability to pay its
debts, or makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under process of
law against Tenant 'a leasehold interest, unless same is cured by Tenant
within seven days after notice of said levy or attachment, except that if
Tenant begins to cure the levy or attachment within the seven day period
but cannot reasonably complete its cure within such period, then the seven-
day period shall be extended to fortyfive, or such lesser period as is
reasonably necessary to complete the cure.
13. LANDLORD REMEDIES.
A. Termination of Lease or Possession. If Tenant defaults, Landlord
----------------------------------
may elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease. In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may remove any of Tenant's
signs and any of its other property, without relinquishing its right to receive
Rent or any other right against Tenant.
B. Lease Termination Damages. If Landlord terminates the Lease,
-------------------------
Tenant shall pay to Landlord all Rent due on or before the date of termination,
plus Landlord's reasonable estimate of the aggregate Rent that would have been
payable from the date of termination through the Termination Date, reduced by
the rental value of the Premises calculated as of the date of termination for
the same period, taking into account reletting expenses and market concessions,
both discounted to present value at the rate of five (5) percent per annum. If
Landlord shall relet any part of the Premises for any part of such period before
such present value amount shall have been paid by Tenant or finally determined
by a court, then the amount of Rent payable pursuant to such reletting shall be
deemed to be the reasonable rental value for that portion of the Premises relet
during the period of the reletting. Landlord shall have a reasonable duty to
mitigate its damages under this Lease.
C. Possession Termination Damages. If Landlord terminates Tenant's
------------------------------
right to possession without terminating the Lease and Landlord takes possession
of the Premises itself, Landlord may relet any part of the Premises for such
Rent, for such time, and upon such terms
-18-
<PAGE>
as Landlord in its sole discretion shall determine, without any obligation to do
so prior to renting other vacant areas in the Building. Any proceeds from
reletting the Premises shall first be applied to the expenses of reletting,
including redecoration, repair, alteration, advertising, brokerage, legal, and
other reasonably necessary expenses. If the reletting proceeds after payment of
expenses are insufficient to pay the full amount of Rent under this Lease,
Tenant shall pay such deficiency to Landlord monthly upon demand as it becomes
due. Any excess proceeds shall be retained by Landlord.
D. Landlord's Remedies Cumulative. All of Landlord's remedies under
------------------------------
this Lease shall be in addition to all other remedies Landlord may have at law
or in equity. Waiver by Landlord of any breach of an obligation by Tenant shall
be effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment.
E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE
-----------------------
EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS
LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH
THIS LEASE IN A FEDERAL OR STATE COURTS LOCATED IN CHICAGO, ILLINOIS, CONSENTS
TO THE JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.
F. Litigation Costs. Tenant shall pay Landlord's attorneys' fees
----------------
and other costs in enforcing this Lease, whether or not suit is filed.
14. SURRENDER. Upon termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and casualty damage excepted. If Landlord requires
Tenant to remove any alterations, then Tenant shall remove the alterations in a
good and workmanlike manner and restore the Premises to its condition prior to
their installation.
15. HOLDOVER. If Tenant retains possession of any part of the Premises
after the Term, Tenant shall become a month-to-month tenant upon all of the
terms of this Lease as might be applicable to such month-to-month tenancy,
except that Tenant shall pay Base Rent at 150' of the rate in effect immediately
prior to such holdover, computed on a monthly basis for each full or partial
month Tenant remains in possession. If Tenant holds over for more than one
month, Tenant shall also pay Landlord all of Landlord's direct and consequential
damages, and in addition, if Landlord so elects by notice to Tenant, such
holdover shall constitute a renewal of this Lease for one year at the then
current market rate as determined by Landlord but in no
-19-
<PAGE>
event less than the Rent payable immediately prior to such holdover. No
acceptance of Rent or other payments by Landlord under these holdover provisions
shall operate as a waiver of Landlord's right to regain possession or any other
of Landlord's remedies.
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any present or
-------------
future ground lease or mortgage respecting the Project, and any amendments to
such ground lease or mortgage, at the election of the ground lessor or mortgagee
as the case may be, effected by notice to Tenant in the manner provided in this
Lease. The subordination shall be effective upon such notice, but at the request
of Landlord or ground lessor or mortgagee, Tenant shall within ten (10) days of
the request, execute and deliver to the requesting party any reasonable
documents provided to evidence the subordination.
B. Termination of Ground Lease or Foreclosure of Mortgage. If any
------------------------------------------------------
ground lease is terminated or mortgage foreclosed or deed in lieu of foreclosure
given and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Project. At the request of Landlord,
ground lessor or mortgagee, Tenant shall execute and deliver within ten (10)
days of the request any document furnished by the requesting party to evidence
Tenant's agreement to attorn. In connection with Tenant's attornment, Landlord
shall use its best efforts to provide Tenant with a non-disturbance agreement.
C. Security Deposit. Any ground lessor or mortgagee shall be
----------------
responsible for the return of any security deposit by Tenant only to the extent
the security deposit is received by such ground lessor or mortgagee.
D. Notice and Right to Cure. The Project is subject to any ground
------------------------
lease and mortgage identified with name and address of ground lessor or
mortgagee in any Appendix to this Lease. Tenant agrees to send by registered or
certified mail to any ground lessor or mortgagee identified either in such
Appendix or in any later notice from Landlord to Tenant a copy of any notice of
default sent by Tenant to Landlord. If Landlord fails to cure such default
within the required time period under this Lease, but ground lessor or mortgagee
begins to cure within ten (10) days after such period and proceeds diligently to
complete such cure, then ground lessor or mortgagee shall have such additional
time as is necessary to complete such cure, including any time necessary to
obtain possession if possession is necessary to cure, and Tenant shall not begin
to enforce its remedies so long as the cure is being diligently pursued.
E. Definitions. As used in this Section 16, "mortgage" shall
-----------
include "trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall
include the mortgagee of any
-20-
<PAGE>
ground lessee, and "ground lessor", "mortgagee", and "purchaser at a foreclosure
sale" shall include, in each case, all of its successors and assigns, however
remote.
17. ASSIGNMENT AND SUBLEASE.
A. Consent Required. Tenant shall not, without the prior consent of
----------------
al Landlord in each case, (i) make or allow any assignment or transfer, by
operation of law . or otherwise, of any part of Tenant's interest in this Lease,
(ii) grant or allow any lien or encumbrance, by operation of law or otherwise,
upon any part of Tenant's interest in this Lease, (iii) sublet any part of the
Premises, or (iv) permit anyone other than Tenant and its employees to occupy
any part of the Premises. Landlord may withhold its consent to the assignment or
sublease if Tenant is in default under this Lease or if the financial
responsibility, nature of business, and character of the proposed assignee or
subtenant are not all reasonably satisfactory to Landlord. Landlord will not
otherwise unreasonably withhold its consent on any other basis to such an
assignment or subletting. No consent granted by Landlord shall relieve Tenant of
any of its obligations under this Lease, nor shall it be deemed to be a consent
to any subsequent assignment or transfer, lien or encumbrance, sublease or
occupancy. Tenant shall pay all of Landlord's attorneys' fees and other expenses
incurred in connection with any consent requested by Tenant or in reviewing any
proposed assignment or subletting. Any assignment or transfer, grant of lien or
encumbrance, or sublease or occupancy without Landlord's prior written consent
shall be void. Notwithstanding the foregoing, provided Tenant is not in default
under this Lease, upon 30 days prior written notice to Landlord, Tenant may,
without Landlord's prior written consent, assign this Lease to an entity into
which Tenant is merged or consolidated or to an entity to which substantially
all of Tenant's assets are transferred, provided (x) such merger, consolidation
or transfer of assets is for a good business purpose and not principally for the
purpose of transferring Tenant's leasehold estate, and (y) the assignee,
transferee or successor entity has a net worth at least equal to the net worth
of Tenant on the date of this Lease or immediately prior to such merger,
consolidation or transfer, on which ever date Tenant's net worth is greater.
B. Procedure. Tenant shall notify Landlord of any proposed
---------
assignment or sublease at least sixty (60) days prior to its proposed effective
date. The notice shall include the name and address of the proposed assignee or
subtenant, its corporate affiliates in the case of a corporation and its
partners in a case of a partnership, an execution copy of the proposed
assignment or sublease, and sufficient information to permit Landlord to
determine the financial responsibility and character of the proposed assignee or
subtenant. As a condition to any effective assignment of this Lease, the
assignee shall execute and deliver in form satisfactory to Landlord at least
fifteen (15) days prior to the effective date of the assignment, an assumption
of all of the obligations of Tenant under this Lease. As a condition to any
effective sublease, subtenant shall execute and deliver in form satisfactory to
Landlord at least fifteen (15) days prior to the effective date of the sublease,
an agreement to comply with all of Tenant's obligations under this Lease, and at
Landlord's option, an agreement (except for the economic obligations which
subtenant will undertake directly to Tenant) to attorn to Landlord under the
terms of the sublease in the event this Lease terminates before the sublease
expires.
-21-
<PAGE>
C. Chance of Management or Ownership. Any transfer of the direct or
---------------------------------
indirect power to affect the management or policies of Tenant or direct or
indirect change in 50% or more of the ownership interest in Tenant shall
constitute an assignment of this Lease.
D. Excess Payments. If Tenant shall assign this Lease or sublet any
---------------
part of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, then Tenant shall
pay to Landlord as Additional Rent 50% of any such excess immediately upon
receipt.
18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
interest in the Project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations. This
Lease shall not be affected by any such transfer.
19. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committed no uncured defaults and has no
offsets or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
and such other matters as may be reasonably requested. Failure to deliver such
statement within the time required shall be conclusive evidence against the non-
certifying party that this Lease, with any amendments identified by the
requesting party, is in full force and effect, that there are no uncured
defaults by the requesting party, that not more than one months Rent has been
paid in advance, and that the non-certifying party has no claims or offsets
against the requesting party.
20. SECURITY DEPOSIT.
A. Tenant shall deposit with Landlord security for the performance
of all of its obligation in the amount set forth initially in the Schedule and
in the form set forth below. If Tenant defaults under this Lease, Landlord may
use any part of the Security Deposit to make any defaulted payment, to pay for
Landlord's cure of any defaulted obligation, or to compensate Landlord for any
loss or damage resulting from any default. To the extent any portion of the
Security Deposit is used, Tenant shall within five (5) days after demand from
Landlord either (i) reinstate the Letter of Credit (defined below) to its full
amount, or (ii) restore the Security Deposit to its full amount, as the case may
be. If Tenant shall perform all of its obligations under this Lease and return
the Premises to Landlord at the end of the Term, Landlord shall return either
all of the remaining Security Deposit or the Letter of Credit to Tenant. The
-22-
<PAGE>
Security Deposit shall not serve as an advance payment of Rent or a measure of
Landlord's damages for any default under this Lease.
B. (1) The Security Deposit shall be initially in the form of an
unconditional and irrevocable letter of credit (the "Letter of Credit"), which
Letter of Credit shall (a) initially be in the amount as described in the
Schedule above, (b) be in substantially the form attached hereto as Appendix F,
(c) name Landlord as its beneficiary, (d) expressly allow Landlord to draw upon
it at any time or from time to time by delivering to the issuer written notice
that Landlord has the right to draw thereunder, (e) be drawn on an FDIC-insured
financial institution satisfactory to Landlord, and (f) be redeemable in the
State of New York. If Landlord is not provided with a substitute Letter of
Credit complying with all of the requirements hereof at least ten (10) days
before the stated expiration date hereof, then Landlord shall have the right to
draw under such Letter of Credit then held by Landlord and hold such funds as a
Security Deposit in accordance with the terms of this Section 20. The Letter of
Credit shall be delivered by Tenant to Landlord on or prior to the date of this
Lease. The Letter of Credit shall be delivered by Tenant to Landlord on or
prior to the date of this Lease.
(2) The Letter of Credit shall remain in full force and effect
until January 31, 2000, at which time (a) if Tenant has a net worth (as
calculated according to "GAAP") of more than $100,000,000.00, no further
Security Deposit shall be required and Landlord shall return the Letter of
Credit to Tenant; and (b) if Tenant has a net worth (as calculated
according to "GAAP") of less than $100,000,000.00, Tenant shall depositing
with Landlord a cash Security Deposit equal to two (2) months of the then
current Base Rent, Operating Cost Share Rent and Tax Share Rent and
Landlord shall then return the Letter of Credit to Tenant.
C. If Landlord transfers its interest in the Project or this Lease,
Landlord may transfer the Security Deposit, if held as cash, or Tenant will
cause the issuance of a new Letter of Credit for the benefit of the transferee.
Upon such transfer or return of the old Letter of Credit, Landlord shall have no
further obligation to return the Letter of Credit to Tenant, and Tenant's right
to the return of such Letter of Credit shall apply solely against Landlord's
transferee.
21. FORCE MAJEURE. Landlord shall not be in default under this Lease to
the extent Landlord is unable to perform any of its obligations on account of
any strike or labor problem, energy shortage, governmental pre-emption or
prescription, national emergency, or any other cause of any kind beyond the
reasonable control of Landlord ("Force Majeure").
22. Intentionally deleted.
23. NOTICES. All notices, consents, approvals and similar communications
to be given by one party to the other under this Lease, shall be given in
writing, mailed or personally delivered as follows:
-23-
<PAGE>
A. Landlord. To Landlord as follows:
--------
Teachers Insurance and Annuity Teachers Insurance and Annuity
Association of America Association of America
c/o Office of the Building 730 Third Avenue
Manager New York, New York 10017
200 North LaSalle Street Attn: Vice President
Chicago, Illinois 60601
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant at the address stated in the Schedule until Tenant
------
takes possession of the Premises, and thereafter at the Premises or such other
address as Tenant may designate by notice to Landlord.
Mailed notices shall be sent by United States certified or registered
mail, or by a reputable national overnight courier service, postage prepaid.
Mailed notices shall be deemed to have been given on the earlier of actual
delivery or three (3) business days after posting in the United States mail in
the case of registered or certified mail, and one business day in the case of
overnight courier.
24. QUIET POSSESSION. So long as Tenant shall perform all of its
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises against any party claiming through the Landlord.
25. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has not
dealt with any real estate broker with respect to this Lease except for Miglin-
Beitler Management Corporation and any broker listed in the Schedule, and no
other broker is in any way entitled to any broker's fee or other payment in
connection with this Lease. Tenant shall indemnify and defend Landlord against
any claims by any other broker or third party with which Tenant has dealt for
any payment of any kind in connection with this Lease.
26. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's
----------------------
assignment contained in Section 14, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant
---------------------
under this Lease which are due upon demand, Tenant shall pay to Landlord any
amount for which Landlord renders a statement of account within ten days of
Tenant's receipt of Landlord's statement.
-24-
<PAGE>
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate".
-------------------------------------------------------------
The term "Landlord" means only the owner of the Project and the lessor's
interest in this Lease from time to time. The words "re-entry" and "re-enter"
are not restricted to their technical legal meaning. The words "including" and
similar words shall mean "without limitation." The word "affiliate" shall mean a
person or entity controlling, controlled by or under common control with the
applicable entity. "Control" shall mean the power directly or indirectly, by
contract or otherwise, to direct the management and policies of the applicable
entity.
D. Time of the Essence. Time is of the essence of each provision of
-------------------
this Lease.
E. No Option. This document shall not be effective for any purpose
---------
until it has been executed and delivered by both parties; execution and delivery
by one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this
------------
Lease shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by
-------------
the laws of Illinois, without regard to the principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any
------------------
way requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be
--------------------
effective unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its
------------------------
obligations under this Lease, Tenant shall notify Landlord and shall take no
action respecting such breach so long as Landlord immediately begins to cure the
breach and diligently pursues such cure to its completion. Landlord may cure any
default by Tenant; any expenses incurred shall become Additional Rent due from
Tenant on demand by Landlord.
K. Cautions. The captions used in this Lease shall have no effect
--------
on the construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that
---------
it has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of
----------------------------------
its remedies under this Lease either in its own name or through an agent.
-25-
<PAGE>
N. Entire Agreement. This Lease, together with all Appendices,
----------------
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to
----------------
the interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
--------------------
rights to light and air in connection with Project. Landlord reserves to itself,
the Land, the Building below the improved floor of each floor of the Premises,
the Building above the ceiling of each floor of the Premises, the exterior of
the Premises and the areas on the same floor outside the Premises, along with
the areas within the Premises required for the installation and repair of
utility lines and other items required to serve other tenants of the Building.
Q. Consents. Neither party shall unreasonably withhold or delay any
--------
consent or approval required under this Lease, except as specifically permitted
in this Lease.
R. Singular and Plural. Wherever appropriate in this Lease, a
-------------------
singular term shall be construed to mean the plural where necessary, and a
plural term the singular. For example, if at any time two parties shall
constitute Landlord or Tenant, then the relevant term shall refer to both
parties together.
S. No Recording by Tenant. Tenant shall not record in any public
----------------------
records any memorandum or any portion of this Lease.
T. Exclusivity. Landlord does not grant to Tenant in this Lease any
-----------
exclusive right except the right to occupy its Premises.
U. No Construction Against Drafting Party. The rule of construction
--------------------------------------
that ambiguities are resolved against the drafting party shall not apply to this
Lease.
V. Survival. All obligations of Landlord and Tenant under this
--------
Lease shall survive the termination of this Lease.
W. Rent Not Based on Income. No rent or other payment in respect of
------------------------
the Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.
X. Building Manager and Service Providers. Landlord may perform any
--------------------------------------
of its obligations under this Lease through its employees, the building manager
of the Project, or third parties hired by the Landlord or the building manager.
Upon the request of Landlord, Tenant shall enter into a contract approved by
Landlord as to form and content with the building
-26-
<PAGE>
manager of the Project or third parties designated by Landlord for the
furnishing of such services, provided that no such contract shall require Tenant
to make more payments or accept fewer services than Tenant is entitled to under
this Lease.
Y. Interest on Late Payments. Interest shall be paid by Tenant to
-------------------------
Landlord on any late payments of Rent from the date due until paid at the rate
provided in Section 2D(3).
27. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
28. HAZARDOUS SUBSTANCES. Other than as provided for explicitly in
Section 6, Tenant shall not cause or permit any Hazardous Substances to be
brought upon, produced, stored, used, discharged or disposed of in or near the
Project unless Landlord has consented in writing to such storage or use in its
sole discretion. "Hazardous Substances" include those hazardous substances
described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any
other applicable federal, state or local law, and the regulations adopted under
these laws. If any lender or governmental agency shall require testing for
Hazardous Substances in the Premises, Tenant shall pay for such testing.
29. EXCULPATION. Landlord shall have no personal liability under this
Lease; its liability shall be limited to its interest in the Project, and shall
not extend to any other property or assets of the Landlord.
30. BASE RENT. Base Rent shall be in accordance with the following
Schedule:
<TABLE>
<CAPTION>
Period Annual Base Rent Monthly Base Rent
- ------ ---------------- -----------------
<S> <C> <C>
(based on 10,236
square feet)
First Lease Year $12.55 per rentable square $10,705.15
foot
Second Lease Year $12.80 per rentable square $10,918.40
foot
Third Lease Year $13.05 per rentable square $11,131.65
foot
</TABLE>
-27-
<PAGE>
<TABLE>
<S> <C> <C>
Fourth Lease Year $13.30 per rentable square $11,344.90
foot
Fifth Lease Year $13.55 per rentable square $11,558.15
foot
Sixth Lease Year $13.80 per rentable square $11,771.40
foot
Seventh Lease Year $14.05 per rentable square $11,984.65
foot
Eighth Lease Year $14.30 per rentable square $12,197.90
foot
Ninth Lease Year $14.55 per rentable square $12,411.15
foot
Tenth Lease Year $14.80 per rentable square $12,624.40
foot
</TABLE>
31. EXTENSION. Subject to Sections 31B and 31C below, the Term of
this Lease may be extended, at the option of Tenant, for two (2) additional
periods of five (5) years each (the "Renewal Terms"). The Renewal Terms shall be
upon the same terms, covenants and conditions contained in this Lease, excluding
the provisions of Section 30 and this Section 31 of the Lease and except for the
amount of Base Rent payable during the Renewal Terms, and any reference in the
Lease to the "Term" of the Lease shall be deemed to include the Renewal Terms
and apply thereto, unless it is expressly provided otherwise. Tenant shall have
no extension options beyond the two aforesaid five year extension options. Any
termination of this Lease during the initial Term of this Lease shall terminate
all rights under this Section 31.
A. The initial Base Rent during the Renewal Terms shall be at a rate
equal to the greater of (i) the Base Rent existing on the date Tenant delivers
its initial non-binding notice, subject to escalation, and (ii) the then
prevailing Market Rate (defined hereinafter) for fully credit-worthy tenants for
comparable basement space in the Building and other comparable office buildings
in the vicinity of the Building as reasonably determined by Landlord. Tenant's
obligation to pay Operating Cost Share Rent and Tax Share Rent pursuant to
Section 2 of this Lease shall continue during the Renewal Terms.
B. For purposes of this Lease, "Market Rate", as defined above,
shall be determined as follows:
(i) On or before five (5) days after the time at which Tenant must
provide the Landlord with initial non-binding written notice under this
Lease of its intent to exercise
-28-
<PAGE>
any of its rights to extend the Term of this Lease under this Section 31
or, on or before five (5) days after either Landlord or Tenant requests in
writing a determination of Market Rate, which determination is required for
purposes of enforcing any provision of this Lease, Landlord and Tenant
shall commence negotiations to agree upon the Market Rate (to be multiplied
by the rentable square feet in the Premises) applicable thereto. If the
Landlord and Tenant are unable to reach agreement on the Market Rate within
twenty-one (21) days after the date negotiations commenced, then the Market
Rate shall be determined in accordance with Section 31B(ii) below.
(ii) If the Landlord and Tenant are unable to reach agreement on the
Market Rate within said twenty-one (21) day period, then within seven (7)
days, the Landlord and Tenant shall each simultaneously submit to other in
a sealed envelope its good faith estimate of the Market Rate. If the higher
of such estimates is not more than one hundred five percent (105) of the
lower of such estimates then the Market Rate shall be the average of the
two estimates. Otherwise, within five (5) days either the Landlord or
Tenant may submit the question to arbitration in accordance with Section
31B(iii) below.
(iii) If the Landlord and Tenant are unable to agree upon the Market
Rate by exchange of estimates, then either may, by written notice of the
other within five (5) days after the exchange of good faith estimates
pursuant to Section 31B(ii) above, request to resolve the dispute by
arbitration. Within seven (7) days after the receipt of such request, the
parties shall select, as an arbitrator, a mutually acceptable independent
MAI appraiser with experience in real estate activities, including at least
five (5) years experience in appraising office space in the Chicago area (a
"Qualified Appraiser"). If the parties cannot agree on a Qualified
Appraiser, then within a second period of seven (7) days, each shall elect
a Qualified Appraiser and within ten (10) days thereafter the two appointed
Qualified Appraisers shall select a third Qualified Appraiser and the third
Qualified Appraiser shall be the arbitrator and shall determine the Market
Rate. If one party shall fail to make such appointment within said second
seven (7) day period, then the Qualified Appraiser chosen by the other
party shall be the sole arbitrator.
(iv) Once the arbitrator has been selected as provided in Section
31B(iii) above, then, as soon thereafter as practicable but in any case
within twenty-one (21) days, the arbitrator shall select one of the two
estimates of Market Rate submitted by the Landlord and Tenant, which shall
be the one that is closer to the fair market net rental value as determined
by the arbitrator. The value so selected shall be the Market Rate. The
decision of the arbitrator as to the Market Rate shall be submitted in
writing to, and be final and binding on, the Landlord and Tenant. If the
arbitrator believes that expert advice would materially assist him, he may
retain one or more qualified persons, including but not limited to, legal
counsel, brokers, architects or engineers, to provide such expert advice.
The party whose estimate is not chosen by the arbitrator shall pay the
costs of the arbitrator and of any experts retained by the arbitrator. Any
fees of any counsel or expert engaged directly by the Landlord or Tenant,
however, shall be borne by the party obtaining such counsel or expert.
-29-
<PAGE>
C. Each option to extend shall be exercised by Tenant delivering an
initial non-binding written notice to Landlord not less than twelve (12) full
calendar months prior to the expiration of the initial Term of this Lease or
first Renewal Term, as applicable. Thereafter, the Market Rate for the
particular Renewal Term shall be calculated pursuant to Section 31B. Such
calculation shall reflect the Market Rate that would be payable per annum for a
term commencing on the first day of the Renewal Term with respect to which the
calculation is being made, provided that such calculation shall be final and
shall not be recalculated at the actual commencement of the Renewal Term (if
any). Tenant shall give Landlord final binding written notice of intent to
exercise its option to extend, if at all, no later than nine (9) months prior to
the expiration of the initial Term or first renewal term, as applicable.
D. Tenant's right to exercise its option to extend this Lease pursuant to
this Section 31, is subject to the following conditions: (i) that on the date
that Tenant delivers its final binding written notice of its election to
exercise its option to extend, Tenant is not in default under any of the terms,
covenants or conditions of this Lease, after the expiration of any applicable
notice and cure periods, and (ii) that Tenant shall not have assigned this Lease
or sublet the Premises at any time during the period commencing with the date
that Tenant delivers its final binding written notice to Landlord of its
exercise of such option to extend and ending on the commencement date of the
Renewal Term, or at any time prior to such period, if such assignment or
sublease extends into such period.
E. If Tenant fails to give its initial non-binding written notice of
intent or its final binding written notice of intent to exercise its option to
extend when due as provided in this Section 31, Tenant will be deemed to have
waived such option to extend.
32. TENANT'S IMPROVEMENTS PRIOR TO THE COMMENCEMENT DATE.
A. Tenant shall be obligated to improve the Premises, at its own
cost, in accordance with plans and specifications approved by Landlord, which
approval shall not be unreasonably withheld (such improvements are referred to
herein as the "Tenant's Improvements"). Tenant hereby agrees that such Tenant's
Improvements shall be completed on or before 120 days from the date Landlord
releases the Premises to Tenant (the "Completion Date"). The "Commencement Date"
of this Lease shall be the earlier of (i) the date Tenant begins operating its
business or (ii) on the Completion Date. Tenant hereby agrees that the plans and
specifications for the Tenant's Improvements shall comply with all applicable
statutes, ordinances, regulations, laws and codes. Landlord's approval of any of
such plans and specifications (or any modifications or changes thereto) shall
not impose upon Landlord or its agents or representatives any obligation with
respect to the design of the Tenant's Improvements or with respect to the
compliance of such Tenant's Improvements and/or the plans and specifications
therefor with applicable laws, codes, ordinances and regulations, it being
expressly understood that the obligation with respect to the design of the
Tenant's Improvements and its compliance with applicable laws, codes, ordinances
and regulations rests with the Tenant and the party responsible for preparing
such plans and specifications.
-30-
<PAGE>
All such Tenant's Improvements shall comply with all insurance
requirements and with all applicable laws, ordinances and regulations. All
Tenant's Improvements shall be constructed in a good and workmanlike manner, and
only good grades of material shall be used. All Tenant's Improvements shall be
performed in such a fashion and by such means as necessary to maintain a
professional work environment in the areas surrounding the space to be improved.
Tenant shall only use labor that will work in peace and harmony with other
contractors and workers serving the Building in constructing Tenant's
Improvements. Tenant shall use reasonable efforts to avoid actions which may
unreasonably interfere with or delay the activities of other contractors serving
the Building and other tenants. Tenant shall permit Landlord to observe and
monitor all Tenant's Improvements.
Landlord's permitting Tenant and its agents and contractors to enter
the Premises prior to the Commencement Date to prepare the Premises for Tenant's
use and occupancy shall constitute a license only.
Landlord shall have the right to withdraw such license for any reason
upon twenty-four (24) hours' written notice to Tenant. Landlord shall not be
liable in any way for any injury, loss or damage which may occur to any of
Tenant's property or installations in the Premises prior to the Commencement
Date. Tenant shall protect defend, indemnify and save harmless Landlord from all
liabilities, costs, damages, fees and expenses arising out of the activities of
Tenant or its agents, contractors, suppliers or workmen in the Premises or the
Building.
-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA, a New York corporation
By: /s/ S. Marc Flannery
-------------------------------------------
Print Name: S. Marc Flannery
-----------------------------------
Print Title: Assistant Secretary
----------------------------------
TENANT:
FOCAL COMMUNICATIONS CORPORATION,
a Delaware corporation
By: /s/ Brian F. Addy
------------------------------------------
Print Name: Brian F. Addy
-----------------------------------
Print Title: Executive Vice President
----------------------------------
-32-
<PAGE>
APPENDIX A
PLAN OF THE PREMISES
(Graphic)
APPENDIX A
<PAGE>
APPENDIX A-1
LOCATION OF GENERATOR
(Graphic)
APPENDIX A-1
<PAGE>
APPENDIX B
CLEANING SCHEDULE
Landlord shall furnish janitorial service as described below:
DAILY
-----
Sweep, dry mop (using treated mops), or vacuum all floor areas (moving
light furniture) of resilient wood or carpet, remove matter such as gum and tar
which has adhered to the floor.
Empty and damp wipe all ashtrays and waste baskets and remove all trash.
Dust all horizontal surfaces with treated dust cloth, including furniture,
files, equipment, blinds, and louvers that can be reached without a ladder.
Damp wipe all telephones, including dials and crevices.
Spot wash to remove smudges, marks and fingerprints from such areas as
walls, equipment, doors, partitions and light switches within reach.
Wash and disinfect water fountains and water coolers.
Damp mop all non-resilient floors such as concrete, terrazzo and ceramic
tile.
Empty all waste containers.
Dust and rub down elevator doors, walls, and metal work in elevator cabs.
TOILET ROOMS
------------
Clean mirrors, soap dispensers, shelves, wash basins, exposed plumbing,
dispenser and disposal container exteriors using detergent disinfectant and
water. Damp wipe all ledges, toilet stalls and doors, spot clean light
switchers, doors and walls.
Clean toilets and urinals with detergent disinfectant, beginning with seats
and working down. Pour one ounce of bowl cleaner into urinal after cleaning and
do not flush.
Furnish and refill all soap, toilet, sanitary napkin and towel dispensers.
Clean all baseboards.
APPENDIX B
Page 1 of 2
<PAGE>
Damp mop floors using detergent disinfectant.
WEEKLY
------
Wash all directory board, display, entry door and side light glass, as
necessary.
Spot clean carpet stains.
Spot wash interior partition glass and door glass to remove all smudge
marks and finger marks from doors, partitions, woodwork, window ledges and
window mullions.
MONTHLY
-------
Sweep stairwells and landings.
Wash all uncarpeted areas.
High dust all horizontal and vertical surfaces not reached in nightly
cleaning, such as pipes, light fixtures, door frames, picture frames and other
wall hangings.
QUARTERLY
---------
Vacuum all ceilings and wall air supply and exhaust diffusers or grills.
Wash all stairwell landings and treads.
Clean exterior windows of the building, weather permitting.
Scrub, wax and buff all tile areas.
APPENDIX B
Page 2 of 2
<PAGE>
APPENDIX C
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory shall be available to Tenant solely to display
names and their location in the Project, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Project. Neither Tenant nor any employee or invites of Tenant
shall go upon the roof of the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall not
be used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus, or carry on any mechanical business without the prior
written consent of Landlord; use the Premises for housing, lodging or sleeping
purposes; or permit preparation or warming of food in the Premises (warming of
coffee and individual meals with employees and guests excepted). Tenant shall
not occupy or use the Premises or permit the Premises to be occupied or used for
any purpose, act or thing which is in violation of any public law, ordinance or
governmental regulation or which may be dangerous to persons or property.
7. Tenant shall not bring upon, use or keep in the Premises or the
Project any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed
APPENDIX C
PAGE 1 of 5
<PAGE>
hazardous to persons or property, or use any method of heating or air
conditioning other than that supplied by Landlord.
8. Landlord shall have sole power to direct electricians as to where and
how telephone and other wires are to be introduced, except that Tenant may
control the location and type of wiring to the extent Tenant requires unique
wiring in connection with its operating a telephone company. No boring or
cutting for wires is to be allowed without the consent of Landlord. The location
of telephones, call boxes and other office equipment affixed to the Premises
shall be subject to the approval of Landlord.
9. No additional locks shall be placed upon any doors, windows or
transoms in or to the Premises. Tenant shall not change existing locks or the
mechanism thereof. Upon termination of the lease, Tenant shall deliver to
Landlord all keys and passes for offices, rooms, parking lot and toilet rooms
which shall have been furnished Tenant. In the event of the loss of keys so
furnished, Tenant shall pay Landlord therefor. Tenant shall not make, or cause
to be made, any such keys and shall order all such keys solely from Landlord and
shall pay Landlord for any keys in addition to the two sets of keys originally
furnished by Landlord for each lock.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Project or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances of the Building, or take or permit on other elevators, any item
normally taken in or out through the trucking concourse or service doors or in
or on freight elevators.
12. Tenant shall cause all doors to the Premises to be closed and securely
locked and shall turn off all utilities, lights and machines before leaving the
Project at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Project's heating and air
conditioning, and shall refrain from attempting to adjust any controls, other
than room thermostats installed for Tenant's use. Tenant shall keep corridor
doors closed.
APPENDIX C
PAGE 2 of 5
<PAGE>
15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.
16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
17. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
18. No bicycle or other vehicle and no animals or pets shall be allowed in
the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not
make or permit any noise, vibration or odor to emanate from the Premises, or do
anything therein tending to create, or maintain, a nuisance, or do any act
tending to injure the reputation of the Building.
19. Tenant acknowledges that Building security problems may occur which
may require the employment of extreme security measures in the day-to-day
operation of the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for regularly
scheduled time periods, as deemed advisable by Landlord and/or its agents, in
their sole discretion, require that persons entering or leaving the Project or
the Property identify themselves to watchmen or other employees designated by
Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully with
Project employees in the implementation of any and all security procedures.
(c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith.
20. Tenant shall not do or permit the manufacture, sale, purchase, use or
gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.
21. Tenant shall not disturb the quiet enjoyment of any other tenant.
22. Tenant shall not provide any janitorial services or cleaning without
Landlord's written consent and then only subject to supervision of Landlord and
at Tenant's sole
APPENDIX C
PAGE 3 of 5
<PAGE>
responsibility and by janitor or cleaning contractor or employees at all times
satisfactory to Landlord.
23. Landlord may retain a pass key to the Premises and be allowed
admittance thereto at all times to enable its representatives to examine the
Premises from time to time and to exhibit the same and Landlord may place and
keep on the windows and doors of the Premises at any time signs advertising the
Premises for Rent.
24. No equipment, mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted either inside or outside the windows
of the Premises without the prior written consent of Landlord, and then only at
the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.
25. Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purpose.
26. Tenant shall not install or operate any phonograph, musical or sound
producing instrument or device, radio receiver or transmitter, TV receiver or
transmitter, or similar device in the Building, nor install or operate any
antenna, aerial, wires or other equipment inside or outside the Building, nor
operate any electrical device from which may emanate electrical waves which may
interfere with or impair radio or television broadcasting or reception from or
in the Building or elsewhere, without in each instance the prior written
approval of Landlord. The use thereof, if permitted, shall be subject to control
by Landlord to the end that others shall not be disturbed.
27. Tenant shall promptly remove all rubbish and waste from the Premises.
28. Tenant shall not exhibit, sell or offer for sale, Rent or exchange in
the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
29. Tenant shall list all furniture, equipment and similar articles Tenant
desires to remove from the Premises or the Building and deliver a copy of such
list to Landlord and procure a removal permit from the Office of the Building
authorizing Building employees to permit such articles to be removed.
30. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
APPENDIX C
PAGE 4 of 5
<PAGE>
31. Tenant shall not do any painting in the Premises, or mark, paint, cut
or drill into, drive nails or screws into, or in any way deface any part of the
Premises or the Building, outside or inside, without the prior written consent
of Landlord.
32. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
33. Tenant and its employees shall cooperate in all fire drills conducted
by Landlord in the Building.
APPENDIX C
PAGE 5 of 5
<PAGE>
APPENDIX D
[Intentionally Deleted]
APPENDIX D
Page 1 of 1
<PAGE>
APPENDIX E
MORTGAGES CURRENTLY AFFECTING THE PROJECT
-----------------------------------------
None.
APPENDIX E
Page 1 of 1
<PAGE>
Exhibit 10.8
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST TO LEASE (this "Amendment") is made and entered into as of this
---------
day of May, 1997 by and between Teachers Insurance and Annuity Association of
America, a New York corporation ("Landlord") and Focal Communications
Corporation, a Delaware corporation("Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant have heretofore entered into that certain
lease dated as of December 31, 1996 (the "Leases"), pursuant to which Landlord
------
leased to Tenant certain premises (the "Premises") on the lower level of the
--------
building commonly known as 200 North LaSalle, Chicago, Illinois (the
"Building");
--------
WHEREAS, Landlord and Tenant desire to amend the Lease according to the
terms hereof;
NOW THEREFORE, for and in consideration of the covenants and agreements
hereinafter set forth, and also in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Landlord and Tenant hereby mutually agree as
follows:
1. Controlling Language. Insofar as the specific terms and provisions of
--------------------
this Amendment purport to amend or modify or are in conflict with the specific
terms, provisions and exhibits of the Lease, the terms and provisions of this
Amendment shall govern and control; in all other respects, the terms, provisions
and exhibits of the Lease shall remain unmodified in full force and effect. All
capitalized terms not defined herein shall have the meaning given them in the
Lease.
2. Additional Space/Term. Landlord and Tenant hereby agree that beginning
---------------------
on the later o(June 1, 1997 or substantial completion of the "Build-Out"(defined
in Exhibit B) (the "Additional Space Commencement Date"), Landlord shall lease
---------
to Tenant approximately 6,202 rentable square feet of space on the eighth (8th)
floor of the Building as more particularly described on Exhibit A attached
---------
hereto (the "Additional Space") for a period of three (3) years and six (6)
----------------
months (the "Additional Space Term"). The Additional Space shall be subject to
all the terms and conditions of the Lease except to the extent expressly
modified or excluded hereby or herein.
3. Tenant's Proportionate Share for the Additional Space. Tenant's
-----------------------------------------------------
Proportionate Share for the Additional Space shall be .9960% (the "Additional
Space Proportionate Share").
<PAGE>
4. Additional Space Rent. Beginning on the Additional Space Commencement
---------------------
Date and for the duration of the Additional Space Term, in addition to (and not
in substitution for) the Rent Tenant is obligated to pay under the Lease, Tenant
shall pay to Landlord Rent as follows:
(1) Additional Space Base Rent. Tenant shall pay Landlord Additional
--------------------------
Space Base Rent with respect to the Additional Space in accordance with the
following schedule in the same manner as Tenant pays Base Rent under the Lease:
<TABLE>
<CAPTION>
Annual Additional Space Monthly Installment
Base Rent per Rentable of Additional Space
Period Square Foot (6.202) Base Rent
- ------------------- ------------------------ -------------------
<S> <C> <C>
Additional Space $13.34 $ 6,892.49
Commencement Date
through 12/31/97
1/1/98 through $17.26 $ 8,902.54
5/31/98
6/1/98 through $18.26 $ 9,437.38
5/31/99
6/1/99 through $19.26 $ 9,954.21
5/31/00
6/1/00 through $20.26 $10,471.04
11/30/00
</TABLE>
Any provision of the Lease or this Amendment to the contrary
notwithstanding, the abatement of Base Rent payable with respect to the Premises
pursuant to the Schedule of the Lease shall not apply to the payment of
Additional Space Base Rent, and such Additional Space Base Rent shall accrue and
Tenant shall be liable for payment thereof without regard to such abatement
provision.
(2) Operating Cost Share Rent. Tenant shall pay the Additional Space
-------------------------
Proportionate Share of the excess of Operating Costs over Base Operating Costs
(as those terms are defined in the Lease) in accordance with Section 2A(2) of
the Lease.
-2-
<PAGE>
(3) Tax Share Rent. Tenant shall pay the Additional Space
--------------
Proportionate Share of the excess of Tax Rent over Base Taxes (as those terms
are defined in the Lease) in accordance with Section 2A(3) of the Lease.
(4) Additional Rent. Tenant shall pay Additional Rent for the
---------------
Additional Space in accordance with Section 2A(4) of the Lease.
5. Tenant Improvements. Landlord shall perform the Build-Out on the
-------------------
Additional Space in accordance with the Tenant Improvement Agreement attached
hereto as Exhibit B.
---------
6. Security Deposit. To secure Tenant's obligations in connection
----------------
with the Additional Space, in addition to the Letter of Credit referenced in
Section 20 of the Lease, Tenant shall provide Landlord with a second Letter of
Credit in the amount of $76,595.00, which second Letter of Credit and Tenant's
obligations in accordance therewith, shall be subject to all of the terms and
provisions of Section 20 of the Lease.
7. Expansion Option. The following Expansion Option shall apply to
----------------
the Additional Space:
Subject to Subsection 7C below, Tenant may at its option expand
the Additional Space as described below for the remaining Additional Space Term,
upon the terms contained herein and in the Lease, except that Tenant shall pay
Additional Space Base Rent as described in Subsection A below. Any expansion
space shall be delivered "As Is"; Landlord shall have no obligation to perform
any construction in such space or to contribute to the cost of any construction
by Tenant.
A. Tenant shall have the option to expand into approximately
4,153 of rentable square feet on the eighth (8th) floor of the Building located
adjacent to the Additional Space (the "Expansion Space") at any time during the
---------------
first year of the Additional Space Term upon three (3) months prior written
notice to Landlord. The initial Base Rent for the Expansion Space shall be
$17.26 per rentable square foot which shall be increased annually as provided in
the Section 4 hereof. The Expansion Space shall become a part of the Additional
Space for all purposes of the Lease and this Amendment.
B. If Tenant fails to deliver notice to Landlord within the
required time period, Tenant will be deemed to have waived such option to
expand. Promptly after Tenant's exercise of its expansion option, Landlord shall
execute and deliver to Tenant an amendment to the Lease to reflect changes in
the Additional Space, Additional Space Base Rent, the Additional Space
Proportionate Share, and any other appropriate terms changed by the addition of
the Expansion Space. Within 15 days thereafter, Tenant shall execute, review and
return the amendment.
-3-
<PAGE>
C. Tenant's option to expand the Additional Space is subject to
the conditions that: (i) no existing tenant in the Building has any rights to
the Expansion Space, (ii) on the date that Tenant delivers its notice exercising
its option to expand Tenant is not in default under the Lease after the
expiration of any applicable notice and cure periods, and (iii) Tenant shall not
have assigned the Lease or sublet any portion of the Premises or Additional
Space under a sublease which is effective at any time during the final 9 months
of the Additional Space Term.
8. Definition of "Premises". All references in the Lease to the
------------------------
"Premises" shall also be deemed to include reference to the Addition Space,
unless such inclusion shall be inconsistent with the terms of this Amendment.
9. Non-Applicability of Certain Lease Provisions. Sections 31 and 32
---------------------------------------------
of the Lease shall not apply to the Additional Space, and shall not be construed
as creating any obligation on the part of Landlord with respect to the
Additional Space.
10. Miscellaneous. Landlord and Tenant hereby agree that (a) this
-------------
Amendment is incorporated into and made a part of the Lease, (b) any and all
references to the Lease hereinafter shall include this Amendment, and (c) except
as specifically amended hereby, the Lease and all terms, conditions and
provisions thereof, shall remain in full force and effect.
11. Governing Law. This Amendment shall be governed by and construed
-------------
under the laws of the State of Illinois.
[Signature Page Follows]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA, a New York corporation
By: /s/ S. Marc Flannery
--------------------
Print Name: S. Marc Flannery
------------------
Print Title: Assistant Secretary
---------------------
TENANT:
FOCAL COMMUNICATIONS CORPORATION,
a Delaware corporation
By: /s/ Joseph A. Beatty
----------------------
Print Name: Joseph A. Beatty
------------------
Print Title: Executive Vice President
--------------------------
-5-
<PAGE>
EXHIBIT A
(GRAPHICS)
<PAGE>
EXHIBIT B
TENANT IMPROVEMENT AGREEMENT
1. LANDLORD'S WORK. Landlord shall, at Landlord's expense, improve the
Additional Space (as defined in the First Amendment to Lease to which this
Agreement is attached (the "First Amendment"))pursuant to certain architectural
---------------
plans and specifications prepared by Whitney Architects, dated March 25, 1997
and agreed to by both Landlord and Tenant (the "Architectural Plans") (such
-------------------
improvement is sometimes referred to herein as the "Landlord's Work"). Any
---------------
changes to the Architectural Plans (the "Additional Work") shall also be
---------------
performed by Landlord, at Tenant's expense. For purposes of the Lease and First
Amendment, the Landlord's Work and the Additional Work are sometimes
collectively referred to herein as the "Build-Out".
---------
The Architectural Plans shall comply with all applicable statutes,
ordinances, regulations, laws and codes. Landlord's approval of the
Architectural Plans or any modifications or changes thereto shall not impose
upon Landlord or its agents or representatives any obligation with respect to
the design of the Build-Out or with respect to the compliance of the Build-Out
and/or such Architectural Plans (or modifications or changes thereto) with
applicable laws, codes, ordinances and regulations, it being expressly
understood that the obligation with respect to the design of the Build-Out and
its compliance with applicable laws, codes, ordinances and regulations rests
with the Tenant and the party responsible for preparing such Architectural
Plans.
The parties hereby agree that the entire Build-Out will be done on behalf
of Landlord by a qualified contractor selected by Landlord pursuant to this
grammatical paragraph. Landlord shall obtain bids for the Build-Out from at
least three (3) qualified contractors selected by Landlord (the "Acceptable
----------
Contractors"). The Build-Out shall be performed by the Acceptable Contractor
- -----------
selected by Landlord as the contractor most qualified to complete the Build-Out
(the "Landlord's Contractors", as determined by Landlord in its sole and
----------------------
reasonable judgment.
2. ADDITIONAL WORK. Except to the extent described herein, Landlord has
no obligation to do or pay for any work to the Additional Space (or any plans or
specifications relating thereto).
If Tenant shall require Additional Work in the Additional Space in addition
to or in substitution for Landlord's Work, Tenant shall deliver to Landlord for
its approval final Architectural Plans for such Additional Work. If T landlord
does not approve of the Architectural Plans for the Additional Work, as
delivered by Tenant, Landlord shall advise Tenant generally of the changes
required in such Plans so that they will meet with Landlord's approval. Tenant
shall cause the Architectural Plans for the Additional Work to be revised
Exhibit B
Page 1 to 4
<PAGE>
and delivered to Landlord for its final review and approval within five (5)
business days after Tenant's receipt of such advice or Tenant shall be deemed to
have abandoned its request for such Additional Work. All Architectural Plans and
Engineering Plans (as hereinafter defined) for the Additional Work (together
with any changes to the Architectural Plans for Landlords Work which may be
required as a result thereof) shall be prepared and completed at Tenant's sole
cost and expense (without regard to whether the Additional Work is actually
performed by Landlord or an Acceptable Contractor hereunder).
If the Additional Work is to be performed by Landlord's Contractor,
Landlord shall furnish Tenant with written estimates of the cost of the
Additional Work within fifteen (15) business days after receipt by Landlord of
the final mechanical and engineering plans and specifications (the "Engineering
-----------
Plans") for the Additional Work. If Tenant shall fail to approve in writing such
- -----
estimates within seven (7) business days from receipt thereof, the estimates
shall be deemed disapproved in all respects by Tenant. Landlord's Contractor
shall not be authorized or required to proceed with any Additional Work, and
Tenant shall be deemed to have abandoned its request therefor. If, however,
Tenant approves in writing such estimates as furnished by Landlord within said
seven (7) day period, Tenant shall pay Landlord the actual cost of such
Additional Work, and, provided Tenant has made all payments and borne all costs
when required herein, Landlord agrees to cause the Additional Work to be
performed by Landlord's Contractor. All sums due hereunder from Tenant shall be
deemed to be rent for any and all purposes of the Lease.
If Landlord is not required to perform Additional Work pursuant to and in
accordance with the foregoing provisions of this Section 2, the alterations and
improvements to be made to the Additional Space shall be limited to Landlord's
Work and any additional alterations and improvements to the Additional Space
desired by Tenant shall be made after the commencement of the term of said Lease
and shall be subject to the provisions of Section 5 of the Lease.
All designs for public areas must conform to Building Standard and be
approved by the Landlord.
3. COMMENCEMENT OF RENT. If Landlord's Contractor performs the Build-Out,
the Commencement Date and Tenant's obligation to pay rent in connection with the
Additional Space shall not commence until Landlord's Contractor shall have
substantially completed all Landlord's Work; provided, however, that if Landlord
shall be delayed in substantially completing such Landlord's Work as a result of
any one or more of the following:
(a) Tenant's request for, or Landlord's or an Acceptable Contractor's
performance of, Additional Work, and any time related thereto,
notwithstanding
Exhibit B
Page 2 of 4
<PAGE>
Tenant's compliance with the time periods specified in Sections 1 and 2 of
this Exhibit B. and whether or not any such Additional Work is actually
performed; or
(b) Tenant's request for materials, finishes or installations
requiring unusually long lead times, provided one of Landlord, Landlord's
Contractor or Landlord's agents or employees has given Tenant notice of
such long lead time; or
(c) Any other act or omission by Tenant or its agents;
then and in any such event, Landlord shall cause the Landlord's Architect to
certify the date on which the Landlord's Work would have been completed but for
the delay resulting from one of the conditions described in 3(a)-(c) (the
"Completion Dates), and the Commencement Date and Tenant's obligation to
commence the payment of rent in connection with the Additional Space shall arise
as of such date, and shall not otherwise be affected or deferred on account of
such delay.
As used herein, the term "substantial completion" or any similar term,
shall mean substantial completion of all of Landlord's Work in accordance with
the Architectural Plans, subject to the joint preparation of a punch list by
Tenant and Landlord specifying all items of Landlord's Work which have not been
completed. Landlord shall use reasonable diligence to cause all items on the
punch list to be completed within thirty (30) days after Landlord and Tenant
have agreed to the contents of the punch list.
4. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF ADDITIONAL SPACE TERM.
Landlord, at Landlord's discretion may permit Tenant and Tenant's agents to
enter the Additional Space prior to the date specified as the Commencement Date
in the First Amendment in order that Tenant may make the Additional Space ready
for Tenant's use and occupancy. If Landlord permits such entry prior to the
commencement of the Additional Space Term, such permission shall constitute a
license only and not a lease and such license shall be conditioned upon: (a)
Tenant working in harmony and not interfering with Landlord and Landlord's
agents, contractors, workmen, mechanics and suppliers in doing Landlord's Work,
"Special Work" or Additional Work, if any, or Landlord's work in the Building or
with other tenants and occupants of the Building; (b) except for an Acceptable
Contractor who shall be governed by Section 1 of this Exhibit B. Tenant
obtaining in advance Landlord's approval of the contractors proposed to be used
by Tenant and depositing with Landlord in advance of any work (i) security
reasonably satisfactory to Landlord for the completion thereof, (ii) general
contractor's affidavit for proposed work and waiver of lien from general
contractor, all subcontractors and suppliers of material; and (c) Tenant
furnishing Landlord with such insurance and other security as Landlord may
reasonably require against liabilities which may arise out of such entry.
Landlord shall have the right to withdraw such license for any reason upon
twenty-four (24) hours' written notice to Tenant. Tenant agrees that Landlord
shall not be liable in any way for any injury, loss or damage
Exhibit B
Page 3 of 4
<PAGE>
which may occur to any of Tenant's property placed or installations made in the
Additional Space prior to the commencement of the Additional Space Term, the
same being at Tenant's sole risk and Tenant agrees to protect, defend, indemnify
and save harmless Landlord from all liabilities, costs, damages, fees and
expenses arising out of or connected with the activities of Tenant or its
agents, contractors, suppliers or workmen in or about the Additional Space or
the Building. Tenant further agrees that any entry and occupation permitted
under this paragraph shall be governed by Section 5 of the Lease and all other
relevant terms of the Lease.
5. MISCELLANEOUS.
(a) Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Agreement shall have the meanings assigned
to them in the Lease or First Amendment.
(b) The terms and provisions of this Agreement are intended to
supplement and are specifically subject to all the terms and provisions of
the Lease and First Amendment.
(c) This Agreement may not be amended or modified other than by
supplemental written agreement executed by authorized representatives of
the parties hereto.
Exhibit B
Page 4 of 4
<PAGE>
Exhibit 10.9
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE (this "Amendment") is made and entered into
---------
as of this 15 day of November, 1997 by and between Teachers Insurance and
Annuity Association of America, a New York corporation ("Landlord") and Focal
--------
Communications Corporation, a Delaware corporation ("Tenant").
------
W I T N E S S E T H
WHEREAS, Landlord and Tenant have heretofore entered into that certain
lease dated as of December 31, 1996 (the "Original Lease"), pursuant to which
--------------
Landlord leased to Tenant 10,236 rentable square feet of certain premises on the
lower level of the building commonly known as 200 North LaSalle, Chicago,
Illinois (the "Building");
--------
WHEREAS, Landlord and Tenant have heretofore entered into that certain
First Amendment to Lease, dated May 14, 1997, (the "First Amendment") to
---------------
evidence Tenant's expansion into the additional space of 6,202 rentable square
feet on the eighth (8th) floor of the Building (the "Additional Space") as more
----------------
particularly set forth in such First Amendment (the Original Lease, as amended
by the First Amendment and this Amendment referred to herein as the "Lease");
-----
WHEREAS, Landlord and Tenant desire to amend the Lease according to the
terms hereof;
NOW THEREFORE, for and in consideration of the covenants and agreements
hereinafter set forth, and also in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Landlord and Tenant hereby mutually agree as
follows:
1. Controlling Language. Insofar as the specific terms and provisions of
--------------------
this Amendment purport to amend or modify or are in conflict with the specific
terms, provisions and exhibits of the Lease, the terms and provisions of this
Amendment shall govern and control; in all other respects, the terms, provisions
and exhibits of the Lease shall remain unmodified in full force and effect. All
capitalized terms not defined herein shall have the meaning given them in the
Lease.
2. Second Additional Space/Term. Landlord and Tenant hereby agree that
----------------------------
beginning on January 1, 1998 (the "Second Additional Space Commencement Date"),
Landlord shall lease to Tenant approximately 4,153 rentable square feet of space
contiguous to the Additional Space on the eighth (8th) floor of the Building as
more particularly described on Exhibit A attached hereto (the "Second Additional
--------- -----------------
Space") for a period of three (3) years ending on December 31, 2000 (the "Second
- ----- ------
Additional Space Term"; December 31, 2000 is referred to herein as the "Second
- --------------------- ------
Additional Space Termination Date"). The
- ---------------------------------
<PAGE>
Second Additional Space shall be subject to all the terms and conditions of the
Lease except to the extent expressly modified or excluded hereby or herein.
3. Tenant's Proportionate Share for the Premises. Tenant's total
---------------------------------------------
Proportionate Share for the entire Premises, as expanded, is 3.307%, (which
percentage incorporates Tenant's Proportionate Share for the premises originally
demised under the Original Lease, the First Additional Space demised under the
First Amendment and the Second Additional Space demised under this Amendment.)
4. Second Additional Space Rent. Commencing upon the Second Additional
----------------------------
Space Commencement Date and for the duration of the Second Additional Space
Term, in addition to (and not in substitution for) the Base Rent Tenant is
obligated to pay under the Lease, Tenant shall pay to Landlord Rent as follows:
(1) Base Rent. Rent shall be paid in monthly installments in advance
---------
on or before the first day of each month of the Second Additional Space
Term as set forth in the following Schedule:
<TABLE>
<CAPTION>
Annual Base Rent for Monthly Installment
the Second Additional of Additional Space
Period Base Rent Base Rent
- ------ --------------------- -------------------
<S> <C> <C>
Second Additional Space $71,680.78 $5,973.40
Commencement Date ($17.26 x 4,153
through 12/31/98 rentable square feet)
1/1/99 through $75,833.78 $6,319.48
12/31/99 ($18.26 x 4,153
rentable square feet)
11/11/00 through $79,986.78 $6,665.57
12/31/00 ($19.26 x 4,153
rentable square feet)
</TABLE>
Any provision of the Lease or this Amendment to the contrary
notwithstanding, the abatement of Base Rent payable with respect to the Premises
pursuant to the Schedule of the Lease shall not apply to the payment of Second
Additional Space Base Rent, and such Second Additional Space Base Rent shall
accrue and Tenant shall be liable for payment thereof without regard to such
abatement provision.
-2-
<PAGE>
(2) Operating Cost Share Rent Tenant's Second Additional Space
----------------------------------------------------------
Proportionate Share. The term "Tenant's Second Additional Space
-------------------
Proportionate Share" shall mean .667% (4,153 rentable square feet in the
Second Additional Space over 622,667 rentable square feet in the Building).
Tenant shall pay the Second Additional Space Proportionate Share of the
excess of Operating Costs over Base Operating Costs (as those terms are
defined in the Lease) in accordance with Section 2A(2) of the Lease.
(3) Tax Share Rent. Tenant shall pay the Second Additional Space
--------------
Proportionate Share of the excess of Tax Rent over Base Taxes (as those
terms are defined in the Lease) in accordance with Section 2A(3) of the
Lease.
(4) Additional Rent. Tenant shall pay Additional Rent for the Second
---------------
Additional Space in accordance with Section 2A(4) of the Lease.
5. Tenant's Second Additional Space Improvements.
---------------------------------------------
(1) Tenant shall improve the Second Additional Space, at its own cost
and expenses, in accordance with plans and specifications approved in
advance by Landlord (such improvements are referred to herein as the
"Tenant's Second Additional Space Improvements"). Tenant hereby agrees that
---------------------------------------------
the plans and specifications for the Tenant's Second Additional Space
Improvements shall comply with all applicable statutes, ordinances,
regulations, laws and codes. Landlord's approval of any of such plans and
specifications (or any modifications or changes thereto) shall not impose
upon Landlord or its agents or representatives any obligation with respect
to the design of the Tenant's Second Additional Space Improvements or with
respect to the compliance of such Tenant's Second Additional Space
Improvements and/or the plans and specifications therefor with applicable
laws, codes, ordinances and regulations, it being expressly understood that
the obligation with respect to the design of the Tenant's Second Additional
Space Improvements and its compliance with applicable laws, codes,
ordinances and regulations rests with the Tenant and the party responsible
for preparing such plans and specifications.
Tenant's Second Additional Space Improvements shall be performed in
accordance with Sections 5(A)(1)-(5), 5(B), 5(C), and 5(D) of the Lease.
All Tenant's Second Additional Space Improvements shall be constructed in a
good and workmanlike manner, and only good grades of material shall be
used. All Tenant's Second Additional Space Improvements shall be performed
in such a fashion and by such means as necessary to maintain a professional
work environment in the areas surrounding the space to be improved. Tenant
shall only use labor that will work in peace and harmony with other
contractors and workers serving the Building in
-3-
<PAGE>
constructing Tenant's Second Additional Space Improvements. Tenant shall
use reasonable efforts to avoid actions which may unreasonably interfere
with or delay the activities of other contractors serving the Building and
other tenants. Tenant shall permit Landlord to observe and monitor all
Tenant's Second Additional Space Improvements.
6. Definition of "Premises". All references in the Lease to the
-----------------------
"Premises" shall also be deemed to include reference to the Additional Space and
the Second Additional Space, unless such inclusion shall be inconsistent with
the terms of this Amendment.
7. Non-Applicability of Certain Lease Provisions. Sections 31 and 32 of
---------------------------------------------
the Lease shall not apply to the Second Additional Space, and shall not be
construed as creating any obligation on the part of Landlord with respect to the
Second Additional Space.
8. Miscellaneous. Landlord and Tenant hereby agree that (a) this
-------------
Amendment is incorporated into and made a part of the Lease, (b) any and all
references to the Lease hereinafter shall include this Amendment, and (c) except
as specifically amended hereby, the Lease and all terms, conditions and
provisions thereof, shall remain in full force and effect.
9. Governing Law. This Amendment shall be governed by and construed under
-------------
the laws of the State of Illinois.
10. Defined Terms; Headings. All terms capitalized but not defined herein
-----------------------
shall have the same meaning ascribed to such terms in the Lease. The marginal
headings and titles to the paragraphs of this Amendment are not a part of this
Amendment and shall have no effect upon the construction or interpretation of
any part hereof.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA, a New York corporation
By: /s/ James P. Garofalo
-----------------------
Print Name: James P. Garofalo
-------------------
Print Title: Assistant Secretary
---------------------
TENANT:
FOCAL COMMUNICATIONS CORPORATION,
a Delaware corporation
By: /s/ Brian F. Addy
-------------------
Print Name: Brian F. Addy
---------------
Print Title: Executive Vice President
--------------------------
-5-
<PAGE>
Exhibit A
(Graphic)
Exhibit A
Page 1 of 1
<PAGE>
Exhibit 10.10
THIRD AMENDMENT TO AGREEMENT OF LEASE
The Third Amendment to Agreement of Lease (the "Amendment") is made and is
entered into as of March 2, 1998 by and between Teachers Insurance & Annuity
Association, a New York Corporation (the "Landlord"), and Focal Communications
Corporation, (the "Tenant"), for the purpose of amending that certain Agreement
of Lease entered into by and between Landlord and Tenant on December 31, 1996,
amended on the 14th day of May 1997, and amended the 15th day of November 1997,
(the "Lease"), pursuant to which Landlord leased to Tenant approximately 20,591
rentable square feet in the building located at and known as the Florsheim
Tower, 200 North LaSalle, Chicago, Illinois 60601, Suites 820 and LL05; Lower
Level and the Eighth Floor (the "Building"), which Building is situated on that
certain parcel of realty property described in the Lease (as the "Land").
WITNESSETH:
WHEREAS, Tenant desires to install on the roof of the Building a non-
penetrating, pedestal-mount, Global Timing Receiver Antenna, 12 inches in
diameter and 7 inches in height, (hereafter referred to as the "Communications
Device").
WHEREAS, Landlord has agreed, subject to the terms and conditions herein, to
permit Tenant to install, at Tenant's sole cost and expense, the Communications
Device.
NOW, THEREFORE, Landlord and Tenant agree, for good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, that the Lease
shall be hereby amended as follows:
1. Tenant may install, at Tenant's Sole cost and expense, the Communications
Device on the roof of the Building for Tenant's exclusive use in a location
acceptable to Landlord; provided, however, that if, at any time, the
Communications Device conflicts with any existing communication rooftop
devices, Tenant must replace the equipment with a less powerful device, or
remove it at no cost to the Landlord. Tenant shall install the
Communications Device in a method acceptable to Landlord in Landlord's sole
and reasonable discretion. Prior to commencing the installation of the
Communications Device, Tenant shall (i) provide Landlord with a copy of the
plans and specifications pertaining to the Communications Device and
installation thereof, which plans and specifications must be approved by
Landlord prior to Tenant Commencing installation of the Communications
Device, said approval not to be unreasonably withheld and (ii) obtain, at
Tenant's sole cost and expense, all permits, licenses, zoning and other
approvals (collectively "the Approvals") required for the lawful
installation and operation of the Communications Device, copies of which
Approvals shall be provided to Landlord
<PAGE>
by Tenant prior to Tenant commencing installation of the Communications
Device. Landlord hereby agrees to cooperate with Tenant (at no cost to
Landlord) as necessary in connection with obtaining the Approvals. Any
costs incurred by the Landlord in connection with the installation of the
Communications Device and approvals will be reimbursed to the Landlord by
Tenant. Tenant acknowledges that all work performed in connection with the
installation of any satellite dish and/or electronic transmitter shall be
performed in such a manner so as to preserve all of Landlord's warranties
with respect to the roof.
2. Effective on the installation of the Communications Device ("Effective
Date") through the remaining term of the Lease, Tenant shall pay to
Landlord as Communications Device Rent the annual sum of two thousand five
hundred dollars ($2,500.00), payable in equal consecutive monthly
installments of two hundred eight and 33/100 dollars ($208.33) along with
the Monthly Installment of Base Rent as outlined in the Lease. In the
event the Effective Date is not the first day of the month, the
Communications Device rent from the Effective Date to the end of the month
will be prorated.
3. Except in the event of an emergency in which case no advance notice shall
be necessary, if Landlord contemplates or desires to make any repairs to
the roof of the Building or requires access to the roof of the Building
which either (a) requires temporary removal or relocation of the
communications Device, or (b) may result in an interruption in Tenant's use
of the Communications Device, Landlord agrees to notify Tenant at least
five (5) business days prior to the date on which such roof repair work or
access will commence or be necessary.
4. Tenant and/or its agents and representative shall not enter on to the roof
of the Building for purposes of examination and repair and maintenance of
the Communications Device without the prior written consent of Landlord,
which consent shall not be unreasonably withheld.
5. Tenant and Landlord acknowledge that Tenant's right to install a
communications device is not an exclusive right and that Landlord may grant
other parties the right to install other communications devices on the roof
of the Building so long as any such installation made after Tenant's
installation of Tenant's Communications Device does not, in Landlord's
judgment, materially interfere with Tenant's use of the Communications
Device.
6. Tenant shall provide written notice to Landlord of the party or parties to
be responsible for installation, repair, maintenance and service of the
Communications Device, which party or parties must be approved by Landlord
prior to their undertaking any such installation, repair, maintenance or
service on or to the Communications Devices. All responsible parties must
maintain and provide insurance coverage to the Landlord in an amount and in
a term acceptable to Landlord. Upon Landlord's request from time to time,
Tenant shall provide or cause to be provided to Landlord evident of such
insurance.
-2-
<PAGE>
7. At the termination of the term of the Lease, Tenant shall, subject to the
terms of Paragraph 8 hereof and unless otherwise directed by Landlord,
remove the Communications Device from the roof of the Building.
8. Notwithstanding any other provisions hereof to the contrary, Tenant does
hereby agree to indemnify and hold harmless Landlord from any losses,
costs, claims, injuries, actions, causes of action, expenses or liabilities
of any sort whatsoever (including attorneys' fees) arising by reason of the
installation, construction, maintenance or use of Communications Device,
connecting equipment and associated wiring. Upon termination of the Lease
for any reason, whether upon the expiration of the lease term, by reason of
Tenant's default, or otherwise, Tenant shall remove the Communications
Device, connecting equipment, associated wiring and any non-structural
additions and alterations to the Premises and roof and repair and restore
any damage resulting from such removal to a condition materially equivalent
to the condition existing prior to the installation of such Communications
Device and connecting equipment at Tenant's sole cost and expense. Tenant
shall be responsible for all repairs and maintenance of Communications
Device, connecting equipment and such associated wiring, and Landlord shall
have no responsibility for, and Tenant hereby waives all claims against
Landlord in connection with, any damage to the Communications Device,
connecting equipment or associated wiring from any cause whatsoever.
Notwithstanding any other provision hereof to the contrary, Tenant shall be
responsible for all damage and injuries resulting from the installation,
maintenance, operation or use of the Communications Device, connecting
equipment and associated wiring, including, but not limited to, damage to
the roof, or Building, or Landlord's or any other tenant's personal
property, by reason of any roof damage or leaks resulting therefrom. In
the event Tenant fails to pay any amounts for which it is responsible
hereunder within fifteen (15) days after receipt of written notice thereof
by Tenant, Landlord may elect to pay the same for and on behalf of Tenant
and thereafter collect from Tenant the amounts so expended together with
interest thereon at the rate of Ten percent (10%) per annum.
9. Tenant agrees to cooperate with and take responsible steps to relieve and
correct any interference with broadcasting activities of the Landlord or
any other tenant of the Building caused by Tenant's use of such roof space.
As used herein and throughout this Lease, "interference" with the
broadcasting activities shall mean (i) interference within the meaning of
the provisions of the recommended practices of the Electronics Industries
Association ("EIA") and the rules and regulations of the FCC then in
effect, or (ii) a material impairment of the quality of either sound or
picture signals on a broadcast activity in any material portion of the
protective service area (as such area is or may be defined by the FCC
during the period of operation of such activity), as compared with that
which would be obtained if no other broadcaster was broadcasting from the
roof of the Building or had any equipment on the roof of the Building.
-3-
<PAGE>
If interference results from the failure to comply with the recommended
practices of the EIA or the rules and regulations of the FCC on the part of
the Tenant, then Tenant shall promptly remove such interference at its sole
cost and expense.
During the term of this Lease, interference caused by change of facilities
or in a manner of operation thereof by Tenant or by the operation of
additional facilities by Tenant, shall be promptly eliminated at the sole
cost and expense of Tenant.
10. Tenant, at its sole cost and expense, shall install any screening device
reasonably requested by the Landlord at any time to ensure that the
satellite dish Communications Device cannot be viewed by the public. Such
screening device shall comply with all governmental and quasi-governmental
laws, rules, and regulations, as well as any requirements regarding the
construction, maintenance, and removal of such device that Landlord may
establish from time to time.
All capitalized terms not otherwise defined or redefined herein shall have
the same meaning as in the Lease. To the extent there is any conflict or
inconsistency between the terms of this Amendment and the Lease, the terms
of this Amendment shall govern. Except as set forth herein, the Lease
shall remain in full force and effect. The parties hereby confirm that all
of the other terms, conditions and provisions of the Lease have not been
changed or modified hereby and are hereby ratified and confirmed and shall
remain in full force and effect.
-4-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
date first set forth above.
Tenant: Focal Communications Landlord: Teachers Insurance &
Annuity Association
By: /s/ Brian F. Addy By: /s/ S. Marc Flannery
------------------- ----------------------
Its: Executive Vice President Its: Assistant Secretary
------------------------ ---------------------
-5-
<PAGE>
Exhibit 10.11
================================================================================
PARAMOUNT GROUP, INC.
As Agent For
OLD SLIP ASSOCIATES, L.P.,
Landlord,
- and -
FOCAL COMMUNICATIONS CORPORATION,
Tenant.
LEASE
- --------------------------------------------------------------------------------
Dated: as of May 20, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 Premises....................................................... 8
ARTICLE 2 Term........................................................... 8
ARTICLE 3 Fixed Rent..................................................... 9
ARTICLE 4 Escalations.................................................... 10
ARTICLE 5 Use of Premises................................................ 15
ARTICLE 6 Completion and Occupancy....................................... 17
ARTICLE 7 Layout and Finish.............................................. 19
ARTICLE 8 Changes or Alterations by Tenant............................... 19
ARTICLE 9 Changes or Alterations by Landlord............................. 22
ARTICLE 10 Heating, Ventilation and Air Conditioning;
Elevators Cleaning and Other Services.......................... 23
ARTICLE 11 Electricity, Telephone Network and Water....................... 27
ARTICLE 12 Repairs: Notice Regarding Accidents to Plumbing
and Other Systems.............................................. 29
ARTICLE 13 Compliance with Legal and/or Insurance
Requirements................................................... 31
ARTICLE 14 Rules and Regulations.......................................... 34
ARTICLE 15 Access......................................................... 34
ARTICLE 16 Surrender...................................................... 36
ARTICLE 17 Insurance...................................................... 39
ARTICLE 18 NonLiability and Indemnification............................... 41
ARTICLE 19 Damage by Fire, Etc............................................ 43
ARTICLE 20 Condemnation................................................... 45
ARTICLE 21 Conditions of Limitation....................................... 47
ARTICLE 22 Reentry by Landlord............................................ 50
ARTICLE 23 Damages........................................................ 51
ARTICLE 24 Curing Tenant's Defaults Additional Rent...................... 53
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 25 Inability to Perform .......................................... 54
ARTICLE 26 Assignment, Mortgaging, Subletting, Etc........................ 54
ARTICLE 27 Subordination.................................................. 64
ARTICLE 28 Building Name; Building Directory.............................. 69
ARTICLE 29 Vaults......................................................... 69
ARTICLE 30 Waivers by Tenant.............................................. 70
ARTICLE 31 Waiver of Trial by Jury........................................ 70
ARTICLE 32 Lease Contains All Agreements No Waivers...................... 71
ARTICLE 33 Adjacent Excavation Shoring................................... 72
ARTICLE 34 Consents and Approvals......................................... 72
ARTICLE 35 Notices........................................................ 74
ARTICLE 36 Parties Bound.................................................. 75
ARTICLE 37 Brokerage...................................................... 79
ARTICLE 38 Miscellaneous.................................................. 79
ARTICLE 39 Article Headings; Certain Definitions;
Construction of Terms.......................................... 81
ARTICLE 40 Security Deposit............................................... 85
ARTICLE 41 Quiet Enjoyment................................................ 86
ARTICLE 43 Emergency Generator............................................ 89
ARTICLE 44 Extension Option............................................... 90
EXHIBIT A Operating Expenses............................................. A1
EXHIBIT B List of Approved Contractors................................... B1
EXHIBIT C Cleaning Specifications........................................ C1
EXHIBIT D HVAC Specifications............................................ D1
EXHIBIT E Estimate for Overtime Air Conditioning Charge.................. E1
</TABLE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
"Additional Rent".......................................................... 9
"Affiliate"................................................................ 81
"Appurtenances"............................................................ 37
"Audit".................................................................... 14
"Base Year Operating Expenses"............................................. 11
"Building"................................................................. 8
"Business Days"............................................................ 80
"Business Hours"........................................................... 80
"Conduit Space"............................................................ 86
"Default Rate"............................................................. 52
"Default Termination"...................................................... 50
"Escalation Statement"..................................................... 11
"Expiration Date".......................................................... 90
"Extension Term"........................................................... 88
"Fair Market Rental"....................................................... 91
"Fixed Rent"............................................................... 9
"Force Majeure"............................................................ 80
"Holidays"................................................................. 82
"HVAC"..................................................................... 23
"Indemnitee................................................................ 41
"Insurance Requirements"................................................... 82
"Land"..................................................................... 8
"Landlord"................................................................. 8
"Landlord's Work".......................................................... 18
"Legal Requirements"....................................................... 82
"LLForm"................................................................... 78
"Notice"................................................................... 74
"Operating Expenses"....................................................... 11
"Operating Payment"........................................................ 12
"Operation of the Property"................................................ 8
"Operation Year"........................................................... 10
"Partnership Tenant"....................................................... 77
"Premises"................................................................. 8
"Present Value"............................................................ 52
"Public Areas"............................................................. 16
"Real Estate Tax Base"..................................................... 11
"Real Estate Taxes"........................................................ 11
"Real Property"............................................................ 8
"Rent Commencement Date"................................................... 9
"Rent" or "Rents".......................................................... 83
"Successor Landlord"....................................................... 65
"Superior Lease"........................................................... 64
"Superior Lessor".......................................................... 64
"Superior Mortgage"........................................................ 64
"Superior Mortgagee"....................................................... 64
"Tax Payment".............................................................. 12
"Tax Year"................................................................. 10
"Tenant"................................................................... 77
"Tenant's Appurtenances"................................................... 37
"Tenant's Changes"......................................................... 19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
"Tenant's Initial Changes"................................................. 19
"Tenant's Property"........................................................ 37
"Tenant's Proportionate Share"............................................. 10
"Term Commencement Date"................................................... 8
</TABLE>
<PAGE>
LEASE, dated as of May 20th, 1997, between PARAMOUNT GROUP, INC., as
Agent for OLD SLIP ASSOCIATES' L.P., having an office at 1633 Broadway, New
York, New York 10019 (hereinafter called "Landlord") and FOCAL COMMUNICATIONS
CORPORATION, a Delaware corporation, having an office at 200 North LaSalle
Street, Chicago, Illinois 60601 (hereinafter called "Tenant").
W I T N E S S E T H:
-------------------
ARTICLE 1
---------
Premises
--------
Section 1.1 Landlord does hereby lease to Tenant, and Tenant does
-----------
hereby hire from Landlord, subject to any Superior Leases and/or Superior
Mortgages as hereinafter provided, and upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease, for the term
hereinafter stated, a portion of the 4th Floor substantially as shown hatched on
the rental plan annexed hereto and made a part hereof, in the building (the
"Building") known as Financial Square and located at 32 Old Slip, New York, New
York. Said leased premises, together with all Appurtenances (except Tenant's
Appurtenances) are hereinafter called the "Premises". The plot of land on which
the Building is erected is hereinafter called the "Land". The real property,
including the Land and Building, of which the Premises form a part is
hereinafter called the "Real Property".
Section 1.2 The parties hereby agree that for all purposes of this
-----------
Lease the rentable area of the Premises (in accordance with the recommended
method of floor measurement for office buildings currently in effect published
by the Real Estate Board of New York) is deemed to be 15,196 square feet.
ARTICLE 2
---------
Term
----
Section 2.1 The term of this Lease shall commence on July 1, 1997
-----------
(subject to postponement of said specific date as provided in Article 6 hereof)
or on such earlier date as Tenant shall occupy the Premises or any part thereof
with the written consent of Landlord for the purpose of carrying on the normal
functions of Tenant's business (the "Term Commencement Date") and shall end on
the day immediately preceding the fifteenth anniversary of the Term Commencement
Date or on any earlier Expiration Date in accordance with the terms of this
Lease. Landlord and tenant shall either exchange letters or enter into an
agreement memorializing the Term Commencement Date, if different from June 1,
1997. However, failure to exchange such letters or
<PAGE>
enter Into such agreement shall not be construed to mean that the term of this
Lease has not commenced.
ARTICLE 3
---------
Fixed Rent
----------
Section 3.1 The Rent reserved under this Lease for the term hereof
-----------
shall be and consist of the following fixed rent ("Fixed Rent"), namely Three
Hundred Thirty-Four Thousand Three Hundred Twelve and 00/100 Dollars
($334,312.00) per annum, commencing on the fourteenth month anniversary of the
Term Commencement Date (the "Rent Commencement Date") and ending on the day
immediately preceding the fifth anniversary of the Term Commencement Date, then
Three Hundred Seventy-Nine Thousand Nine Hundred and 00/100 Dollars
($379,900.00) per annum commencing on the fifth anniversary of the Term
Commencement Date and ending on the day immediately preceding the tenth
anniversary of the Term Commencement Date, then Four Hundred Forty Thousand Six
Hundred Eighty-Four and 00/100 Dollars ($440,684.00) per annum commencing on the
tenth anniversary of the Term Commencement Date and ending on the Expiration
Date, and shall be payable in equal monthly installments in advance on the first
day of each and every calendar month during said term (except that Tenant shall
pay the first monthly installment on the execution hereof), plus such additional
rent ("Additional Rent") payable under Article 4 or elsewhere in this Lease and
other charges as shall become due and payable hereunder, which Additional Rent
and other charges shall be payable as hereinafter provided; all to be paid to
Landlord at its office, or such other place as Landlord may designate, in lawful
money of the United States of America.
Section 3.2 Tenant does hereby covenant and agree to pay the Fixed
-----------
Rent, and one-twelfth (1/12th) of the Operating Payments and Tax Payments, on
the first day of each calendar month during the term of this Lease, whether or
not Tenant is billed therefor. In addition, Tenant does hereby covenant and
agree to pay all other Additional Rent and other charges herein reserved within
twenty (20) days after demand therefor. All Rent is payable without any set-off
or deduction whatsoever. Furthermore, Tenant does hereby covenant and agree to
keep, observe and perform, and permit no violation of, each of Tenant's
obligations hereunder. If any Rent payable under this Lease by Tenant to
Landlord is not paid when due, the same shall bear interest at the rate of one
and one half percent (1-1/2) per month or the maximum rate permitted by any
Legal Requirement, whichever is less, from the fifth day after the due date
thereof until paid and the amount of such interest shall be Additional Rent.
Section 3.3 If, by reason of any of the provisions of this Lease, the
-----------
Fixed Rent shall commence on any date other than the first day of a calendar
month, or end on any date other than
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<PAGE>
the last day of a calendar month, then the Fixed Rent for such calendar month
shall be prorated. Any apportionments or prorations of Rent to be made under
this Lease shall be computed on the basis of a three hundred sixty (360) day
year, with twelve (12) months of thirty (30) days each.
Section 3.4 If any of the Rent payable hereunder shall be or become
-----------
uncollectible, reduced or required to be refunded because of any Legal
Requirement, Tenant shall enter into such agreements and take such other actions
(without additional expense to Tenant) as Landlord may request and as may be
legally permissible to permit Landlord, during the continuance of such Legal
Requirement, to collect the maximum Rent as may be legally collectible (but not
in excess of the amounts reserved therefor under this Lease). Upon the
termination of such Legal Requirement, (a) the Rent shall become and thereafter
be payable in accordance with the amounts reserved herein and (b) Tenant shall
pay to Landlord within twenty (20) days after demand, to the extent legally
permissible, an amount equal to (i) the Rent which would have been paid pursuant
to this Lease but for such Legal Requirement less (ii) the Rent, and payments in
lieu of Rent, paid by Tenant during the period in which such Legal Requirement
was in effect.
ARTICLE 4
---------
Escalations
-----------
Section 4.1 As used in this Lease, the words and terms which follow
-----------
mean and include the following
(a) "Tax Year" shall mean each period of twelve (12) months,
commencing on the first day of July of each such period, in which occurs any
part of the term of this Lease or such other period of twelve (12) months
occurring during the term of this Lease as hereafter may be duly adopted as the
fiscal year for real estate tax purposes of the City of New York.
(b) "Operation Year" shall mean each calendar year of twelve (12)
consecutive months in which occurs any part of the term of this Lease.
(c) "Tenant's Proportionate Share" shall be deemed 1.5191% for the
purposes of this Lease. Tenant acknowledges that such agreed-upon percentage
shall change only if the area of the Premises is increased or decreased pursuant
to a writing signed by Landlord and Tenant. Tenant is aware that Landlord may
make improvements to the Building (including remodeling and constructing
additional space) during this Lease.
-8-
<PAGE>
(d) "Operating Expenses" shall include those expenses which have the
meaning set forth in Exhibit A, annexed hereto and made a part hereof.
(e) "Base Year Operating Expenses" shall mean the Operating Expenses
for the Operation Year ending December 31, 1997.
(f) "Real Estate Taxes" shall mean the aggregate amount of real
estate taxes and assessments imposed upon the Real Property and payable by
Landlord (including (i) real estate taxes upon any "air rights" payable by
Landlord, (ii) so-called business improvement district taxes and (iii) any
assessments levied after the date of this Lease for public benefits to the Real
Property or special assessments levied on, assessed against or attributable to
the Real Property, which assessments, if payable in installments shall be deemed
payable in the maximum number of permissible installments) in the manner in
which such taxes and assessments are imposed as of the date hereof, excluding
any franchise or income tax of Landlord; provided, however, that if because of
-------- -------
any change in the taxation of real estate, any other tax or assessment of any
kind or nature (including, without limitation, any occupancy, gross receipts or
rental tax) is imposed upon Landlord or the owner of the Land and/or the
Building, or upon or with respect to the Land and/or the Building or the
occupancy, rents, or income therefrom, in substitution for, or in addition to,
any of the foregoing Real Estate Taxes, such other taxes or assessment shall be
deemed part of the Real Estate Taxes. With respect to any Tax Year, all
expenses, including reasonable legal fees, experts' and other witnesses' fees,
incurred in contesting the validity or amount of any Real Estate Taxes (whether
or not successful in lowering the amount of Real Estate Taxes), shall be deemed
part of the Real Estate Taxes for such Tax Year. Landlord shall have the
exclusive right, but not the obligation, to contest or appeal any assessment of
Real Estate Taxes levied upon the Land and/or the Building by any governmental
or quasi-governmental taxing agency. Tenant shall have no right or power to
contest or appeal any assessment of Real Estate Taxes.
(g) "Real Estate Tax Base" shall mean one-half of the aggregate of
(x) the Real Estate Taxes for the Tax Year ending on June 30, 1997 and (y) the
Real Estate Taxes for the Tax Year ending on June 30, 1998.
(h) "Escalation Statement" shall mean a statement in writing signed
by Landlord, setting forth the amount payable by Tenant for a specified Tax Year
or Operation Year, as the case may be, pursuant to this Article 4, setting forth
in reasonable detail the computation of any Additional Rent payable pursuant to
this Article 4.
-9-
<PAGE>
Section 4.2 If the Real Estate Taxes for any Tax Year shall be
-----------
greater than the Real Estate Tax Base, Tenant shall pay to Landlord as
Additional Rent for the Premises for such Tax Year an amount (herein called the
"Tax Payment") equal to Tenant's Proportionate Share of the amount by which the
Real Estate Taxes for such Tax Year are greater than the Real Estate Tax Base.
If the Real Estate Taxes for any Tax Year shall be less than the Real Estate Tax
Base, Tenant shall not pay to Landlord any Additional Rent for the Premises for
such Tax Year. However, in no event will Fixed Rent be reduced as a result of
any reduction in the Real Estate Taxes below the Real Estate Tax Base.
Section 4.3 For each Operation Year commencing during the term of this
-----------
Lease, Tenant shall pay an amount (herein called the "Operating Payment") equal
to Tenant's Proportionate Share of the amount by which the Operating Expenses
for such Operation Year are greater than the Base Year Operating Expenses. If
Operating Expenses for any Operating Year shall be less than the Base Year
Operating Expenses, Tenant shall not pay to Landlord any Additional Rent for the
Premises for such Operating Year. However, in no event will Fixed Rent be
reduced as a result of any reduction in Operating Expenses below the Base Year
Operating Expenses.
Section 4.4 If, in any Operation Year (any part or all of which falls
-----------
within the term of this Lease), Landlord shall incur any cost for a capital
improvement made or purchased in compliance with any Legal Requirement (as, for
example, respecting fire safety, in compliance with New York City Local Law
#5-73), then Tenant shall pay to Landlord as Additional Rent for the Premises
for the next succeeding Operation Year and continuing thereafter for each
succeeding year (and any fraction thereof) during the balance of the term of
this Lease an amount equal to Tenant's Proportionate Share of the reasonable
annual amortization of such cost (together with interest thereon).
Section 4.5 Landlord shall furnish to Tenant, prior to the
-----------
commencement of each Operation Year or Tax Year commencing after December 31,
1997, as the case may be, a written statement setting forth Landlord's
reasonable estimate of the Tax Payment or the Operating Payment, as the case may
be, and in the case of any Operation Year, pursuant to Section 4.3 hereof, and,
in case of any Tax Year, pursuant to Section 4.2 hereof. Tenant shall pay to
Landlord on the first day of each month during such Operation Year or Tax Year,
as the case may be, an amount equal to one-twelfth of Landlord's estimate of the
Operating Payment for such Operation Year or the Tax Payment for such Tax Year.
If, however, Landlord shall furnish any such estimate for an Operation Year or a
Tax Year subsequent to the commencement thereof, then (a) until the first day of
the month following the month in which such estimate is furnished to Tenant,
Tenant shall pay to Landlord on the first day of each month an amount equal to
the monthly sum payable by Tenant to Landlord under this Section 4.5 in respect
of the last month of
-10-
<PAGE>
the preceding Operation Year or Tax Year; (b) promptly after such estimate is
furnished to Tenant, Landlord shall give notice to Tenant stating whether the
installments of the Operating Payment or Tax Payment previously made for such
Operation Year or Tax Year, as the case may be, were greater or less than the
installments of the Operating Payment or Tax Payment to be made for such
Operation Year or Tax Year in accordance with such estimate, and (i) if there
shall be a deficiency, Tenant shall pay the amount thereof within twenty (20)
days after demand therefor, or (ii) if there shall have been an overpayment,
Landlord shall refund to Tenant the amount thereof within twenty (20) days after
Landlord delivers such notice to Tenant; and (c) on the first day of the month
following the month in which such estimate is furnished to Tenant, and monthly
thereafter throughout the remainder of such Operation Year or Tax Year, as the
case may be, Tenant shall pay to Landlord an amount equal to one-twelfth
(1/12th) of the Operating Payment or of the Tax Payment, as the case may be,
shown on such estimate.
Section 4.6 Landlord shall furnish to Tenant an Escalation Statement
-----------
for each Operation Year and for each Tax Year. If the Escalation Statement shall
show that the sums paid by Tenant under Section 4.5 exceeded the Tax Payment or
the Operating Payment to be paid by Tenant for such Tax Year or Operation Year,
as the case may be, Landlord shall refund to Tenant the amount of such excess
within twenty (20) days after Landlord furnishes such Escalation Statement to
Tenant; and if the Escalation Statement for such Tax Year or Operation Year, as
the case may be, shall show that the sums so paid by Tenant were less than the
Tax Payment or Operating Payment, as the case may be, to be paid by Tenant for
such Tax Year or Operation Year, Tenant shall pay the amount of such deficiency
within twenty (20) days after demand therefor.
Section 4.7 In case the Real Estate Taxes for any Tax Year or part
-----------
thereof shall be reduced during the term of this Lease after Tenant shall have
paid Tenant's Proportionate Share of any increase thereof in respect of such Tax
Year pursuant to Section 4.6, Landlord shall refund to Tenant Tenant's
Proportionate Share of the refund of such taxes within twenty (20) days after
received by Landlord. If, after an Escalation Statement has been sent to Tenant
during the term of this Lease, the assessed valuation which had been utilized in
determining the Real Estate Base Tax is reduced (as a result of settlement,
final determination of legal proceedings or otherwise), then, and in such event
(a) the Real Estate Tax Base shall be retroactively adjusted to reflect such
reduction and (b) all retroactive Additional Rent resulting from such
retroactive adjustment shall be payable within twenty (20) days after demand
therefor. Landlord shall send to Tenant a statement setting forth the basis for
such retroactive adjustment and Additional Rent payments. In no event may
Landlord ever double count or require double payment of any such Additional
Rent.
-11-
<PAGE>
Section 4.8 Payments shall be made pursuant to this Article 4
-----------
notwithstanding the fact that an Escalation Statement is furnished to Tenant
after the Expiration Date and any delay or failure of Landlord in billing any
Additional Rent provided for in this Article 4 shall not constitute a waiver of
or in any way impair the continuing obligation of Tenant to pay such Additional
Rent hereunder. However, any delay in delivering an Escalation Statement to
Tenant shall correspondingly extend Tenant's time within which to Audit
Operating Expenses in accordance with Section 4.9.
Section 4.9 Provided that Tenant is not in default hereunder beyond
-----------
any applicable cure period, within ninety (90) days after the submission of the
Escalation Statement indicating such increase, Landlord shall allow Tenant or
Tenant's agents, upon ten (10) Business Days' advance notice to Landlord, to
examine, during Business Hours at Landlord's office where such records are kept,
such books, purchase orders, invoices, payrolls and other records in Landlord's
possession as may be reasonably necessary in order to permit Tenant to verify
the information set forth in such Escalation Statement with respect to Operating
Expenses (an "Audit"). Tenant and its agents shall keep all information which
they are shown in connection with any Audit confidential and shall not reveal
the same to any third party except as may be required by any Legal Requirement.
Tenant shall deliver to Landlord a copy of the results of such Audit within
fifteen (15) days after completion or receipt by Tenant of such results. In the
event that Tenant fails to initiate such Audit within such ninety (90) day
period, Tenant shall have no further right to challenge or contest the accuracy
of the applicable Escalation Statement. No assignee of the Tenant named herein
shall have any right to conduct an Audit for any period during which such
assignee was not in possession of the Premises and no subtenant shall have any
right to conduct an Audit. If Tenant wishes to dispute the validity of
Landlord's inclusion of an item or items in Operating Expenses, and Landlord and
Tenant are unable to resolve the dispute within ninety (90) days after Tenant
notifies Landlord of the dispute, then such matter shall be determined in New
York City by arbitration with each party selecting an expert, each of which
shall have at least seven (7) years' experience with analyzing operating
expenses in the Manhattan office market. The experts shall be instructed to
complete the arbitration procedure and to submit their written determinations to
Landlord and Tenant within thirty (30) days after their selection. In the event
that such experts cannot agree within such thirty (30) day period, then such
experts shall, within ten (10) days, appoint a third expert with similar
qualifications to make such determination in accordance with the foregoing
limitations. The third expert shall be instructed to complete the arbitration
procedure and to submit a written determination to Landlord and Tenant within
thirty (30) days after such expert's appointment. Such determination shall be
binding upon Landlord and Tenant. If Tenant institutes said arbitration and
receives a
-12-
<PAGE>
ruling of less than sixty percent (60) of the dollar value of the disputed
items, then Tenant shall not be entitled to any award as a result of such
arbitration and Tenant shall pay all of the reasonable costs and expenses
incurred in connection with said arbitration and Landlord's reasonable
attorneys' fees and disbursements in connection therewith. If Tenant receives a
ruling of sixty percent (60) or more of the dollar value of the disputed items,
then Tenant shall be entitled to any award resulting from such arbitration and
the parties shall share equally in the costs and expenses incurred in connection
with said arbitration, except that Landlord and Tenant shall each separately pay
their own attorneys' fees and disbursements in connection with said arbitration.
Tenant may not place in dispute the reasonableness of the dollar amount of any
items legitimately included in Operating Expenses.
Section 4.10 In no event shall the Fixed Rent under this Lease
------------
(exclusive of the Additional Rent under this Article 4) be reduced by virtue of
this Article 4.
ARTICLE 5
---------
Use of Premises
---------------
Section 5.1 Subject to Section 26.1(b) with respect to Customers, the
-----------
Premises shall be used for the following, but no other purpose, namely (i)
Tenant's general office use, (ii) the installation, maintenance and operation of
Tenant's telecommunications facility, (iii) Tenant's switching, operations,
terminal and interconnection facilities and services, (iv) service and repair of
Tenant's equipment, (v) related storage and office use in connection therewith,
and (vi) other lawful purposes.
Section 5.2 Tenant shall not use the Premises or any part thereof, or
-----------
permit the Premises or any part thereof to be used in any manner which would
violate the certificate of occupancy for the Building or, for any purpose other
than the use hereinbefore specifically mentioned. Those portions, if any, of the
Premises, identified as toilets and utility areas shall be used by Tenant only
for the purposes for which they are designed. No property other than such as
might normally be brought upon or kept in the Premises as an incident to the
reasonable use of the Premises for the purposes specified in this Lease shall be
brought upon or kept in the Premises.
Section 5.3 Tenant shall not use or permit the use of the Premises or
-----------
any part thereof in any way which would violate any of the covenants,
agreements, terms, provisions and conditions of this Lease or for any unlawful
purposes or in any unlawful manner and Tenant shall not suffer or permit the
Premises or any part thereof to be used in any manner or anything to be done
therein or anything to be brought into or kept therein which, in the judgment
-13-
<PAGE>
of Landlord, shall in any way impair or tend to impair the character, reputation
or appearance of the Building as a high quality office building, impair or
interfere with or tend to impair or interfere with any of the Building services
or the proper and economic heating, cleaning, air conditioning or other
servicing of the Building or the Premises, or impair or interfere with or tend
to impair or interfere with the use of any of the other areas of the Building
by, or occasion discomfort, inconvenience or annoyance to, any of the other
tenants or occupants of the Building.
Section 5.4 If any governmental license or permit shall be required
-----------
for the proper and lawful conduct of Tenant's business or other activity carried
on in the Premises, and if the failure to secure such license or permit might or
would, in any way, affect Landlord, then Tenant, at Tenant's expense, shall duly
procure and thereafter maintain such license or permit and submit a copy of the
same to inspection by Landlord. Tenant, at Tenant's expense, shall at all times
comply with the requirements of each such license or permit.
Section 5.5 Notwithstanding anything contained in this Lease to the
-----------
contrary, Tenant covenants and agrees that Tenant will not use the Premises or
any part thereof, or permit the Premises or any part thereof to be used (i) for
a banking, trust company, or safe deposit business; (ii) as a savings bank, or
as a savings and loan association, or as a loan company; (iii) for the sale of
travelers checks and/or foreign exchange or as a tourist or travel agency; (iv)
as a stock brokerage office or for stock brokerage purposes or for the
underwriting of securities; (v) as a newsstand; (vi) as a restaurant and/or bar
and/or for the sale of confectionery and/or soda and/or beverages and/or
sandwiches and/or ice cream and/or baked goods or for the preparation,
dispensing or consumption of food and/or beverages in any manner whatsoever;
(vii) as an employment agency or office for a labor union; (viii) as an office
for a public stenographer, typist or secretarial service or as a public
telegraph agency; (ix) for the possession, storage, manufacture, or sale of
liquor, narcotics, dope or tobacco in any form; (x) as a barber, beauty or
manicure shop; (xi) for a public messenger or delivery service; (xii) as a
classroom or school; (xiii) for manufacturing or for the sale at wholesale,
retail or auction of merchandise, goods or property of any kind; (xiv) for any
purpose which predominantly involves direct patronage of the general public;
(xv) for lodging or sleeping; (xvi) for any pornographic, immoral, improper,
offensive, or illegal purpose; (xvii) by any company engaged in the business of
renting office or desk space; (xviii) by an agency, department or bureau of the
United States Government, any state or municipality within the United States or
any foreign government, or any political subdivision of any of them; or (xix) if
such use would cause the Real Property to be deemed "tax-exempt use property"
within the meaning of Section 168(h) of the Internal Revenue Code of 1986, as
amended, or any successor or substitute statute, rule or regulation
-14-
<PAGE>
applicable thereto (as the same may be amended), by either (a) any charitable,
religious, union or other not-for-profit organization, or (b) any tax-exempt
entity within the meaning of Section 168(h)(2)(A) of the Internal Revenue Code
of 1986, as amended, or any successor or substitute statute, or rule or
regulation applicable thereto (as same may be amended). Tenant shall not engage
or pay any employee in the Premises, except those actually working for Tenant in
the Premises nor advertise for laborers giving an address at the Building.
Section 5.6 Tenant hereby represents, covenants and agrees that
-----------
Tenant's business is not photographic reproductions and/or documentary
reproductions and/or offset printing. Notwithstanding anything contained in
this Lease to the contrary, Tenant covenants and agrees that Tenant will not use
the Premises or any part thereof, or permit the Premises or any part thereof to
be used, for the business of photographic reproductions and/or documentary
reproductions and/or offset printing. Nothing contained in this Section 5.6
shall preclude Tenant from using any part of the Premises for photographic
reproductions and/or documentary reproductions and/or offset printing in
connection with, either directly or indirectly, its own business and/or
activities.
Section 5.7 Tenant shall not place a load upon any floor of the
-----------
Premises exceeding the floor load per square foot which such floor was designed
to carry and such load shall be placed by Tenant, at Tenant's sole cost and
expense, so as to properly distribute the weight. Tenant may, subject to
compliance with all other applicable terms and provisions of this Lease, and at
Tenant's sole cost and expense, upgrade such floor load capacity. Business
machines and mechanical equipment shall be placed and maintained by Tenant, at
Tenant's sole cost and expense, in settings sufficient in Landlord's judgment to
absorb and prevent vibration, noise and annoyance. If the Premises be or become
infested with vermin as a result of the use or any misuse or neglect of the
Premises by Tenant, its agents, visitors or licensees, Tenant shall, at Tenant's
sole cost and expense, cause the same to be exterminated from time to time to
the satisfaction of Landlord and shall employ such exterminators and such
exterminating company or companies as shall be approved by Landlord.
Section 5.8 Tenant shall not place or permit to be placed any vending
-----------
machines in the Premises, except with the prior written consent of Landlord in
each instance.
ARTICLE 6
---------
Completion and Occupancy
------------------------
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<PAGE>
Section 6.1 Tenant acknowledges that it has inspected the Premises and
-----------
agrees to accept possession of same in its "AS-IS" physical condition on the
date hereof, it being understood and agreed that Landlord shall not be obligated
to perform any alterations, improvements or repairs to the Premises, except that
Landlord shall, at its sole cost and expense, unless otherwise indicated,
perform the following work and furnish and install the following materials
("Landlord's Work")
(a) furnish Building standard Venetian blinds to each window in the
Premises and Tenant shall pay Landlord's charge for the same;
(b) restrooms and other public areas serving the Premises shall be
brought into compliance with the Americans with Disabilities Act
in a Building standard manner;
(c) public corridors on the 4th Floor of the Building shall be
brought into compliance with the New York City Building Code;
(d) provide Tenant with access to one point on the 4th Floor of the
Building of Landlord's Class E system; and
(e) erect a Building standard demising wall where Landlord designates
with a double entry door at a mutually acceptable location.
Provided that Tenant does not, in Landlord's reasonable judgment, interfere with
or delay in any way the efficient progress of any of Landlord's Work (or
otherwise increase the cost thereof to Landlord), Tenant may enter the Premises
for purposes of taking measurements, making lay-outs and perform other
preliminary tasks while Landlord performs the foregoing work.
Section 6.2 Tenant shall occupy the Premises as soon as the Premises
-----------
are available for occupancy. Except as otherwise set forth in this Lease,
Landlord and Tenant agree that any failure to have the Premises available to
Tenant for its occupancy on the Term Commencement Date shall in no way affect
the validity of this Lease or the obligations of Tenant hereunder nor shall the
same be construed in any way to extend the term of this Lease or impose any
liability on Landlord. The provisions of this Section 6.2 are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law and any other Legal Requirement of like
import now or hereafter in force. The Fixed Rent reserved and covenanted to be
paid under this Lease shall commence on the Rent Commencement Date. In the event
that Landlord's Work has not been completed for any reason whatsoever (other
than a delay caused by Tenant) by June 16, 1997,
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<PAGE>
then promptly thereafter, upon ten (10) days' prior written notice to Landlord,
Tenant may terminate this Lease, unless Landlord's Work is completed within such
ten (10) day period. Tenant, by entering into occupancy of any part of the
Premises for any reason (other than those described in the last sentence of
Section 6.1), shall be conclusively deemed to have agreed that Landlord, up to
the time of such occupancy, had performed all of its obligations hereunder with
respect to such part and that such part was in satisfactory condition as of the
date of such occupancy unless within ten (10) days after such date Tenant shall
give written notice to Landlord specifying the respects in which the same was
not in such condition.
Section 6.3 Tenant expressly acknowledges that neither Landlord nor
-----------
Landlord's agents have made, and Tenant, in executing and delivering this Lease,
is not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease, and no
rights, easements or licenses are or shall be acquired by Tenant by implication
or otherwise, unless expressly set forth in this Lease.
ARTICLE 7
---------
Layout and Finish
-----------------
Section 7.1 Except for the work to be performed by Landlord pursuant
-----------
to Section 6.1, Tenant shall, at Tenant's sole cost and expense, perform all of
the work in the Premises necessary for Tenant's occupancy thereof, including all
work as may be necessary to comply with New York City Local Law 5-73
(collectively, "Tenant's Initial Changes"). Upon the Term Commencement Date,
Landlord shall make the Premises available to Tenant for the performance of such
work, to be performed by Tenant in accordance with the provisions of the Lease
and as part of Tenant's Changes.
ARTICLE 8
---------
Changes or Alterations by Tenant
--------------------------------
Section 8.1 Tenant covenants and agrees that Tenant will make no
-----------
alterations, decorations, installations, repairs, additions, improvements or
replacements, including Tenant's Initial Changes (hereinafter collectively
called "Tenant's Changes") in, to or about the Premises without Landlord's prior
written consent, and then only by contractors or mechanics approved by Landlord.
Attached hereto as Exhibit B is a current list of contractors approved by
Landlord for the Building. Landlord reserves the right to change such list from
time to time without notice to Tenant. Tenant's Changes shall be done at
Tenant's sole expense and at such times and in such manner as Landlord may from
time to time designate. Unless all of the conditions contained in this Article
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8 are fully satisfied, Landlord shall have the right, in Landlord's sole and
absolute discretion, to withhold its consent to any Tenant's Changes.
Notwithstanding anything contained in this Section 8.1 to the contrary, Landlord
agrees not to unreasonably withhold or delay its consent to those changes which
Tenant desires to make to the Premises which (i) are non-structural in nature,
(ii) do not connect to and/or adversely affect any of the Building's systems,
and (iii) are not visible from outside the Premises; it being understood that
for any proposed work which does not meet all of the criteria set forth in (i)
through (iii) above, the same shall be subject to Landlord's consent which
consent may be granted or withheld in Landlord's sole discretion; provided,
however, that in the event that all of the criteria in (i) through (iii) above
are met and the cost of the proposed work does not exceed $100,000 in the
aggregate when added to all of the work performed by Tenant to the demised
premises in the immediately preceding twelve (12) months (exclusive of
carpeting, painting and other items of a purely decorative nature), then no
consent shall be required with respect to such work (but Tenant shall provide
Landlord with prior written notice thereof and otherwise abide by the terms and
conditions of this Lease).
Section 8.2 Prior to the commencement of any Tenant's Changes, Tenant
-----------
shall submit to Landlord for Landlord's written approval three (3) complete sets
of the plans and specifications (to be prepared by and at the expense of Tenant)
of such proposed Tenant's Changes in detail satisfactory to Landlord. Landlord
shall approve or reject such plans and specifications within 10 Business Days
with respect to Tenant's Initial Changes, and 20 Business Days with respect to
all other Tenant's Changes, after Tenant delivers coordinated dimensioned
architectural plans and specifications to Landlord. No Tenant's Changes shall be
undertaken, started or begun by Tenant or by its agents or anyone else acting
for or on behalf of Tenant until Landlord has approved such plans and
specifications, and no amendments or additions to such plans and specifications
shall be made without the prior written consent of Landlord. Landlord's consent
to such plans and specifications shall create no responsibility or liability on
the part of Landlord with respect to their completeness, design sufficiency or
compliance with all applicable Legal and/or Insurance Requirements; nor shall
Landlord's execution of any documents required to be filed with any governmental
authority in connection with Tenant's installations or changes create any
responsibility or liability on the part of Landlord to take remedial measures to
bring any Tenant's such installations or changes into compliance with applicable
legal and/or insurance requirements (such responsibility or liability being
allocated hereunder to Tenant). At Landlord's option, and at Tenant's sole cost
and expense, Landlord's architect (not Tenant's) shall submit the Professional
Certification of Applications and Plans (and any amendments thereto) to the New
York City Buildings Department. In connection with any Tenant's Changes, Tenant
shall pay to Landlord,
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as Additional Rent, within twenty (20) days after demand, Landlord's actual out-
of-pocket expenses from unaffiliated third parties for review of Tenant's plans
and specifications.
Section 8.3 All Tenant's Changes shall at all times comply with all
-----------
applicable Legal Requirements. In addition, all Tenant's Changes shall
substantially comply with (a) all applicable Insurance Requirements, (b) the
Rules and Regulations, Construction Rules and Regulations and any other rules
for tenant alterations contained in Landlord's written consent to such Tenant's
Changes, (c) the plans and specifications submitted to Landlord and approved by
Landlord, and (d) in accordance with any contract between Tenant and a general
contractor engaged by it that incorporates such plans and specifications.
Section 8.4 Intentionally Omitted.
-----------
Section 8.5 In no event shall any material or equipment be
-----------
incorporated in or to the Premises in connection with any such Tenant's Changes
which is subject to any lien, security agreement, charge, mortgage or other
encumbrance of any kind whatsoever or is subject to any conditional sale or
other similar or dissimilar title retention agreement (other than security
agreements or other encumbrances covering Tenant's telecommunications and
associated support equipment executed by Tenant in favor of the vendors
thereof). Any mechanic's lien filed against the Premises or the Building for
work done for, or claimed to have been done for, or materials furnished to, or
claimed to have been furnished to, Tenant shall be discharged by Tenant within
twenty (20) days thereafter, at Tenant's sole cost and expense, by filing the
bond required by any applicable Legal Requirement or otherwise.
Section 8.6 All Tenant's Changes attached to, or built into the
-----------
Premises at the commencement of or during the term hereof, whether or not
furnished or installed at the expense of Tenant or by Tenant, shall be and
remain part of the Premises and shall, upon Landlord's election, be deemed the
property of Landlord and shall not be removed by Tenant, except as set forth
below. To the extent requested by Landlord (either prior to or not more than
thirty (30) days after the Expiration Date), the Tenant's Changes designated by
Landlord shall be removed from the Building by Tenant prior to such Expiration
Date unless such request is made after such Expiration Date, in which event any
such Tenant's Changes shall be removed from the Building by Tenant with
reasonable promptness after the receipt of such request. Notwithstanding the
foregoing, Tenant must remove Tenant's telecommunications and associated support
equipment. Tenant shall repair, restore, replace and/or rebuild (as the
circumstances may require), in a good and workmanlike manner, to its original
condition any damage to the Premises or the Building caused by such removal. If
any Tenant's Changes which are required to be removed from the Building by
Tenant are not removed
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<PAGE>
by Tenant from the Building within the time above specified therefor, then
Landlord (in addition to all other rights and remedies to which Landlord may be
entitled at any time) may at its election deem that the same have been abandoned
by Tenant to Landlord, but no such election shall relieve Tenant of Tenant's
obligation to pay the reasonable expenses of removing the same from the Premises
or the expense of repairing, restoring, replacing and/or rebuilding (as the
circumstances may require) damage to the Premises or to the Building arising
from such removal.
Section 8.7 In connection with the completion of Tenant's Changes: (a)
-----------
neither Tenant nor its agents shall interfere (except in a de minimis manner)
with the operations of the Building or any work being done by Landlord or its
agents in the Building; (b) Tenant shall comply with any reasonable work
schedule, rules and regulations proposed by Landlord or its agents; (c) Tenant
shall conform to all of Landlord's labor regulations and shall not do or permit
anything to be done that might create any work stoppage, picketing or other
labor disruption or disputes and (d) the labor employed by Tenant shall be
harmonious and compatible with the labor employed by Landlord in the Building,
it being agreed that, if in Landlord's reasonable judgment the labor is
incompatible, Tenant shall forthwith upon Landlord's demand withdraw such labor
from the Premises. Tenant further agrees that it will, prior to the commencement
of any work in the Premises, deliver to Landlord all policies of insurance
required to be supplied to Landlord by Tenant pursuant to the terms of this
Lease.
Section 8.8 Tenant, at its sole cost and expense, shall install a fire
-----------
suppression system in that portion of the Building's existing sprinkler system
located within the Premises, subject to Tenant's compliance with all other
applicable terms and provisions of this Lease.
ARTICLE 9
---------
Changes or Alterations by Landlord
----------------------------------
Section 9.1 Landlord reserves the right to make such changes,
-----------
alterations, additions, improvements, repairs or replacements in or to the
Building (including the Premises) and the fixtures and equipment thereof, as
well as in or to the street entrances, halls, passages, elevators, escalators,
stairways and other parts thereof, and to erect, maintain and use pipes, ducts
and conduits in and through the Premises, all as Landlord may deem necessary or
desirable; provided the same are concealed above ceilings, behind walls or
otherwise furred in a manner reasonably satisfactory to Tenant. The result of
the foregoing shall not be greater than a de minimis diminution in the rentable
square foot area of the Premises. Any such diminution shall result in a
corresponding diminution in Fixed Rent and Tenant's Proportionate Share, which
the parties shall confirm in writing.
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<PAGE>
Landlord shall use reasonable efforts to minimize interference with Tenant's use
of the Premises in connection with the foregoing. Except in the case of an
emergency, the foregoing will not result in Tenant's telecommunications switch
having to be moved. Nothing contained in this Article 9 shall relieve Tenant of
any duty, obligation or liability of Tenant with respect to making any repair,
replacement or improvement or complying with any Legal and/or Insurance
Requirement.
Section 9.2 Except as provided in Section 10.8 and Article 19 of this
-----------
Lease, there shall be no allowance to Tenant for a diminution of rental value,
the same shall not constitute an eviction of Tenant in whole or in part and
Landlord shall incur no liability whatsoever by reason of inconvenience,
annoyance, or injury to business arising from Landlord, Tenant or others making
any changes, alterations, additions, improvements, repairs or replacements in or
to any portion of the Building or the Premises or in or to the Appurtenances or
in the taking or storing of material in the Premises in connection therewith and
no liability shall be incurred by Landlord for failure of Landlord or others to
make any changes, alterations, additions, improvements, repairs or replacements
in or to any portion of the Building or the Premises, or in or to the
Appurtenances. Landlord shall use reasonable efforts to minimize interference
with Tenant's use of the Premises in connection with the foregoing.
ARTICLE 10
----------
Heating, Ventilation and Air Conditioning;
------------------------------------------
Elevators Cleaning and Other Services
-------------------------------------
Section 10.1 Heat, for the warming of the Premises and the public
------------
portions of the Building, will be supplied by Landlord during Business Hours
when and as required by any Legal Requirement.
Section 10.2 During Business Hours, Landlord shall, through the air
------------
conditioning system, furnish to, and distribute in, the Premises air
conditioning and ventilation in accordance with Exhibit D; Provided, however,
that Landlord shall not be liable for uncomfortable conditions in the Premises
if the cause of the uncomfortable conditions is due to the fact that Tenant's
cooling/ heating needs are over and above the capacity/ specifications of the
Building's heating, ventilation and air conditioning ("HVAC") system. Tenant
agrees to lower and close the blinds when necessary because of the sun's
position whenever said HVAC system is in operation, and Tenant agrees at all
times to cooperate fully with Landlord and to abide by all the regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of said HVAC system. In addition to any and all other rights and
remedies which Landlord may invoke for any violation by Tenant of this Article
10, Landlord may discontinue the furnishing of
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<PAGE>
overtime air conditioning service without any diminution or abatement of Rent
whatsoever. Landlord shall at all times have free and unrestricted access to any
and all HVAC facilities in the Premises. Landlord shall not be required to
furnish, and Tenant shall not be entitled to receive, any air conditioning
during any period wherein Tenant shall be in default beyond any applicable cure
period in the payment of Fixed Rent or Additional Rent as specified in this
Lease.
Section 10.3 Landlord will provide passenger elevator service during
------------
Business Hours and have one passenger elevator subject to call during non-
Business Hours. Tenant shall use passenger elevators in the Building exclusively
for transporting human passengers.
Section 10.4 Landlord will clean the Premises, in accordance with the
------------
cleaning specifications described on Exhibit C attached hereto and made a part
hereof, provided the same are kept in order by Tenant, except any portions of
the Premises which may be used for the preparation, dispensing or consumption of
food or beverages or for storage, shipping room, classroom or similar purposes
or for the operation of computer, data processing or similar equipment, all of
which portions Tenant shall cause to be kept clean at Tenant's own expense.
Section 10.5 Landlord will, when and to the extent reasonably
------------
requested by Tenant, furnish freight elevator or additional elevator, air
conditioning, heating and/or cleaning services upon such terms and conditions as
shall be determined by Landlord in its sole discretion; and Tenant shall pay to
Landlord promptly on demand as Additional Rent Landlord's reasonable charge for
such additional services (see, e.g., the rate as of January 1, 1997 listed on
Exhibit E, which Landlord reserves the right to change from time to time without
notice to Tenant, with respect to overtime air conditioning). Without limiting
the generality of the immediately preceding sentence, Tenant shall pay to
Landlord Landlord's charge for (a) any cleaning of the Building or any part
thereof required because of the carelessness or indifference of Tenant
(including, without limitation, Landlord's charge for removing stains from the
floors and walls resulting from the preparation, dispensing or consumption of
food or beverages or from any other cause), (b) any cleaning done at the request
of Tenant of any portions of the Premises which may be used for the preparation,
dispensing or consumption of food or beverages or for storage, shipping room,
classroom or similar purposes or for the operation of computer, data processing
or similar equipment and (c) the removal of any of Tenant's refuse and rubbish
from the Building, except refuse and rubbish arising from ordinary cleaning by
Landlord as specified in Section 10.4. Tenant shall pay to Landlord an amount
equal to any increase in the cost to Landlord for cleaning the Premises if such
increase shall be due to (i) the use of the Premises by Tenant during hours
other than Business
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<PAGE>
Hours or (ii) the installation in the Premises, at the request of or by Tenant,
of any items, materials or finishes other than those which are of the standard
adopted by Landlord for the Building or which may require additional or special
care in cleaning (for example, and without limitation, glass walls, marble, and
certain wood finishes).
Section 10.6 At any time or times all or any of the elevators in the
------------
Building may, at the option of Landlord, be manual and/or automatic elevators,
and Landlord shall be under no obligation to furnish an elevator operator for
any automatic elevator. If Landlord shall at any time or times furnish any
elevator operator for any automatic elevator, Landlord may discontinue
furnishing such elevator operator without any diminution, reduction or abatement
of Rent whatsoever.
Section 10.7 Subject to Section 10.8, and provided Landlord endeavors
------------
to give Tenant reasonable notice thereof (except in the case of an emergency,
when no notice need be given), reserves the right, without liability to Tenant
and without constituting any claim of constructive eviction, to stop or
interrupt any heating, elevator, escalator, lighting, ventilating, air
conditioning, condenser water, gas, steam, plumbing, power, electricity, water,
cleaning or other service and to stop or interrupt the use of any Building
facilities at such times as may be necessary and for as long as may reasonably
be required by reason of Force Majeure, or the making of repairs, alterations or
improvements, or inability to secure a proper supply of fuel, gas, steam, water,
electricity, labor or supplies. Landlord shall use reasonable efforts to
minimize interference with Tenant's use of the Premises in connection with the
foregoing. No such stoppage or interruption shall entitle Tenant to any
diminution or abatement of Rent nor shall this Lease or any of Tenant's
obligations hereunder be affected or reduced by reason of any such stoppage or
interruption.
Section 10.8 Notwithstanding anything contained in Sections 9.2, 10.7
------------
or 11.5 to the contrary, in the event that (i) any basic utility (other than
telephone) or elevator service required to be provided to the Premises is
interrupted to such an extent that Tenant is unable to, and does not, occupy all
or a portion of the Premises for the operation of its business or operate its
business from such portion of the Premises, and if such interruption continues
for a period in excess of ten (10) consecutive Business Days, or (ii) rubbish
removal service required to be provided to the Premises is interrupted to such
an extent that Tenant is unable to, and does not, occupy all or a portion of the
Premises for the operation of its business or operate its business from such
portion of the Premises, and if such interruption continues for a period in
excess of fifteen (15) consecutive Business Days, then, in either such case,
Tenant shall be entitled to an abatement of the Fixed Rent, Operating Payments
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<PAGE>
and Tax Payments payable hereunder to the extent that such Fixed Rent and
escalations relate on a rentable square foot basis to such part of the Premises
which has been actually vacated by Tenant or in which Tenant operates its
business for the period from such tenth (10th) or fifteenth (15th), as the case
may be, Business Day to the date when such interrupted services shall be
restored; except that Tenant shall not be entitled to any abatement if some act,
omission (where this Lease or applicable law imposes a duty to act) or
negligence on the part of Tenant or Tenant's agents, guests, invitees or
licensees caused such interruption.
Section 10.9 Tenant shall have the right to install up to eighty (80)
------------
tons of supplemental air conditioning in the Premises provided that plans for
said supplemental air conditioning are approved by Landlord in accordance with
the terms of Article 8. In connection with Tenant's use of condenser water,
commencing when Tenant's supplemental air conditioning system is connected to
the Building's condenser water riser, Tenant shall pay to Landlord $800 per ton
per annum; provided, however, that such $800 per ton per annum shall be adjusted
from time to time as Landlord may reasonably determine the same to be necessary
in order to reflect Landlord's increased cost, if any, of providing condenser
water. In the event that Tenant does not utilize all of such eighty (80) tons of
supplemental air conditioning in the Premises promptly after the date hereof,
Landlord will reasonably consent to Tenant's utilization of the balance thereof,
provided (i) Tenant complies with all other provisions of this Lease and (ii)
Tenant is not then in default beyond any applicable cure period under the terms
of this Lease. However, Tenant must pay a minimum of $32,000 per annum (based on
forty (40) tons of supplemental air conditioning), as adjusted from time to time
as Landlord may reasonably determine the same to be necessary in order to
reflect Landlord's increased costs, regardless of what tonnage of supplemental
air conditioning Tenant installs in the Premises. In the event that Tenant
reasonably satisfactorily demonstrates to Landlord that Tenant needs a mutually
acceptable tonnage of supplemental air conditioning in the Premises more than
eighty (80) tons, and provided (a) Tenant complies with all other provisions of
this Lease and (b) Tenant is not then in default beyond any applicable cure
period under the terms of this Lease, Landlord will either (x) make such tonnage
of condenser water available at the rate described in the first sentence of this
Section 10.9 or (y) if no more condenser water is available, be reasonable in
reviewing and approving Tenant's plans for the erection of a cooling tower by
Tenant, at its sole cost and expense, in a location in the Building designated
by Landlord.
Section 10.10 Landlord hereby grants Tenant a non-exclusive right of
-------------
access in common with others to utilize any then existing and available Building
vertical ground rise, main electrical service ground buss and/or cadweld to the
Building steel. Tenant hereby agrees to defend, indemnify and hold harmless
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<PAGE>
the Indemnitees from and against any and all claims (including but not limited
to claims for bodily injury or property damage), actions, mechanic's liens,
losses, liabilities, and expenses (including reasonable attorney fees and costs
of defense by Landlord's legal counsel), which may arise from such use.
Similarly, Tenant shall pay upon demand by Landlord the costs to repair any
damage to the Building caused by such use. Tenant hereby waives and releases
the Indemnitees from any claims Tenant may have at any time (including but not
limited to claims relating to interruptions in services) arising out of or
relating in any way to such use, whether or not caused by the negligence of any
member of the Indemnitees. In no event shall any Indemnitee be liable to Tenant
for lost profits or consequential, incidental or punitive damages of any kind.
Tenant's use of such grounding rights shall be in accordance with such rules and
regulations as may be established by Landlord from time to time.
ARTICLE 11
----------
Electricity, Telephone Network and Water
----------------------------------------
Section 11.1 Subject to the provisions of this Article 11, Landlord
------------
shall furnish electric energy to the Premises on a submetering basis for the
purposes permitted under this Lease and Tenant shall purchase the same from
Landlord at the cost to Landlord, including taxes, demand charges, fuel factors,
transfer adjustment factors and any other charge of the utility for electricity,
as applied to the electric energy consumed in the Premises, as measured by a
meter or meters, maintained and installed by Landlord at Landlords sole cost and
expense (which installation may include the addition or modification of the
existing risers, feeders, wiring and other conductors and equipment, any and all
of which shall be paid for by Tenant) at such location or locations as Landlord
reasonably shall determine, it being understood that the meters so installed may
include a meter relating to the demand factor aspect of such consumption of
electric energy. Tenant shall pay Landlord, as Additional Rent, the amounts from
time to time billed by Landlord pursuant to the provisions hereof for the
electric energy consumed in the Premises (plus a monthly administrative fee
equal to the greater of $50.00 or Landlord's actual cost of administration of
such meter(s)); each such bill to be paid within twenty (20) days after the same
has been rendered. Where more than one meter shall measure the electric energy
consumed in the Premises, the amount consumed, as measured by each meter, may be
computed and billed separately in accordance with the provisions hereof. Such
billing shall not result in higher charges to Tenant than would result from the
rendering of a single bill for a single meter servicing the entire Premises. If
any tax is imposed upon Landlord's receipts from the sale or resale of electric
energy to Tenant under any Legal Requirement, such tax may, to the extent
permitted by any Legal Requirement, be passed on by Landlord to Tenant and be
included, as
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<PAGE>
Additional Rent, in the bills payable by Tenant hereunder. If any bill rendered
by Landlord is not paid within the period hereinabove specified, Landlord may
without further notice discontinue the furnishing of electric energy to the
Premises without releasing Tenant from any liability under this Lease and
without Landlord or any agent of Landlord incurring any liability for any loss
or damage sustained by Tenant by reason of such discontinuance of electrical
service.
Section 11.2 Tenant's use of electric energy in the Premises shall
------------
not at any time exceed the capacity of any of the equipment in or otherwise
serving the Premises. Landlord represents that, on the Term Commencement Date,
such electrical capacity is approximately 180 amps in the electric closet that
serves the Premises (based on 8 watts per square foot of rentable area of the
Premises) and the same will be available for the exclusive use by, and to the
extent required by, Tenant. Landlord shall, at Tenant's request and at Tenant's
sole cost and expense, bring up additional electric capacity to the electric
closet that serves the Premises (but only to the extent that such additional
electric capacity, together with such of the aforesaid 180 amps as is utilized
by Tenant, aggregates no more than 1,000 amps at 480 volts, 3-phase). If such
additional electric capacity is part of additional electric capacity that is
being brought to the 4th Floor of the Building for Tenant and other tenants on
such 4th Floor, then the cost of bringing such additional electric capacity for
Tenant to the electric closet that serves the Premises shall be pro rated in a
manner reasonably determined by Landlord. Tenant, at its sole cost and expense,
shall (i) extend such additional electric capacity from such electric closet to
the Premises, (ii) provide an automatic transfer switch within the Premises,
(iii) extend such electric capacity from such transfer switch throughout the
Premises and (iv) extend control wiring from such automatic transfer switch to
the Building generator. Once the electrical capacity for the Premises is
reached, Tenant shall be entitled to, but only with Landlord's prior reasonable
consent in each instance, connect any additional fixtures, appliances or
equipment to the Building's electric distribution system and, but only after
first obtaining Landlord's approval to the extent required by and in accordance
with Section 8.2, make any alteration or addition to the electric system of the
Premises. Should Landlord grant such consent, all additional risers or other
equipment required therefor shall be provided by Landlord and Landlord's
reasonable charge therefor (as well as any reasonable charge for any future
maintenance or repair thereof) shall be paid by Tenant to Landlord within twenty
(20) days after demand. In the event that Tenant does not utilize all of such
1,000 amps of electric capacity promptly after the date hereof, Landlord will
reasonably consent to Tenant's utilization of the balance thereof, provided (i)
Tenant demonstrates to Landlord's reasonable satisfaction a need for such
additional capacity, (ii) Tenant complies with all other provisions of this
Lease and (iii)
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Tenant is not then in default beyond any applicable cure period under the terms
of this Lease.
Section 11.3 Landlord reserves the right to discontinue furnishing
------------
electric energy to Tenant in the Premises at any time upon not less than one
hundred twenty (120) days' notice to Tenant. Landlord shall not exercise such
right in a discriminatory manner. If Landlord exercises such right, this Lease
shall continue in full force and effect and shall be unaffected thereby, except
that from and after the date Tenant, acting diligently, begins obtaining
electric energy from the public utility furnishing electric energy to the
Building, Landlord shall not be obligated to furnish electric energy to Tenant.
If Landlord so discontinues furnishing electric energy to Tenant, Tenant shall
arrange to obtain electric energy directly from the public utility company
furnishing electric energy to the Building. Such electric energy may be
furnished to Tenant by means of the then existing Building system feeders,
risers and wiring to the extent that the same are available, suitable and safe
for such purpose. All meters and additional panel boards, feeders, risers,
wiring and other conductors and equipment which may be required to obtain
electric energy directly from such public utility company shall be furnished and
installed by Landlord and (i) if Landlord discontinued furnishing electric
energy to Tenant in the Premises due to a requirement of applicable law or such
public utility company regulations, then Tenant shall pay to Landlord one-half
of Landlord's reasonable charge therefor or (ii) if Landlord so discontinued of
its own volition, then Tenant shall not be required to pay Landlord any of
Landlord's reasonable charge therefor.
Section 11.4 Where water is furnished by Landlord for purposes other
------------
than for (i) normal office use, (ii) Landlord's air conditioning equipment
during Business Hours, (iii) normal office drinking, lavatory or toilet
facilities in the Premises, (iv) cold water for any Tenant-installed warming
pantry and (v) condenser water supplied pursuant to Section 10.9, Tenant shall
pay a reasonable amount for such over-standard use and for any required pumping
and heating thereof, as well as any taxes, sewer rents or other charges which
may be imposed by the city or other governmental authority or agency thereof
based on the quantity of water so used by Tenant.
Section 11.5 Subject to Section 10.8, Landlord shall in no way be
------------
liable or responsible to Tenant for any loss or damage or expense which Tenant
may sustain or incur by reason of any failure, inadequacy or defect in the
character, quantity or supply of electricity or water furnished to the Premises.
ARTICLE 12
----------
Repairs: Notice Regarding
-------------------------
Accidents to Plumbing and Other Systems
---------------------------------------
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Section 12.1 Promptly after Tenant discovers the same, Tenant shall
------------
give to Landlord prompt written notice of any damage to, or defective condition
in, any part or appurtenance of the Building's or the Premises' plumbing,
electrical, HVAC or other systems serving, located in, or passing through the
Premises. Following such notice, any such damage or defective condition shall
be remedied by Landlord with reasonable diligence, but if such damage or
defective condition was caused by, or resulted from the use by, Tenant or by
Tenant's agents, licensees or invitees, Landlord's charge for the remedy thereof
shall be paid by Tenant. Tenant shall not be entitled to claim any damages
arising from any such damage or defective condition unless the same shall have
been caused by the sole negligence of Landlord or its agents in the operation or
maintenance of the Premises or Building and the same shall not have been
remedied by Landlord with reasonable diligence after written notice thereof from
Tenant to Landlord; nor shall Tenant be entitled to claim any eviction by reason
of any such damage or defective condition, as long as the same is remedied with
reasonable promptness after Landlord receives such notice.
Section 12.2 Landlord shall, at its sole cost and expense (except as
------------
otherwise provided in Sections 12.1 or 12.3 or elsewhere herein), keep and
maintain in good repair and working order and make all repairs to and perform
necessary maintenance upon the Building and all parts thereof, including
structural elements, life-safety, plumbing, electrical and HVAC systems within
the Building which generally service the Building and are required in the normal
maintenance and operation of the Building. Notwithstanding anything in this
Section 12.2 or elsewhere in this Lease to the contrary, it is agreed that
Landlord is not obligated hereunder to maintain the Building in any better
repair or working order than as it exists on the date of this Lease.
Section 12.3 Tenant shall, at its sole cost and expense, throughout
------------
the term of this Lease, take good care of and maintain in good order and
condition the Premises and the Appurtenances, and Tenant shall be responsible
for the cost of all non-structural repairs, restorations and/or replacements
thereto as may be required to keep the Premises in good order and condition, and
shall pay to Landlord Landlord's charge for making good any damage or breakage
done by or on behalf of Tenant. Tenant shall also be responsible for the
reasonable cost of all repairs, interior and exterior, structural and non-
structural, ordinary and extraordinary, foreseen or unforeseen, in and to the
Building and the facilities and systems thereof, the need for which arises out
of (a) the performance or existence of Tenant's Changes, (b) the installation,
use or operation of Tenant's Property, (c) the moving of Tenant's Property into
or out of the Premises or the Building, (d) Tenant's compliance or non-
compliance with any Legal and/or Insurance Requirements with respect to Tenant
and/or the Premises, or (e) the act, omission, misuse or neglect of Tenant or
any of its subtenants or its or their agents, licensees or invitees. Any
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repairs in or to the Premises, the Building and/or the facilities and systems
thereof for which Tenant is so responsible shall be performed by Landlord at
Tenant's expense and Tenant shall pay Landlord's reasonable charge therefor as
Additional Rent hereunder within twenty (20) days after Landlord gives Tenant an
invoice therefor. All repairs and replacements made by or on behalf of Tenant
or any person claiming through or under Tenant shall be made in conformity with
the provisions of this Lease, including Article 8, and shall be at least equal
in quality and class to the original work or installation or the then reasonable
standards for the Building established by Landlord.
ARTICLE 13
----------
Compliance with Legal and/or Insurance Requirements
---------------------------------------------------
Section 13.1 Tenant, at Tenant's sole cost and expense, shall comply
------------
with all Legal and/or Insurance Requirements applicable to the Premises or any
part thereof or to Tenant's use, occupation or alteration thereof, except that
Tenant shall not hereby be under any obligation to comply with any Legal and/or
Insurance Requirement requiring any structural alteration of or in connection
with the Premises, unless such alteration is required by reason of a condition
which has been created by, or at the instance of Tenant, or is attributable to
the use or manner of use to which Tenant puts the Premises or Tenant's
occupation or alteration thereof, or is required by reason of a breach of any of
Tenant's covenants and agreements hereunder. Where any structural alteration of
or in connection with the Premises is required by any such Legal and/or
Insurance Requirement, and, by reason of the express exception hereinabove
contained, Tenant is not under any obligation to make such alteration, then
Landlord shall make such alteration and pay the cost thereof.
Section 13.2 Tenant shall not do or permit to be done any act or
------------
thing in the Premises which will invalidate or be in conflict with fire
insurance policies issued for office buildings in the Borough of Manhattan, City
of New York, and not do anything or permit anything to be done, or keep anything
or permit anything to be kept, in the Premises which would increase the fire or
other casualty insurance rate on the Building or the property therein, or which
would result in insurance companies of good standing refusing to insure the
Building or any such property in amounts and against risks as reasonably
determined by Landlord, or otherwise result in non-compliance with the
requirements and recommendations of the National Board of Fire Underwriters or
similar organizations promulgating requirements and recommendations with respect
to the Premises. If by reason of failure of Tenant to comply with the provisions
of this Section 13.2 including the specific manner of use to which Tenant puts
the Premises, the fire insurance rate payable by Landlord shall at the beginning
of this Lease or at any time thereafter be higher than it otherwise would be,
then Tenant
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shall reimburse Landlord, as Additional Rent hereunder, for that part of all
fire insurance premiums thereafter paid by Landlord which shall have been
charged because of such failure or use by Tenant, and shall make such
reimbursement upon the first day of the month following such outlay by Landlord.
In any action or proceeding wherein Landlord and Tenant are parties, a schedule
or "make up" rate for the Building or Premises issued by the New York Fire
Insurance Rating Organization, or other body making fire insurance rates for the
Premises, shall be conclusive evidence of the facts therein stated and of the
several items and charges in the fire insurance rate then applicable to the
Premises.
Section 13.3 Tenant shall pay any occupancy or rent tax now in effect
------------
or hereafter enacted if the same applies to Tenant's leasing of the Premises.
Alternatively, Tenant shall pay to Landlord upon demand as Additional Rent any
occupancy tax or rent tax now in effect or hereafter enacted, if payable by
Landlord in the first instance or hereafter required to be paid by Landlord.
Section 13.4 Tenant shall not move any safe, heavy machinery,
------------
heavy equipment, freight, bulky matter or fixtures into or out of the Building
without Landlord's prior written consent. If such safe, machinery, equipment,
freight, bulky matter or fixtures require special handling, Tenant agrees to
employ only persons holding a Master Rigger's License to do said work, and that
all work in connection therewith shall comply with all Legal Requirements.
Notwithstanding said consent of Landlord, Tenant shall indemnify Landlord for,
and hold Landlord harmless and free from, any and all loss, liability, damages,
costs and expenses sustained by person or property and for any and all loss,
liability, damages, costs and expenses incurred by Landlord with respect to or
in settlement of any claims or judgments, including reasonable counsel fees and
disbursements (whether incurred by reason of a matter involving or between
Landlord and Tenant, Landlord and any third party or otherwise) incurred in
connection therewith, and all reasonable costs incurred in repairing any damage
to the Building or the Appurtenances (including Landlord's charge for any
repairs performed by Landlord's agents).
Section 13.5 Tenant shall not do or permit to be done any act or
------------
thing which would cause any hazardous or dangerous condition, waste, material
and/or substance (as the same may be defined in any Legal Requirement) to be
used, stored, transported, released, handled, produced, created, disposed of, or
installed in, on, from, or at the Premises and/or the Building, except for small
amounts of standard office and cleaning supplies and items typically used by a
comparable telecommunications business (such as gel batteries); provided that
all such materials and/or substances (i) shall at all times be used, stored,
transported, released, handled, produced, created, disposed of, and/or installed
in compliance with all applicable Legal and/or Insurance Requirements, (ii)
shall not create any additional burden on Landlord to notify
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other tenants, the public or any governmental authority of the existence of such
materials and/or substances and (iii) shall not cause any increase in Landlord's
insurance rates. Landlord shall not be deemed responsible for and Tenant agrees
to indemnify Landlord for, and hold Landlord harmless and free from, any and all
loss, liability, damages, costs and expenses sustained by person or property and
any and all loss, liability, damages, costs and expenses incurred by Landlord
with respect to or in settlement of any claims or judgments brought in
connection with any environmental condition in the Premises or the Building
created or caused by Tenant or its agents, including reasonable counsel fees and
disbursements (whether incurred by reason of a matter involving or between
Landlord and Tenant, Landlord and any third party or otherwise) incurred in
connection therewith.
Section 13.6 Tenant shall not clean, nor require, permit, suffer or
------------
allow any window in the Premises to be cleaned, in violation of any Legal
Requirement, including Section 202 of the New York Labor Law or the rules of the
Board of Standards and Appeals, or of any other board or body having or
asserting jurisdiction thereover.
Section 13.7 With regard to all electrical and/or electronic
------------
equipment, machinery, fixtures, furnishings, products, lighting and/or
methodologies installed in or used at the Premises, including
telecommunications, mainframe and personal computers and uninterrupted power
supply, and all subject connections including wire, conduit, and fiber optic and
other cable, Tenant agrees that at all times the same shall:
(a) comply with Underwriters Laboratory standards and National
Electric Code and New York City Electric Code requirements and any and all other
such standards and requirements which are applicable;
(b) not produce Radio Frequency Interference Emissions or
Electromagnetic Interference Emissions in excess of the limit described in The
Federal Communications Commission Code part 15, subpart J. class A or any other
such applicable limit;
(c) produce a maximum of five percent (5) Total Harmonic Current
Distortion (defined by The Institute of Electrical and Electronic Engineers
Committee #519 of 1992 and adapted by The American Standards Institute) at the
Premises' electric distribution panel(s) and/or motor control center(s). Tenant
shall provide Landlord with evidence satisfactory to Landlord of Tenant's
compliance with Tenant's obligations under this clause (c) in the form of
appropriate Total Harmonic Current Distortion analysis as and when requested by
Landlord in a manner and format acceptable to Landlord by spectrum analyzer or
other device acceptable to Landlord. Tenant shall correct violation of Tenant's
obligations under this clause (c) within five (5) days after Tenant's knowledge
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of such failure of compliance or Landlord shall have the right, but not the
obligation, to remedy or reduce the excess distortion in any manner Landlord may
choose in Landlord's sole discretion at Tenant's sole cost and expense;
(d) for the purpose of confirming Tenant's compliance with the terms
of clauses (a), (b) and (c) of this Section 13.7, be subject to Landlord's
review and/or approval, at Tenant's sole cost and expense, upon installation,
connection, modification and/or replacement, and from time to time, as required
by Landlord.
Tenant's full compliance with the terms of this Section 13.7 notwithstanding and
anything to the contrary contained in this Lease notwithstanding, Tenant shall
be responsible for all adverse affects of backflow, backfeed, harmonics and
other like-type conditions, whether to, in, at, or outside the Building, which
emanate from, are caused by, or relate to the Premises and/or the systems
serving the Premises and/or the equipment, machinery, fixtures, furnishings,
products and lighting located in the Premises.
ARTICLE 14
----------
Rules and Regulations
---------------------
Section 14.1 Tenant, its agents, invitees and licensees, shall
------------
faithfully observe and comply with the Rules and Regulations and the
Construction Rules and Regulations annexed hereto, and such additional
reasonable rules and regulations as Landlord hereafter at any time or from time
to time may make and may communicate in writing to Tenant; provided, however,
-------- -------
that in the case of any conflict between the provisions of this Lease and any
such rule or regulation, the provisions of this Lease shall control and;
provided further that nothing contained in this Lease shall be construed to
- -------- -------
impose upon Landlord any duty or obligation to enforce the rules and regulations
or the terms, covenants or conditions in any other lease as against any other
tenant and; provided further that Landlord shall not be liable to Tenant for
violation of the same by any other tenant, its agents, visitors, invitees,
subtenants or licensees.
ARTICLE 15
----------
Access
------
Section 15.1 Except as expressly provided in this Lease to the
------------
contrary, all the perimeter walls and doors of the Premises, any balconies,
terraces or roofs adjacent to the Premises, and any space in and/or adjacent to
the Premises used for shafts, stairways, stacks, pipes, vertical conveyors, mail
chutes, pneumatic tubes, conduits, ducts, electric or other utilities,
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rooms containing elevator or air conditioning machinery and equipment, sinks, or
other similar or dissimilar Building facilities, and the use thereof, as well as
access thereto through the Premises for the purpose of such use and the
operation, improvement, alteration, replacement, addition, repair, cleaning,
maintenance, safety, security and/or decoration thereof, are expressly reserved
to Landlord.
Section 15.2 Tenant shall permit Landlord and any Superior Mortgagee
------------
and any Superior Lessor, and their respective representatives, to enter the
Premises at all reasonable hours, except in the case of an emergency (when no
notice is required), upon reasonable notice and, provided Tenant makes the same
reasonably available, only when accompanied by an agent of Tenant, for the
purposes of inspection, or of making repairs, replacements or improvements in or
to the Premises or the Building or equipment, or of complying with all Legal
Requirements, or of fulfilling any obligation of Landlord under this Lease, or
exercising any right reserved to Landlord by this Lease, or for the purposes of
obtaining access to any part of the Premises or the Building in accordance with
the provisions of this Lease (including the right during the progress of such
repairs, replacements or improvements or while performing work and furnishing
materials in connection with compliance with any such Legal Requirements, to
keep and store within the Premises all necessary materials, tools and
equipment). Landlord shall use reasonable efforts to minimize interference with
Tenant's use of the Premises in connection with the foregoing. Tenant agrees
that no such use of, entry upon or access to the Premises shall give rise to a
claim of constructive eviction, and Landlord shall have no liability for damage
or loss as a result of persons being in the Premises pursuant to this Section
15.2, unless the same are caused by Landlord's negligence or wilful misconduct.
Section 15.3 Tenant shall permit Landlord, at reasonable times, on
------------
reasonable notice and, provided Tenant makes the same reasonably available, only
when accompanied by an agent or employee of Tenant, to show the Premises to any
Superior Lessor or Superior Mortgagee, or any prospective purchaser, lessee,
mortgagee, or assignee of any Superior Lease or Superior Mortgage, and their
respective representatives, and during the period of twelve (12) months
immediately preceding the Expiration Date with respect to any part of the
Premises similarly show any part of the Premises to any person contemplating the
leasing of all or a portion of the same. Landlord shall use reasonable efforts
to minimize interference with Tenant's use of the Premises in connection with
the foregoing.
Section 15.4 Without incurring any liability to Tenant, Landlord may
------------
permit access to the Premises and open the same, whether or not Tenant shall be
present, upon demand of any receiver, trustee, assignee for the benefit of
creditors, sheriff, marshal, court officer or other person entitled to, or
reasonably
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purporting to be entitled to, such access for the purpose of taking possession
of, or removing, Tenant's Property or for any other lawful purpose (but this
provision and any action by Landlord hereunder shall not be deemed a recognition
by Landlord that the person or official making such demand has any right or
interest in or to this Lease, or in or to the Premises), or upon demand of any
representative of the fire, police, building, sanitation or other department of
the city, state or federal governments. Landlord shall use reasonable efforts
to orally notify Tenant (provided Tenant provides Landlord with a telephonic
contact person) before permitting such access.
Section 15.5 If, at any time during the last month of the term of
------------
this Lease, Tenant shall have removed all or substantially all of Tenant's
Property from the Premises, Landlord may, and Tenant hereby irrevocably grants
to Landlord a license to, immediately enter and alter, renovate and redecorate
the Premises, without limitation, diminution or abatement of Rent, or incurring
liability to Tenant for any compensation, and such acts shall have no effect
upon this Lease.
Section 15.6 The exercise of any right reserved to Landlord in this
------------
Article 15 shall be without liability of Landlord to Tenant.
Section 15.7 Neither this Lease nor any use by Tenant shall give
------------
Tenant any easement or other right in or to the use of any door or any passage
or any concourse or any plaza connecting the Building with any subway or any
other Building or to any public conveniences, and the use of such doors,
passages, concourses, plazas and conveniences may, without notice to Tenant be
regulated or discontinued at any time by Landlord, as long as Tenant continues
to have reasonable means of ingress to, and egress from, the Premises.
ARTICLE 16
----------
Surrender
---------
Section 16.1 Tenant shall give Landlord thirty (30) days' prior
------------
written notice of the day it intends to vacate the Premises. Upon receipt of
said notice Landlord and Tenant shall agree on a mutually convenient time during
the five (5) day period after the date Tenant vacated the Premises in order to
perform a joint inspection of the Premises. In the event that Tenant fails to
give such notice or arrange such joint inspection, Landlord's inspection at or
after Tenant's vacating the Premises shall be deemed conclusively correct for
determining Tenant's responsibility for removal, repairs or restoration.
Section 16.2 All fixtures, equipment, improvements, installations and
------------
appurtenances attached to, or built into the
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Premises (excluding any of Tenant's telecommunications and associated support
equipment) at the commencement of or during the term hereof ("Appurtenances"),
whether or not furnished or installed at the expense of Tenant or by Tenant,
shall be and remain part of the Premises and be deemed the property of Landlord
and shall not be removed by Tenant, except as otherwise expressly provided in
this Lease. Without limiting the generality of the immediately preceding
sentence, all electric, plumbing, heating, sprinkler, dumbwaiter, elevator,
pneumatic tube, such of Tenant's telegraph, communication, radio, television and
regular telephone systems as are deemed fixtures as a matter of New York law,
fixtures and outlets, Venetian blinds, partitions, railings, gates, doors,
stairs, paneling, cupboards (whether or not recessed in paneling), molding,
shelving, radiator enclosures, cork, rubber, tile and composition floors, and
ventilating, silencing, air conditioning and cooling equipment shall be deemed
included in such Appurtenances, whether or not attached to or built into the
Premises.
Section 16.3 Anything hereinbefore in this Article 16 contained to
------------
the contrary notwithstanding, any Appurtenances furnished and installed in any
part of the Conduit Space or the Premises (whether or not attached thereto or
built therein) at the sole expense of Tenant (and with respect to which no
credit or allowance shall have been granted to Tenant by Landlord and which was
not furnished and installed in replacement of an item which Tenant would not be
entitled to remove in accordance with this Article 16) ("Tenant's
Appurtenances") may be removed from the Building by Tenant prior to the
Expiration Date, and, if and to the extent requested by Landlord (either prior
to or not more than thirty (30) days after such Expiration Date), shall be
removed from the Building by Tenant prior to such Expiration Date unless such
request is made after such Expiration Date, in which event such Appurtenances
shall be removed from the Building by Tenant with reasonable promptness after
the receipt of such request.
Section 16.4 At the end of the term, Tenant shall quit and surrender
------------
to Landlord the Premises "broom clean" and in good order and condition (except
for repairs required to be made by Landlord hereunder), reasonable wear and tear
excepted, and Tenant shall remove all its personal property (including Tenant's
goods, furniture, furnishings, and all other personal property) and such
Tenant's Appurtenances as Tenant is required to remove in accordance with
Section 8.6 (Tenant's personal property and Tenant's Appurtenances are
collectively referred to herein as "Tenant's Property"). Any Tenant's Property
which shall remain in the Premises after the Expiration Date, or after such
later date as required by Landlord under Section 16.3, shall be deemed to have
been abandoned, and either may be retained by Landlord as its property or may be
disposed of, at Tenant's sole cost and expense, in such manner as Landlord may
see fit; Provided, however, that, notwithstanding the foregoing, Tenant will,
upon request of
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Landlord made not later than thirty (30) days after the Expiration Date,
promptly remove from the Building any such Tenant's Property at Tenant's sole
cost and expense. Tenant shall repair, restore, replace and/or rebuild (as the
circumstances may require), in a good and workmanlike manner to its then
original condition, any damage to the Premises or the Building caused by such
removal, or Tenant shall pay to Landlord Landlord's reasonable charge for the
same if such repair, restoration, replacement and/or rebuilding is performed by
Landlord.
Section 16.5 Tenant expressly waives, for itself and for any person
------------
claiming through or under Tenant, any rights which Tenant or such person may
have under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and any similar successor law of the same import then in force, in
connection with any holdover proceedings which Landlord may institute to enforce
the provisions of this Article 16.
Section 16.6 Subject to the provisions of Section 23.3, if the
------------
Premises shall not be surrendered on the Expiration Date, Tenant hereby
indemnifies Landlord against liability resulting from delay by Tenant in so
surrendering the Premises, including any claims made by any succeeding tenant or
prospective tenant founded upon such delay, as well as for any and all loss,
liability, damages, costs and expenses (including reasonable counsel fees and
disbursements, whether incurred by reason of a matter involving or between
Landlord and Tenant, Landlord and any third party or otherwise) incurred in
connection therewith. In the event that Landlord shall commence proceedings to
dispossess Tenant by reason of Tenant's default or Tenant's holdover after the
expiration of the tenancy hereby created, then Tenant shall pay as Additional
Rent, in addition to costs and disbursements, reasonable legal fees actually
incurred for each proceeding so commenced.
Section 16.7 (a) If Tenant shall remain in possession of the
------------
Premises after the Expiration Date without the execution of a new lease (whether
or not with the consent or acquiescence of Landlord), Tenant's occupancy shall
be deemed to be that of a tenancy-at-will, and in no event from month-to-month
or from year-to-year, and it shall be subject to all of the other terms of this
Lease applicable thereto, including those set forth in this Article 16. In the
event that Tenant defaults or remains in possession of the Premises or any part
thereof after the expiration of the tenancy-at-will created hereby then Tenant's
occupancy shall be deemed a tenancy-at-sufferance and not a tenancy-at-will.
Nothing contained herein shall be construed to constitute Landlord's consent to
Tenant holding over after the Expiration Date or to give Tenant the right to
hold over after the Expiration Date.
(b) During the period in which Tenant holds over, Tenant shall
pay rent to Landlord at a monthly rental equal to the greater of 150` of (i) the
monthly Fixed Rent last payable by
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Tenant hereunder, plus all Additional Rent and other charges payable hereunder,
or (ii) Landlord's then asking price, on a monthly basis, for comparable space
in the Building (or, if Landlord shall have no quoted price, the monthly rental
equal to the prevailing rate for comparable space in comparable buildings in the
vicinity of the Building).
(c) Nothing contained in this Section shall (i) be construed to
constitute Landlord's consent to Tenant holding over after the Expiration Date,
(ii) imply any right of Tenant to remain in the Premises after the Expiration
Date without the execution of a new lease, (iii) imply any obligation of
Landlord to grant a new lease, or (iv) be construed to limit any remedy that
Landlord may have against Tenant as a holdover tenant. No option to extend or
renew this Lease shall have been deemed to have occurred by Tenant's holdover.
Any and all options to extend or renew set forth in this Lease, if any, shall be
deemed terminated and shall be of no further force and effect as of the first
date that Tenant holds over.
(d) In no way shall the monthly rental set forth above or any
other monetary or nonmonetary requirements set forth in this Lease be construed
to constitute liquidated damages for Landlord's losses resulting from Tenant's
holdover.
Section 16.8 Tenant's obligations under this Article 16 shall survive
------------
the expiration of this Lease.
ARTICLE 17
----------
Insurance
---------
Section 17.1 (a) Tenant covenants, at its sole cost and expense, to
------------
provide prior to entry upon the Premises and to keep in force and effect during
the term of this Lease or Tenant's occupancy of all or any portion of the
Premises (whichever is longer), subject to a commercially reasonable deductible
reasonably approved by Landlord:
(i) Commercial general liability insurance with respect to the
Building, the Premises, and the Appurtenances on an occurrence basis against
claims for bodily injury and property damage with minimum limits of liability in
the amount of THREE MILLION and 00/100 DOLLARS ($3,000,000.00) combined single
limit for bodily injury and property damage (including coverage for all
operations of Tenant, products/completed operations, independent contractors,
broad form property damage, personal injury liability and contractual liability
coverage);
(ii) If the nature of Tenant's business, or that of any of its
agents working in the Building, is such as to place all or any of its, or their,
employees under workers' compensation or
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similar statutes, workers' compensation and employer's liability or similar
insurance affording statutory coverage and containing statutory limits;
(iii) All-risk property damage insurance (replacement cost
coverage), including fire and hostile fire damage, extended coverage, sprinkler
leakage, vandalism, malicious mischief, windstorm, water damage, boiler and
machinery explosion damage, plate glass damage, and theft or attempted theft of
Tenant's Property; and
(iv) An appropriate clause in, or an endorsement upon, each all-
risk property damage policy obtained by Tenant, as required by Section 19.3.
(b) In connection with the performance of any Tenant's Changes,
Tenant shall cause Tenant's architect to obtain and maintain Errors and
Omissions Insurance in such amounts and on such terms as Landlord may reasonably
request. Tenant shall also furnish Landlord with evidence that Tenant's
architect and any contractors performing work in the Premises or the Building
are covered by insurance in amounts and of the types (in addition to the Errors
and Omissions Insurance referred to above) which are appropriate, in Landlord's
reasonable judgment, to the size and scope of such Tenant's Changes.
(c) Tenant agrees to deliver to Landlord, at least thirty (30) days
prior to the time such insurance is first required to be carried by Tenant, its
architect or contractors, and thereafter at least thirty (30) days prior to the
expiration of any such policy, either an original policy or a certificate of
insurance procured in compliance with this Lease, together with evidence of
payment therefor. Workers' compensation insurance required by this Section 17.1
may be procured by Tenant's agents on Tenant's and/or their own behalf, as
required.
Section 17.2 All the aforesaid insurance shall be issued in the name
------------
Tenant, shall name Landlord (and any designee(s) of Landlord) as an additional
insured as its/their interest(s) may appear, and shall be written by one (1) or
more responsible insurance companies licensed to do business in New York State
each of which shall have a Best's Insurance Reports rating of A- or better. All
such insurance may be carried under a blanket policy covering the Premises and
any other of Tenant's locations and shall contain provisions and/or endorsements
that: (a) such insurance absolutely may not be cancelled or amended with respect
to Landlord (or its designee(s)) except upon thirty (30) days' written notice to
Landlord (and such designee(s)) by the insurance company (language stating that
the insurance company "will endeavor" to notify Landlord is not sufficient); (b)
Tenant shall be solely responsible for payment of premiums and that Landlord (or
its designee(s)) shall not be required to pay any premiums for such
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insurance; (c) Tenant's insurance shall be primary with any coverage provided by
Landlord as excess and non-contributory; (d) no act or omission of Landlord
(other than its gross negligence or wilful misconduct) or Tenant shall affect or
limit the obligation of the insurance company to pay the amount of any loss
sustained; (e) it covers cross-liability claims of one insured against another;
(f) it is without rights of contribution against any other insurer; and (g) such
policies shall not be invalidated if the insured waives or has waived its right
of recovery prior to a loss. The minimum limits of the commercial general
liability policy of insurance shall in no way limit or diminish Tenant's
liability under Article 18 or elsewhere in this Lease.
Section 17.3 The minimum limits of the commercial general liability
------------
policy of insurance shall be subject to increase at any time, and from time to
time, after the commencement of the fifth (5th) year of the term hereof if
Landlord in the exercise of its reasonable judgment shall deem the same
necessary for adequate protection. Within thirty (30) days after demand therefor
by Landlord, Tenant shall furnish Landlord with evidence that such demand has
been complied with. In case Tenant disputes the reasonableness of Landlord's
demand, the parties agree to submit the question of the reasonableness of such
demand for decision to the Chairman of the Board of Directors of the Management
Division of The Real Estate Board of New York, Inc., or to such impartial person
or persons as he may designate whose determination shall be final and conclusive
upon the parties hereto. The right to dispute the reasonableness of any such
demand by Landlord shall be deemed waived unless the same shall be asserted by
Tenant by service of a notice in writing upon Landlord within ten (10) days
after the giving of Landlord's demand therefor.
Section 17.4 Landlord covenants to maintain such insurance with
------------
respect to the Building and the Appurtenances, with amounts of coverage and
subject to deductibles as is usual and customary for a prudent landlord of a
first-class office building in downtown Manhattan, including, without
limitation, an appropriate clause or endorsement as required by Section 19.3.
Landlord shall name Tenant as an additional insured as its interest may appear
on Landlord's commercial general liability insurance policy.
ARTICLE 18
----------
Non-Liability and Indemnification
---------------------------------
Section 18.1 Neither Landlord nor any Superior Mortgagee or any
------------
Superior Lessor, nor their respective agents (each, an "Indemnitee";
collectively, the "Indemnitees"), shall be liable to Tenant or Tenant's agents,
invitees or licensees or any other occupant of the Premises, and Tenant shall
indemnify, defend and save harmless the Indemnitees from and against any and all
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liability (statutory or otherwise), claims (or settlements thereof), actions,
suits, demands, damages, judgments, costs, interest and expenses of any kind or
nature of anyone whomsoever (including reasonable counsel fees and disbursements
incurred in the defense of any action or proceeding, whether between one or more
Indemnitee and Tenant, one or more Indemnitee and any third party or otherwise),
to which they may be subject or which they may suffer by reason of (i) any claim
for any damage to property entrusted to employees of Landlord or of the Building
or (ii) for any loss of or damage to any property by theft (including damage
resulting from theft or attempted theft) or (iii) any injury or damage to Tenant
or other persons within the Premises or property within the Premises, whether
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow or leaks from any part of the Building or from the pipes,
appliances or plumbing works or from the roof, street or subsurface or from any
other place or by dampness or by any other cause of whatsoever nature (including
damage or injury caused by any hazardous or dangerous condition, waste, material
and/or substance (as the same may be defined in any Legal Requirement)), in each
case even if caused by or due to the negligence of any other tenants or persons
in the Building or caused by construction of any private, public or quasi-public
work, or by any latent defect in the Premises or in the Building, unless caused
by or due to Landlord's negligence or wilful misconduct.
Section 18.2 To the extent not prohibited by any applicable Legal
------------
Requirement, Tenant shall indemnify, defend and save harmless the Indemnitees
from and against any and all liability (statutory or otherwise), claims (or
settlements thereof), actions, suits, demands, damages, judgments, costs,
interest and expenses of any kind or nature of anyone whomsoever (including
reasonable counsel fees and disbursements incurred in the defense of any action
or proceeding, whether between one or more Indemnitee and Tenant, one or more
Indemnitee and any third party or otherwise), to which they may be subject or
which they may suffer by reason of any claim for, any injury to, or death of,
any person or persons, injury or loss, theft or damage to property (including
any loss of use thereof) or damage to the Building or the Appurtenances or
otherwise (even if caused by or due to the negligence of Landlord or its agents,
or any other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work, or by any latent defect in the Premises or
in the Building, unless caused by or due to Landlord's negligence or wilful
misconduct), arising from or in connection with the use of or from any work,
installation or thing whatsoever done (other than by Landlord or its agents) in
or about the Premises prior to, during or subsequent to, the term of this Lease,
or arising from any condition of the Premises due to or resulting from any
default by Tenant in the performance of Tenant's obligations under this Lease or
from any negligence or wilful misconduct of Tenant or any of Tenant's agents,
subtenants,
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<PAGE>
licensees or invitees. Where not prohibited by any applicable Legal Requirement,
no workers' compensation claim by any of Tenant's employees will be subrogated
against Landlord. With respect to any injury or damage to property covered by
insurance, the foregoing indemnification shall be limited by and subject to any
waiver of subrogation obtained in accordance with Section 19.3.
Section 18.3 If at any time any windows of the Premises are (i)
------------
broken, temporarily darkened (which shall not be construed as encompassing any
solar-tinting and/or blinds that Landlord may require) or obstructed incident to
or by reason of repairs, replacements, maintenance and/or cleaning in, on, to or
about the Building or any part or parts thereof or (ii) permanently darkened
(which shall not be construed as encompassing any solar-tinting and/or blinds
that Landlord may require) for any reason whatsoever beyond Landlord's control
or (iii) temporarily or permanently closed or rendered inoperable for any reason
whatsoever including Landlord's own acts, Landlord shall not be liable for any
damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor or abatement of Rent nor shall the same release Tenant
from its obligations hereunder or constitute an eviction.
Section 18.4 Tenant shall pay to Landlord, within twenty (20) days
------------
after request therefor, all sums owing to Landlord pursuant to this Article 18.
ARTICLE 19
----------
Damage by Fire, Etc.
--------------------
Section 19.1 Subject to Section 19.2, if any part of the Premises
------------
shall be damaged by fire or other casualty, Tenant shall give prompt written
notice thereof to Landlord and Landlord shall proceed with reasonable diligence,
and in a manner consistent with the provisions of any Superior Lease and/or
Superior Mortgage, to repair such damage, and if any part of the Premises shall
be rendered untenantable by reason of such damage, the annual Fixed Rent,
Operating Payments and Tax Payments payable hereunder shall be abated (not to
exceed the amount Landlord is reimbursed by net insurance proceeds) to the
extent that such Fixed Rent, Operating Payments and Tax Payments relates to such
part of the Premises for the period from the date of such damage to the earlier
of the date when such part of the Premises shall have been made tenantable or
the Expiration Date with respect to such part of the Premises. If Landlord or
any Superior Mortgagee or any Superior Lessor shall be unable to collect the
insurance proceeds (including rent insurance) applicable to such damage because
of some action or inaction on the part of Tenant or Tenant's agents, guests,
invitees or licensees, then Landlord's charge for repairing such damage shall be
paid by Tenant and there shall be no abatement of Rent. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or injury to
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the business of Tenant resulting in any way from such damage or the repair
thereof. Landlord shall use reasonable efforts to minimize interference with
Tenant's use of the Premises in connection with the foregoing. Tenant
understands that Landlord will not carry insurance of any kind on Tenant's
Property, and that Landlord shall not be obligated to repair any damage thereto
or replace the same.
Section 19.2 (a) If fifty percent (50%) or more of the Building
------------
shall be damaged by fire or other casualty (whether or not the Premises shall
have been damaged by such fire or other casualty), and Landlord terminates
leases covering at least fifty percent (50%) of the rented space in the Building
(including the Premises), then this Lease and the term and estate hereby granted
may be terminated by Landlord by its giving to Tenant within one hundred twenty
(120) days after the date of such damage written notice specifying a date, not
less than thirty (30) days after the giving of such notice, for such
termination.
(b) Notwithstanding the above, in the event that (i) Landlord is
obligated to make repairs, Landlord has not elected to cancel this Lease
pursuant to Section 19.2(a) and the repairs are not completed within twelve (12)
months after the occurrence of the fire or other casualty, subject to Force
Majeure, or (ii) thirty percent (30%) or more of the Premises is damaged, or
(iii) Landlord and Tenant reasonably agree that Tenant cannot operate its
business in the Premises, or (iv) Landlord's architect reasonably estimates that
it will take longer than twelve (12) months from the date of the casualty to
complete the repairs, then in any of said cases, unless such fire or other
casualty was caused primarily by the acts, omissions (where this Lease or
applicable law imposes a duty to act) or negligence of Tenant or Tenant's
agents, guests, invitees or licensees, Tenant shall be entitled to terminate
this Lease by giving Landlord written notice of its election to do so within
thirty (30) days after (x) the expiration of the time to repair has expired (as
to subsection (i)), (y) the occurrence of the damage (as to subsection (ii)) or
(z) receipt of the architect's reasonable estimate that repairs will take longer
than twelve (12) months after the date of the casualty (which will be given
within sixty (60) days following the casualty) (as to subsection (iii)), which
notice shall specify a date for the termination of this Lease, not more than one
hundred eighty (180) days after the giving of such notice, time being of the
essence with respect to the giving of said notice. In the event of the giving
of such notice of termination by Tenant, this Lease and the term and estate
hereby granted shall expire as of the date specified therefor in such notice
with the same effect as if such date were the date hereinbefore specified for
the expiration of the full term of this Lease, and the annual Fixed Rent payable
hereunder shall be apportioned as of such date of termination, subject to
abatement, if any, as and to the extent provided in Section 19.1.
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(c) In the event of the giving of such notice of termination by
either party, this Lease and the term and estate hereby granted shall expire as
of the date specified therefor in such notice with the same effect as if such
date were the date hereinbefore specified for the expiration of the full term of
this Lease, and the annual Fixed Rent payable hereunder shall be apportioned as
of such date of termination, subject to abatement, if any, as and to the extent
provided in Section 19.1.
Section 19.3 Landlord and Tenant shall each secure an appropriate
------------
clause in, or an endorsement upon, each all-risk property damage policy,
including fire, extended coverage sprinkler leakage and theft or attempted
theft, obtained by it and covering the Building, the Premises or Tenant's
Property pursuant to which the respective insurance companies waive subrogation
or permit the insured, prior to any loss, to waive any claim it might have
against the other. Provided the terms of the applicable insurance policy will
not be violated or rendered unenforceable, the waiver of subrogation or
permission for waiver of any claim hereinbefore referred to shall extend to the
agents of each party.
Section 19.4 Notwithstanding any other provision of this Lease to
------------
the contrary (other than the second sentence of Section 19.1) with respect to
any property whether insured or not, each party hereby releases the other and
its agents with respect to any claim (including a claim for negligence) which it
might otherwise have against the other party for loss, damage or destruction
with respect to its property by fire or other casualty (including rental value
or business interruption, as the case may be) occurring during the term of this
Lease. Nothing in this Section 19.4 shall relieve Tenant or Landlord of its
obligations to make repairs to the Premises in accordance with the terms of this
Lease. For purposes of this waiver of subrogation, Landlord and Tenant shall
each be deemed to have carried insurance for the amount of any applicable
deductibles or self-insurance.
Section 19.5 This Lease shall be considered an express agreement
------------
governing any case of damage to or destruction of the Building or any part
thereof by fire or other casualty, and Section 227 of the New York Real Property
Law providing for such a contingency in the absence of express agreement, and
any other Legal Requirement of like import now or hereafter in force, shall have
no application in such case.
ARTICLE 20
----------
Condemnation
------------
Section 20.1 In the event that the whole of the Premises shall be
------------
lawfully condemned or taken in any manner for any public or quasi-public use,
this Lease and the term and estate hereby granted shall forthwith cease and
terminate as of the date
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of vesting of title. In the event that only a part of the Premises shall be so
condemned or taken, then, effective as of the date of vesting of title, the
Fixed Rent, Operating Payments and Tax Payments hereunder shall be abated in an
amount thereof apportioned according to the area of the Premises so condemned or
taken. In the event that only a part of the Building shall be so condemned or
taken, then Landlord (whether or not the Premises be affected) may, at
Landlord's option, terminate this Lease and the term and estate hereby granted
as of the date of such vesting of title by notifying Tenant in writing of such
termination within one hundred twenty (120) days following the date on which
Landlord shall have received notice of vesting of title. In the event that in
Landlord's reasonable judgment only a de minimis part of the Building shall be
----------
so condemned or taken, (e.g., a portion of the plaza or parking area) and such
---
de minimis taking does not permanently, materially and adversely affect ingress
- ----------
to or egress from the Premises or the Building, is of a non-structural nature
and does not affect the Building's systems, then this Lease shall continue
unaffected. In the event that in Landlord's reasonable judgment more than a de
--
minimis part of the Building shall be so condemned or taken (whether or not the
- -------
Premises be affected) and Landlord terminates leases covering at least fifty
percent (50%) of the rented space in the Building (including the Premises), then
Landlord (whether or not the Premises be affected) may, at Landlord's option,
terminate this Lease and the term and estate hereby granted as of the date of
such vesting of title by notifying Tenant in writing of such termination within
one hundred twenty (120) days following the date on which Landlord shall have
received notice of vesting of title. In the event that in Landlord's reasonable
judgment more than a de minimis part of the Building shall be so condemned or
taken (whether or not the Premises be affected) and Landlord terminates leases
covering at least twenty-five percent (25%) of the rented space in the Building
(excluding the Premises), then Tenant may, at Tenant's option, terminate this
Lease and the term and estate hereby granted as of the date of such vesting of
title by notifying Landlord in writing of such termination within ninety (90)
days following the date on which Tenant shall have received, from Landlord or
otherwise, notice or knowledge of vesting of title. If neither Landlord nor
Tenant elects to terminate this Lease, as aforesaid, this Lease shall be and
remain unaffected by such condemnation or taking, except that the Fixed Rent,
Operating Payments and Tax Payments payable hereunder shall be abated to the
extent, if any, hereinbefore provided in this Article 20. In the event that
only a part of the Premises and/or the Building shall be so condemned or taken
and this Lease and the term and estate hereby granted with respect to the
remaining portion of the Premises and/or the Building are not terminated as
hereinbefore provided, Landlord will, with reasonable diligence and at its
expense, restore the remaining portion of the Premises as nearly as practicable
to the same condition as it was in prior to such condemnation or taking.
However, Landlord shall not be obligated to repair any damage to Tenant's
Property or replace the same.
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Section 20.2 In the event of any condemnation or taking hereinbefore
------------
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the condemnation proceeding, including any award
made for the value of the estate vested by this Lease in Tenant, and Tenant
hereby expressly assigns to Landlord any and all right, title and interest of
Tenant now or hereafter arising in or to any such award or any part thereof, and
Tenant shall be entitled to receive no part of such award. The foregoing shall
not prohibit Tenant's independent claim for the value of Tenant's trade fixtures
and moving expenses and any other claim permitted under any Legal Requirement so
long as any award made to Tenant based upon such claim does not reduce the award
otherwise payable to Landlord.
Section 20.3 Notwithstanding anything hereinabove contained in this
------------
Article 20, if all or any portion of the Premises shall be lawfully condemned or
taken for any temporary public or quasi-public use, this Lease shall not
terminate and Tenant shall continue to perform or observe all of Tenant's
obligations hereunder, as though such condemnation or taking had not occurred,
except only as Tenant may be prevented from so doing by reason of the lawful use
and occupancy of the Premises or portion thereof affected by such condemnation
or taking during such temporary period. In the event of any such condemnation or
taking, Tenant shall be entitled to receive the award with respect to the
Premises or portion thereof covered by such condemnation or taking (whether paid
as damages, rent or otherwise), unless the period of occupancy extends beyond
the termination of this Lease, in which case Landlord shall be entitled to such
part of such award as shall be properly allocable to the cost of restoration of
the Premises and the balance of said award shall be apportioned between Landlord
and Tenant as of the scheduled Expiration Date but for such condemnation or
taking. If such condemnation or taking shall end at least one (1) year before
such Expiration Date, Tenant shall, at its sole cost and expense up to the
amount of any award received by Tenant, restore the Premises as nearly as
possible to the condition in which they were prior to such condemnation or
taking.
ARTICLE 21
----------
Conditions of Limitation
------------------------
Section 21.1 This Lease and the term and estate hereby granted are
------------
subject to the limitation that:
(a) in case Tenant shall make an assignment of its property for the
benefit of creditors or shall file a voluntary petition under any bankruptcy or
insolvency Legal Requirement, or an involuntary petition under any bankruptcy or
insolvency Legal Requirement shall be filed against Tenant and such involuntary
petition is not dismissed within sixty (60) days after the filing thereof;
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(b) in case a petition is filed by or against Tenant under the
reorganization provisions of the United States Bankruptcy Code or under the
provisions of any Legal Requirement of like import, unless such petition under
said reorganization provisions be one filed against Tenant which is dismissed
within sixty (60) days after its filing;
(c) in case a receiver, trustee or liquidator shall be appointed for
Tenant or of or for the property of Tenant, and such receiver, trustee or
liquidator shall not have been discharged within sixty (60) days from the date
of his or her appointment;
(d) in case Tenant rejects this Lease under the reorganization
provisions of any bankruptcy or insolvency Legal Requirement and such rejection
is not the legal equivalent of the termination of this Lease;
(e) in case Tenant shall default in the payment of any Fixed Rent or
Additional Rent or any other charge payable hereunder by Tenant to Landlord on
any date upon which the same becomes due, and such default shall continue for
five (5) Business Days after Landlord shall have given to Tenant a written
notice specifying such default;
(f) in case Tenant shall default in the due keeping, observing or
performance of any covenant, agreement, term, provision or condition of Articles
5 and 27 hereof on the part of Tenant to be kept, observed or performed and if
such default shall continue and shall not be remedied by Tenant within five (5)
Business Days after Landlord shall have given to Tenant a written notice
specifying the same;
(g) in case Tenant shall default in the due keeping, observing or
performance of any of Tenant's obligations hereunder (other than a default of
the character referred to in clauses (e), (f) or (k) of this Section 21.1), and
if such default shall continue and shall not be remedied by Tenant within thirty
(30) days after Landlord shall have given to Tenant a written notice specifying
the same, or, in the case of such a default which for causes beyond Tenant's
control cannot with due diligence be cured within said period of thirty (30)
days, if Tenant (i) shall not, promptly upon the giving of such notice, advise
Landlord in writing of Tenant's intention to take all steps necessary to remedy
such default with due diligence, (ii) shall not promptly institute and
thereafter diligently prosecute to completion all steps necessary to remedy the
same, and (iii) shall not remedy the same within a reasonable time after the
date of the giving of said notice by Landlord;
(h) in case any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of the
term hereof would, by
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operation of law or otherwise, devolve upon or pass to any firm, association,
corporation, person or entity other than Tenant except as expressly permitted
under Article 26 hereof;
(i) in case any other lease held by Tenant from Landlord shall expire
and terminate (whether or not the term thereof shall then have commenced) as a
result of the default of Tenant thereunder or of the occurrence of an event as
therein provided (other than by expiration of the fixed term thereof or pursuant
to a cancellation or termination option therein contained);
(j) in case Tenant shall default in the payment of any Fixed Rent
more than three times, in the aggregate, in any period of twelve (12) months,
and if such second or more default shall continue and shall not be remedied by
Tenant within three (3) Business Days after Landlord shall have given to Tenant
a written notice specifying the same, notwithstanding that such defaults shall
have been cured within the applicable cure period; or
(k) in case Tenant shall default in the payment of any Additional
Rent or any other charge payable hereunder or in the performance of any covenant
of this Lease more than four times, in the aggregate, in any period of twelve
(12) months, and if such third or more default shall continue and shall not be
remedied by Tenant within five (5) Business Days after Landlord shall have given
to Tenant a written notice specifying the same, notwithstanding that such
defaults shall have been cured within the applicable cure period;
then, in any of said cases, Landlord may give to Tenant a notice of intention to
end the term of this Lease at the expiration of three (3) days from the date of
the giving of such notice, and, in the event such notice is given, the date of
expiration of said three (3) day period shall be the Expiration Date, but Tenant
shall remain liable for damages as provided in this Lease or pursuant to any
Legal Requirement. If the term "Tenant", as used in this Lease, refers to more
than one person, then as used in clauses (a), (b), (c), (d) and (i) of this
Section 21.1, said term shall be deemed to include all such persons or any one
of them; if any of the obligations of Tenant under this Lease is guaranteed, the
term "Tenant", as used in said clauses, shall be deemed to include also the
guarantor or, if there be more than one guarantor, all or any one of them; and,
if this Lease or all or a portion of the Premises shall have been assigned or
sublet, the term "Tenant", as used in said clauses, shall be deemed to include
the assignee or sublessee, as the case may be, and the assignor or sublessor, as
the case may be, or either of them under any such assignment or sublease, as the
case may be, unless, in the case of an assignment, Landlord shall, in connection
with such assignment, release the assignor from any further liability under this
Lease, in which event the term "Tenant", as used in said clauses, shall not
include the assignor
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so released. With respect to the defaults described in clause (j) or (k) of
this Section 21.1, Tenant shall pay, as additional rent, a late charge on the
second default and on any subsequent default in the payment of Fixed Rent, or
the third default and on any subsequent default in the payment of additional
rent or other charge to be paid by Tenant hereunder, the greater of One Hundred
Dollars ($100.00) or an amount equal to five percent (5%) of the amount due.
Should Tenant make a partial payment of past due amounts, the amount of such
partial payment shall be applied first to reduce all accrued and unpaid late
charges, in inverse order of their maturity, and then to reduce all other past
due accounts, in inverse order of their maturity.
ARTICLE 22
Re-entry by Landlord
Section 22.1 If Tenant shall default in the payment of any Fixed
------------
Rent or Additional Rent or any other charge payable hereunder by Tenant to
Landlord on any date upon which the same becomes due, or if this Lease shall
terminate as provided in Article 21, Landlord or Landlord's agents may
immediately or at any time thereafter re-enter into or upon the Premises, or any
part thereof, in the name of the whole, either by summary dispossess proceedings
or by any suitable action or proceeding at law, or by force or otherwise,
without being liable to indictment, prosecution or damages therefor, and may
repossess the same, and may remove any persons therefrom, to the end that
Landlord may have, hold and enjoy the Premises again as and of its first estate
and interest therein. The words "re-enter", "re-entry" and "re-entering" as used
in this Lease are not restricted to their technical legal meanings.
Section 22.2 In the event of any termination of this Lease under the
------------
provisions of Article 21 or in the event that Landlord shall re-enter the
Premises under the provisions of this Article 22 or in the event of the
termination of this Lease (or of re-entry) by or under any summary dispossess or
other proceeding or action or other measure undertaken by Landlord for the
enforcement of its aforesaid right of re-entry or any provision of any Legal
Requirement (any such termination of this Lease being hereinafter called a
"Default Termination"), Tenant shall thereupon pay to Landlord the Fixed Rent,
Additional Rent and any other charge payable hereunder by Tenant to Landlord up
to the time of such Default Termination or of such recovery of possession of the
Premises by Landlord, as the case may be, and shall also pay to Landlord damages
as provided in Article 23 or pursuant to any Legal Requirement. Also, in the
event of a Default Termination, Landlord shall be entitled to retain all moneys,
if any, paid by Tenant to Landlord, whether as advance Rent, security or
otherwise, but such moneys shall be credited by Landlord against any Fixed Rent,
Additional Rent or any other charge due from Tenant at the time of
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such Default Termination or, at Landlord's option, against any damages payable
by Tenant under Article 23 or pursuant to any Legal Requirement.
Section 22.3 In the event of a breach or threatened breach on the
------------
part of Tenant with respect to any of Tenant's obligations hereunder, Landlord
shall also have the right of injunction. The specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which Landlord may
lawfully be entitled at any time and Landlord may invoke any remedy allowed at
law or in equity as if specific remedies were not herein provided for. However,
in no event will Landlord have any right to place a lien on any of Tenant's
Property and Landlord expressly waives and releases any right it may have to
obtain such lien.
ARTICLE 23
----------
Damages
-------
Section 23.1 In the event of a Default Termination of this Lease,
------------
Tenant will pay to Landlord as damages, at the election of Landlord, either:
(a) a sum which at the time of such Default Termination represents
the then value of the excess, if any, of the Present Value of (1) the aggregate
of the Fixed Rent and the Additional Rent under Article 4 (if any) which would
have been payable hereunder by Tenant for the period commencing with the day
following the date of such Default Termination and ending with the scheduled
Expiration Date but for such Default Termination, over (2) the aggregate fair
rental value of the Premises for the same period as determined by an independent
real estate appraiser named by Landlord and employed at Tenant's expense, in
which case such liquidated damages shall be accelerated to be due and payable to
Landlord in one lump sum on demand at any time commencing with the day following
the date of such Default Termination and shall bear interest at the Default Rate
until paid, or
(b) sums equal to the aggregate of the Fixed Rent and the Additional
Rent under Article 4 (if any) which would have been due and payable by Tenant
during the remainder of the term had this Lease not terminated by such Default
Termination, in which case such liquidated damages shall be computed and payable
in monthly installments, in advance, on the first day of each calendar month
following Default Termination of this Lease and continuing until the scheduled
Expiration Date but for such Default Termination; provided, however, that if
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Landlord shall relet all or any part of the Premises for all or any part of said
period, Landlord shall credit Tenant with the net rents received by Landlord
from such reletting applicable to the period from the date of such reletting to
the scheduled Expiration Date but for such
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Default Termination, such net rents to be determined by first deducting from the
gross rents as and when received by Landlord from such reletting the expenses
incurred or paid by Landlord in terminating this Lease and of re-entering the
Premises and of securing possession thereof, as well as the expenses of
reletting, including altering and preparing the Premises for new tenants,
brokers' commissions and all other expenses properly chargeable against the
Premises and the rental therefrom in connection with such reletting, it being
understood that any such reletting may be for a period equal to or shorter or
longer than said period; and provided further that (i) in no event shall Tenant
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be entitled to receive any excess of such net rents over the sums payable by
Tenant to Landlord hereunder, (ii) in no event shall Tenant be entitled, in any
suit for the collection of damages pursuant to this clause (b), to a credit in
respect of any net rents from a reletting except to the extent that such net
rents are actually received by Landlord prior to the commencement of each suit,
and (iii) if the Premises or any part thereof should be relet in combination
with other space, then appropriate apportionment on a square foot rentable area
basis shall be made of the rent received from such reletting and of the expenses
of reletting.
For the purposes of subdivision (a) of this Section 23.1, the amount of
Additional Rent which would have been payable by Tenant under Article 4, for
each Tax Year and/or Operation Year ending after such Default Termination, shall
be deemed an amount equal to the amount of such Additional Rent payable by
Tenant for the Tax Year and/or Operation Year (as the case may be) ending
immediately preceding such Default Termination. Suit or suits for the recovery
of such damages, or any installments thereof, may be brought by Landlord from
time to time at its election commencing at any time following a Default
Termination, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the scheduled Expiration Date but for such Default
Termination. "Present Value" shall be computed by discounting such amount to
present value at a discount rate equal to the most recent GNP Deflator as
released monthly by the United States Department of Commerce, Bureau of Economic
Analysis. "Default Rate" shall mean the lesser of (i) eighteen percent (18) per
annum or (ii) the highest rate of interest permitted by New York State law.
Section 23.2 Nothing herein contained shall be construed as limiting
------------
or precluding the recovery by Landlord against Tenant of any sums or damages to
which, in addition to the damages particularly provided above, Landlord may
lawfully be entitled by reason of any default hereunder on the part of Tenant.
Section 23.3 Nothing contained in this Lease, whether express or
------------
implied, shall render Landlord or any Superior Mortgagee or any Superior Lessor,
or their respective agents, liable under any circumstances (including such
person's negligence or willful misconduct) for any "lost profits" or other
indirect, incidental,
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special or consequential damages in connection with any matter or action, claim,
etc., whatsoever arising out of or related to this Lease.
ARTICLE 24
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Curing Tenant's Defaults - Additional Rent
------------------------------------------
Section 24.1 If Tenant shall default in the keeping, observance or
------------
performance of any provision or obligation of this Lease, Landlord, without
thereby waiving such default, may perform the same for the account (and Tenant
shall pay Landlord's charge therefor) of Tenant, without notice in a case of
emergency and in any other case if such default continues after three (3)
Business Days from the date of the giving by Landlord to Tenant of written
notice of intention so to do. Bills for any expense incurred or charged by
Landlord in connection with any such performance by Landlord for the account of
Tenant, and bills for all costs, charges, expenses and disbursements of every
kind and nature whatsoever, including reasonable counsel fees and disbursements
(whether incurred by reason of a matter involving or between Landlord and
Tenant, Landlord and any third party or otherwise), involved in collecting or
endeavoring to collect the Fixed Rent or Additional Rent or other charge or any
part thereof or enforcing or endeavoring to enforce any rights against Tenant,
under or in connection with this Lease, or pursuant to any Legal Requirement,
including any such cost, expense and disbursement involved in instituting and
prosecuting any action or proceeding (including any summary dispossess
proceeding), as well as bills for any property, material, labor or services
provided, furnished or rendered, or caused to be provided, furnished, or
rendered, by Landlord to Tenant including electric lamps and other equipment,
construction work performed for the account of Tenant, water, power and other
services, as well as for any charges for any additional elevator, heating, air
conditioning or cleaning services incurred under Article 10 and any charges for
other similar or dissimilar services incurred under this Lease, may be sent by
Landlord to Tenant monthly, or immediately, at Landlord's option, and shall be
due and payable in accordance with the terms of said bills (but in no event less
than twenty (20) days after delivery of any such bill), and if not paid when
due, the amounts thereof shall immediately become due and payable as Additional
Rent under this Lease.
Section 24.2 In the event that Tenant is in arrears in payment of
------------
Fixed Rent or Additional Rent or any other charge, Tenant waives Tenant's right,
if any, to designate the items against which any payments made by Tenant are to
be credited, and Tenant agrees that Landlord may apply any payments made by
Tenant to any items Landlord sees fit, irrespective of and notwithstanding any
designation or request by Tenant as to the items against which any such payments
shall be credited. Landlord reserves the right, without liability to Tenant and
without constituting any claim of
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constructive eviction, to suspend furnishing or rendering to Tenant any
property, material, labor, utility or other service, wherever Landlord is
obligated to furnish or render the same at the expense of Tenant, in the event
that (but only so long as) Tenant is in arrears in paying Landlord therefor.
ARTICLE 25
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Inability to Perform
--------------------
Section 25.1 This Lease and the obligations of Tenant to pay Rent
------------
hereunder and perform any other of Tenant's obligations hereunder shall in no
way be affected, impaired or excused because Landlord is unable to fulfill any
of its obligations hereunder or is unable to supply or is delayed in supplying
any service expressly or implicitly to be supplied or is unable to make or is
delayed in making any repairs, replacements, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from so doing by reason of Force
Majeure.
Section 25.2 Except where expressly set forth in this Lease to the
------------
contrary, if this Lease specifies a time period for the performance of an
obligation by Landlord or Tenant, that time period shall be extended by the
period of delay caused by Force Majeure.
ARTICLE 26
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Assignment, Mortgaging, Subletting, Etc.
----------------------------------------
Section 26.1 (a) Tenant shall not, whether directly, indirectly,
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voluntarily, involuntarily, or by operation of law or otherwise (i) assign or
otherwise transfer this Lease or the term and estate hereby granted or any
interest herein or offer or advertise to do so, (ii) sublet the Premises or any
part thereof, or offer or advertise to do so, or allow the same to be used,
occupied or utilized by anyone other than Tenant, or (iii) mortgage, pledge,
encumber, lien, grant a security interest in or otherwise hypothecate this Lease
or the Premises or any interest therein or any part thereof in any manner
whatsoever, without in each instance obtaining the prior written consent of
Landlord in accordance with this Article 26. Notwithstanding the foregoing,
Tenant shall have the right to assign this Lease and/or sublet all or any part
of the Premises to an Affiliate of Tenant, provided that promptly after any such
assignment or subletting Tenant shall provide Landlord with (x) evidence
reasonably satisfactory to Landlord of such affiliation and (y) a copy of the
instrument effecting such assignment or subletting.
(b) Landlord acknowledges that Tenant's business to be conducted in
the Premises requires the installation in the
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Premises of certain communications equipment by telecommunications customers of
Tenant ("Customers") in order for such Customers to interconnect with Tenant's
terminal facilities. Notwithstanding anything contained elsewhere in this
Article 26, Landlord agrees that its consent shall not be required for any
license agreement or "colocation agreement" between Tenant and any such Customer
for the purposes of permitting such a telecommunications connection, so long as
(i) such Customer agrees in writing (in a form approved by Landlord in advance
in writing) to comply with all obligations imposed on Tenant under this Lease to
the extent relating to the portion of the Premises in question (including,
without limitation, insurance, waiver and indemnity requirements), and (ii) each
such license or co-location agreement is in writing, is consistent with the
provisions of this Lease and a copy of which shall be delivered to Landlord
promptly after being executed by Tenant and such Customer. Provided that
Tenant's transactions with Customers comply with items (i) and (ii) above, they
need not comply with those requirements of this Article 26 regarding financial
statements, advertising and minimum rental rates, nor shall Tenant be required
to comply with the provisions of Section 26.12. Tenant shall be liable to
Landlord for any violation by its Customers of any provisions of this Lease.
Section 26.2 (a) If Tenant is a corporation, partnership or other
------------
entity, the provisions of subdivision (a) of Section 26.1 shall apply to (i) a
transfer of a fifty percent (50%) interest of the stock or beneficial ownership
interest, as the case may be, of Tenant (however accomplished, whether in a
single transaction or in a series of related or unrelated transactions), except
that the transfer of the outstanding capital stock of any corporate tenant shall
be deemed not to include the sale of such stock through the "over-the-counter
market" or through any recognized stock exchange; (ii) a transfer of control of
Tenant (other than pursuant to Section 26.2(a)(i)); (iii) a transfer by
operation of law or otherwise, of Tenant's interest in this Lease; and/or (iv)
any increase in the amount of issued and/or outstanding shares of capital stock
of any corporate Tenant (or partnership interests of any partnership Tenant)
and/or the creation of one or more additional classes of capital stock of any
corporate Tenant (or partnership interests of any partnership Tenant) (however
accomplished, whether in a single transaction or in a series of related or
unrelated transactions), with the result that fifty percent (50%) of the
beneficial and record ownership in and to such Tenant shall no longer be held by
the beneficial and record owners of the capital stock of such corporate Tenant
(or partnership interests in the case of a partnership) as of the date Tenant
executed this Lease, except through a public offering of securities in the
"over-the-counter" market or a recognized stock exchange; if the principal
purpose of any transaction described in Section 26.2(a)(i), (ii), (iii) or (iv)
is the acquisition of Tenant's interest in this Lease. Notwithstanding the
above, the provisions of subdivision (a) of Section 26.1 shall not apply to
transactions
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with a corporation or other entity into or with which Tenant is merged or
consolidated or to which all or substantially all of Tenant's assets or to which
fifty percent (50%) or more of the stock or beneficial ownership interest, as
the case may be, of Tenant are transferred to a third party, provided that in
any of such event the successor to Tenant has a net worth computed in accordance
with generally accepted accounting principles equal to or greater than the net
worth of Tenant as of the date Tenant executed this Lease; provided, however,
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that this exception shall not apply in the situation where Tenant is a shell
corporation (i.e., either Tenant has no or minimal assets or all or
substantially all of Tenant's assets are located at the Premises and it derives
all or substantially all of its income from operations at the Premises). In the
event that Tenant is a shell corporation, any such merger, consolidation or
asset transfer shall be subject to Section 26.1.
(b) Provided Tenant is not in default beyond the applicable cure
period under this Lease, Tenant may, without Landlord's consent, assign its
entire interest in this Lease and the leasehold estate hereby created to an
Affiliate, provided an executed original of such assignment is, within 30 days
after the commencement date thereof, delivered to Landlord and such assignment
complies with the provisions of Section 26.4. The provisions of Section 26.5
shall not apply to any assignment made by Tenant pursuant to this Section
26.2(b). Such assignment may only be made upon the condition that it is not a
"form over substance" transaction to avoid the otherwise applicable provisions
of this Article 26.
(c) Provided Tenant is not in default beyond the applicable cure
period under this Lease, Tenant may, without Landlord's consent, sublet all or
part of the Premises to any Affiliate of Tenant for any of the purposes
permitted to Tenant; provided an executed original of such sublease is, within
30 days after the commencement date thereof, delivered to Landlord and such
sublease shall expressly state it is subject and subordinated in all respects to
this Lease and all the matters to which this Lease is subject and subordinate.
The provisions of Section 26.5 shall not apply to any subletting made by Tenant
pursuant to this Section 26.2(c). Such subletting may only be made upon the
condition that it is not a "form over substance" transaction to avoid the
otherwise applicable provisions of this Article 26.
Section 26.3 If this Lease be assigned, whether or not in violation
------------
of the provisions of this Lease, Landlord may, after default by Tenant, and
expiration of Tenant's time to cure such default, collect Rent from the
assignee. If the Premises or any part thereof are sublet or used or occupied by
anybody other than Tenant, whether or not in violation of this Lease, Landlord
may, after default by Tenant, and expiration of Tenant's time to cure such
default, collect Rent from the subtenant or occupant. In
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either event, Landlord may apply the net amount collected to the Rent herein
reserved, but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of any of the provisions of Section 26.1, or the acceptance of
the assignee, subtenant or occupant as tenant, or as a release of Tenant from
the performance by Tenant of Tenant's obligations under this Lease. The consent
by Landlord to assignment, mortgaging, subletting or use or occupancy by others
shall not in any way be considered to relieve Tenant from obtaining the express
written consent of Landlord to any other or further assignment, mortgaging,
subletting or use or occupancy by others not expressly permitted by this Article
26. References in this Lease to use or occupancy by others, that is anyone
other than Tenant, shall not be construed as limited to subtenants and those
claiming under or through subtenants but as including also licensees and others
claiming under or through Tenant, immediately or remotely.
Section 26.4 Any assignment or transfer, whether made with or
------------
without Landlord's consent pursuant to Section 26.1 or Section 26.2, shall be
made only if, and shall not be effective until, the assignee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
reasonably satisfactory to Landlord whereby the assignee shall assume Tenant's
obligations hereunder and whereby the assignee shall agree that the provisions
in Section 26.1 shall, notwithstanding such assignment or transfer, continue to
be binding upon it in respect of all future assignments and transfers. The
original named Tenant covenants that, notwithstanding any assignment or transfer
(including by way of asset transfer), whether or not in violation of the
provisions of this Lease, and notwithstanding the acceptance of Rent by Landlord
from an assignee, transferee, or any other party, the original named Tenant
shall remain fully liable for the payment of the Rent and for any other of
Tenant's obligations hereunder. The joint and several liability of Tenant named
herein and any immediate and remote successor in interest of Tenant (by
assignment or otherwise), and the due performance of Tenant's obligations
hereunder, shall not in any way be discharged, released or impaired by any (a)
agreement which modifies any of the rights or obligations of the parties under
this Lease, (b) stipulation which extends the time within which an obligation
under this Lease is to be performed, (c) waiver of the performance of an
obligation required under this Lease, or (d) failure to enforce any of the
obligations set forth in this Lease.
Section 26.5 Notwithstanding anything contained to the contrary in
------------
Sections 26.1 or 26.2, if Tenant shall at any time or times during the term of
this Lease desire to assign this Lease (other than an assignment to be made
pursuant to the second sentence in Section 26.2) or sublet all or part of the
Premises, Tenant shall give notice thereof to Landlord, which notice shall be
accompanied by (a) a conformed or photostatic copy of the proposed assignment or
sublease, the effective or commencement date of which
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shall be at least twenty (20) Business Days after the giving of such notice, (b)
a statement setting forth in reasonable detail the identity of the proposed
assignee or subtenant, the nature of its business and its proposed use of the
Premises, and (c) current financial information with respect to the proposed
assignee or subtenant, including, without limitation, its most recent financial
report. Such notice shall not be deemed complete, and Landlord shall have no
obligation to respond, unless such notice is accompanied by all of the items
described in the immediately preceding sentence. Such notice shall be deemed an
offer from Tenant to Landlord whereby Landlord (or Landlord's designee) may, at
its option, (i) sublease such space from Tenant upon the terms and conditions
hereinafter set forth (if the proposed transaction is a sublease of part of the
Premises for a term, including renewal options, which does not extend into the
last two years of the term of this Lease), (ii) terminate this Lease (if the
proposed transaction is an assignment or a sublease of all the Premises) or
(iii) terminate this Lease with respect to the space covered by the proposed
sublease (if the proposed transaction is a sublease of part of the Premises
other than a sublease referred to in clause (i) above). Said option may be
exercised by Landlord by notice to Tenant at any time within twenty (20)
Business Days after such notice has been given by Tenant to Landlord; and during
such twenty (20) Business Day period Tenant shall not assign this Lease or
sublet such space to any person.
Section 26.6 If Landlord exercises its option to terminate this
------------
Lease in the case where Tenant desires either to assign this Lease or sublet all
the Premises (other than as set forth in Section 26.2), then, the Expiration
Date shall be the date that such assignment or sublet was to be effective or
commence, as the case may be.
Section 26.7 If Landlord exercises its option to terminate this
------------
Lease in part, in any case where Tenant desires to sublet part of the Premises,
then, (a) the Expiration Date with respect to such part of the Premises shall be
the date that the proposed sublease was to commence; (b) from and after such
Expiration Date the Fixed Rent and Tenant's Proportionate Share shall be
adjusted, based upon the proportion that the rentable area of the Premises
remaining bears to the total rentable area of the Premises; and (c) Tenant shall
pay to Landlord, upon demand, Landlord's charge for physically separating such
part of the Premises from the balance of the Premises.
Section 26.8 If Landlord exercises its option to sublet the
------------
portion(s) of the Premises which Tenant desires to sublet, such sublease to
Landlord or its designee (as subtenant) shall be at the lower of (i) the rental
rate per rentable square foot of Fixed Rent and Additional Rent then payable
pursuant to this Lease, or (ii) the rentals set forth in the proposed sublease,
and shall be for the same term as that of the proposed subletting, and:
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(a) Such sublease shall be expressly subject to all the terms of this
Lease except such as are irrelevant or inapplicable, and except as otherwise
expressly set forth to the contrary in this Section 26.8;
(b) Such sublease shall be upon the same terms and conditions as
those contained in the proposed sublease, except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in this
Section 26.8;
(c) Such sublease shall give the sublessee the unqualified and
unrestricted right, without Tenant's permission, to assign such sublease or any
interest therein and/or to sublet the space; covered by such sublease or any
part or parts of such space;
(d) Such sublease shall provide that the sublessee and/or any
assignee or further subtenant of Landlord or its designee may, at the election
of Landlord, be permitted to make alterations, decorations, and installations in
such space or any part thereof, so long as such alterations, decorations and
installations do not materially interfere with Tenant's use and quiet enjoyment
of the remaining portion of the Premises, and shall also provide in substance
that any such alterations, decorations and installations in such space made
therein by the sublessee or any assignee or subtenant of Landlord or its
designee may be removed, in whole or in part, by such sublessee, assignee or
subtenant, at its option, prior to or upon the expiration or other termination
of such sublease, provided that such sublessee, assignee or subtenant, at its
expense, shall repair any damage and injury to such space so sublet caused by
such removal; and
(e) Such sublease shall also provide that (i) the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties, (ii)
any assignment or subletting by Landlord or its designee (as the subtenant) may
be for any legal purpose or purposes that Landlord, in Landlord's reasonable
discretion, shall deem suitable or appropriate (but no such use shall constitute
a default by Tenant), (iii) Tenant, at Tenant's expense, shall and will at all
times provide and permit reasonably appropriate means of ingress to and egress
from such space so sublet by Tenant to Landlord or its designee, (iv) Landlord,
at Tenant's expense, may make such alterations as may be required or deemed
necessary by Landlord to physically separate the subleased space from the
balance of the Premises, and (v) that at the expiration of the term of such
sublease, Tenant will accept the space covered by such sublease in its then
existing condition, subject to the obligations of the sublessee to make such
repairs thereto as may be necessary to preserve the Premises demised by such
sublease in good order and condition and subject to subdivision (d) above.
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Tenant shall have no liability under this Lease with respect to such sublet
space for the duration of such sublease.
Section 26.9 In the event Landlord does not exercise its options
------------
pursuant to Section 26.5 to so sublet the Premises or terminate this Lease in
whole or in part and providing that Tenant is not in default beyond any
applicable cure period of any of Tenant's obligations hereunder, Landlord's
consent (which must be in writing and in form satisfactory to Landlord) to the
proposed assignment or sublease shall not be unreasonably withheld or delayed,
provided and upon condition that:
(a) Tenant shall have complied with the provisions of Section 26.5
and Landlord shall not have exercised any of its options under said Section 26.5
within the time permitted therefor;
(b) In Landlord's reasonable judgment the proposed assignee or
subtenant is engaged in a business, and the proposed use is, in keeping with the
then standards of non-institutional, non-governmental, first-class office
buildings located in downtown Manhattan and the proposed use (i) is limited to
the use expressly permitted under Article 5 and (ii) will not violate any
negative covenant as to use contained in any other lease of space in the
Building;
(c) The proposed assignee or subtenant is a reputable person of good
character and with sufficient financial worth considering the responsibility
involved, and Landlord has been furnished with reasonable proof thereof;
(d) Neither (i) the proposed assignee or subtenant nor (ii) any
Affiliate of the proposed assignee or subtenant is then an occupant of any part
of the Building;
(e) The proposed assignee or subtenant is not a person with whom
Landlord is then negotiating to lease space in the Building;
(f) The proposed assignee or subtenant, or the business of such
assignee or subtenant, is not subject to compliance with additional requirements
of the Americans with Disabilities Act (and related regulations) beyond those
requirements which are applicable to Tenant;
(g) The form of the proposed sublease shall comply with the
applicable provisions of this Article 26 and otherwise be reasonably acceptable
to Landlord;
(h) There shall not be more than one (1) subtenant (including
Landlord or its designee, but excluding Customers pursuant to co-location
agreements) of the Premises;
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(i) The amount of the aggregate rent be paid by the proposed
subtenant is determined by arms-length negotiation and, in any event, the
sublease is for neither materially more nor materially less space nor for a
materially longer or materially shorter term (including any renewal, extension
or surrender) than that contained in the notice given to Landlord pursuant to
Section 26.5 (when the same is required to be provided);
(j) Tenant shall reimburse Landlord on demand for any reasonable
costs that may be incurred by Landlord, in connection with said assignment or
sublease, including, without limitation, the reasonable costs of making
investigations as to the acceptability of the proposed assignee or subtenant,
and reasonable legal costs incurred in connection with the granting of any
requested consent;
(k) Tenant shall not have (i) advertised or publicized in any way the
availability of the Premises or any part thereof without prior notice to and
approval by Landlord, which approval shall not be unreasonably withheld or
delayed, nor shall any advertisement state the name (as distinguished from the
address) of the Building or the proposed rental, or (ii) listed the Premises for
subletting, whether through a broker, agent, representative, or otherwise at a
rental rate less than the rate permitted by subdivision (i) of this Section
26.9; and
(l) Prior to entry upon any portion of the Premises the proposed
assignee or subtenant shall provide, and shall keep in force and effect during
the term of this Lease, or the sublease, as the case may be, or during such
assignee's or subtenant's occupancy of all or any portion of the Premises
(whichever is longer), the insurance required by Article 17.
Except for any subletting by Tenant to Landlord or its designee
pursuant to the provisions of this Article 26, each subletting pursuant to this
Article 26 shall be subject to all the covenants, agreements, terms, provisions
and conditions contained in this Lease. Notwithstanding any such subletting to
Landlord or any such subletting to any other subtenant and/or acceptance of Rent
by Landlord from any subtenant, Tenant shall and will remain fully liable for
the payment of the Rent due and to become due hereunder and for the performance
of all of Tenant's obligations hereunder and all acts and omissions of any
licensee or subtenant or anyone claiming under or through any subtenant which
shall be in violation of any of Tenant's obligations hereunder, and any such
violation shall be deemed a violation by Tenant. Tenant further agrees that
notwithstanding any such subletting, no other and further subletting of the
Premises by Tenant or any person claiming through or under Tenant (except as
provided in Section 26.8) shall or will be made except upon compliance with and
subject to the provisions of this Article 26. If Landlord shall decline to give
its consent to any proposed assignment or subtenant or if Landlord
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shall exercise any of its options under Section 26.5, Tenant shall indemnify,
defend and hold harmless Landlord against and from any and all loss, liability,
damages, costs and expenses (including reasonable counsel fees and
disbursements, whether incurred by reason of a matter involving or between
Landlord and Tenant, Landlord and any third party or otherwise) resulting from
any claims that may be made against Landlord by the proposed assignee or
subtenant or by any brokers or other persons claiming a commission or similar
compensation in connection with the proposed assignment or sublease.
Section 26.10 In the event that (a) Landlord fails to exercise any of
-------------
its options under Section 26.5 and consents to a proposed assignment or sublease
and (b) Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within sixty (60) days after the giving of such consent,
then, Tenant shall again comply with all the provisions and conditions of
Section 26.5 before assigning this Lease or subletting all or part of the
Premises.
Section 26.11 With respect to each and every sublease or subletting
-------------
authorized by Landlord under the provisions of this Lease, it is further agreed:
(a) The subletting shall be for a term ending prior to the Expiration
Date.
(b) No sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until an executed counterpart of
such sublease has been delivered to Landlord.
(c) Each sublease shall be deemed to provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or shall be
subordinate, and that Section 27.4 shall govern in the event of termination, re-
entry or dispossess by Landlord or Successor Landlord under this Lease.
(d) Tenant agrees that if (i) the subtenant shall make an assignment
of its property for the benefit of creditors or shall file a voluntary petition
under any bankruptcy or insolvency Legal Requirement or an involuntary petition
under any bankruptcy or insolvency Legal Requirement shall be filed against
subtenant, or a petition shall be filed by or against the subtenant under the
reorganization provisions of the United States Bankruptcy Code or under the
provisions of any Legal Requirement of like import, or a receiver, trustee or
liquidator shall be appointed for the subtenant or of or for the property of the
subtenant (any such event referred to as a "Proceeding") and (ii) Tenant is in
default hereunder beyond any applicable cure period, then in any such case,
Landlord shall have the following rights, in addition to all of the other rights
and remedies accorded to Landlord by this Lease and/or
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by applicable Legal Requirements, then: (1) Landlord shall be deemed to be
Tenant's attorney-in-fact to act for and on behalf of Tenant in relation to such
Proceeding and Tenant hereby constitutes and appoints Landlord as Tenant's
attorney-in-fact for and on behalf of Tenant for such purpose; and/or (2) if
Landlord is prohibited from or delayed in terminating this Lease and/or evicting
such subtenant in the event that Landlord terminates this Lease and the term and
estate hereby granted and elects not to have the subtenant attorn to Landlord,
then Tenant shall be liable for any and all loss, liability, damages, costs and
expenses (including reasonable counsel fees and disbursements, whether incurred
by reason of a matter involving or between Landlord and Tenant, Landlord and any
third party or otherwise) incurred by Landlord with respect thereto.
Section 26.12 If Landlord shall give its consent to any assignment of
-------------
this Lease or to any sublease, Tenant shall in consideration therefor pay to
Landlord as Additional Rent:
(a) in the case of an assignment, an amount equal to fifty percent
(50~) of all sums and other considerations paid to Tenant by the assignee for or
by reason of such assignment (including sums paid for the sale of all or any
part of Tenant's Property (other than Tenant's telecommunications and associated
support equipment), less, in the case of a sale thereof, the then depreciated
cost thereof determined on the basis of Tenant's federal income tax returns),
less reasonable brokerage, attorneys fees, fix-up, rent concessions, vacancy
rent, sums paid for any previous lease of such assignee bought out or taken over
by Tenant in order to consummate this assignment, and the like, plus any income
received from any previous lease of such assignee bought out or taken over by
Tenant); and
(b) in the case of a sublease, fifty percent (50%) of any rent or
other consideration payable under the sublease to Tenant by the subtenant in
excess of the Fixed Rent and Additional Rent accruing during the term of the
sublease in respect of the subleased space (at the rate per square foot payable
by Tenant hereunder) pursuant to the terms hereof (including sums paid for the
sale or rental of all or any part of Tenant's Property (other than Tenant's
telecommunications and associated support equipment), less, in the case of the
sale thereof, the then depreciated cost thereof determined on the basis of
Tenant's federal income tax returns), less reasonable brokerage, attorney's
fees, fix-up, rent concessions, vacancy rent, sums paid on any previous lease of
such subtenant sublet by Tenant in order to consummate this sublease, and the
like, plus any income received from any previous lease of such subtenant bought
out or taken over by Tenant). The sums payable under this Section 26.12(b)
shall be paid to Landlord as and when received by Tenant.
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ARTICLE 27
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Subordination
-------------
Section 27.1 This Lease is subject and subordinate in all respects
------------
to all ground leases and/or underlying leases now or hereafter covering the Real
Property or any portion thereof (each, a "Superior Lease") and to all mortgages
and trust indentures which may now or hereafter be placed on or affect such
leases and/or the Real Property, or any part or parts of the Real Property,
and/or Landlord's interest therein (each, a "Superior Mortgage"), and to each
advance made and/or hereafter to be made under any such Superior Mortgage and to
all renewals, modifications, consolidations, increases, recastings,
replacements, extensions and substitutions of and for such Superior Leases
and/or Superior Mortgages. This Section 27.1 shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall execute, at its sole cost and expense, and deliver
within five (5) Business Days after demand therefor any certificate that
Landlord and/or any lessor under any Superior Lease (each, a "Superior Lessor")
and/or any holder of any Superior Mortgage (each, a "Superior Mortgagee") may
reasonably request. Tenant hereby constitutes and appoints Landlord and/or any
Superior Lessor and/or any Superior Mortgagee as Tenant's attorney-in-fact to
execute and deliver any such certificate or certificates for and on behalf of
Tenant in the event that Tenant fails to execute and deliver within such five
(5) Business Days any such certificate or certificates.
Section 27.2 In the event of any act or omission of Landlord that
------------
would give Tenant the right, immediately or after lapse of a period of time, to
cancel or terminate this Lease, or to claim a partial or total eviction, Tenant
shall not be entitled to exercise such right:
(a) unless and until Tenant has given prompt written notice of such
act or omission to each Superior Lessor and each Superior Mortgagee, whose name
and address shall previously have been furnished to Tenant in writing; and
(b) unless such act or omission shall be one which is not capable of
being remedied by Landlord or such Superior Lessor or Superior Mortgagee within
a reasonable period of time, until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notice and following
the time when such Superior Lessor or such Superior Mortgagee shall have become
entitled under such Superior Lease or such Superior Mortgage, as the case may
be, to remedy the same (which reasonable period shall in no event be less than
the period to which Landlord would be entitled under this Lease or otherwise,
after similar notice, to effect such remedy), provided such Superior Mortgagee
or
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Superior Lessor shall with due diligence give Tenant written notice of its
intention to, and shall commence and continue to, remedy such act or omission.
Section 27.3 Tenant covenants that neither the termination of any
------------
Superior Lease or any Superior Mortgage, nor the institution of any suit,
action or other proceeding by any Superior Lessor or any Superior Mortgagee to
recover possession of the Premises leased or mortgaged under any such Superior
Lease or any such Superior Mortgage or to realize on the mortgagor's interest
under any such Superior Mortgage (provided that Tenant is not otherwise
disturbed by such Superior Lessor or Superior Mortgagee) shall, by operation of
law or otherwise, result in the cancellation or termination of this Lease
(unless specific action is taken by such Superior Lessor or Superior Mortgagee
to terminate this Lease) or the obligations of Tenant hereunder. If any Superior
Lessor or Superior Mortgagee, or the purchaser upon any foreclosure sale or the
grantee in a voluntary conveyance in lieu of foreclosure relating to such
Superior Mortgage, or any designee of such Superior Lessor or Superior Mortgagee
shall succeed to the rights of Landlord under this Lease, whether through
possession, or any action or proceeding relating to the termination of such
Superior Lease, or foreclosure action or delivery of a new lease or deed, then,
at the request of such party so succeeding to Landlord's rights (such party
being sometimes hereinafter called a "Successor Landlord") and upon such
Successor Landlord's written agreement to accept Tenant's attornment and to
recognize this Lease and grant non-disturbance to Tenant, Tenant shall attorn to
and recognize such Successor Landlord as Tenant's Landlord under this Lease, and
shall promptly execute and deliver, at Tenant's sole cost and expense, any
instrument that such Successor Landlord may reasonably request to evidence such
attornment and none of the above-described successions shall, by operation of
law or otherwise, result in the cancellation or termination of this Lease
(unless such Successor Landlord, at its option, takes specific action to
terminate this Lease in accordance with the applicable provisions of any
recognition or non-disturbance agreement entered into between Tenant and any
Superior Lessor or Superior Mortgagee, as the case may be) or the obligations of
Tenant. In the event Successor Landlord requests Tenant to execute an
attornment, Tenant shall acquire no rights with respect to said Successor
Landlord until the attornment has been executed. Upon such attornment, this
Lease shall continue in full force and effect as, or as if it were, a direct
lease between the Successor Landlord and Tenant upon all of the terms,
conditions and covenants set forth in this Lease, except that the Successor
Landlord shall not:
(a) be liable for any previous act or omission of Landlord under
this Lease;
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(b) be subject to any offset, not expressly provided for in this
Lease, which shall have theretofore accrued to Tenant against Landlord; or
(c) be bound by any agreement, modification, termination or surrender
of this Lease which reduces Rent or charges payable under the Lease, shortens or
lengthens the term of this Lease, increases the obligations of Landlord under
this Lease or decreases the obligations of Tenant under this Lease, unless such
modification or prepayment shall have been expressly approved in writing by any
Superior Lessor or Superior Mortgagee through or by reason of which the
Successor Landlord shall have succeeded to the rights of Landlord under this
Lease, as the case may be.
Section 27.4 In the event of termination, cancellation, re-entry or
------------
dispossess by Landlord or a Successor Landlord under this Lease, Tenant shall,
at Landlord's or the Successor Landlord's request, within five (5) Business Days
after request therefor, execute an assignment by Tenant to Landlord or the
Successor Landlord of Tenant's interest as sublessor under any subleases to this
Lease, and Tenant hereby appoints Landlord or the Successor Landlord as Tenant's
attorney-in-fact to execute any such assignment upon Tenant's failure or refusal
to do so, within such five (5) Business Days, and shall execute any reasonably
necessary documents to confirm said appointment upon Landlord's or the Successor
Landlord's request in the event that Tenant fails to execute and deliver
promptly any such assignment.
At Landlord's or Successor Landlord's option, sublessee shall attorn
to Landlord or the Successor Landlord, within five (5) Business Days after
Landlord, within five (5) Business Days after Landlord or Successor Landlord
recognizes this Lease and grants non-disturbance to Tenant, and upon such
attornment the sublease shall continue in full force and effect as, or as if it
were, a direct lease between Landlord or the Successor Landlord and sublessee
upon all the terms, conditions and covenants set forth in, at Landlord's or
Successor Landlord's option, this Lease or the sublease, except that Landlord or
the Successor Landlord shall not:
(a) be liable for any previous act or omission of sublessor under the
sublease;
(b) be subject to any offset, which shall have theretofore accrued to
sublessee against sublessor; or
(c) be bound by any agreement, modification, termination or surrender
of this Lease which reduces Rent or charges payable under the Lease, shortens or
lengthens the term of this Lease, increases the obligations of Landlord under
this Lease or decreases the obligations of Tenant under this Lease, unless such
modification or prepayment shall have been expressly approved in writing by the
Landlord under this Lease, the Superior Lessor or
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the Superior Mortgagee through or by reason of which the Successor Landlord
shall have succeeded to the rights of sublessor under the sublease, as the case
may be.
In the event that Landlord or a Successor Landlord, as the case may
be, does not request Tenant to assign its interest in the sublease or have
sublessee attorn to Landlord or the Successor Landlord, as the case may be, then
Landlord or Successor Landlord, as the case may be, shall have the right to
terminate the sublease immediately at any time after termination or cancellation
of this Lease or re-entry or dispossess by Landlord or a Successor Landlord
under this Lease.
All subleases made in accordance with this Lease shall be subject to
the above provision.
Section 27.5 In the event any Superior Mortgagee (present or
------------
future) relating to the Premises and/or this Lease requests that (a) this Lease
and Tenant's rights hereunder be made superior, rather than subordinate, to such
Superior Mortgage and/or (b) Tenant enter into a non-disturbance and attornment
agreement, then Tenant, within ten (10) Business Days after written request,
will execute and deliver without charge such agreement(s) in such form(s)
reasonably acceptable to such Superior Mortgagee.
Section 27.6 At any time and from time to time (but not more than
------------
four times in any twelve (12) month period), upon not less than ten (10)
Business Days' prior notice by Landlord to Tenant, Tenant shall execute,
acknowledge and deliver to Landlord, or to anyone else Landlord shall designate,
a statement of Tenant (or if Tenant is a corporation, an appropriate officer of
Tenant) in writing certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), specifying the dates to
which the Fixed Rent, Additional Rent and other charges have been paid in
advance, if any, and stating whether or not to the best knowledge of the signer
of such certificate Landlord is in default in performance of any provision of
this Lease and, if so, specifying each such default of which the signer may have
knowledge, it being intended that any such statement so delivered may be relied
upon by the person to whom the statement is addressed.
Section 27.7 (a) If, in connection with obtaining financing or
------------
refinancing for the Building, a banking, insurance or other recognized
institutional lender shall request reasonable modifications to this Lease as a
condition to such financing or refinancing, Tenant will not unreasonably
withhold, delay or defer its consent thereto, provided that such modifications
do not increase the obligations of Tenant hereunder or materially adversely
affect the leasehold interest hereby created. If Tenant fails or refuses to
execute a document evidencing such
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modifications within twenty (20) days after request by Landlord, Landlord, in
its sole discretion, shall have the right to either execute any instrument for
and on behalf of Tenant as its attorney in-fact. In acknowledgement thereof,
Tenant hereby appoints Landlord as its irrevocable attorney-in-fact to execute
and deliver any such instruments required to carry out the intent of this
Section 27.7 for and on behalf of Tenant in the event that Tenant fails to
execute and deliver promptly any such instruments.
(b) Provided that such modifications comply with Section 27.7(a) it is
hereby agreed that the following modifications shall be deemed examples of
reasonable modifications for the purposes of this Section 27.7: (i) any
reasonable change(s) to the subordination and attornment provisions of this
Lease; (ii) any reasonable change(s) to the notice provisions of this Lease
which require Tenant to give notice of any default by Landlord to the lender; or
(iii) any reasonable changes to the default provisions of this Lease which
permit the lender to cure any defaults by Landlord together with the granting of
such additional time to cure as may be reasonably required for Lender to get
possession of the Building of which the Premises are a part.
(c) It is further hereby agreed that the following modifications shall
be deemed examples of unreasonable modifications to which the Tenant may refuse
to agree without triggering Landlord's rights as set forth in this Section 27.7:
(i) any change(s) which increase any monetary obligations of Tenant or shorten
the amount of time in which they must be performed; (ii) any change(s) which
shorten the term of this Lease; (iii) any change(s) which modify any options of
Tenant to renew this Lease as amended hereby; (iv) any change(s) which shorten
the time within which Tenant must cure any Tenant default; (v) any change(s)
that modify the subordination non-disturbance and/or attornment provisions of
this Lease; (vi) any change(s) which modify the notice requirements of this
Lease; or (vii) any change(s) which unreasonably interfere with Tenant's use of
the Premises.
Section 27.8 (a) Landlord hereby represents that (i) there is no
------------
Superior Lessor and (ii) the current holder of record of an existing Superior
Mortgage is Commerzbank Aktiengesellschaft.
(b) Provided Tenant cooperates with Landlord, within a reasonable
period of time after execution of this Lease not to exceed thirty (30) days,
Landlord at its sole cost and expense shall obtain a non-disturbance agreement
in favor of Tenant from the holder of the currently existing Superior Mortgage
on such holder's then standard form. Tenant shall have the right to terminate
this Lease in the event that such agreement is not executed and delivered by
such holder within said thirty (30) day period by Tenant delivering notice of
its election to so terminate within a reasonable period of time after the
expiration of said thirty (30) day period.
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(c) Anything in this Article 27 to the contrary notwithstanding, this
Lease shall not be subordinate to any future Superior Lease or future Superior
Mortgage, unless and until there shall first be delivered to Tenant, a
recognition or nondisturbance agreement in favor of Tenant from the future
Superior Lessor and/or the future Superior Mortgagee, as the case may be, on
such Superior Lessor's and/or Superior Mortgagee's then standard form.
ARTICLE 28
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Building Name; Building Directory
---------------------------------
Section 28.1. Landlord reserves the right to name the Building and to
------------
change the name or address of the Building at any time and from time to time in
Landlord's sole discretion. Tenant agrees not to refer to the Building by any
name or address other than as designated by Landlord.
Section 28.1 In the event that Landlord installs a Building
------------
directory, Landlord may, at the request of Tenant, maintain listings on such
Building directory of the names of Tenant and any other person in occupancy of
the Premises or any part thereof as permitted hereunder, and the names of any
officers or employees of any of the foregoing; provided, however, that the
-------- -------
number of names so listed shall be in no greater proportion to the capacity of
such Building directory as the aggregate number of square feet of rentable area
of the Premises is to the aggregate number of square feet of rentable area of
the Building. The listing of any name other than that of Tenant, whether on the
doors of the Premises, on such Building directory, or otherwise, shall not
operate to vest in said person any right or interest in this Lease or in the
Premises or any portions thereof or be deemed to be the consent of Landlord
(written or otherwise) mentioned in Article 26. It is expressly understood that
any such listing is a privilege extended by Landlord revocable at will by
written notice to Tenant.
ARTICLE 29
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Vaults
------
Section 29.1 No vaults, vault space or other space not within the
------------
property line of the Building shall be leased hereunder notwithstanding anything
contained in or indicated on any sketch, blueprint or plan, or elsewhere in this
Lease to the contrary. Landlord makes no representation as to the location of
the property line of the Building. All vaults and vault space and all other
space not within the property line of the Building, which Tenant may be
permitted to use or occupy, are to be used or occupied under a license revocable
by Landlord on five (5) days' notice to Tenant, and should any such license by
revoked by Landlord, or should the amount of any such vaults, vault space or
other space be diminished
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as required by any Legal Requirement or public utility, Landlord shall be
without liability to Tenant. Any fee, tax or charge imposed by any governmental
authority for any such vault, vault space or other space shall be paid by
Tenant. Landlord shall have the right from time to time to substitute for the
basement or concourse level space, if any, then occupied by Tenant, comparable
space in the basement or concourse level, provided Landlord shall give Tenant at
least thirty (30) days' notice of Landlord's intention so to do.
ARTICLE 30
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Waivers by Tenant
-----------------
Section 30.1 Tenant, for Tenant, and on behalf of any person
------------
claiming through or under Tenant, including creditors of all kinds, does hereby
waive and surrender all right and privilege which they or any of them might have
under or by reason of any Legal Requirement to redeem the Premises or to have a
continuance of this Lease for the full term hereby demised after Tenant is
dispossessed or ejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as herein provided or pursuant to
any Legal Requirement. Tenant also waives the provisions of any Legal
Requirement relating to notice and/or delay in levy of execution in case of an
eviction or dispossess. If Landlord commences any summary proceeding, Tenant
agrees that Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding unless Tenant may not, as a matter of New
York procedural law, maintain a separate action. Tenant, recognizing that it was
of paramount importance to Landlord in considering whether to enter into this
Lease with Tenant, hereby agrees not to contest any summary proceeding brought
by Landlord for holdover upon the expiration or sooner termination of this Lease
or for non-payment of Rent unless Tenant may not, as a matter of New York
procedural law, maintain a separate action.
ARTICLE 31
----------
Waiver of Trial by Jury
-----------------------
Section 31.1 It is mutually agreed by and between Landlord and
------------
Tenant that, except in the case of any action, proceeding or counterclaim
brought by either of the parties against the other for personal injury or
property damage, the respective parties hereto shall, and they hereby do, waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matters whatsoever arising out of or in
any way connected with this Lease, the relationship of landlord and tenant,
Tenant's use or occupancy of the Premises, and any emergency or any other
statutory remedy.
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ARTICLE 32
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Lease Contains All Agreements - No Waivers
------------------------------------------
Section 32.1 This Lease contains all the covenants, agreements,
------------
terms, provisions and conditions relating to the leasing of the Premises
hereunder, and Landlord has not made and is not making, and Tenant in executing
and delivering this Lease is not relying upon, any warranties, representations,
promises or statements, except to the extent that the same may expressly be set
forth in this Lease.
Section 32.2 The failure of Landlord to insist in any instance upon
------------
the strict performance of any provision of this Lease or to exercise any
election herein contained shall not be construed as a waiver or relinquishment
for the future of such provision or election, but the same shall continue and
remain in full force and effect. No waiver or modification by Landlord or
Tenant of any provision of this Lease or other right or benefit shall be deemed
to have been made unless expressed in writing and signed by Landlord or Tenant,
as the case may be. No surrender of the Premises or of any part thereof or of
any remainder of the term of this Lease shall be valid unless accepted by
Landlord in writing. Any claim which Landlord or Tenant may have against the
other party for default in the performance of any of the non-monetary
obligations herein contained to be kept and performed by such other party shall
be deemed waived by such party unless such claim is asserted by written notice
to such other party within one hundred eighty (180) days after such party
becomes aware of the same, but in no event more than two (2) years after the
Expiration Date. Any breach by Tenant of any provision of this Lease shall not
be deemed waived by (a) the receipt and retention by Landlord of Rent from
anyone other than Tenant or (b) the acceptance of such other person as a tenant
or (c) a release of Tenant from the further performance by Tenant of the
provisions of this Lease or (d) the receipt and retention by Landlord of Rent
with knowledge of the breach of any provision of this Lease. No payment by
Tenant or receipt or retention by Landlord of a lesser amount than any Rent
herein stipulated shall be deemed to be other than on account of amounts owing
to Landlord by Tenant, nor shall any endorsement or statement of any check or
any letter accompanying any check or payment of such Rent be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Rent or pursue any
other remedy in this Lease provided. No executory agreement hereafter made
between Landlord and Tenant shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such executory agreement is in writing, refers expressly to
this Lease and is signed by the party against whom enforcement of the change,
modification, waiver,
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release, discharge or termination or effectuation of the abandonment is sought.
ARTICLE 33
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Adjacent Excavation - Shoring
-----------------------------
Section 33.1 If an excavation shall be made upon land adjacent to or
------------
under the Building, or shall be authorized to be made, Tenant shall at
reasonable times and upon reasonable notice (except in the case of an emergency
when no notice is required) afford to the person causing or authorized to cause
such excavation, license to enter upon the Premises for the purpose of doing
such work as said person shall deem necessary or desirable to preserve the
Building from injury or damage and to support the same by proper foundations
without any claim for damages or indemnity against Landlord, or diminution or
abatement of Rent. Landlord shall use reasonable efforts to minimize
interference with Tenant's use of the Premises in connection with the foregoing.
ARTICLE 34
----------
Consents and Approvals
----------------------
Section 34.1 Wherever it is specifically provided in this Lease that
------------
a party's consent shall not be unreasonably withheld, a response to a request
for such consent shall also not be unreasonably delayed. If either Landlord or
Tenant considers that the other has unreasonably withheld or delayed such a
consent, it shall so notify the other party within seven (7) days after receipt
of notice of denial of the requested consent or, in case notice of denial is not
received, within fifteen (15) days after making its request for the consent.
Section 34.2 Tenant hereby waives any claim for damages against
------------
Landlord which it may have based upon any assertion that Landlord has
unreasonably withheld or unreasonably delayed any consent or approval that,
pursuant to specific provisions of this Lease, is not to be unreasonably
withheld, nor shall Tenant claim any such damages by way of set-off,
counterclaim or defense; provided, however, that if (a) any dispute arises
-------- -------
between Landlord and Tenant as to whether Landlord has unreasonably withheld any
consent or approval to which consent or approval concerning subletting or
assignment Landlord has agreed in this Lease to be reasonable in consenting
thereto, (b) Tenant desires to litigate such dispute and (c) Tenant receives a
decision of the court hearing such dispute that Landlord was not only
unreasonable, but also acting arbitrarily or capriciously, then Landlord shall
be (i) liable (subject to the provisions of Section 23.3) for the damages
suffered by Tenant, as so found by such court and (ii) obligated to reimburse
Tenant for Tenant's reasonable attorneys' fees and disbursements in connection
with such litigation. However, if
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Tenant does not receive such ruling from such court, then Tenant shall reimburse
Landlord for Landlord's reasonable attorneys' fees and disbursements in
connection with such litigation. Tenant agrees that if Tenant shall request
such a consent from Landlord (in any area other than subletting or assignment
where Landlord has agreed in this Lease to be reasonable in consenting thereto)
and Landlord shall fail or refuse to give such consent or shall delay the giving
of such consent, Tenant shall not be entitled to any damages for such
withholding or delay, it being intended that Tenant's sole remedy shall be an
action or proceeding for specific performance, injunctions or declaratory
judgment.
Section 34.3 Notwithstanding anything to the contrary provided in
------------
this Lease, except where any Superior Mortgagee or Superior Lessor unreasonably
withholds its consent where it otherwise has an obligation to be reasonable, in
any instance where the consent and/or approval of any Superior Mortgagee or any
Superior Lessor is required hereunder or under the Superior Mortgage or Superior
Lease (i) Tenant shall not be permitted to take the action or exercise the right
requiring such consent and/or approval until it has obtained the consent and/or
approval of the Superior Mortgagee or the Superior Lessor, (ii) Landlord shall
not be required to give its consent and/or approval until and unless each
Superior Mortgagee and/or Superior Lessor has given its consent and/or approval
and (iii) Landlord shall not be found to have unreasonably withheld or delayed
its consent and/or approval if any Superior Mortgagee or any Superior Lessor
withholds or delays its consent and/or approval. Landlord agrees to use
commercially reasonable efforts to seek such consent and/or approval if Landlord
would otherwise consent in such instance, but shall be under no obligation to
incur any expense in connection therewith.
Section 34.4 Whenever, pursuant to this Lease or any Superior Lease
------------
or Superior Mortgage, Landlord's or any Superior Mortgagee's or any Superior
Lessor's consent or approval, or the review or consideration by Landlord or any
Superior Mortgagee or any Superior Lessor of any matter, is permitted, solicited
or required prior to or in connection with any activity planned or undertaken by
or on behalf of Tenant (other than with respect to co-location agreements
pursuant to Section 26.1(b)), (a) Landlord, at Landlord's reasonable discretion,
shall be entitled to engage such attorneys, accountants, architects, engineers
and other professional consultants in connection with such consideration,
review, consent or approval as Landlord deems reasonably necessary or desirable
and (b) Tenant shall reimburse Landlord for all reasonable expenses, including
the reasonable fees and disbursements of such attorneys and other professional
consultants incurred by Landlord in connection with such consideration, review,
consent or approval, or in conducting inspections of the Premises or other
portions of the Real Property relating thereto or to
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Tenant's obligations with respect to such activity or matter within twenty (20)
days after Landlord's demand therefor.
ARTICLE 35
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Notices
-------
Section 35.1 (a) Any notice, consent, approval, demand, statement,
------------
bill, request, or other communication given or required to be given under or in
connection with this Lease or pursuant to any Legal Requirement ("Notice") shall
be effective only if in writing addressed to the appropriate party as set forth
below and sent either (i) by registered or certified mail, return receipt
requested, (ii) by overnight delivery via U.S. Postal Service, Federal Express
or other reputable overnight courier, with acknowledgement of delivery, or (iii)
by hand delivery, with acknowledgement of receipt.
ADDRESS FOR LANDLORD:
1633 Broadway
New York, New York 10019
Attention: Senior Vice President
Office Buildings
with a copy at the same time to the same address
Attention: Regional Manager
New York Office Properties
with a copy at the same time to:
32 Old Slip
c/o Building Office
New York, New York 10005
Attention: Building Manager
ADDRESS FOR TENANT:
32 Old Slip
New York, New York 10005
Attention:
with a copy at the same time to:
200 North LaSalle Street
Chicago, Illinois 60601
Attention: Chief Financial Officer
(or Tenant's address as hereinbefore set forth if delivered prior to the Term
Commencement Date)
(b) Either party may at any time change the address for such Notices
by giving, as aforesaid, to the other party a Notice setting forth the changed
address(es).
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(c) Any Notice shall be deemed to have been rendered or given (i) on
the date delivered, if delivered by hand or by overnight delivery, or (ii) on
the third (3rd) Business Day after the date mailed, if mailed as provided in
this Section 35.1.
(d) If the term "Tenant", as used in this Lease, refers to more than
one person, any notice, consent, approval, demand or statement given as
aforesaid to any one of such persons shall be deemed to have been duly given to
Tenant.
Section 35.2 Notwithstanding the provisions of Section 35.1 to the
------------
contrary, notices requesting after-hours or additional services pursuant to
Article 10 shall be given orally promptly followed by confirming hand delivery
to the Building Manager or any other person in the Building designated by
Landlord to receive such notices.
Section 35.3 No act or failure to act on the part of Landlord which
------------
would entitle Tenant under the terms of this Lease, or by an applicable Legal
Requirement, to be relieved of Tenant's obligations under this Lease or to
terminate this Lease shall result in such relief or termination unless (a)
Tenant shall have first given notice to any Superior Mortgagee or Superior
Lessor of which Tenant has been notified has an interest in any of the Real
Property and (b) such Superior Mortgagee or Superior Lessor, as the case may be,
shall have failed or refused to correct or cure the condition complained of
within a reasonable period of time thereafter. For the purposes of this Section
35.3, "reasonable period of time" means and includes a reasonable period of time
to obtain possession of the Building and a reasonable period of time, under the
circumstances, after so obtaining possession to correct or cure such condition.
ARTICLE 36
----------
Parties Bound
-------------
Section 36.1 The terms of this Lease shall bind and benefit the
------------
parties hereto and their respective successors, assigns and legal
representatives with the same effect as if mentioned in each instance where a
party hereto is named or referred to, except that no violation of the provisions
of Article 26 shall operate to vest any rights in any successor, assignee or
legal representative of Tenant and that the provisions of this Article 36 shall
not be construed as modifying the conditions of limitation contained in Article
21. It is understood and agreed, however, that (i) Landlord's obligations
hereunder shall not be binding upon Landlord herein named with respect to any
period subsequent to the transfer of its interest in the Building, (ii) in the
event of such a transfer said obligations shall thereafter be binding upon each
transferee of such interest of Landlord herein named, but only with
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respect to the period ending with a subsequent transfer of such interest, and
(iii) a lease of the entire interest shall be deemed a transfer within the
meaning of this Article 36.
Section 36.2 The term "Landlord" as used in this Lease means only
------------
the owner, or the mortgagee in possession, for the time being, of the Land and
Building (or the owner of a lease of the Building or the Land and Building), so
that in the event of any sale or sales of the Land and Building or of said
lease, or in the event of a lease of the Building, or of the Land and Building,
the Landlord shall be and hereby is entirely freed and relieved of all of
Landlord's obligations hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the Building, or of the Land and Building, that the purchaser or lessee has
assumed and agreed to carry out any and all of Landlord's obligations hereunder,
which obligations shall be deemed to be "covenants running with the land", it
being intended that Landlord's obligations hereunder shall, as limited by this
Article 36, be binding on Landlord, its successors and assigns, only during and
in respect of their respective successive periods of ownership.
Section 36.3 No recourse shall be had on any of Landlord's
------------
obligations hereunder or for any claim based thereon or otherwise in respect
thereof against any incorporator, subscriber to the capital stock, shareholder,
officer or director, past, present or future, of any corporation or any partner
of a partnership or joint venturer of a joint venture which shall be Landlord
hereunder or included in the term "Landlord" or other holder of any equity
interest in Landlord or of any successor of any such corporation, or against any
principal, disclosed or undisclosed, or any Affiliate of any party which shall
be Landlord hereunder or included in the term "Landlord", whether directly or
through Landlord or through any receiver, assignee, trustee in bankruptcy or
through any other person, firm or corporation, whether by virtue of any Legal
Requirement or by enforcement of any assessment or penalty or otherwise, except
to the extent of the interest of any of the foregoing in the Real Property, all
such liability, except as aforesaid, being expressly waived and released by
Tenant. Tenant shall look solely to Landlord's estate and interest in the Real
Property for the satisfaction of any right of Tenant for the collection of a
judgment or other judicial process or arbitration award requiring the payment of
money by Landlord and no other property or assets of Landlord, Landlord's agents
or Affiliates shall be subject to levy, lien, execution, attachment, or other
enforcement procedure for the satisfaction of Tenant's rights and remedies under
or with respect to this Lease, the relationship of landlord and tenant hereunder
or under any Legal Requirement, or Tenant's use and occupancy of the Premises or
any other liability of Landlord to Tenant.
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Section 36.4 Wherever Landlord has the right hereunder to do or
------------
refrain from doing any act or thing, Landlord shall be entitled to exercise such
right, or cause the same to be exercised, by or through Landlord's agents and
designees.
Section 36.5 The term "Tenant" shall mean the Tenant herein named or
------------
any assignee or other successor in interest (immediate or remote) of the Tenant
herein named, which at the time in question is the owner of Tenant's estate and
interest granted by this Lease; but the foregoing provisions of this Section
36.5 shall not be construed to permit any assignment of this Lease or subletting
of the Premises or to relieve Tenant herein named or any assignee or other
successor in interest (whether immediate or remote) of Tenant herein named from
the full and prompt performance of Tenant's obligations hereunder. No recourse
shall be had on any of Tenant's obligations hereunder or for any claim based
thereon or otherwise in respect thereof against any incorporator, subscriber to
the capital stock, shareholder, officer or director, past, present or future, of
any corporation or any partner of a partnership or joint venturer of a joint
venture which shall be Tenant's hereunder or included in the term "Tenant" or
other holder of any equity interest in Tenant or of any successor of any such
corporation, or against any principal, disclosed or undisclosed, or any
Affiliate of any party which shall be Tenant hereunder or included in the term
"Tenant", whether directly or through Tenant or through any receiver, assignee,
trustee in bankruptcy or through any other person, firm or corporation, all such
liability, except as aforesaid, being expressly waived and released by Landlord.
Section 36.6 The joint and several liability of Tenant and any
------------
immediate or remote successor in interest of Tenant, as applicable, and the due
performance of Tenant's obligations hereunder shall not be discharged, released
or impaired in any respect by (i) any agreement or stipulation made by Landlord
extending the time of, or modifying this Lease, any of Tenant's obligations
hereunder, (ii) any waiver or failure of Landlord to enforce any of Tenant's
obligations hereunder, or (iii) the conversion of Tenant to a Partnership
Tenant, an LLForm or any other partnership or corporate form which would
otherwise limit the liability of Tenant or its partners, members or
shareholders. The receipt and retention of Rent by Landlord shall not be deemed
a waiver of any of the provisions of this Section 36.6.
Section 36.7 If Tenant is or becomes a partnership (including a
------------
limited partnership or a limited liability partnership) (or is or becomes
comprised of two (2) or more persons, individually and/or as co-partners of a
partnership) or if Tenant's interest in this Lease shall be assigned to a
partnership (including a limited partnership or a limited liability partnership)
(or to two (2) or more persons, individually and/or as co-partners of a
partnership) (any such partnership and such persons, a "Partnership Tenant"),
the following provisions of this
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Section 36.7 shall apply to such Partnership Tenant: (a) the liability of each
of the general partners comprising Partnership Tenant shall be joint and
several, and (b) each of the general partners comprising Partnership Tenant
hereby consents in advance to, and agrees to be bound by, any written instrument
which may hereafter be executed, changing, modifying or discharging this Lease,
in whole or in part, or surrendering all or any part of the Premises to Landlord
or renewing or extending this Lease and by any notices, demands, requests or
other communications which may hereafter be given by Partnership Tenant or by
any of the general partners comprising Partnership Tenant, and (c) any Notices
given or rendered to Partnership Tenant or to any of the general partners
comprising Partnership Tenant shall be deemed given or rendered to Partnership
Tenant and to all such general partners and shall be binding upon Partnership
Tenant and all such general partners, and (d) if Partnership Tenant shall admit
new general partners, all of such new general partners shall, by their admission
to Partnership Tenant, be deemed to have assumed performance of all the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed, and (e) Partnership Tenant shall give prompt notice to Landlord of
the admission of any such new general partners, and upon demand of Landlord,
shall cause each such new general partner to execute and deliver to Landlord an
agreement in form satisfactory to Landlord, wherein each such new general
partner shall assume performance of all of Tenant's obligations hereunder (but
neither Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of subdivision (d) of this Section 36.7).
Section 36.8 If Tenant is or becomes a professional corporation, a
------------
limited liability company or a professional limited liability company (each, an
"LLForm") or if Tenant is or becomes a Partnership Tenant which contains one or
more LLForms as general partners, or if Tenant's interest in this Lease shall be
assigned to one or more LLForms or a Partnership Tenant which contains one or
more LLForms as a general partner, then the shareholder(s) or the member(s), as
the case may be, of such LLForm(s) which are general partners of a Partnership
Tenant shall have joint and several personal liability for the full performance
of Tenant's obligations hereunder. Tenant shall, from time to time and within
five (5) days after Landlord makes a request therefor, cause the shareholder(s)
or the member(s) of any LLForm which is a general partner of a Partnership
Tenant to execute such documents as Landlord requires to create and confirm the
personal liability of such shareholder(s) or member(s), as the case may be.
Section 36.9 Nothing contained in this Lease shall be deemed to
------------
confer upon any tenant, or anyone claiming under or through any tenant, any
right to insist upon, or to enforce against Landlord or Tenant, the performance
of Tenant's obligations hereunder.
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ARTICLE 37
----------
Brokerage
---------
Section 37.1 Tenant and Landlord each represents to the other that
------------
it has not dealt with any person or broker in connection with this transaction
other than Grubb & Ellis New York, Inc. and agrees to defend, indemnify and hold
harmless the other from any and all loss, liability, damages, costs and expenses
suffered by the other through any breach of this representation, including
reasonable counsel fees and disbursements (whether incurred by reason of a
matter involving or between Landlord and Tenant, the other and any third party
or otherwise). Landlord agrees to pay Grubb & Ellis New York, Inc. a commission
in accordance with a separate agreement.
ARTICLE 38
----------
Miscellaneous
-------------
Section 38.1 Tenant shall not be entitled to exercise any right of
------------
termination, cancellation, or any other option granted to it by this Lease at
any time when Tenant is in default beyond any applicable cure period in the
performance or observance of any of Tenant's obligations hereunder.
Section 38.2 Intentionally Omitted.
------------
Section 38.3 Unless otherwise provided in this Lease, Tenant shall
------------
not occupy any space in the Building (by assignment, sublease or otherwise)
other than the Premises hereby demised, except with the prior written consent of
Landlord in each instance.
Section 38.4 Intentionally Omitted.
------------
Section 38.5 If Landlord shall consent to a request by Tenant for
------------
the omission or removal of any part of, or the insertion of any door or other
opening in, any wall separating the Premises from adjoining space leased to
another tenant, then (i) Tenant shall be responsible for all risk of damage to,
or loss or theft of, property arising as an incident to such omission or removal
or the use of such door or other opening, or because of the existence thereof,
and shall indemnify and save Landlord harmless from and against any and all
loss, liability, damages, costs and expenses incurred with respect to any claim,
demand or action for, or on account of, any such loss, theft or damage, and (ii)
in the event of the termination of this Lease or the lease of said other tenant,
Landlord may enter the Premises and Landlord, at Tenant's sole cost and expense,
may close up any door or other opening by erecting a wall to match the wall
separating the Premises from said adjoining space, and Tenant shall not be
entitled to any diminution or abatement of Rent or other compensation by reason
thereof;
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provided, however, that nothing herein contained shall be deemed to vest Tenant
- -------- -------
with any right or interest in, or with respect to, said adjoining space, or the
use thereof, and Tenant hereby expressly waives any right to be made a party to,
or to be served with process or other notice under or in connection with, any
proceeding or action which may hereafter be instituted by Landlord for the
recovery of the possession of said adjoining space.
Section 38.6 The submission by Landlord of this Lease in draft form
------------
shall be deemed submitted solely for Tenant's consideration and not for
acceptance and execution. Such submission shall have no binding force or effect
and shall confer no rights nor impose any obligations, including brokerage
obligations, on either party unless and until both Landlord and Tenant shall
have executed this Lease and duplicate originals thereof shall have been
delivered to the respective parties.
Section 38.7 It is acknowledged and agreed that in the preparation
------------
of this Lease, indistinguishable contributions were made by representatives of
both Landlord and Tenant and that, accordingly, Landlord and Tenant each waives
any and all rights, either at law or in equity, to have this Lease or any part
thereof interpreted in favor of one party over the other.
Section 38.8 If any of the provisions of this Lease, or the
------------
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to the
fullest extent permitted by any Legal Requirement.
Section 38.9 Tenant hereby represents and warrants to Landlord that
------------
it is duly formed and in good standing, and has full corporate or partnership
power and authority, as the case may be, to enter into this Lease and has taken
all corporate or partnership action, as the case may be, necessary to carry out
the transaction contemplated herein, so that when executed, this Lease
constitutes a valid and binding obligation enforceable in accordance with its
terms. Tenant shall provide Landlord with corporate resolutions or other proof
in a form acceptable to Landlord, authorizing the execution of the Lease at the
time of such execution.
Section 38.10 Tenant hereby represents to Landlord that it is not
-------------
entitled, directly or indirectly, to diplomatic or sovereign immunity and Tenant
agrees that in all disputes arising out of this Lease, Tenant shall be subject
to service of process in the State of New York and to the jurisdiction of the
state and federal courts located in the State of New York.
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Section 38.11 This Lease shall be governed in all respects by the law
-------------
of the State of New York applicable to agreements entered into and to be
performed entirely within said state.
Section 38.12 No receipt of moneys by Landlord from Tenant, after the
-------------
cancellation or termination of this Lease in any lawful manner, shall reinstate,
continue or extend the term, or affect any Notice theretofore given to Tenant or
operate as a waiver of the right of Landlord to enforce the payment of Rent then
due or thereafter falling due or operate as a waiver or the right of Landlord to
recover possession of the Premises by proper suit, action, proceedings or other
remedy; it being agreed that, after the service of notice to cancel or terminate
as herein provided and the expiration of the time therein specified, after the
commencement of any suit, action, proceedings or other remedy, or after a final
order or judgment for possession of the Premises, Landlord may demand, receive
and collect any moneys due, or thereafter falling due, without in any manner
affecting such notice, suit, action, proceedings, order or judgment; and any and
all such moneys so collected shall be deemed to be payments on account of the
use and occupation of the Premises, or at the election of Landlord, on account
of Tenant's liability hereunder.
ARTICLE 39
----------
Article Headings; Certain Definitions; Construction of Terms
- ------------------------------------------------------------
Section 39.1 The Article headings, Table of Contents, and Index of
------------
Defined Terms of this Lease are provided for convenience only and are not to be
considered in construing the same.
Section 39.2 All capitalized terms used in this Lease, or in the
------------
Rules and Regulations, the Construction Rules and Regulations or the Exhibits
attached hereto, shall have the meanings ascribed thereto in this Lease, or in
such Rules and Regulations, Construction Rules and Regulations, or Exhibits, as
the case may be, unless the context clearly indicates the contrary.
Section 39.3 For the purposes of this Lease (and the Rules and
------------
Regulations, Construction Rules and Regulations, and Exhibits attached hereto),
unless the context otherwise requires:
(a) "Affiliate" shall mean, with respect to any person, any other
person controlled by, under common control with or which controls such person
and, for the purposes of the foregoing, control shall mean the ownership of a
fifty percent (50%) or greater voting or ownership interest, the right to elect
a majority of the Board of Directors or the right to make management decisions.
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(b) "Business Days" shall mean all days other than Saturdays,
Sundays and Holidays.
(c) "Business Hours" shall mean the hours of 8:00 A.M. to 6:00 P.M.
on Business Days.
(d) "Force Majeure" shall mean, whether in connection with a drought,
energy shortage or other like event or otherwise, (i) accidents, strikes or
labor troubles, (ii) governmental preemption in connection with a national
emergency, (iii) conditions of supply and demand which have been or are affected
by war or other emergency, (iv) fire, casualty or other acts of God, or (v) any
other cause whatsoever beyond Landlord's reasonable control.
(e) "Holidays" shall mean all days observed by the state or federal
government as legal holidays, and shall include in any event (whether or not
observed as state or federal government legal holidays), New Year's Day, Martin
Luther King's Birthday, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Veterans Day, Thanksgiving Day and Christmas Day.
(f) "Insurance Requirements" shall mean all requirements and
recommendations of any insurance policy covering or applicable to Landlord or
Tenant, the Real Property, the Building, the Land, the sidewalks, curbs or areas
adjacent to the Building or the Land, the Premises, this Lease, or any part of
any of them, or the use thereof, all requirements and recommendations of the
issuer of any such policy and all orders, rules, regulations, recommendations
and other requirements of the National Board of Fire Underwriters, the New York
Board of Fire Underwriters, the New York Fire Insurance Rating Organization, the
Insurance Service Office or any other similar organization or body exercising
the same or similar functions and having jurisdiction or cognizance over
Landlord or Tenant, the Real Property, the Building, the Land, the sidewalks,
curbs or areas adjacent to the Building or the Land, the Premises, this Lease,
or any part of any of them, or the use thereof.
(g) "Legal Requirements" shall mean laws, statutes, codes, ordinances,
rules, orders, regulations, directives and any other requirements and/or
provisions (including building codes and zoning regulations and ordinances) of
all federal, state, county, city and borough legislatures, councils, courts,
departments, bureaus, boards, agencies, offices, commissions and any other
subdivisions thereof, or of any official thereof, or of any other governmental,
public or quasi-public authority, whether now or hereafter in force, which may
be or become applicable to Landlord or Tenant, the relationship of landlord and
tenant, the Real Property, the Building, the Land, the sidewalks, curbs or areas
adjacent to the Building or the Land, the Premises, this Lease, or any part of
any of them (whether or not the same may be valid) and
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all requirements, obligations and conditions of all instruments of record on the
date hereof.
(h) "Legal and/or Insurance Requirements" shall mean all Legal
Requirements and/or Insurance Requirements, as the case may be.
(i) "Rights" shall mean rights, remedies, powers and privileges.
Section 39.4 For the purposes of this Lease (and the Rules and
------------
Regulations, Construction Rules and Regulations, and Exhibits attached hereto),
unless the context otherwise requires:
(a) The words "include", "including" and "such as" shall be construed
as if followed by the phrase "without being limited to."
(b) The words "Rent" or "Rents" shall include Fixed Rent, Additional
Rent and any other charge payable by Tenant to Landlord hereunder.
(c) The words "herein", "hereof", "thereby", "hereunder", and words of
similar import shall be construed to refer to this Lease as a whole and not to
any particular Article, Section or Subsection unless expressly so stated.
(d) The words "Landlord's agents", "Tenant's agents", "its agents" or
"their agents", or words of similar import, shall mean all incorporators,
shareholders, partners, principals (disclosed or undisclosed), officers,
directors, agents, contractors, servants and employees of Landlord, Tenant or
any other party referred to, as the case may be, and the incorporators,
shareholders, partners, principals (disclosed or undisclosed), officers,
directors, agents, contractors, servants and employees of any of their agents,
as the case may be.
(e) The word "person" shall be deemed to include individuals,
corporations, partnerships, firms, associations and any other legal entities.
(f) The phrase "obligations under this Lease", and words of similar
import, shall mean the covenants to pay Rent and all of the other terms of this
Lease and any renewals or extensions thereof. The phrases "Tenant's obligations
hereunder", and words of similar import, and "Landlord's obligations hereunder",
and words of similar import, shall mean the obligations under this Lease which
are to be performed or observed by Tenant or Landlord, as the case may be.
Reference to "performance" of either party's obligations under this Lease, and
words of similar import, shall be construed as "performance and observance." Any
provision in this Lease that one party or the other or both shall do or perform
or
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not do or perform or shall cause or permit or not cause or permit a particular
act, condition or circumstance shall be deemed to mean that such party covenants
or both parties so covenant, as the case may be. Tenant's and Landlord's
obligations hereunder shall be construed in every instance as conditions as well
as separate and independent covenants, not dependent upon any of the other terms
of this Lease.
(g) The phrases "the terms of this Lease" or "the terms of this
Article" (or Section or Subsection), or phrases of similar import, shall be
deemed to include all terms, conditions, covenants, provisions, obligations,
limitations, restrictions, reservations, rights and agreements set forth in this
Lease or such Article (or Section or Subsection), as the case may be.
(h) Any words referring to the expiration, termination or cancellation
of this Lease shall include the expiration or sooner termination or cancellation
of this Lease, or any renewal or extension thereof, and the term and estate
hereby granted pursuant to any of the provisions of this Lease or pursuant to
any Legal Requirement. Upon such expiration, termination or cancellation, the
term and estate hereby granted shall end at midnight on the date set forth for
such expiration, termination or cancellation (the "Expiration Date"), and
neither party shall have any further obligation or liability to the other after
such Expiration Date except (i) as expressly provided in this Lease and (ii) for
such obligations which by their nature or under the circumstances can only be,
or by the provision of this Lease may be, performed after the Expiration Date.
Any liability of Tenant for payment of Rent or damages which shall have accrued
with respect to any period ending on the Expiration Date shall survive the
expiration, termination or cancellation of this Lease. If the last day of the
term of this Lease falls on Sunday or a Holiday, this Lease shall expire on the
business day immediately preceding. The Fixed Rent and escalations for
Operating Expenses and Real Estate Taxes payable hereunder shall be apportioned
as of the Expiration Date.
(i) Reference to Tenant or Landlord being "in default hereunder", or
words of similar import, shall mean that Tenant or Landlord, as the case may be,
is in default in the performance of one or more of Tenant's or Landlord's, as
the case may be, obligations under this Lease.
(j) Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any particular gender
shall be deemed to include any other gender.
(k) The rule of "ejusdem generic" shall not be applicable to limit a
general statement following or referable to
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an enumeration of specific matters to matters similar to the matters
specifically mentioned.
(l) All references in this Lease to numbered or lettered Articles,
Sections, Subsections and Exhibits are references to Articles, Sections and
Subsections of this Lease, and Exhibits attached to (and thereby made part of)
this Lease, as the case may be, unless the context clearly indicates the
contrary.
ARTICLE 40
----------
Security Deposit
----------------
Section 40.1 Simultaneously with the execution and delivery of this
------------
Lease by Tenant, Tenant has deposited with Landlord the sum of Fifty-Five
Thousand Seven Hundred Eighteen and 67/100 Dollars ($55,718.67), as security for
the full and faithful performance by Tenant of Tenant's obligations hereunder;
it being expressly understood and agreed that Tenant shall pay Rent for the last
calendar month of the term hereof, or of any renewals or extensions terms,
promptly on the first day of such month.
If Tenant shall fail to perform or observe, or shall breach or violate
beyond any applicable cure period, any of Tenant's obligations hereunder,
including the payment of Fixed Rent or Additional Rent or any other charges,
Landlord may use, apply or retain the whole or any part of such deposit to the
extent required for the payment of any such Fixed Rent or Additional Rent or any
other sum as to which Tenant is in default or for any sum which Landlord may
expend or may be required to expend by reason of Tenant's non-performance, non-
observance, breach or violation of any of Tenant's obligations hereunder,
including any damages or deficiency in the re-letting of the Premises, whether
such damages or deficiency accrues before or after summary proceedings or other
re-entry by Landlord.
Section 40.2 Landlord shall not be required so to use, apply or
------------
retain the whole or any part of said deposit, but if the whole or any part
thereof is so used, applied or retained, Tenant shall, within five (5) Business
Days after demand, deposit with Landlord a sum equal to the amount so used,
applied or retained. If Tenant shall fully and faithfully comply with all of
Tenant's obligations hereunder, the deposit or any balance thereof remaining
shall be returned to Tenant after the Expiration Date and after delivery of
entire possession of the Premises to Landlord. Landlord shall not be required
to pay Tenant any interest on said security deposit.
Section 40.3 In the event of a sale, transfer or lease of the Land
------------
or a sale, transfer or lease of the Land and/or the Building or a sale or
transfer of any such lease, Landlord shall transfer or assign the security so
deposited or any balance thereof
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remaining to the vendee, transferee or lessee, as the case may be, and Landlord
shall thereupon be released from all liability for the return of such security,
and Tenant, in each such instance, shall look solely to each vendee, transferee
or lessee, as the case may be, for the return of such security. It is further
agreed that the provisions hereof shall apply to every such sale, transfer or
lease and to every such transfer or assignment made of such security.
Section 40.4 Tenant shall not assign or encumber or attempt to
------------
assign or encumber any security deposited hereunder and neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
ARTICLE 41
----------
Quiet Enjoyment
---------------
Section 41.1 Landlord covenants that if and so long as Tenant keeps
------------
and performs all of Tenant's obligations hereunder, Tenant shall quietly enjoy
the Premises without hindrance or molestation by Landlord or by any other person
lawfully claiming the same, subject to the provisions of this Lease and, subject
to Article 27, to any Superior Lease and/or any Superior Mortgages.
ARTICLE 42
----------
Telecommunications Conduit
--------------------------
Section 42.1 Landlord hereby leases to Tenant, as part of the
------------
Premises for the term of this Lease, the conduit space described below (the
"Conduit Space"). Tenant shall use the Conduit Space solely for
telecommunications cable to connect the Premises to the premises in the Building
of other telecommunications companies and/or Tenant's customers that lease space
on the floors of the Building through which the Conduit Space passes. Any such
connection shall require the mutual written agreement of Tenant and such other
telecommunications companies and/or such customers. The Conduit Space shall be
contained within an up to 2" conduit running from the subcellar through the 5th
Floor. The conduit from the subcellar through the 5th Floor runs through
conduit closets on the north side of each Floor. Access to the conduit closet
on each such Floor shall, at Landlord's election, be restricted so that no entry
to the closet will be permitted unless Landlord's designated contractor or other
representative is present. Landlord may require any installation of cable in the
Conduit Space or any connection of Tenant's cable to the Premises or cable of
other tenants in the Building to be performed by contractors selected by Tenant
and approved by Landlord. All costs of such running of conduit, installations,
connections and the ongoing use and maintenance of such items shall be at
Tenant's sole cost and expense. Tenant shall pay Landlord any
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reasonable costs reasonably incurred by Landlord in connection with such running
of conduit, installations, connections and ongoing use and maintenance within
thirty (30) days after Landlord's delivery to Tenant of a bill for such items.
Any use by Tenant under this Article 42 of the Conduit Space and cable,
connecting lines, conduit and/or interduct shall comply with all applicable
Legal and/or Insurance Requirements, the other provisions of this Lease, and
such Building rules and regulations as are adopted by Landlord from time to
time, and shall not interfere in any way with the operation of the Building or
with the use by any other tenant of the Building of such tenant's premises or
the common areas of the Building. All required cabling, connecting lines,
conduit and/or interduct shall be installed out of sight. Prior to any
installation of cable, connecting lines, conduit and/or interduct in the Conduit
Space or connecting lines to the Premises or the premises of other tenants,
Tenant shall obtain Landlord's written approval as set forth in Article 8 as if
the Conduit Space were part of the Premises, and in the case of connecting lines
to the Premises or cable systems of another tenant, obtain the written consent
of such other tenant to the work.
Section 42.2 Tenant agrees to pay Landlord Additional Rent for the
------------
Conduit Space used to connect with conduit the Premises to the premises in the
Building of Tenant's customers, which initially shall be a one-time payment of
$4,500.00. Such $4,500.00 shall be due and payable upon Tenant's first use of
the Conduit Space to so connect with conduit. (No portion of such payment shall
be refundable if the Lease is terminated for any reason.) Thereafter, the
Additional Rent for the Conduit Space used to connect with conduit the Premises
to the premises in the Building of Tenant's customers shall be $250.00 per month
during the remaining term of this Lease, subject to adjustment as provided
below. Such Additional Rent shall be due and payable to Landlord on the first
day of each month or portion of a month throughout the term of this Lease,
together with Tenant's Fixed Rent and other monthly charges, with the first such
installment of Additional Rent due on the Rent Commencement Date. The amount of
such monthly conduit rent shall be adjusted annually in accordance with the
percentage increase of the revised "Consumer Price Index for Urban Wage Earners
and Clerical Workers" (1982-84=100) specified for "All Items", published by the
Bureau of Labor Statistics of the U.S. Department of Labor, relating to New
York, N.Y. and Northeastern N.J., for urban wage earners and clerical workers,
between the date of such adjustment and the date such monthly conduit rent was
last adjusted (or the Term Commencement Date, if such monthly conduit rent has
not previously been adjusted). In the event that Tenant elects to connect the
Premises to the premises in the Building of Tenant's customers by means other
than conduit, Landlord agrees that there shall be no initial or monthly conduit
rent therefor. Landlord may place reasonable limitations and/or restrictions on
Tenant's use of such other means of connection.
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Section 42.3 Landlord agrees that there shall be no initial or
------------
monthly conduit rent for the Conduit Space used to connect, with either conduit
or interduct, the Premises to the premises in the Building of other
telecommunications companies, but only if such conduit is run (i) between the
4th and 5th Floors of the Building, (ii) between the 4th Floor of the Building
and any other Floor of the Building designated by Landlord in its sole
discretion as a telecommunications floors, (iii) from the subcellar to the 4th
Floor of the Building and/or (iv) with Landlord's reasonable consent. Landlord
may place reasonable limitations and/or restrictions on Tenant's use of
interduct in the Building.
Section 42.4 Tenant hereby agrees to defend, indemnify and hold
------------
harmless the Indemnitees from and against any and all claims (including but not
limited to claims for bodily injury or property damage), actions, mechanic's
liens, losses, liabilities, and expenses (including reasonable attorney fees and
reasonable costs of defense by Landlord's legal counsel), which may arise from
Tenant's installation, operation, use, maintenance or removal of cable,
connecting lines, conduit and/or interduct pursuant to this Article 42.
Similarly, Tenant shall pay, within twenty (20) days after demand, by Landlord
the reasonable costs to repair any damage to the Building caused by such
installation, operation, use, maintenance or removal, except to the extent any
such costs are caused by the negligence or willful misconduct of the Indemnitees
or their agents. Tenant hereby waives and releases the Indemnitees from any
claims Tenant may have at any time (including but not limited to claims relating
to interruptions in services) arising out of or relating in any way to the
installation, operation, use, maintenance or removal of cable, connecting lines,
conduit and/or interduct described in this Article 42, except to the extent
caused by the negligence or willful misconduct of the Indemnitees. In no event
shall any Indemnitee be liable to Tenant for lost profits or consequential,
incidental or punitive damages of any kind.
Section 42.5 Tenant agrees that, upon the expiration or termination
------------
of the Lease, Tenant (or, at Landlord's election, the contractor designated by
Landlord) shall promptly remove, at Tenant's sole cost and expense, all cable,
connecting lines, conduit, interduct and other installations installed under
this Article 42 (excepting the interduct and conduit themselves, which shall
remain the property of Landlord), and restore those portions of the Building
damaged by such removal to their condition immediately prior to the removal of
such items. If Tenant fails to promptly remove all such items pursuant to this
Section 42.5, or if Landlord elects to have such work performed by Landlord's
contractor, Landlord may remove such items installed hereunder, and restore
those portions of the Building damaged by such removal to their condition
immediately prior to the installation, in which case Tenant agrees, within
twenty (20) days after demand, to pay Landlord's reasonable costs of removal and
restoration, including Landlord's reasonable administrative fee.
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<PAGE>
Section 42.6 Except as explicitly provided otherwise herein,
------------
Tenant's obligations under this Article 42 for the protection of the Building,
the Indemnitees, and third parties, including, without limitation, Tenant's
obligations regarding maintenance, repairs, mechanics' liens, insurance,
reasonable attorneys' fees and costs of suit, shall apply in the same fashion
with respect to Tenant's use of the Conduit Space and the cable, connecting
lines, conduit and/or interduct described in this Article 42 as they do with
respect to Tenant's use of the rest of the Premises.
ARTICLE 43
----------
Emergency Generator
-------------------
Section 43.1 The parties acknowledge that Landlord will install an
------------
Emergency Generator on the 3rd floor of the Building. Tenant is granted the
right to use in common with others 350 kilowatts of emergency power from such
Emergency Generator in the event of an interruption of normal electrical service
to the Premises during the term of this Lease, provided that: (a) Tenant pays
Landlord, a one-time fee, as Additional Rent, in an amount equal to $500.00 per
kilowatt of emergency power so reserved (i.e., Tenant's proportionate share,
based on kilowatts of emergency power reserved, of the cost of installing the
Emergency Generator), bearing interest at the rate of nine percent (9%) per
annum, payable in twenty-four (24) equal consecutive monthly installments
commencing on the Term Commencement Date; and (b) Tenant pays Landlord, as
Additional Rent, a monthly sum in an amount reasonably determined by Landlord in
good faith based on the amount of emergency power reserved by Tenant, and
Landlord's costs of operation, use, maintenance, fuel, oil, governmental
permits, licenses and fees, insurance, Landlord's profit and administration and
other expenses relating to the Emergency Generator. Tenant shall also pay the
costs to connect the Premises to the Emergency Generator as described in Section
43.4.
Section 43.2 Each such payment described in Subsection 43.1(c) shall
------------
be due on the first day of each month or portion of a month throughout the term
of this Lease, together with Tenant's Fixed Rent and other monthly charges, with
the first such payment due on the Rent Commencement Date. Such monthly amount
may be adjusted annually, in Landlord's reasonable discretion, during the term
of this Lease. If any bill rendered by Landlord for such monthly amount is not
paid within the period hereinabove specified, Landlord may, upon ten (10) days'
prior notice, discontinue Tenant's access to the Emergency Generator without
releasing Tenant from any liability under this Lease and without Landlord or any
agent of Landlord incurring any liability for any loss or damage sustained by
Tenant by reason of such discontinuance of access.
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<PAGE>
Section 43.3 Tenant's use of such emergency power shall be in
------------
accordance with such reasonable rules and regulations as may be established by
Landlord from time to time.
Section 43.4 Landlord shall repair and maintain the Emergency
------------
Generator, provided that Tenant shall reimburse Landlord, within twenty (20)
days after demand, as Additional Rent, for the cost of any repairs or
extraordinary maintenance for the Emergency Generator necessitated by acts of
Tenant, Tenant's Affiliates, assignees, sublessees, licensees or invitees, or
the agents of any of them. In addition, any installation of equipment, wiring or
cabling in the Premises or the Building for the purpose of enabling Tenant to
access the Emergency Generator shall be performed by or under the terms of this
Lease, Landlord will either (x) reserve such number of kilowatts of emergency
power from such Emergency Generator for Tenant's use at the rates described in
Section 43.1(a) and (b), or (y) if no more capacity is available from such
Emergency Generator, (i) be reasonable in considering whether to install an
additional emergency generator, at Tenant's sole cost and expense, in a location
in the Building designated by Landlord and (ii) if Landlord reasonably
determines to install such additional emergency generator, install such
emergency generator within a reasonable period of time thereafter.
ARTICLE 44
----------
Extension Option
----------------
Section 44.1 Subject to the provisions of Section 44.1(e), Tenant
shall have the right to extend the term of this Lease with respect to the
Premises then subject to this Lease for the Extension Term (herein so called)
upon and subject to the following terms and conditions:
(a) Tenant may extend this Lease for an Extension Term of five (5)
years by Tenant's giving written notice thereof to Landlord no later than twelve
(12) months prior to the expiration of the original term of this Lease of this
Lease. The Extension Term shall commence immediately upon the expiration of the
original term and upon exercise of such extension option, the "Expiration Date"
of the term shall automatically become the last day of the Extension Term.
(b) The exercise by Tenant of an extension option set forth herein
must be made, if at all, by written notice executed by Tenant and delivered to
Landlord on or before the date set forth hereinabove. Once Tenant exercises an
extension option, Tenant may not thereafter revoke such exercise. Tenant's
failure to exercise timely the extension option for any reason whatsoever shall
conclusively be deemed a waiver of such option.
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<PAGE>
(c) Tenant shall take the Premises "AS-IS" for the Extension Term and
Landlord shall have no obligation to make any improvements or alterations to the
Premises.
(d) Fixed Rent for the Extension Term shall be equal to the greater of
(i) the Fair Market Rental as of the commencement of the applicable Extension
Term, multiplied by the net rentable area of the Premises or (ii) the annualized
Rent for the last full calendar month immediately preceding the commencement of
the Extension Term.
(e) The extension option described in this Article 44 shall be void
and of no further force or effect if, at any time prior to the commencement of
any Extension Term, Tenant has assigned this Lease or has sublet all or
substantially all of the Premises to any entity other than an Affiliate of
Tenant. In addition, Tenant shall not have the right to exercise an extension
option if a default under this Lease has occurred and is continuing beyond any
applicable cure period. Tenant's right to extend the term for any Extension Term
shall be revoked if a default has occurred and is continuing beyond any
applicable cure period immediately prior to the commencement of such Extension
Term.
(f) Except as set forth in this Article 44, the leasing of the
Premises for each Extension Term shall be upon the same terms and conditions as
are applicable for the original term, and shall be upon and subject to all of
the provisions of the Lease.
(g) (i) As used herein, "Fair Market Rental" shall mean the higher
fair market base rental value per annum per rentable square foot, as of the
commencement date of the Extension Term and continuing for the entire length of
the Extension Term, for either Tenant's use or regular office use. The base
rental value described in the preceding sentence is to be determined by
calculating the rental rate that a willing and comparable tenant would pay and a
willing and comparable landlord of a first-class office building in downtown
Manhattan would accept (as of the commencement date of the Extension Term) at
arms-length, for non-sublease, non-encumbered, non-equity initial space, for a
five (5) year term, giving appropriate consideration to all relevant factors,
including, without limitation, the physical condition of the space upon delivery
(i.e., the value shall reflect the then "AS-IS" condition of such space). Fair
----
Market Rental shall be determined with a Base Year Operating Expense equal to
the Operating Expenses for the Operation Year ending December 31 of the year
during which the Extension Term commencement date occurs and the Real Estate Tax
Base equal to one-half of the aggregate of (x) the Real Estate Taxes for the Tax
Year ending on June 30 of the year during which the Extension Term commencement
date occurs and (y) the Real Estate Taxes for the Tax Year ending on June 30 of
the immediately following year.
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<PAGE>
(ii) Within twenty (20) days after Tenant's receipt of Landlord's
notice specifying the Fair Market Rental as determined by Landlord in accordance
with this Section 44.1(g), Tenant shall give Landlord written notice of its
acceptance or challenge of Landlord's determination of the Fair Market Rental;
provided, however, that if Tenant fails to respond within such twenty (20) day
- -------- -------
period, Tenant shall be deemed to have rejected such determination of Landlord,
and if Tenant timely challenges Landlord's determination of the Fair Market
Rental or is deemed to have rejected such determination of Landlord, Landlord
and Tenant shall endeavor to reach an agreement as to the Fair Market Rental
within fifteen (15) days after the expiration of such twenty (20) day period for
challenge. If Landlord and Tenant are unable to reach an agreement as to the
Fair Market Rental within said time period, they each shall immediately
thereafter select an appraiser, each of whom shall be a licensed real estate
broker or an MAI-certified real estate appraiser with a minimum of ten (10)
years' experience in the downtown Manhattan office market, who shall determine
the Fair Market Rental. The appraisers shall be instructed to complete the
appraisal procedure and to submit their written determinations to Landlord and
Tenant within thirty (30) days after their selection. In the event that the
higher of the two appraisals is less than or equal to one hundred five percent
(105%) of the lower appraisal, the Fair Market Rental shall be the average of
such determinations. If the higher of the two appraisals is greater than one
hundred five percent (105%) of the lower appraisal, then the appraisers shall,
within ten (10) days, appoint a third appraiser with similar qualifications to
make such determination of the Fair Market Rental in accordance with the
foregoing limitations. If the two appraisers shall be unable to agree on the
selection of a third appraiser, then Landlord and Tenant shall submit the choice
of a third appraiser to arbitration in accordance with the rules of the American
Arbitration Association. The third appraiser shall be instructed to complete
the appraisal procedure and to submit a written determination of the Fair Market
Rental to Landlord and Tenant within thirty (30) days after such appraisers
appointment. The determination which is neither the highest nor the lowest of
the three determinations of the Fair Market Rental shall be binding upon
Landlord and Tenant. Landlord and Tenant shall each bear the costs of their
respective appraisers. The expenses of the third appraiser shall be borne one-
half (1/2) by Landlord and one-half (1/2) by Tenant. In the event that the
commencement date of the Extension Term shall have occurred before Fair Market
Rental shall have been determined, and Tenant shall otherwise be required to
commence paying Fixed Rent, Tenant shall pay Fixed Rent at the rate of the
annualized Rent for the last full calendar month immediately preceding the
commencement of the Extension Term until such Fair Market Rental determination
shall have occurred and thereafter at the rate set forth in such determination.
If such Fair Market Rental determination is lower than the rate of the
annualized Rent for the last full calendar month immediately preceding the
commencement of the Extension Term,
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<PAGE>
then Landlord shall promptly thereafter refund the difference to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
PARAMOUNT GROUP, INC., As Agent For
OLD SLIP ASSOC PATES, L.P.
(Landlord)
By: /s/ R. James
--------------------------------
Name:
Title: Senior Vice President
FOCAL COMMUNICATIONS CORPORATION
(Tenant)
By: /s/ Brian F. Addy
--------------------------------
Name: Brian F. Addy
Title: Executive Vice President
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<PAGE>
ACKNOWLEDGEMENTS
----------------
LANDLORD
--------
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _______ day of ______________, 199__, before me personally
came ____________________________________, to me known, who, being by me duly
sworn, did depose and say that he resides at _______________________________
________; that he is the ______________________________ of PARAMOUNT GROUP, INC.
, the corporation
described in and which executed the foregoing instrument as agent for OLD SLIP
ASSOCIATES, L.P., the corporation described in and on whose behalf the foregoing
instrument was executed; that he signed his name thereto by order of the board
of directors of said agent; that the execution of the foregoing instrument by
said agent was duly authorized by said corporation; and that said agent executed
the instrument pursuant to said authorization as the act and deed of said
corporation.
___________________________________
Notary Public
TENANT
------
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this ______ day of ____________________, 199__, before me personally
came ___________________________, to me known, who being by me duly sworn, did
depose and say that s/he resides at ___________________________________; that
s/he is of FOCAL COMMUNICATIONS CORPORATION, the corporation described in and
which executed the foregoing instrument; and that s/he signed her/his name
thereto by order of the board of directors of said corporation.
___________________________________
Notary Public
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<PAGE>
RULES AND REGULATIONS
---------------------
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees, customers,
subtenants and invitees, and no tenant shall use, or permit the use of, the
entrances, corridors, escalators or elevators for any other purpose. No tenant
shall invite to the tenant's premises, or permit the visit of, persons in such
numbers or under such conditions as to, in Landlord's reasonable judgment,
interfere with the use and enjoyment of any of the plazas, entrances, corridors,
escalators, elevators and other facilities of the Building by other tenants.
Fire exits and stairways are for emergency use only, and they shall not be used
for any other purposes by the tenants, their employees, licensees, customers,
subtenants or invitees. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of any of the sidewalks, plazas, entrances,
corridors, escalators, elevators, fire exits or stairways of the Building.
Landlord reserves the right to control and operate the public portions of the
Building and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it reasonably deems best for the
benefit of the tenants generally.
2. Except as otherwise expressly provided in the Lease, the cost of
repairing any damage to the public portions of the Building or the public
facilities or to any facilities used in common with other tenants, caused by a
tenant or the employees, licensees, customers, subtenants or invitees of the
tenant, shall be paid by such tenant.
3. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by the Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. Employees, agents and visitors of each tenant shall be permitted
to enter and leave the Building whenever appropriate arrangements have been
previously made between Landlord and such tenant with respect thereto. Each
tenant shall be responsible for all persons for whom he requests such permission
and shall be liable to Landlord for all acts of such persons. Any person whose
presence in the Building at any time shall, in the reasonable judgment of
Landlord, be prejudicial to the safety, character, reputation and interests of
the Building or its tenants may be denied access to the Building or may be
ejected therefrom. In case of invasion, riot, public excitement or other
commotion, Landlord may prevent all access to the Building during the
continuance of the same, by closing the doors or otherwise, for the safety of
the tenants and protection of property in the Building. Landlord may require
any person leaving the Building with any package or other
- RR 1-
<PAGE>
object to exhibit a pass from the tenant from whose premises the package or
object is being removed, but the establishment and enforcement of such
requirements shall not impose any responsibility on Landlord for the protection
of any tenant against the removal of property from the premises of the tenant.
Landlord shall, in no way be liable to any tenant for injury or loss arising
from the admission, exclusion or ejection of any person to or from the tenant's
premises or the Building under the provisions of this rule.
4. Except as permitted by the terms of the Lease, no tenant shall
obtain or accept or use in its premises towel, barbering, boot blacking, floor
polishing, lighting maintenance, cleaning or other similar services from any
persons not authorized by Landlord in writing to furnish such services, provided
always that charges for such services by persons authorized by Landlord are
customary. Except as permitted by the terms of the Lease, such services shall
be furnished only at such hours, in such places within the tenant's premises and
under such regulations as may be fixed by Landlord.
5. No awnings or other projections over or around the windows shall
be installed by any tenant and only such window blinds as are supplied or
permitted by Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of
the Building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise or mail any hand trucks, except those equipped with
rubber tires and side guards. All deliveries to tenants, except mail, shall be
made to such place as Landlord shall designate and shall be distributed to
tenants only during the hours from 8:00 A.M. to 12:00 noon and 2:00 P.M. to 4:00
P.M., Monday through Friday. All delivery vehicles are to be removed from the
Building promptly after making deliveries. At no time should any delivery
vehicle be left unattended.
7. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors shall not be left open
at any time. All windows in each tenant's premises shall be kept closed at all
times and all blinds or drapes therein above the ground floor shall be lowered
or closed when and as reasonably required because of the position of the sun,
during the operation of the Building air conditioning system to cool or
ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio
or television, which, in the judgment of Landlord, might cause a nuisance to
other tenants in the Building shall be made or permitted by any tenant and no
cooking shall be done in any tenant's premises except as expressly approved by
Landlord or provided in the Lease. Nothing shall be done or
- RR 2-
<PAGE>
permitted in any tenant's premises, and nothing shall be brought into or kept in
any tenant's premises that would impair or interfere with any of the Building
services or the proper and economic heating, cleaning or other servicing of the
Building or the premises, or create a nuisance to any other tenant of any other
premises, nor shall there be installed by any tenant any ventilating, air
conditioning, electrical or other equipment of any kind that, in the reasonable
judgment of the Landlord, might cause any such impairment or interference.
Except as permitted by the terms of the Lease, no dangerous, inflammable,
combustible or explosive object or material shall be brought into the Building
by any tenant or with the permission of any tenant.
9. No tenant shall permit any cooking or food odors emanating from
the Premises to seep into other portions of the Building.
10. No acids, vapors or other hazardous materials shall be discharged
or permitted to be discharged into the waste lines, vents or flues of the
Building that may damage them. The water and wash closets and other plumbing
fixtures in or serving any tenant's premises shall not be used for any purpose
other than the purpose for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other foreign substances shall be deposited
therein. Except as otherwise expressly provided in the Lease, all damages
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
11. Except as otherwise expressly provided in the Lease, no tenant
shall display any sign, graphics, notice, picture, or poster, or any advertising
matter whatsoever, anywhere in or about the Premises or the Building at places
visible from anywhere outside or at the entrance to the Premises without first
obtaining Landlord's written consent thereto, such consent to be at Landlord's
sole discretion. Any such consent by Landlord shall be upon the understanding
and condition that the tenant to which such consent shall have been granted will
remove the same at the expiration or sooner termination of the lease and such
tenant shall repair any damage to the Premises or the Building caused thereby,
except as otherwise expressly provided in the Lease.
Except as otherwise expressly provided in the Lease, in the event of
the violation of the foregoing by any tenant, Landlord may remove the same
without any liability, and may charge the expense incurred by such removal to
the tenant or tenants violating this rule. Interior signs, signs and lettering
on doors and elevators shall be inscribed, painted, or affixed for each by
Landlord at the expense of such tenant, and shall be of a size, color and style
acceptable to Landlord. Except as otherwise expressly provided in the Lease,
Landlord shall have the right to prohibit any advertising by any tenant that
impairs the reputation
- RR 3-
<PAGE>
of the Building or its desirability as a building for offices, and upon written
notice from Landlord, Tenant shall refrain from or discontinue such advertising.
12. Except as otherwise expressly provided in the Lease, no
additional locks or bolts of any kind shall be placed upon any of the doors or
windows in any tenant's premises and no lock on any door therein shall be
changed or altered in any respect. Duplicate keys for each tenant's premises and
toilet rooms shall be procured only from Landlord, which may make a reasonable
charge therefor. Upon the termination of a tenant's lease, all keys to the
tenant's premises and toilet rooms shall be delivered to Landlord.
13. No tenant or occupant shall engage or pay any employees in the
Building, except those actually working for such tenant or occupant or the
contractors of either of them in the Building, or advertise for laborers giving
an address at the Building.
14. Except as otherwise expressly provided in the Lease, no premises
shall be used, or permitted to be used, at any time, as a store for the sale or
display of goods or merchandise of any kind, or as a restaurant, shop, booth,
bootblack or other stand, or for the conduct of any business or occupation that
involves off-the-street traffic in the premises demised to such tenant, or for
manufacturing or for other similar purposes.
15. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of the regular duties, unless under
special instructions from the office of the Landlord.
16. Each tenant shall, at its expense, provide artificial light in
the premises demised to such tenant for Landlord's agents, contractors and
employees while performing janitorial or other cleaning services and making
repairs or alterations in such premises.
17. No employees of any tenant shall loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
18. Each tenant, at its sole cost and expense, shall cause its
premises to be exterminated, from time to time, to the reasonable satisfaction
of Landlord, and shall employ such exterminators therefor as shall be approved
by Landlord.
19. Except as otherwise expressly provided in the Lease, any
cuspidors or similar containers or receptacles used in
- RR 4 -
<PAGE>
any tenant's premises shall be cared for and cleaned by and at the expense of
such tenant.
20. Except as otherwise expressly set forth in the Lease, each tenant
shall use only the service elevator for deliveries and only at hours prescribed
by Landlord. Bulky materials, as reasonably determined by Landlord, may not be
delivered during usual business hours but only thereafter. Each tenant agrees to
pay for use of the service elevator at reasonable rates prescribed by Landlord.
Special arrangements shall be made for each tenant's initial move in the
Building. Any tenant's contractor working in the Building must enter or exit
only by way of the service elevator. Any work performed by tenants' contractors
before 8:00 A.M. or after 5:00 P.M., or during non Business Days, will
necessitate the use of the service elevator and a standby Building engineer.
21. Except as otherwise expressly provided in the Lease, no tenant
shall have any right of access to the roof of the Premises or the Building and
shall not install, repair or replace any aerial, fan, air conditioner or other
device on the roof of the Premises or the Building without the prior written
consent of Landlord. Any aerial, fan, air conditioner or device installed
without such written consent shall be subject to removal, at Tenant's expense,
without notice, at any time.
22. Each tenant shall consider, to the extent practicable, a so-
called flex-time system for its employees so as to avoid peak hour travel on the
public transportation systems and on roadways.
- RR 5-
<PAGE>
CONSTRUCTION RULES AND REGULATIONS
----------------------------------
A. General
-------
1. Except as otherwise expressly provided in the Lease, Tenant will make
no Tenant's Changes or Tenant's Initial Changes (which are hereinafter called
"Alterations" and which are the Alterations referred to in the Lease) in, to or
about the Premises without the Landlord's prior written consent, and then only
by contractors or mechanics approved by Landlord.
2. Except as otherwise expressly provided in the Lease, Tenant shall,
prior to the commencement of any work, submit for Landlord's written approval, a
complete plan of the Premises, or of the floor on which the Alterations are to
occur. Drawings are to be complete with full details and specifications for all
of the Alterations.
3. The proposed Alterations must comply with the Administrative Code of
The City of New York and the rules and regulations of the Housing and
Development Administration of The City of New York and any other agencies having
jurisdiction.
4. No work shall be permitted to commence without the Landlord being
furnished with a valid permit from the Department of Buildings and/or other
agencies having jurisdiction.
5. All (i) demolition or removals, or (ii) other categories of work if
such work would materially disturb or interfere with other tenants of the
Building or disturb Building operations, or (iii) carrying in or out of
construction materials to or from the Building, must be scheduled and performed
before or after the normal working hours and Tenant shall provide the Building
manager with at least 24 hours' notice prior to proceeding with such work, and
shall pay for any overtime labor or engineering costs incurred by Landlord in
connection therewith.
6. All inquiries, submissions, approvals and all other matters shall be
processed through the Building manager.
B. Prior to Commencement of Work
-----------------------------
1. Tenant shall submit to the Building manager a request to perform the
work. The request shall include the following enclosures:
(i) Except as otherwise expressly provided in the Lease, a list
of Tenant's contractors for Landlord's approval.
- CR 1 -
<PAGE>
(ii) Four complete sets of plans and specifications properly
stamped by a registered architect or professional engineer.
(iii) A properly executed Building Notice application form or
Alteration form; Engineer's Statement "B" if HVAC work is to
be performed; Plumbing Specification sheet if any plumbing
change is to be performed; Form 10F if any controlled
inspection is required.
(iv) Four executed copies of the Insurance Requirements agreement
in the form attached to these Rules and Regulations from
Tenant's contractor and if requested by Landlord from the
contractor's subcontractors.
(v) Contractor's and subcontractor's insurance certificates
including a "hold harmless" in accordance with the Insurance
Requirements agreement.
2. Within the time periods set forth in the Lease, Landlord will return
the following to Tenant:
(i) Plans approved or returned with comments in reasonable
detail (such approval or comments shall not constitute a
waiver of Department of Buildings approval or approval of
other jurisdictional agencies).
(ii) Signed application forms referred to in B1(iii), above,
providing proper submissions have been made.
(iii) Two fully executed copies of the Insurance Requirements
agreement.
(iv) Covering transmittal letter.
3. Tenant shall obtain Department of Buildings approval of plans and a
permit from the Department of Buildings. Tenant shall be responsible for
keeping current all permits. Tenant shall submit copies of all approved plans
and permits to Landlord and shall post the original permit on the Premises prior
to the commencement of any work. All work, if performed by a contractor or
subcontractor, shall be subject to reasonable supervision and inspection by
Landlord's representative.
C. Requirements and Procedures
---------------------------
- CR 2 -
<PAGE>
1. All structural and floor loading requirements shall be subject to the
prior approval of Landlord's structural engineer.
2. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the approval of Landlord's mechanical and
electrical engineers in accordance with the time periods set forth in the Lease.
When necessary, Landlord will require engineering drawings, which drawings must
be approved by Landlord before work is started. Drawings are to be prepared by
Tenant and all approvals shall be obtained by Tenant.
3. All demolition shall be supervised by Landlord's representative at
Tenant's expense, except as otherwise expressly provided in the Lease.
4. Elevator service for construction work shall be charged to Tenant at
standard Building rates, except as otherwise expressly provided in the Lease.
Prior arrangements for elevator use shall be made with Building manager by
Tenant. No material or equipment shall be carried under or on top of elevators.
If an operating engineer is required by any union regulations, such engineer
shall be paid for by Tenant. Any tenant's contractor working in the Building
must enter or exit only by way of the service elevator. Any work performed by
tenants' contractors before 8:00 A.M. or after 5:00 P.M., or during non-Business
Days, will necessitate the use of the service elevator and a standby Building
engineer.
5. If shutdown of risers and mains for electrical, HVAC, sprinkler and
plumbing work is required, such work shall be supervised by Landlord's
representative at Tenant's expense. No work will be performed in building
mechanical equipment rooms without Landlord's approval and under Landlord's
supervision at Tenant's expense.
6. Tenant's contractor shall:
(i) have a Superintendent or Foreman on the Premises at all
times;
(ii) police the job at all times, continually keeping the
Premises orderly;
(iii) maintain cleanliness and protection of all areas, including
elevators and lobbies;
(iv) protect the front and top of all peripheral HVAC units and
thoroughly clean them at the completion of work;
(v) block off supply and return grills, diffusers and ducts to
keep dust from entering into the Building air conditioning
system; and
- CR 3 -
<PAGE>
(vi) avoid the unreasonable disturbance of other tenants.
7. If Tenant's contractor is negligent in any of its responsibilities,
Tenant shall be charged for the corrective work done by Building porters and
other personnel.
8. All equipment and installations must be equal to the standards of
the Building, as hereinafter set forth. Any deviation from Building standards
will be permitted only if indicated or specified on the plans and specifications
and approved by Landlord.
9. A properly executed air balancing report signed by a professional
engineer shall be submitted to Landlord upon the completion of all HVAC work
which will verify that Tenant has properly installed the necessary air
distribution system to meet the criteria set forth in the Lease.
10. Upon completion of the Alterations, Tenant shall submit to Landlord a
properly executed Form 23 and/or other documents indicating compliance and final
approval by the Department of Buildings of the Building Notice or Alteration.
11. Except as otherwise expressly provided in the Lease, Tenant shall
submit to Landlord a final "as-built" set of drawings showing all items of the
Alterations in full detail.
12. All delivery vehicles are to be removed from the Building promptly
after making deliveries. At no time should any delivery vehicle be left
unattended.
13. Additional and differing provisions in the Lease, if any, will be
applicable and will take precedence.
D. SPECIAL REQUIREMENTS REGARDING LOCAL LAW #5/73 (AS AMENDED)
-----------------------------------------------------------
1. Tenant acknowledges being advised that the Building has an active
Modified Class E Fire System ("Class E System"). Tenant shall notify its
contractors and subcontractors, as well as all persons and entities who shall
perform or supervise any alteration or demolition within the Premises, of such
facts.
2. Demolition by Tenant of all or any portions of the Premises shall be
carried out in such manner as to protect equipment and wiring of Landlord's
Class E System.
3. Landlord, after receipt of Tenant's notice of demolition, and at
Tenant's expense, shall secure and protect Building equipment connected to the
Class E System in the Premises to be demolished.
- CR 4 -
<PAGE>
4. Landlord, at Tenant's expense, shall make such additions and
alterations within the requirements of Local Law #5/73 (as amended) to the
existing Class E System as may be necessary by reason of alterations made within
the Premises either by or on behalf of Tenant or by Landlord, as part of the
initial installation, and work, if any, that Landlord is required to perform
pursuant to the provisions of this lease or any work letter or leasehold
improvements agreement entered into by Landlord and Tenant.
5. Landlord's contract fire alarm service personnel shall be the only
personnel permitted to adjust, test, alter, relocate, add to, or remove
equipment connected to the Class E System.
6. Landlord, at Tenant's expense, shall repair or cause to have
repaired, any and all defects, deficiencies or malfunctions of the Class E
System caused by Tenant's alterations or demolition of the Premises. Such
expense may include expenses of engineering, supervision and standby fire watch
personnel that Landlord deems necessary to protect the Building during the time
such defects, deficiencies and malfunctions are being corrected.
7. During such times that Tenant's alterations or demolition of the
Premises require that fire protection afforded by the Class E System be
disabled. Tenant, at Tenant's expense, shall maintain fire watch service deemed
reasonably suitable to Landlord.
8. Tenant and Tenant's architect shall familiarize themselves with and
be aware of Local Law #5/73 and all amendments thereto with regard to smoke
control, compartmentation, and areas of safe refuge. Tenant shall comply with
these requirements. Landlord, at Landlord's option, may withhold approval of
Tenant's alterations or demolition if such requirements are not met with
Landlord's reasonable satisfaction.
9. Should Tenant desire to install its own internal fire alarm system,
Tenant shall request Landlord to connect such system to the Class E System at
Tenant's expense in such reasonable manner as prescribed by the Landlord. Tenant
shall, at Tenant.' s expense, have such internal fire alarm system approved by
governing agencies having jurisdiction, and shall submit to the Landlord an
approved copy of plans of such system, before initiating any installation of
such system.
10. In the event Tenant shall install its own internal fire alarm system
within the Premises and in such event (as required by law) requests Landlord to
connect same to the Class E System, then Tenant shall reimburse Landlord for its
costs incurred in making such connection within thirty (30) days after being
billed therefor. Tenant shall also reimburse Landlord for costs of contracting
for the maintenance and supervision of Tenant's
- CR 5 -
<PAGE>
internal fire alarm system with the company providing such services for the
Class E System.
11. All testing of the Class E System shall be performed during non-
Business Hours.
12. Except as otherwise expressly provided in the Lease, Tenant, at
Tenant's expense, shall cause the Premises to be fully sprinklered in accordance
with the requirements of the Building code of The City of New York and all
applicable rules and regulations pertaining thereto and Landlord shall, at
Tenant's expense, connect same to the Building system.
- CR 6 -
<PAGE>
Minimum Standard Requirements
Drywalls
- --------
(1) All drywall partitions are to be constructed of 21/2" steel studs, 24"
on center, and a minimum of 5/8" thick fire code gypsum wallboard each side,
properly taped and speckled.
(2) Wherever feasible, Landlord recommends (but does not require) that all
steel studs shall extend from slab to slab. No drywall is to be fastened to any
ductwork or directly to any ceiling tile.
(3) All walls butting mullions shall have a proper channel to receive the
sheetrock.
Electrical
----------
1. When not using underfloor cell system, home runs shall be indicated
on plans. Rigid conduit shall be used throughout, 3/4" minimum size. Thin wall
tubing is permitted.
2. Light fixtures shall be Building-standard or as previously approved
by Landlord.
3. All conduit shall be supported by standoffs, not wired to ceiling
supports. All conduit shall be concealed.
4. All electrical boxes shall meet code requirements.
5. All unused conduit and wiring shall be removed.
6. All wiring shall meet the requirements of the Department of Water
Supply, Gas and Electricity and of Underwriter's Laboratory. No wire molding
shall be permitted.
7. Special power shall be taken from main distribution board and not from
existing Building panels.
8. Plans with requirements shall be submitted to Landlord to determine
riser capacity.
9. Tenant shall pay for all electrical design and layout costs for
related work.
10. Building Mechanic or Engineer shall supervise all riser shutdowns.
Telephone
- ---------
1. All telephone wire below the level of the ceiling shall be concealed
in conduit or thin wall tubing.
- CR 7 -
<PAGE>
2. No telephone wire shall be run loose in the ceilings, but rather shall
be bundled in fire-rated cable rings.
3. Telephone wire will be permitted to be run loose in periphery
enclosures only.
4. No telephone wire shall be run exposed on baseboards or walls.
Doors
- -----
All wood doors shall have a fire-rated label. All hollow metal doors
shall be properly fire-rated if they are located in rated partitions.
Hardware
- --------
1. All hardware shall substantially match existing.
2. All locks shall be keyed and mastered to Building setup. Two
individual keys must be supplied to the Building Manager.
Equipment
- ---------
1. No equipment is to be suspended from the reinforcing rods in arch.
2. Equipment shall be suspended with fish plates through slab or steel
beams depending on load.
3. All floor loading and steel work shall be subject to the prior
approval of the Building structural engineer. All approvals shall be obtained
by the Tenant at Tenant's expense. Tenant shall also be responsible for the
costs of all controlled inspection by any professional engineers in connection
with this work.
Woodwork
- --------
All work shall be fire-proofed and a New York City Affidavit of
certification must be furnished.
Public Areas
- ------------
All public areas shall meet Department of Buildings' requirements or
requirements of other agencies having jurisdiction.
Air Conditioning
- ----------------
1. Except as otherwise expressly provided in the Lease, Tenant shall
be responsible for alternations to existing air conditioning ductwork or systems
and for insuring that such work is
- CR 8 -
<PAGE>
properly integrated into the existing Building systems with no adverse effects
on the Building systems. Landlord shall not be responsible for the proper HVAC
design within the area of any Tenant Alteration.
2. The system shall be balanced at the completion of the job.
3. Tenant shall furnish design balancing figures to Building office.
4. All air conditioning components shall match existing or shall
receive prior approval from Landlord.
5. Landlord will not permit any additional outside louvers unless
the need there or is firmly established. The location of such louvers shall be
subject to Landlord's approval. Detailed sketches of all louvers shall be
submitted for Landlord's approval.
6. No outside louver or ductwork is to be installed in such a manner
as to interfere with the cleaning of windows or replacement of glass.
7. All periphery shutoff valves shall be accessible at all times.
8. All unused ductwork shall be removed.
9. All unused equipment, such as air handling units an air
conditioning units shall be removed.
10. All HVAC, kitchen, toilet and equipment exhaust fan
systems and any other systems shall be discharged to the atmosphere, not in
ceilings or existing Building return air systems.
Plumbing
- --------
1. No water risers shall be shutdown during Building office hours.
2. All plumbing shall conform to the code
3. All fixtures shall match existing fixtures.
4. No exposed plumbing is permitted.
5. All unused fixtures and piping shall be removed and all unused
piping shall be capped at its respective riser.
6. No plastic pipe will be permitted.
- CR 9 -
<PAGE>
7. All unused fixtures shall be returned to Landlord.
8. A building mechanic shall supervise all riser shutdowns.
9. All run outs from risers shall be brass pipe.
10. All hot water lines shall be properly insulated, and where
necessary, Landlord may require that cold water lines be insulated.
Venetian Blinds and Curtains
- ----------------------------
1. All Venetian blinds and/or shades shall be reasonably approved by
Landlord.
1. No curtain rods are to be installed in Venetian blind pockets.
2. Curtain rods shall not be supported by any part of the acoustical
tile. Rods shall be supported by headers attached to the ceiling's mechanical
supports of black iron.
3. If curtains are to be installed by any Tenant, such curtains
shall be flameproof and shall not interfere with the proper functioning of the
peripheral HVAC system.
Ceilings
- --------
1. All ceilings shall meet all requirements of New York City
Department of Buildings.
2. Tenant shall supply Landlord with a reasonably adequate supply of
ceiling tiles for purposes of future repairs and the like.
3. All ceilings are to be supported independently and not from
ductwork.
- CR 10 -
<PAGE>
INSURANCE REQUIREMENTS
----------------------
Tenant:
- ------
Premises:
- --------
The undersigned contractor or subcontractor (hereinafter called
"Contractor") has been hired by the tenant or occupant (hereinafter called
"Tenant") of the Building named above or by Tenant's contractor to perform
certain work (hereinafter called "Work") for Tenant in the Tenant's premises in
the Building. Contractor and Tenant have requested the undersigned landlord
(hereinafter called "Landlord") to grant Contractor access to the Building and
its facilities in connection with the performance of the Work and Landlord
agrees to grant such access to Contractor upon and subject to the following
terms and conditions:
1. Contractor agrees to indemnify and save harmless the Landlord,
and its respective officers, employees and agents and their affiliates,
subsidiaries, and partners, and each of them, from and with respect to any
claims, demands, suits, liabilities, losses and expenses, including reasonable
attorneys' fees, arising out of or in connection with the Work (and or imposed
by law upon any or all of them) because of personal injuries, including death at
any time resulting therefrom, and loss of or damage to property, including
consequential damages, whether such injuries to persons or property are claimed
to be due to negligence of the Contractor, Tenant or any other party entitled to
be indemnified as aforesaid except to the extent caused by the negligence or
wilful misconduct of Landlord or to the extent specifically prohibited by law
(and any such prohibition shall not void this Agreement but shall be applied
only to the minimum extent required by law).
2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:
(a) Workers' Compensation and Employers' Liability Insurance covering
each and every worker employed in, about or upon the Work, as
provided for in each and every statute applicable to Workers'
Compensation and Employers' Liability Insurance.
(b) Comprehensive General Liability Insurance Including Coverage for
Completed Operations, Broad Form Property Damage "XCU" exclusion
if any deleted, and Contractual Liability (to specifically
include coverage for the indemnification clause of this
Agreement) for not less than the following limits:
Combined Single Limit
- CR 11 -
<PAGE>
Bodily Injury and
Property Damage Liability: $ 5,000,000
(written on a per occurrence
basis)
(c) Comprehensive Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection
with the Work) for not less than the following limits:
Bodily Injury: $5,000,000
per person
$5,000,000
per occurrence
Property Damage: $5,000,000
per occurrence
Contractor shall furnish a certificate from its insurance carrier or carriers to
the Building office before commencing the Work, showing that it has complied
with the above requirements regarding insurance and providing that the insurer
will give Landlord ten (10) days' prior written notice of the cancellation of
any of the foregoing policies.
3. Contractor shall require all of its subcontractors engaged in the
Work to provide the following insurance:
(a) Comprehensive General Liability Insurance Including Protective
and Contractual Liability Coverages with limits of liability at
least equal to the above stated limits.
(b) Comprehensive Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection
with the Work) for not less than the following limits:
Bodily Injury: $5,000,000
per person
$5,000,000
per occurrence
Property Damage: $5,000,000
per occurrence
Upon the request of Landlord, Contractor shall require all of its
subcontractors engaged in the Work to execute an Insurance Requirements
agreement in the same form as this Agreement.
- CR 12 -
<PAGE>
Agreed to and executed this _____ day of _________________, 19___
Contractor Landlord
______________________________ ___________________________
______________________________ ___________________________
- CR 13 -
<PAGE>
EXHIBIT A
---------
Operating Expenses
------------------
1. Operating Expenses as used in Article 4 of the foregoing Lease
shall mean those expenses (and taxes, if any thereon) paid or incurred by or on
behalf of Landlord (whether directly or through independent contractors) in
respect of the operation, maintenance and management of the Land and/or the
Building and the sidewalks and areas adjacent thereto (hereinafter called the
"Operation of the Property") which, in accordance with the accounting practice
used by the Landlord (and which is in accordance with sound management
principles for the operation of noninstitutional first-class office Buildings in
New York City), are properly chargeable to the Operation of the Property,
together with and including the cost of electricity (including any taxes paid
thereon) used in operating all Building equipment and servicing common areas of
the Building, which cost shall be determined (if such electricity is not
separately metered) on the basis of an electrical survey of such equipment and
common area facilities and the then prevailing rates, and financial expenses
incurred in connection with the Operation of the Property such as insurance
premiums and legal, auditing and other professional fees and expenses, but
specifically excluding: (a) Real Estate Taxes, as defined in Section 4.1(f); (b)
franchise or income taxes imposed on Landlord; (c) mortgage interest; (d)
leasing and mortgage brokerage commissions; (e) the cost of electrical energy
furnished directly to tenants of the Building; (f) cost of tenant installations
and decorating incurred in connection with preparing space for a new tenant; (g)
legal expenses incurred in connection with leasing space in the Building and
enforcing obligations of tenants under leases which are either not related to
the operation, maintenance or management of the Land and/or the Building or are
not of general applicability to tenants in the Building; (h) capital
improvements, except the cost of capital improvements designed to protect the
health and safety of the tenants in the Building and except that if any capital
improvement results in reducing any Operating Expenses (as, for example, a
labor-saving improvement), then such capital improvement shall be included
within Operating Expenses to the extent Operating Expenses have been reduced;
(i) ground rent pursuant to the terms of the ground lease in effect as of the
date of this Lease; (j) expenditures for which Landlord is reimbursed by any
tenant; and (k) costs incurred in performing work or furnishing services for any
tenant, whether at such tenant's or Landlord's expense, to the extent that such
work or service is in excess of any work or service that Landlord is obligated
to furnish to Tenant at Landlord's expense. The preceding list is for
definitional purposes only and shall not impose any obligation upon Landlord to
incur such expense or provide such service. If Landlord is not furnishing any
particular work or service (the cost of which if performed by Landlord would
constitute an Operating Expense) to a tenant who has undertaken to perform such
work or service in lieu
- A 1 -
<PAGE>
of the performance thereof by Landlord, Operating Expenses shall be deemed
increased by an amount equal to the additional Operating Expenses which would
reasonably have been incurred during such period by Landlord if it had at its
own expense furnished such work or service to such tenant. Operating Expenses
shall include expenses paid or incurred on account of work, labor, services or
materials or other property furnished for the purposes mentioned herein by any
contractor or other party that shall be directly or indirectly affiliated with
or otherwise related to Landlord (whether by stock ownership, common officers or
directors or otherwise); provided, however, that such sums do not exceed the
sums charged by independent contractors for furnishing like labor, services,
materials or other property to first-class office buildings in the downtown
Manhattan area.
2. In determining the Base Year Operating Expenses and the amount of
Operating Expenses for each subsequent Operation Year, if less than 95` of the
rentable square-foot area of the Building shall have been occupied by tenants at
any time during the Operation Year, Operating Expenses shall be deemed for such
Operation Year to be an amount equal to the like expenses which would normally
be expected to be incurred had such occupancy been 95% throughout such Operation
Year.
- A 2 -
<PAGE>
EXHIBIT B
---------
List of Approved Contractors
----------------------------
General Contractors
- -------------------
Gabe Construction Ernie Bertuzzi 243-1900
Gallin Construction John Gallin 267-8624
OD&P Anthony Pagano 532-2000
Signature Construction Daniel Tomai 274-9494
Electrical Contractors
- ----------------------
Forest Electric Frank Pirozzi 318-1500
Head Electric Bob Marziotto 201-798-1950
Laurelton Electric Mike Scheffler 643-1400
Cornelius Fitzgerald Fred Romano 265-0715
HVAC Contractors
- ----------------
Holmes Mechanical Terry Zaidman 718-922-5500
Turnkey Mechanical Cliff Mulhare 718-387-8296
Manhattan Mechanical Mike Burke 594-3130
Penguin Air Conditioning William Ash 718-706-6500
Wyant A/C Rocco Palazzolo 718-392-6000
Power Cooling Lloyd Larson 718-784-1300
Nerd
- ----
Lab Plumbing Louis Bisso 246-9690
Par Plumbing Sandra Deutsch 516-887-4000
All City Plumbing Larry Weiss 242-4170
- B 1 -
<PAGE>
Demolition & Carting
- --------------------
Avanti Demolition Frank Adler 201-589-7662
Riteway Carting Leroy Barroca 718-458-8900
Liberty Carting Mike Revello 201-488-9300
Sprinkler Contractors
- ---------------------
Zero Out Fire Protection Peter Colletti 718-326-4147
Sirina Fire Protection Anthony Flores 307-7818
Triangle Sprinkler Peggy Funderburker 718-326-9120
- B 2 -
<PAGE>
EXHIBIT C
---------
Cleaning Specifications
-----------------------
1. General Office Areas
--------------------
A. Nightly
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed
flooring to be mopped nightly, using approved dust-down
preparations; wash flooring weekly.
2. All linoleum, vinyl, rubber, asphalt tile and other similar types
of flooring (that my be waxed) to be swept nightly using approved
dust-down preparation. Waxing, if any, shall be done at Tenant's
expense.
3. All carpeting and rugs to be vacuumed nightly.
4. Hand dust with treated cloth and wipe clean all furniture,
fixtures, and window enclosures nightly.
5. Empty and clean all waste receptacles nightly and remove from the
Premises wastepaper to designated areas.
6. Empty and clean all ash trays and screen all sand urns nightly
and replace sand.
7. Dust interior of all waste disposal cans and baskets
nightly; damp-dust as necessary.
8. Wash clean all water fountains and coolers nightly.
9. Dust all doors and other ventilating louvers within reach; damp
wipe as necessary.
10. Wipe clean all brass, if necessary; and other bright work
nightly.
11. Sweep, vacuum or wash all private staircases nightly.
12. Metal doors of elevator cars to be properly maintained
daily.
13. Remove all gum and foreign matter on sight.
14. Dust and vacuum closet and coat room shelving, coat racks
and flooring nightly.
- C 1 -
<PAGE>
B. Periodic Cleaning - (to be performed as needed unless otherwise
specified but not less than once each week or as hereinafter
provided);
1. Wash and remove all finger marks, ink stains, smudges, scuff
marks and other marks from metal partitions, sills, all vertical
surfaces (doors, walls, window sills), including elevator doors
and other surfaces, as necessary. Clean and sweep any vacant
areas.
C. High Dusting
1. Do all high dusting every three (3) months, unless otherwise
specified, including, but not limited to, the following:
a. Vacuum and dust all pictures, frames, charts, graphs and
similar wall hangings not reached in nightly cleaning. Damp
dust as required.
b. Vacuum and dust all vertical surfaces such as walls,
partitions, doors, bucks and ventilating louvers, grills,
high moldings, and other surfaces not reached in nightly
cleaning.
c. Dust all ventilating and air conditioning louvers, high
moldings and other high areas: not reached in nightly
cleaning.
d. Clean exterior of lighting fixtures.
e. Vacuum and dust ceiling tiles around ventilators and clean
and wash air conditioning diffusers.
2. Elevator. Lobby and Public Corridors (Multi-Tenant Floors)
----------------------------------------------------------
A. Vacuum floors nightly and machine scrub or shampoo floors monthly.
Wax, buff, apply sealer and finishes as required.
B. Wipe down all metal surfaces in lobby nightly and polish monthly.
C. High dust and wash if necessary all electrical and air conditioning
ceiling fixtures at least once per month.
D. Dust walls nightly and wash monthly.
E. Clean cigarette urns, screen sand and supply sand as necessary.
- C 2 -
<PAGE>
F. Burned out lamps shall be replaced promptly with lamps supplied by
contractor.
3. Elevators
---------
A. Clean saddles and frames on floors above lobby once per week and
vacuum dirt from door tracks nightly. Polish saddles monthly.
B. Dust elevator doors daily.
C. Clean floors twice daily and polish weekly by machine.
4. Lavatories in Base Building (two (2) main lavatories per floor)
---------------------------------------------------------------
A. Nightly
1. Scour, wash and disinfect all toilet seats (both sides), basins,
bowls, urinals and tile walls near urinals, throughout.
2. Sweep and wash all lavatory floors using property disinfectants.
3. Wash and polish all mirrors, power shelves, bright work and
enameled surfaces in all lavatories.
Contractor shall use only non-abrasive material to avoid damage
and deterioration to chrome fixtures.
4. Hand dust and clean, washing where necessary, all partitions,
dispensers and receptacles in all lavatories and rest rooms.
5. Service sanitary napkin dispensers. (Napkins supplied by
Contractor.)
6. Empty paper towel and sanitary napkin disposal receptacles and
remove paper to designated areas.
7. Fill toilet tissue holders nightly. (Tissue to be supplied by
contractor.)
8. Fill all toilet tissue holders, soap dispensers, towel dispensers
and sanitary napkin vending dispensers. (Materials to be
supplied by Contractor as approved by Landlord.)
9. Empty and clean sanitary disposal receptacles.
10. Clean and wash all receptacles and dispensers.
- C 3 -
<PAGE>
EXHIBIT D
---------
HVAC Specifications
-------------------
Base building heating is designed to maintain 70 degress F inside
temperature at an outside temperature of no less than 0 degress F.
Base building ventilation is designed to provide 20 cfm per person at a
population density of a maximum of one person per 100 useable sq.ft.
Base building cooling is designed to maintain a maximum of 78 degress F,
50% relative humidity inside with maximum outside condition of 95 degress Fdb,
75 degress Fwb and an internal load of a maximum of one person per 100 useable
sq.ft., and a combined electrical utility power and lighting load of a maximum
of 4.5 watts per useable sq.ft.
- D 1 -
<PAGE>
EXHIBIT D
---------
HVAC Specifications
-------------------
Base building heating is designed to maintain 70 degress F inside
temperature at an outside temperature of no less than 0 degress F.
Base building ventilation is designed to provide 20 cfm per person at a
population density of a maximum of one person per 100 useable sq.ft.
Base building cooling is designed to maintain a maximum of 78 degress F,
50% relative humidity inside with maximum outside condition of 95 degress Fdb,
75 degress Fwb and an internal load of a maximum of one person per 100 useable
sq.ft., and a combined electrical utility power and lighting load of a maximum
of 4.5 watts per useable sq.ft.
- D 1 -
<PAGE>
Exhibit 10.12
LEASE
650 Townsend Street
San Francisco, California
Basic Lease Information
-----------------------
The following is a summary of principal Lease terms (the "Basic Lease
Information"). To the extent there is any conflict between the provisions of
this summary and any more specific provision of the Lease, such more specific
provision shall control.
<TABLE>
<CAPTION>
Date: January 26, 1998
<S> <C> <C>
A. Landlord: ZORO, LLC,
--------
a California limited liability company
B. Tenant: FOCAL COMMUNICATIONS
------
CORPORATION, a Delaware corporation
C. Premises (section 1.1): 17,497 rentable square feet (subject to
----------------------
adjustment as provided in section 1.2 of
the Lease), located on the second floor of
the Building.
D. Permitted Use (section 6.1): (i) operation of a telephone switching
---------------------------
center through which Tenant will provide
telephone services to clients; and (ii)
incidental general administrative offices.
E. Building (section 1.1): 650 Townsend Street
----------------------
San Francisco, California
F. Term (section 2.1): Approximately ten (10) years from the
------------------
Rent Commencement Date.
G. Scheduled Delivery Date (section 2.2): Switch Room: No earlier than April 30,
-------------------------------------
1998 and not later than May 15, 1998
Co-location Room: No earlier than
April 30, 1998 and not later than May 30,
1998
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Office Area: No earlier than April 30, 1998
and not later than May 30, 1998
H. Rent Commencement Date (section 3.1): The later of (i) delivery to Tenant
------------------------------------
of the entire Premises in the condition
required by section 2.2, and (ii) the
earlier of (1) Tenant's commencement of
business operations in the Premises, or (2)
ninety (90) days after the actual date of
delivery of possession of the Switch Room in
accordance with section 2.2 of the Lease.
I. Expiration Date (section 2.1): The last day of the calendar month in which
-----------------------------
the tenth (10th) annual anniversary of the
Rent Commencement Date occurs.
J. Base Rent (section 3.1 (a)): Rent Commencement Date through the day
---------------------------
immediately preceding the commencement of
the sixty-first month from (and including)
the month in which the Rent Commencement
Date occurs: $393,682.50 per annum,
$32,806.88 per month.
The first day of the sixty-first month from
(and including) the month in which the Rent
Commencement Date occurs through the
Expiration Date: $472,419 per annum,
$39,368.25 per month.
K. Base Expense Year (section 3.1(b)): 1998
----------------------------------
L. Base Tax Year (section 3.1(c)): 1998-1999
-----------------------------
M. Security Deposit (section 3.4): $39,368.25 one month's rent
------------------------------
N. Tenant's Percentage Share (section 4.1): 2.64% (17,497 rsf./666,711 rsf.)
----------------------------------------
O. Liability Insurance (section 10.2): $2,000,000
----------------------------------
P. Tenant Parking (section 26.1): Five (5) parking spaces.
-----------------------------
Q. Landlord's Address (section 21.1): ZORO, LLC
---------------------------------
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
650 Townsend Street
San Francisco, California 94103
Attention: Building Management Office
Telecopy No.: (415) 487-4056
with a copy to:
ZORO, LLC
c/o Bartko, Zankel, Tarrant & Miller
900 Front Street, Suite 300
San Francisco, California 94111
Attention: Martin I. Zankel, Esq.
Telecopy No.: (415) 956-1152
R. Tenant's Address (section 21.1): Focal Communications Corporation
-------------------------------
200 North LaSalle Street
Chicago, IL 60601
Attention: General Counsel
Telecopy No.: (312) 895-8403
S. Real Estate Broker(s) (section 28.4): Cushman & Wakefield of California
------------------------------------
(Landlord's Broker), Grubb & Ellis (Tenant's
Broker).
</TABLE>
-3-
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. PREMISES.............................................................. 7
2. TERM.................................................................. 8
3. RENT..................................................................10
4. OPERATING EXPENSES AND PROPERTY TAXES.................................14
5. OTHER TAXES PAYABLE BY TENANT.........................................17
6. USE...................................................................17
7. SERVICES..............................................................21
8. MAINTENANCE AND REPAIRS...............................................24
9. ALTERATIONS...........................................................26
10. INSURANCE.............................................................30
11. COMPLIANCE WITH LEGAL REQUIREMENTS....................................32
12. ASSIGNMENT OR SUBLEASE................................................33
13. RULES AND REGULATIONS.................................................38
14. ENTRY BY LANDLORD.....................................................38
15. EVENTS OF DEFAULT AND REMEDIES........................................39
16. DAMAGE OR DESTRUCTION.................................................41
17. EMINENT DOMAIN........................................................43
18. SUBORDINATION, MERGER AND SALE........................................44
19. ESTOPPEL CERTIFICATE..................................................45
20. HOLDING OVER..........................................................45
21. NOTICES...............................................................46
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
22. HAZARDOUS MATERIALS................................................ 46
23. OPTION TO RENEW.................................................... 48
24. PARKING............................................................ 50
25. SIGNAGE............................................................ 50
26. MISCELLANEOUS...................................................... 51
</TABLE>
-5-
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
Exhibit A - Floor Plan of Premises
Exhibit B - [Intentionally Omitted]
Exhibit C - Tenant Improvement Work Agreement
Exhibit D - Rules and Regulations
Exhibit E - Exclusions from Operating Expenses
Exhibit F-1 - Roof License Area
Exhibit F-2 - Roof Top Facilities
Exhibit F-3 - License Agreement Terms
-6-
<PAGE>
LEASE
THIS LEASE is made as of the date specified in the Basic Lease Information,
by and between the Landlord specified in Item A of the Basic Lease Information
("Landlord") and the Tenant specified in Item B of the Basic Lease Information
("Tenant").
WITNESSETH:
1. PREMISES
--------
1.1 Demise. Landlord hereby leases to Tenant, and Tenant hereby leases
------
from Landlord, for the term and subject to the covenants hereinafter set forth,
to all of which Landlord and Tenant hereby agree, the space on the floor(s)
specified in Item C of the Basic Lease Information (the "Premises"), as outlined
on the floor plan(s) attached hereto as Exhibit A, in the building specified in
Item F of the Basic Lease Information (the "Building"), which includes the land
on which the Building is located. For purposes of this Lease, the term
"Quadrant" means approximately one quarter of a floor in the Building which is
Southeast (A), Northeast (B), Northwest (C), and Southwest (D), of the main
atrium, as such areas may be configured and designated from time to time by
Landlord. Tenant shall have the right to use, in common with others, the
entrances, lobbies, stairs, elevators and parking facilities of the Building as
such may exist from time to time in Landlord's discretion during the term for
access to the Premises. All of the windows, atria, balconies and walls of the
Building and any space in the Premises used for shafts, stacks, pipes, conduits,
ducts, electric or other utilities, sinks or other Building facilities, and the
use thereof and access thereto through the Premises for the purposes of
operation, maintenance and repairs, are reserved to Landlord.
1.2 Rentable Square Footage. Landlord and Tenant acknowledge and agree
-----------------------
that the rentable square footage of the Premises, and the Building, as of the
date hereof, and calculated in accordance with standards of measurement adopted
by the Building Owners and Managers Association, American National Standard,
ANSI/BOMA Z65.1-1996 (the "BOMA Standard"), is as provided in Items C and N of
the Basic Lease Information, and subject to the terms of this section 1.4, such
figure shall be final and binding on Landlord and Tenant for all purposes under
this Lease. Notwithstanding anything to the contrary set forth in this section,
for purposes of calculation of Base Rent only and for no other purpose, the
rentable square footage of the Premises as measured pursuant to the above
provisions of this section 1.2 shall be adjusted to equal the product of (A) the
usable square footage of the Premises measured pursuant to the BOMA Standard,
and (B) 1.30 (hereinafter the "Adjusted Rentable"). In the event that the
rentable area of the Premises or the Building shall hereafter change due to
subsequent alterations and/or other modifications to the Premises or the
Building, the rentable area of the Premises and the Building, as the case may
be, shall be appropriately adjusted as of the date of such alteration and/or
other modification, based upon the written verification by Landlord's space
planner of such revised rentable area. In the event of any such adjustment to
the rentable area of the Premises and/or the Building, the
-7-
<PAGE>
figures appearing or referred to in this Lease based upon such rentable area
(including Tenant's Percentage Share) shall be modified in accordance with such
determination.
1.3 Light and Air. No easement for light, air or view is included with or
-------------
appurtenant to the Premises. Any diminution or shutting off of light, air or
view by any structure which may hereafter be erected (whether or not constructed
by Landlord) shall in no way affect this Lease or impose any liability on
Landlord.
2. TERM
----
2.1 Initial Term. The term of this Lease shall be the term specified in
------------
Item F of the Basic Lease Information, and shall commence on the Delivery Date
(as hereinafter defined), and, unless sooner terminated as herein after
provided, shall end on the Expiration Date specified in Item I of the Basic
Lease Information (the "Expiration Date").
2.2 Delivery of Premises.
--------------------
(a) Landlord shall deliver the Premises to Tenant during the period
provided as the Scheduled Delivery Date for that portion of the Premises, as
specified in Item G of the Basic Lease Information, free and clear of any rights
of possession or occupancy of any existing tenant thereof, and in broom clean,
"Code Compliance" (as that term is hereinafter defined), but otherwise "AS IS"
condition and with access to Minimum Electrical Power (as that term is
hereinafter defined). Notwithstanding anything in this section 2.2 to the
contrary, Tenant shall not be required to accept delivery of the Switch Room
portion of the Premises until the holes for the auxiliary riser provided in
section 8.3 have been cored in the floor and ceiling of Quadrant 2A of the
second floor, the riser sleeves and conduit have been installed therein, and the
area has been separately partitioned (with sheet rock) to maintain a separation
of the riser area from the remainder of the Premises. Landlord shall use
reasonable efforts to give notice to Tenant of the anticipated date of delivery
of the Premises at least fifteen (15) days prior to such date, but the failure
to give such notice shall not constitute a default by Landlord. Landlord and
Tenant acknowledge their intention to allocate to Tenant all costs and delays
associated with the demolition of the existing improvements in the Premises and
the construction (including permitting) of new improvements to the Premises.
Tenant agrees that Landlord has no obligation and has made no promise to alter,
remodel, improve, or repair the Premises or any part thereof or to repair or
improve any condition existing in the Premises as of the Commencement Date.
Tenant agrees that neither Landlord nor any of Landlord's employees or agents
has made any representation or warranty as to the present or future suitability
of the Premises for the conduct of Tenant's business therein. Any improvements
or personal property located in the Premises are delivered without any
representation or warranty from Landlord, either express or implied, of any
kind, including merchantability or suitability for a particular purpose. As
used herein, the term "Code Compliance" condition shall mean that the Building
(other than the Premises, in its shell and demolished condition) is in material
compliance with all local and State building and zoning codes and ordinances, in
such manner that any violation or
-8-
<PAGE>
condition of non-compliance will not result in the inability of Tenant to be
issued a building permit for any of its initial Tenant Improvements, and that
Landlord has obtained clearance form the City and County of San Francisco as to
any and all violations of the Americans with Disabilities Act which have been
filed against the Building.
(b) Notwithstanding the delivery of the Premises to Tenant, Tenant
acknowledges that Landlord will perform certain of Landlord's work more
particularly described in section 8.3 of this Lease, in the Premises subsequent
to the Delivery Date, and Tenant consents to Landlord's entry into the Premises
for such purposes. If the auxiliary riser provided for in section 8.3 is not
installed in the Premises prior to the Delivery Date, Landlord, at its expense,
will separately partition said area to maintain a separation from the Premises.
Tenant acknowledges that auxiliary cooling may not be available to the Premises
on the Delivery Date and Tenant shall be required to use portable refrigeration
units, at its sole cost and expense, until the auxiliary chiller system is
installed by Landlord as provided in section 8.3 hereof.
(c) As used herein, the term Minimum Electrical Power shall mean that
Landlord will provide Tenant with access, at Tenant's sole Cost and expense to
86 kw of electrical power from the Building's bus riser located on the second
floor.
2.3 Tenant's Entry into the Premises Prior to Delivery Date. Provided
-------------------------------------------------------
that Tenant and its agents do not interfere with Landlord's work in the Building
and the Premises, Landlord shall allow Tenant access to the Premises prior to
the Delivery Date for the purpose of the Predelivery Functions (as that term is
defined in the Tenant Improvement Work Agreement attached as Exhibit C to this
Lease). Such entry shall be upon all of the terms and conditions of this Lease,
including, without limitation, section 10.1 hereof.
2.4 Tenant's Insurance Certificate. Tenant shall provide Landlord with a
------------------------------
certificate of insurance in accordance with the provisions of section 10.5
hereof prior to its occupancy or use of the Premises (including, without
limitation, any Predelivery Functions) and prior to the construction of any
Tenant Improvements. Tenant shall have no right of access to the Premises
unless and until this insurance certificate is delivered to Landlord.
2.5 Delay in Delivery of Possession.
-------------------------------
(a) If Landlord cannot deliver possession of any portion of the
Premises to Tenant on the Scheduled Delivery Date, for any reason, this Lease
shall not be void or voidable and, except as provided in this section 2.4
hereof, Landlord shall not be liable to Tenant for any loss or damage resulting
therefrom, but, in such event, the Delivery Date shall be postponed until the
date on which Landlord delivers possession of the Premises to Tenant in
accordance with section 2.2 hereof (such actual date of delivery of possession
of the Premises, whether on the Scheduled Delivery Date or otherwise being
referred to herein as the "Delivery Date"). Tenant waives any claims for
constructive eviction, failure of consideration, damages or under any other
course of action attributable to such delay.
-9-
<PAGE>
(b) Notwithstanding anything in the foregoing to the contrary, if
Landlord does not deliver possession of the Premises to Tenant in the condition
required by section 2.2 hereof on or before June 30, 1998, as such date is
extended (on a day for day basis) for delays constituting Tenant Delays, Tenant
as its sole and exclusive remedy, may at any time thereafter, upon ten (10)
days' prior written notice given to Landlord, terminate this Lease effective as
of the expiration of said ten (10) day period, unless prior thereto Landlord
delivers the Premises to Tenant in the condition required by section 2.2.
2.6 Confirmation of Term. Landlord and Tenant each shall, promptly after
--------------------
the Delivery Date, the Rent Commencement Date and the Expiration Date have been
determined, execute and deliver to the other an amendment to this Lease which
sets forth such dates for this Lease, but the term of this Lease shall commence
on the Delivery Date and end on the Expiration Date whether or not such
amendment is executed.
3. RENT
----
3.1 Obligation to Pay Rent. Tenant shall pay to Landlord the following
----------------------
amounts as rent for the Premises:
(a) During the term of this Lease, commencing on the Rent
Commencement Date set forth in Item H of the Basic Lease Information, Tenant
shall pay to Landlord, as base monthly rent, the respective amounts of monthly
rent specified in Item J of the Basic Lease Information (the "Base Rent"). If
the Rent Commencement Date should occur on a day other than the first day of a
calendar month, or if the Expiration Date should occur on a day other than the
last day of a calendar month, then the Base Rent for such fractional month shall
be prorated upon a daily basis based upon a thirty (30) day month.
(b) During each calendar year or part thereof during the term of this
Lease subsequent to the base expense calendar year specified in Item K of the
Basic Lease Information (the "Base Expense Year"), Tenant shall pay to Landlord,
as additional monthly rent, Tenant's Percentage Share (as hereinafter defined)
of the total dollar increase, if any, in all Operating Expenses (as hereinafter
defined) paid or incurred by Landlord in such calendar year or part thereof over
the Operating Expenses paid or incurred by Landlord in the Base Expense Year
(hereinafter "Tenant Expense Share").
(c) During each tax year (July 1 through June 30) or part thereof
during the term of this Lease subsequent to the base tax year ending June 30 of
the year specified in Item L of the Basic Lease Information (the "Base Tax
Year"), Tenant shall pay to Landlord, as additional monthly rent, Tenant's
Percentage Share (hereinafter "Tenant's Tax Share") of the total dollar
increase, if any, in all Property Taxes (as hereinafter defined) paid or
incurred by Landlord in such tax year or part thereof over the Property Taxes
paid or incurred by Landlord in the Base Tax Year.
-10-
<PAGE>
(d) Throughout the term of this Lease, Tenant shall pay, as
additional rent, all other amounts of money and charges required to be paid by
Tenant under this Lease, whether or not such amounts of money or charges are
designated "additional rent." As used in this Lease, "Rent" shall mean and
include all Interim Rent, Base Rent, additional monthly rent as described in
section 3.1(b) and 3.1(c) hereof, and any other additional rent payable by
Tenant in accordance with this Lease.
3.2 Additional Monthly Rent. The additional monthly rent payable pursuant
-----------------------
to sections 3.1(b) and 3.1(c) hereof shall be calculated and paid in accordance
with the following procedures:
(a) On or before the first day of each calendar year during the term
of this Lease, or as soon thereafter as practicable, Landlord shall give Tenant
written notice of Landlord's estimate of the amounts payable in respect of for
the ensuing calendar year. On or before the first day of each month during such
ensuing calendar year, Tenant shall pay to Landlord one-twelfth of such
estimated amounts. If such notice is not given for any calendar year, Tenant
shall continue to pay on the basis of the prior year's estimate until the month
after such notice is given, and subsequent payments by Tenant shall be based on
Landlord's current estimate. If at any time it appears to Landlord that
Tenant's Expense Share and Tenant's Tax Share for the current calendar year will
vary from Landlord's estimate, Landlord may, by giving written notice to Tenant,
revise Landlord's estimate for such year, and subsequent payments by Tenant for
such year shall be based on such revised estimate.
(b) Within 90 days after the end of each calendar year, Landlord
shall give Tenant a written statement of the amounts payable in respect of
Tenant's Expense Share and Tenant's Tax Share hereof for such calendar year
certified by Landlord. If such statement shows an amount owing by Tenant that is
less than the estimated payments for such calendar year previously made by
Tenant, Landlord shall credit the excess to the next succeeding monthly
installments payable Tenant's Expense Share and Tenant's Tax Share. If such
statement shows an amount owing by Tenant that is more than the estimated
payments for such calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within ten (10) days after delivery of such statement.
Failure by Landlord to give any notice or statement to Tenant under this section
3.2 shall not waive Landlord's right to receive, or Tenant's obligation to pay,
the amounts payable by Tenant in respect of Tenant's Expense Share and Tenant's
Tax Share.
(c) If the term of this Lease ends on a day other than the last day
of a calendar year, the amounts payable by Tenant in respect of Tenant's Expense
Share and Tenant's Tax Share applicable to the calendar year in which such term
ends shall be prorated according to the ratio which the number of days in such
calendar year to and including the end of the term bears to three hundred sixty
(360). Termination of this Lease shall not affect the obligations of Landlord
and Tenant pursuant to section 3.2(b) hereof to be performed after such
termination.
-11-
<PAGE>
3.3 Tenant's Audit Rights.
---------------------
3.4 Tenant's Audit of Operating Expenses Records.
--------------------------------------------
(a) In the event that Tenant disputes the amount of additional rent
set forth in any annual statement delivered by Landlord, subject to the terms
and conditions of section 3.3(c) below, Tenant shall have the right, upon
written notice given to Landlord within one hundred eighty (180) days of the
delivery to Tenant of said statement, to inspect and copy, or cause a Third
Party Auditor (as that term is hereinafter defined) to inspect and copy, during
Normal Business Hours, Landlord's accounting records relating to Operating
Expenses and/or Property Taxes for the period covered by such statement (the
"Tenant Review"). The Third Party Auditor shall either be a full time, regular
employee of Tenant or a certified public accountancy firm designated by Tenant
and reasonably acceptable to Landlord. The Third Party Auditor shall certify
the results of the Tenant Audit in a manner satisfactory to Landlord. Tenant
shall provide Landlord with evidence reasonably satisfactory to Landlord that
the Third Party Auditor is not charging a fee based on the amount of additional
rent that said professional is able to save Tenant by conducting the Tenant
Review. The Third Party Auditor shall confirm in writing to Landlord that such
Third Party Auditor shall maintain in strict confidence any and all information
obtained in connection with the Tenant Review and shall not disclose such
information to any person or entity other than to the management personnel of
Tenant. Any objections by Tenant to Landlord's annual statement and/or the
commencement of a Tenant Review shall not excuse or abate Tenant's obligation to
make payments required under section 3.2 hereof pending the resolution of
Tenant's objection and/or any matter disclosed by the Tenant Review.
(b) Any Tenant Review shall take place in Landlord's office at the
Building or at such other location in San Francisco County as Landlord may
reasonably designate, and Landlord will provide Tenant with reasonable
accommodations for such Tenant Review and reasonable use of such available
office equipment, but may charge Tenant for telephone calls and photocopies.
Tenant shall provide Landlord with not less than two (2) weeks' prior written
notice of its desire to conduct such Tenant Review. In connection with the
foregoing review, Landlord shall furnish Tenant with such reasonable supporting
documentation relating to the subject statement as Tenant may reasonably
request. In no event shall Tenant have the right to conduct such Tenant Review
if an Event of Default shall then exist under this Lease. If the final
resolution of the findings of the Tenant Review reveals an error in the
calculation of Tenant's Share of Operating Expenses and/or Property Taxes, the
parties' sole remedy shall be for Landlord or Tenant, as the case may be, to
make the appropriate payment or reimbursement to the other party as is
determined to be owing. Any such payment shall be made within thirty (30) days
following the final resolution of such dispute.
(c) Tenant shall be responsible for all costs and expenses associated
with the Tenant Review, including any and all audit fees, attorney's fees and
related costs of Tenant (collectively, the "Costs"); provided that if the
parties' final resolution of the dispute discloses the overstatement by Landlord
of Operating Expenses and/or Property Taxes for
-12-
<PAGE>
any expense year in excess of ten percent (10%) of the amount previously charged
to Tenant with respect thereto, Landlord shall be responsible for all Costs, not
to exceed the actual amount of Operating Expenses and/or Property Taxes to be
paid or reimbursed to Tenant as a result of such overpayment. An overcharge of
Operating Expenses and/or Property Taxes by Landlord shall not entitle Tenant to
terminate this Lease.
(d) Subject to the procedure hereinabove provided, Landlord's annual
statement and the additional rent figure therein provided shall be final and
binding on Tenant.
3.5 First Month Rent and Security Deposit.
-------------------------------------
(a) Upon Lease execution, Tenant shall pay to Landlord (a) an amount
equal to the Base Rent for the first month of the term of this Lease, which
amount Landlord shall apply to the Base Rent for such first month, and (b) the
amount of the Security Deposit specified in Item M of the Basic Lease
Information (the "Security Deposit").
(b) The Security Deposit shall remain the sole and separate property
of Landlord until actually repaid to Tenant (or at Landlord's option the last
assignee, if any, of Tenant's interest hereunder), said sum not being earned by
Tenant until all conditions precedent for its payment to Tenant have been
fulfilled. As this sum both in equity and at law is Landlord's separate
property, Landlord shall not be required to (1) keep said deposit separate from
its general accounts, or (2) pay interest, or other increment, for its use. If
Tenant fails to pay rent or other charges when due hereunder, or otherwise
defaults with respect to any provision of this Lease, including and not limited
to Tenant's obligation to restore or clean the Premises following vacation
thereof, Tenant, at Landlord's election, shall be deemed not to have earned the
right to repayment of the Security Deposit, or those portions thereof used or
applied by Landlord for the payment of any rent or other charges in default, or
for the payment of any other sum to which Landlord may become obligated by
reason of Tenant's default, or to compensate Landlord for any loss or damage
which Landlord may suffer thereby. Landlord may retain such portion of the
Security Deposit as it reasonably deems necessary to restore or clean the
Premises following vacation by Tenant. The Security Deposit is not to be
characterized as rent until and unless so applied in respect of a default by
Tenant.
(c) If Landlord elects to use or apply all or any portion of the
Security Deposit as provided in section 3.4(b), Tenant shall within ten (10)
days after written demand therefor pay to Landlord, in cash, an amount equal to
that portion of the Security Deposit used or applied by Landlord, and Tenant's
failure to so do shall be a material breach of this Lease. The ten (10) day
notice specified in the preceding sentence shall insofar as not prohibited by
law, constitute full satisfaction of notice of default provisions required by
law or ordinance.
-13-
<PAGE>
(d) Notwithstanding anything to the contrary in this section 3.4, if
Landlord determines that an additional security deposit is required in
accordance with section 12.4, such additional deposit shall be added to, and
shall be a part of, the Security Deposit.
3.6 Tenant's Default. Tenant acknowledges that the late payment by Tenant
----------------
of any monthly installment of Base Rent or additional monthly rent will cause
Landlord to incur costs and expenses, the exact amount of which is extremely
difficult and impractical to fix. Such costs and expenses will include
administration and collection costs in addition to processing and accounting
expenses. Therefore, if any monthly installment of Base Rent or additional
monthly rent is not received by Landlord within five (5) days after such
installment is due, Tenant shall immediately pay to Landlord a late charge equal
to six percent (6%) of such delinquent installment. The foregoing
notwithstanding, a late charge shall not be imposed on the first late payment
made in any twelve (12) month period commencing with the Rent Commencement Date;
provided such payment is made within five (5) days of written notice of the
delinquency in payment. Landlord and Tenant agree that such late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered by Tenant's failure to make
timely payment. In no event shall such late charge be deemed to grant to Tenant
a grace period or extension of time within which to pay any monthly rent or
prevent Landlord from exercising any right or enforcing any remedy available to
Landlord upon Tenant's failure to pay each installment of monthly rent due under
this Lease in a timely fashion, including the right to terminate this Lease.
All amounts of money payable by Tenant to Landlord hereunder, if not paid when
due, shall bear interest from the due date until paid at the maximum annual
interest rate allowed by law for business loans (not primarily for personal,
family or household purposes) not exempt from the usury law at such due date or,
if there is no such maximum annual interest rate, at the rate of eighteen
percent (18%) per annum.
3.7 Payment of Rent. Tenant shall pay all Base Rent and additional
---------------
monthly rent under section 3.1 hereof to Landlord, in advance, on or before the
first day of each and every calendar month during the term of this Lease.
Tenant shall pay all rent to Landlord without notice, demand, deduction or
offset, in lawful money of the United States of America, at the address of
Landlord specified in Item Q of the Basic Lease Information, or to such other
person or at such other place as Landlord may from time to time designate in
writing.
4. OPERATING EXPENSES AND PROPERTY TAXES
-------------------------------------
4.1 Tenant's Percentage Share. As used in this Lease, "Tenant's
-------------------------
Percentage Shares shall mean the percentage specified in Item N of the Basic
Lease Information.
4.2 Operating Expenses. As used in this Lease, "Operating Expenses" shall
------------------
mean all costs and expenses paid or incurred by Landlord in connection with the
ownership, management, operation, maintenance or repair of the Building or
providing services in accordance with this Lease, including the following:
salaries, wages, other compensation,
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taxes and benefits (including payroll, social security, workers' compensation,
unemployment, disability and similar taxes and payments) for all personnel
engaged in the management, operation, maintenance or repair of the Building;
uniforms provided to such personnel; premiums and other charges for all
property, earthquake, rental value, liability and other insurance carried by
Landlord, together with the amount of any deductible under such policy; water
and sewer charges or fees; license, permit and inspection fees; electricity,
chilled water, air conditioning, gas, fuel, steam, heat, light, power and other
utilities (to the extent not provided at the expense of Tenant in accordance
with the terms of this Lease); sales, use and excise taxes on goods and services
purchased by Landlord; telephone, delivery, postage, stationery supplies and
other expenses; management fees (not to exceed the prevailing rate for
management services charged by professional management companies for the
operation of comparable buildings) and expenses; equipment lease payments;
repairs to and maintenance of the Building, including Building systems and
accessories thereto and repair and replacement of worn out or broken equipment,
facilities, parts and installations, but excluding the replacement of major
Building systems; janitorial, window cleaning, security, guard, extermination,
water treatment, garbage and waste disposal, rubbish removal, plumbing and other
services; inspection or service contracts for elevator, electrical, mechanical
and other Building equipment and systems; supplies, tools, materials and
equipment; accounting, legal and other professional fees and expenses (excluding
legal fees incurred by Landlord relating to disputes with specific tenants or
the negotiation, interpretation or enforcement of specific leases); painting the
exterior or the public or common areas of the Building and the cost of
maintaining the sidewalks, landscaping and other common areas of the Building;
the cost, reasonably amortized as determined by Landlord, according to generally
accepted accounting principles, of all furniture, fixtures, draperies, carpeting
and personal property (excluding paintings, sculptures or other works of fine
art) furnished by Landlord in common areas or public corridors of the Building
or in the Building office; all costs and expenses resulting from compliance with
any laws, ordinances, rules, regulations or orders applicable to the Building;
Building office rent or rental value for office space reasonably necessary for
the proper management and operation of the Building; all costs and expenses of
contesting by appropriate legal proceedings any matter concerning managing,
operating, maintaining or repairing the Building, or the validity or
applicability of any law, ordinance, rule, regulation or order relating to the
Building, or the amount or validity of any Property Taxes; reasonable
depreciation as determined by Landlord according to generally accepted
accounting principles on all machinery, fixtures and equipment (including window
washing machinery) used in the management, operation, maintenance or repair of
the Building and on window coverings provided by Landlord; the cost, reasonably
amortized as determined by Landlord, according to generally accepted accounting
principles, of all capital improvements made to the Building or capital assets
acquired by Landlord that are designed or intended to be a labor-saving or
energy-saving device, or to improve economy or efficiency in the management,
operation, maintenance or repair of the Building, or to reduce any item of
Operating Expenses, or that are reasonably necessary to comply with any
conservation program or required by any law, ordinance, rule, regulation or
order; and such other usual costs and expenses which are paid by other landlords
for the on-site operation, servicing, maintenance and repair of first-class
office buildings in the San
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Francisco Bay Area. Operating Expenses shall not include Property Taxes and any
items of Excluded Operating Expenses identified in Exhibit E to this Lease (and
deemed incorporated herein). Actual Operating Expenses for the Base Expense
Year and each subsequent calendar year shall be adjusted, to reflect the greater
of actual occupancy, or 95% occupancy for a full calendar year (the "Gross Up").
Those items such as janitorial supplies will be escalated in the Gross Up on a
direct square footage basis, janitorial contract expense will be based upon the
janitorial contract and the vacancy credit. Other items that are fixed
regardless of occupancy will not be modified in the Gross Up. Electricity usage
for the Building will change with occupancy, but may not be directly dependent
on square footage; the Gross Up will include an allocation for fixed loads and
variable loads. The determination of Operating Expenses shall be in accordance
with generally accepted accounting and property management principles applied on
a consistent basis.
4.3 Real Property Taxes. As used in this Lease, "Property Taxes" shall
-------------------
mean all taxes, assessments, excises, levies, fees and charges (and any tax,
assessment, excise, levy, fee or charge levied wholly or partly in lieu thereof
or as a substitute therefor or as an addition thereto) of every kind and
description, general or special, ordinary or extraordinary, foreseen or
unforeseen, secured or unsecured, that are levied, assessed, charged, confirmed
or imposed by any public or government authority on or against, or otherwise
with respect to, the Building or any part thereof or any personal property used
in connection with the Building. If the Building is not assessed on a fully
completed basis for all or any part of the Base Tax Year, until it is so
assessed, Property Taxes for the Base Tax Year shall be established by
multiplying Landlord's reasonable estimate of such assessed valuation by the
applicable, tax rates for the Base Tax Year. Property Taxes shall not include
net income (measured by the income of Landlord from all sources or from sources
other than solely rent), franchise, documentary transfer, inheritance or capital
stock taxes of Landlord, unless levied or assessed against Landlord in whole or
in part in lieu of, as a substitute for, or as an addition to any Property
Taxes. Property Taxes shall not include any tax, assessment, excise, levy, fee
or charge paid by Tenant pursuant to section 5.1 hereof. Any tax rebate, refund
or reduction with respect to any period during the term of this Lease shall be
allocated to Tenant in proportion to Tenant's Percentage Share, and credited to
Tenant's obligations to pay rent hereunder until such credit is exhausted, or if
not exhausted the balance refunded to Tenant upon termination of this Lease.
4.4 Cost Pools. Landlord shall exercise good faith efforts to equitably
----------
allocate those Operating Expenses that are incurred for the direct benefit of
specific types of tenants or users in the Building to and among those specific
user classifications ("Cost Pools"). Such Cost Pools may include, but shall not
be limited to, the office and showroom space, the ground floor atrium, the lower
level exhibition hall, and any retail space tenants of the Building. Landlord's
determination of such allocations in a manner consistent with the terms and
conditions of this section 4.4 shall be final and binding on Tenant. Tenant
acknowledges that the allocation of Operating Expenses among Cost Pools does not
affect all Operating Expenses, and is limited to specific items that are
incurred or provided to tenants of Cost
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<PAGE>
Pools which Landlord determines, in good faith, it would be inequitable to share
among tenants of other Cost Pools in the Building.
5. OTHER TAXES PAYABLE BY TENANT
-----------------------------
5.1 Taxes on Real Property, Personal Property, and Tenant's Extra
-------------------------------------------------------------
Improvements. In addition to all Rent and other charges to be paid by Tenant
- ------------
under this Lease, Tenant shall reimburse Landlord upon demand for all taxes,
assessments, excises, levies, fees and charges including all payments related to
the cost of providing facilities or services, whether or not now customary or
within the contemplation of Landlord and Tenant, that are payable by Landlord
and levied, assessed, charged, confirmed or imposed by any public or government
authority upon, or measured by, or reasonably attributable to (a) the Premises,
(b) the cost or value of Tenant's equipment, furniture, fixtures and other
personal property located in the Premises or the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, regardless of whether
title to such Improvements is vested in Tenant or Landlord, (c) any rent payable
under this Lease, including any gross income tax or excise tax levied by any
public or government authority with respect to the receipt of any such rent, or
(d) the possession, leasing, operation, management, maintenance, alteration,
repair, use or occupancy by Tenant of the Premises. Such taxes, assessments,
excises, levies, fees and charges shall not include net income (measured by the
income of Landlord from all sources or from sources other than solely rent),
franchise, documentary transfer, inheritance or capital stock taxes of Landlord,
unless levied or assessed against Landlord in whole or in part in lieu of, as a
substitute for, or as an addition to any such taxes, assessments, excises,
levies, fees and charges.
All taxes, assessments, excises, levies, fees and charges payable by Tenant
under this section 5.1 shall be deemed to be, and shall be paid as, additional
rent.
6. USE
---
6.1 Permitted Use.
-------------
(a) The Premises shall be used for the Permitted Use and for such
other purposes as Landlord, in its reasonable judgment, may approve in advance
in writing as consistent with a use suitable for a first-class building of the
nature of the Building, and for no other purpose. Without limiting the
generality of the foregoing, no use, other than general office and
administrative purposes, shall be made or conducted in the area adjacent to the
Building atrium shown cross-hatched on Exhibit A. Tenant shall not do or permit
to be done in, on or about the Premises, nor bring or keep or permit to be
brought or kept therein, anything which is prohibited by or will in any way
conflict with any law, ordinance, rule, regulation or order now in force or
which may hereafter be enacted, or which is prohibited by any insurance policy
carried by Landlord for the Building, or will in any way increase the existing
rate of, or cause a cancellation of, or affect any insurance for the Building.
Landlord covenants that, as of the Delivery Date, the Permitted Use is not
prohibited by, nor
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<PAGE>
will it result in an increase in or otherwise affect, any insurance policy
carried by Landlord for the Building. Tenant shall not do or permit anything to
be done in or about the Premises which will in any way obstruct or interfere
with the rights of Landlord or other tenants of the Building, or injure or annoy
them. Tenant shall not use or allow the Premises to be used for any unlawful
purpose nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises or commit or suffer to be committed any waste in, on or about the
Premises. Tenant shall not bring or keep in the Premises any furniture,
equipment, materials or other objects which overload the Premises or any portion
thereof in excess of the Floor Load Bearing Capacity of the Building (as
hereinafter defined). As used herein, the term "Floor Load Bearing Capacity of
the Building shall mean 75 pounds per square foot UBC Design Live Load less all
tributary area reductions allowed by the 1979 UBC Code with the 1984 City of San
Francisco Amendments, plus any improvements in the Premises (including walls,
ceilings, doors, lights, flooring or other improvements) not in excess of 20
pounds per square foot UBC Design Partition Load, as allowed by the 1979 UBC
Code with 1984 City of San Francisco Amendments. If within thirty (30) days
from the date of execution of this Lease Tenant determines that the floor load
capacity is inadequate for its needs, Tenant may terminate this Lease, in which
case Tenant will reimburse Landlord for all of Landlord's costs in connection
with the negotiation and execution of this Lease, including, without limitation,
attorneys' fees and contractor design, project management and Tenant improvement
construction costs.
(b) Office Use. If for any reason it is determined by the City and
----------
County of San Francisco Planning Department that the percentage of the Premises
designated as "Office" as defined in Section 313.1(24) or 314.1 (p) of the San
Francisco City Planning Code (the "Office Use"), exceeds 2,691 square feet (the
"Permitted Office Use") Tenant shall pay to Landlord the sum of $8.05 (the "In-
Lieu Fee") for each square foot determined by the Planning Department to be
Office Use in excess of the Permitted Office Use, multiplied by 130%. The
payment shall be made to the Landlord as follows:
1. The amount of Office Use in the Building must first have
exceeded 269,680 sq. ft.;
2. Landlord shall have paid or have a legal obligation to pay
the In-Lieu Fee to the City;
3. Landlord shall have billed the Tenant in the amount of the
sum due from Tenant under the provisions of this section 6.1(b);
4. Tenant shall remit the amount described in number 3 above
within ten (10) days following the receipt of the billing.
Nothing herein shall permit the Tenant to build space for Office Use in the
Premises in excess of that which is legally permissible under the laws of the
City and County of San Francisco. If, as a result of Tenant's addition of
Office Use, as specified in this
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subparagraph (b), a Planning Commission or other City hearing is required, the
Office Uses shall not be effected until the successful completion of any such
procedure.
6.2 Roof.
----
(a) Landlord grants to Tenant a non-exclusive license (the "Roof
License") to use that portion of the roof of the Building shown in Exhibit "F-1"
for the installation, operation and maintenance of the telecommunications
equipment more particularly described in Exhibit "F-2," and any substantially
similar replacements thereof (the "Roof Top Facilities"), together with a non-
exclusive license (the "Access License") to use in connection with exercise of
the Roof License (i) such stairwells and roof access passageways in the Building
as may be designated by Landlord for the purpose of ingress to and egress from
the Facilities; and (ii) the existing utility and telecommunications conduits,
ducts, and cabling in the Building, as may be designated by Landlord, for the
purpose of transmission of data to and from the Roof Top Facilities and for the
generation of electricity and conditioned air for transmission to the Premises.
The Roof License and the Access License are collectively referred to herein as
the "Licenses," are personal to the named Tenant under this Lease and any
Permitted Tenant Affiliate or Qualified Successor (as such terms are hereinafter
defined), and are not otherwise assignable or transferable in whole or in part.
The Licenses are subject to the terms and conditions contained in Exhibit "F-3"
attached hereto (the "Terms and Conditions"), the terms of which are
incorporated into this Lease by this reference. Any default by Tenant under the
Terms and Conditions shall be deemed a default under this Lease.
(b) Tenant shall pay Landlord, as additional rent, a license fee for
the use of the Licenses, the amount of Five Dollars ($5.00) per square foot of
roof area (plus a 5 foot perimeter) utilized by Tenant for the Roof License (the
"Basic License Fee"), plus the cost of all utility connections and meters, and
other expenses reasonably incurred by Landlord in managing the roof top access
to and use of the Facilities (the "License Charges"). The Basic License Fee
shall increase beginning on January 1, 1999 and each year thereafter by an
amount equal to four percent (4%) of the prior year's Basic License Fee. The
Basic License Fee shall be paid in the same manner as Base Rent, and any default
in the payment of the Basic License Fee or any other License Charges shall be
deemed a default in the payment of Base Rent under this Lease.
(c) Landlord may construct a roof top telecommunications facility for
the common use by tenants of the Building (the "Common Roof Top Facility") and
may require Tenant to relocate its telecommunications facilities thereto,
provided such relocation does not result in any interference with or degradation
of the quality and strength of the transmission and reception capabilities of
the Facilities. No relocation shall result in an interruption of service to
Tenant for more than five (5) minutes. Tenant and the other tenants using the
Common Roof Top Facility shall share pro rata in the cost of construction,
operation and maintenance thereof, based on an allocation of use determined by
Landlord. Following any such relocation, the Licenses provided in section
6.2(a) shall be deemed terminated.
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<PAGE>
Notwithstanding anything in the foregoing to the contrary, if prior to the date
Tenant installs any Roof Top Facilities Landlord elects to construct the Common
Roof Top Facility and to relocate Tenant thereto, Tenant shall pay for any and
all costs in relocating its telecommunications facilities to the Common Roof Top
Facility. If Landlord elects to relocate Tenant to the Common Roof Top Facility
at any time after Tenant has installed any such facility, Landlord shall pay for
all costs of physically relocating and repositioning Tenant's any existing roof-
top telecommunications facilities.
6.3 Other Facilities.
----------------
(a) Subject to Landlord's approval thereof in accordance with the
terms of the Tenant Improvement Work Agreement, Landlord agrees that Tenant may
install an uninterrupted power supply battery system in a location in the
Premises reasonably acceptable to Landlord.
(b) Landlord acknowledges that Tenant is executing this Lease in
reliance on its ability to have access to and/or to install (i) an emergency
generator providing up to 500 kilowatts of power and 2,000 gallons of fuel tank
capacity to support said generator in providing back-up power in the event of an
interruption of utilities (provided, however, the fuel tank shall only be a fuel
tank that is installed by Landlord as a shared facility with access to Tenant
for the capacity herein provided), and (ii) supplemental chiller equipment with
the capacity of 100 tons of cooling, and (iii) a transformer and related
equipment supplying additional electrical power of up to 500 kw (collectively,
the "Tenant Auxiliary and Emergency Power Facility").
(c) Tenant acknowledges that Landlord is considering the construction
(by an independent third party (the "Auxiliary Power Provider"), if commercially
practical) and installation of equipment and facilities in and about the
Building that would enable Tenant and other tenants in the Building to access
additional electrical, emergency power and supplemental cooling capacity (the
"Shared Auxiliary and Emergency Power Facility"), with an allocation to Tenant
sufficient to provide the capabilities noted in section 6.3(b) above. If
Landlord elects to construct and/or install the Shared Auxiliary and Emergency
Power Facility, Tenant shall pay its prorate share of any and all construction
costs and all costs of operation and maintenance associated therewith, based on
Tenant's pro-rata share the numerator of which is the Tenant's allocated
capacity and the denominator of which is the total capacity of the Shared
Auxiliary and Emergency Power Facility. If on or before February 15, 1998,
Tenant has not been able to obtain commercially reasonable assurances from the
Auxiliary Power Provider as to the scope, charges and contractual arrangements
that the Auxiliary Power Provider will require Tenant to accept as a condition
to the Auxiliary Power Provider providing the Shared Auxiliary and Emergency
Power Facility, and Landlord is otherwise unable within ten (10) days thereafter
to cause the Auxiliary Power Provider to extend to Tenant such assurances as are
reasonably acceptable to Tenant, Tenant may provide Landlord with Tenant's
written notice of its election to terminate this Lease unless, on or before
March 17, 1998, Landlord designates one or more locations in the
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<PAGE>
Building where Tenant may, at its sole cost and expense, construct the Tenant
Auxiliary and Emergency Power Facility. If Tenant reasonably disapproves of the
location(s) designated by Landlord for the Tenant Auxiliary and Emergency Power
Facility, Tenant shall provide Landlord with a detailed proposal of an
alternative location or locations for such facilities. If following good faith
discussions between Landlord and Tenant over a period of fifteen (15) days from
the date of Tenant's proposal, Landlord is unable to resolve to the satisfaction
of Tenant Tenant's reasonable objections to Landlord's designated location for
Tenant's Auxiliary and Emergency Power Facility, Tenant, as its sole and
exclusive remedy, may terminate this Lease, including, without limitation,
attorneys' fees and contractor design, project management and Tenant improvement
construction costs. If and to the extent Tenant is authorized to install and
construct the Tenant Auxiliary and Emergency Power Facility, all costs of
construction shall be the sole responsibility of Tenant. In Addition, Tenant
shall pay a fee for the placement and use of such facility, as additional rent,
equal to Five Dollars ($5.00) per square foot, per annum, for roof top area, and
Fifteen Dollars ($15.00) per square foot, per annum, for any covered area (in
either case, Tenant shall bear all costs for operations and maintenance so that
such sums are net to Landlord). Such rent shall be subject to increase,
annually by an amount equal to four percent (4%) of the prior year's charges.
The facility fee provided herein shall be paid in the same manner as Base Rent,
and any default in the payment of the fee or any other charges shall be deemed a
default in the payment of Base Rent under this Lease.
(d) Tenant's obligations under section 6.3(c) shall survive the
termination of this Lease.
(e) Landlord will cooperate with Tenant in locating additional
telecommunications cabling main points of entry ("MPOE's") to the Building, in
addition to the existing MPOE, to provide redundancy of access for
telecommunication services and providers to the Building.
(f) If Landlord fails or is unable (for any reason), (i) following
three (3) days' written notice from Tenant, or (ii) following telephone notice
to the property manager if an emergency to keep the Building fuel tank
contemplated by section 6.3(b) hereof filled to the capacity required for
Tenant's use thereof, Tenant, at its sole cost and expense, shall have the right
to fill the tank with fuel approved for use by Landlord in the fuel tank;
provided, however, such inability or failure by Landlord shall not be deemed a
default by Landlord under this Lease.
7. SERVICES
--------
7.1 Landlord Services.
-----------------
(a) Subject to Tenant's obligation for payment as described in
section 7.2, Landlord shall supply the Premises with access to electricity for
normal lighting, the operation of desk top office machines and other equipment
and for perimeter electric heat,
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<PAGE>
water for drinking purposes and, during Normal Business Hours, ventilating and
air conditioning ("VAC") reasonably required for the use and occupancy of the
Premises. Landlord shall also furnish normal elevator service at all times, and
lighting replacements for Building standard lights, rest room supplies and
window washing when needed, as determined by Landlord and subject to the Rules
and Regulations. Landlord shall not be obligated to furnish janitorial services
to the Premises. Landlord shall furnish customary guard/surveillance service
for the Building (not Tenant or the Premises); provided, however, Landlord shall
not be liable for any criminal acts of others or for any direct, consequential
or other loss or damage related to any malfunction, circumvention or other
failure of such surveillance service. Without limiting the generality of the
foregoing:
(i) Landlord will provide as a Building service through the
existing chilled water/fan coil system of the Building not less than one
(1) ton of cooling, at peak demand, for each 325 usable square feet of the
Premises. Tenant's design engineers must include allocations for
environmental loads (solar gain, etc.), occupant loads and lighting loads
in addition to Tenant's equipment loads within the one ton per 325 usable
square feet requirement, to the satisfaction of Landlord. In addition,
Landlord will provide Tenant access to 25 tons of chilled water, at
Tenant's sole cost and expense from Landlord's auxiliary riser system. The
Building ventilation systems are capable of supplying 100% outside air.
The Building is designed to the ASHRAE 5% design standards for San
Francisco. Tenant shall have the right to install, at its expense,
temperature gauges and flow meters at the discharge points of each base
building fan coil unit.
(ii) Landlord will provide Tenant access to up to 8 watts of
electric power per usable square foot, of which 1.5 watts per usable square
foot shall be allocated for lighting and 2.1 watts per usable square foot
shall be allocated for heat.
(iii) Landlord will make heating available, at Tenant's sole
cost and expense, from the existing thermostat controlled electric coils
located along the perimeter of the Premises. The location and quantity of
the existing electric coils may not be sufficient for Tenant's needs.
Tenant is responsible for thermostat controls and for temperature
maintenance in the Premises. Landlord does not provide heating as a
Building service.
(iv) Tenant will provide its own janitorial service in and to
the Premises with non-union contractors reasonably acceptable to Landlord.
Such contractors shall, at all times, be under the supervision of Tenant;
provided, however, such contractors shall be required to adhere to the
rules and regulations established from time to time by landlord for vendors
and contractors performing services in the Building, a copy of which shall
have been provided to Tenant.
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(v) The Normal Business Hours of the Building are Monday
through Friday (exclusive of days that are not Business Days) 8:00 a.m.
through 6:00 p.m., and on Saturdays 8:00 a.m. through 1:00 p.m. As used
herein, the term "Business Days" means the days Monday through Friday
(excluding New Year's Day, Martin Luther King Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day, or the business days on which such holidays are observed).
(vi) Landlord shall provide freight elevator service, without
charge during Normal Business Hours. Over-time freight service will be
charged to Tenant at Landlord's actual cost.
(b) Landlord shall not be in default under this Lease or be liable
for any damage or loss directly or indirectly resulting from, nor shall the rent
be abated or a constructive or other eviction be deemed to have occurred by
reason of, any installation, use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing services, any failure to
furnish or delay in furnishing any such services when such failure or delay is
caused by accident or breakdown or any condition beyond the reasonable control
of Landlord or by the making of repairs or improvements to the Premises or to
the Building, or any limitation, curtailment, rationing or restriction on use of
water, electricity, gas or any resource or form of energy serving the Premises
or the Building, whether such results from mandatory restrictions or voluntary
compliance with guidelines. Landlord shall use reasonable efforts to correct any
interruption in the furnishing of such services.
7.2 Electric Current. It is the intention of the parties that Tenant
----------------
shall pay directly for all the electric current used in the Premises (including
electric current for heat). Landlord shall have the right to install a meter or
a submeter in the Premises (together with all necessary recircuiting) to
determine the exact amount of electricity used by Tenant. Tenant shall pay for
the cost of installation and maintenance of the electric meter. Tenant shall
pay, as they become due, all charges shown by the meter or submeter for the use
of electric current. Landlord shall not charge a rate for the use of electric
current higher than the rate charged to Landlord by the electric company for
electricity consumption in the Building. If Landlord is able to do so, Landlord
reserves the right to cause all electrical power to be metered directly to, and
for the separate and sole account of, Tenant by the public utility company.
7.3 Restrictions on Use. Tenant shall not use or install any apparatus,
-------------------
device or equipment in the Premises, which will in any way require cooling load
capabilities in excess of 1.5 watts per usable square foot for lighting, and 2.1
watts per usable square foot for equipment, or increase the amount of water or
electricity required to be furnished by Landlord in accordance with section
8.3(b)(iii) and (iv) below, in each case unless the same is capable of being
operated and cooled solely by the auxiliary power and chilled water to which
Tenant shall be provided access in accordance with sections 7.1(i) and (ii)
above. Tenant shall not connect any apparatus, device or equipment to the
Building's plumbing
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<PAGE>
system or utilize the water supplied to the Premises other than for the purposes
for which Landlord's installed equipment or improvements are customarily
intended. Tenant shall not connect or use any electrical equipment that exceeds
the capacity of the VAC system of the Premises without first providing Landlord
with plans and specifications evidencing, to the reasonable satisfaction of
Landlord, the installation and operation of supplemental VAC facilities that
will provide cooling to efficiently operate any equipment with an aggregate
electrical load in excess of the design capacity of the existing VAC system in
the Premises. In no event shall Tenant connect or use any equipment in the
Premises that shall exceed the total electrical load capacity of the Premises.
7.4 Additional Services. Except as provided in section 7.3 above, if
-------------------
during any hours other than the Normal Business Hours of the Building or any
days other than Business Days, Tenant desires to have any services or utilities
supplied to the Premises, and if Landlord is able to provide the same, Tenant
shall pay Landlord such charge as Landlord shall establish from time to time for
providing such services or utilities. Any such charges which Tenant is
obligated to pay shall be deemed to be additional rent hereunder. For
information purposes only, Landlord hereby notifies Tenant that the current
charges applicable to Tenants' extra hours use of VAC is Eighteen Dollars
($18.00) per hour, for air only, and One Hundred Ten Dollars ($110.00) per hour,
per floor, for chilled air. Such charges are subject to change without notice;
provided, however, Landlord will at all times maintain uniform charges for extra
VAC usage applicable to all tenants in the Building. If and to the extent other
tenants in the Building utilize after-hours VAC service during the period Tenant
utilizes such service, Tenant will be charged a proportionate share of such
after-hours charges (based on square footage of the Premises, or portion thereof
as to which Tenant is utilizing such service, and the space of such other
tenants.
8. MAINTENANCE AND REPAIRS
-----------------------
8.1 Landlord's Obligation to Repair. Landlord shall maintain and repair
-------------------------------
as an Operating Expense the public and common areas of the Building, such as
plazas, lobbies, stairs, corridors and rest rooms, the roof and exterior
elements of the Building, and the elevator, mechanical (heating, ventilating and
air conditioning and electrical systems of the Building and keep such areas,
elements and systems in reasonably good order and condition. Any damage in or
to any such areas, elements or systems caused by Tenant or any agent, officer,
employee, contractor, licensee or invitee of Tenant shall be repaired by
Landlord at Tenant's expense and Tenant shall pay to Landlord, upon billing by
Landlord, as additional rent, the cost of such repairs incurred by Landlord.
8.2 Tenant's Obligation to Repair.
-----------------------------
(a) Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, maintain and repair the Premises and every part
thereof and all equipment, fixtures and improvements therein (except as
otherwise provided in section 8.1 above), and keep all of the foregoing clean
and in good order and operating condition,
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ordinary wear and tear and damage thereto by fire or other casualty excepted.
All repairs and replacements made by or on behalf of Tenant shall be made and
performed at Tenant's cost and expense, by contractors or mechanics approved by
Landlord, and in a manner such that the same shall be at least equal in quality,
value and utility to the original work or installation being repaired or
replaced. Tenant hereby waives all rights under California Civil Code section
1941 and all rights to make repairs at the expense of Landlord or in lieu
thereof to vacate the Premises as provided by California Civil Code section 1942
or any other law, statute or ordinance now or hereafter in effect.
(b) Subject to and except as others provided in section 9.2 hereof,
Tenant shall, at the end of the term of this Lease, surrender to Landlord the
Premises and all alterations, additions, fixtures and improvements therein or
thereto in the condition specified in section 2 hereof, ordinary wear and tear
and damage thereto by fire or other casualty excepted. Notwithstanding anything
in the foregoing to the contrary, any equipment or installation in the Premises
used in the provision of telecommunication services shall not be deemed an
Alteration or fixture that is surrendered with the Premises at the end of the
term, and the same shall be deemed Tenant's Property.
8.3 Landlord's Work.
---------------
(a) Landlord intends to upgrade and improve certain common areas and
utility and other systems of the Building ("Landlord's Building Upgrade Work").
Tenant acknowledges that the performance of Landlord's Upgrade Work may result
in noise, dust and other temporary inconveniences or interruptions to the
conduct of normal business activity in the Building. Landlord will utilize
above standard measures to reduce noise levels associated with the performance
of Landlord's Building Upgrade Work; provided, however, Landlord's Building
Upgrade Work shall in no event constitute a constructive eviction or serve as a
basis for any abatement or reduction in rent.
(b) Landlord covenants to construct, at Tenant's sole cost and
expense, and to provide for Tenant's use the following improvement ("Landlord's
Work"):
(i) three, four-inch sleeves in the second floor slab of
Quadrant 2A, in a location determined by Landlord, and reasonably
acceptable to Tenant, for telecommunications cabling for the exclusive use
of Tenant;
(ii) horizontal and vertical paths of travel between the
Building's MPOE (main point of entry) for telecommunications cabling to the
sleeves in the second floor slab described in clause (i) above;
(iii) one, 6 inch by 12 inch penetration in the second floor
slab of Quadrant 2A in a location determined by Landlord and reasonably
acceptable to Tenant, for the exclusive use of Tenant for additional
electrical power to the Premises; and
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(iv) new auxiliary utility (chilled water, plumbing) risers and
common exhaust duct running from the atrium floor of the Building,
vertically through the sixth floor of the Building in Quadrants A and B and
access to 100 tons of chilled water, at Tenant's sole cost and expense,
from the new auxiliary riser system.
(c) If Landlord's Work and the Shared Auxiliary and Emergency Power
Facility are not completed by July 31, 1998, as such date is extended by Tenant
Delays and Force Majeure (the "Penalty Date"), Tenant shall have the right, as
its sole and exclusive remedy, to terminate this upon thirty (30) days' notice
if such work and/or facility is not completed and operational prior to the
expiration of said thirty (30) day period. For each day beyond the Penalty Date
that Landlord's Work is not completed Landlord shall credit against the Base
Rent next coming due under this Lease the Base Building Delay Payment. As used
herein, the term "Base Building Delay Payment" shall mean the amount determined
by multiplying one cent ($.01) by the total rentable square footage of the
Premises, for each day Landlord fails to substantially complete the work to
which the payment applies, for up to the first sixty (60) days of such delay,
and thereafter in the amount determined by multiplying two cents ($.02) by the
total rentable square footage of the Premises, for each day thereafter that
Landlord fails to substantially complete the work to which the payment applies.
9. ALTERATIONS
-----------
9.1 Landlord's Consent. Tenant shall not make any alterations, additions
------------------
or improvements in or to the Premises or any part thereof (hereinafter
"Alterations") without Landlord's prior written consent, which consent shall not
be unreasonably withheld or delayed, except that Landlord may withhold or
condition such consent in its sole and absolute discretion if the same in any
way affects or involves the structural, exterior (including any portion of the
Premises exposed to the atrium) or roof elements of the Building or the
elevator, mechanical, electrical, plumbing, life safety or other systems of the
Building. Notwithstanding the preceding sentence, Tenant may make Alterations
without Landlord's prior consent only if: (i) the total cost of the full
project or job incorporating such Alterations is Twenty Thousand Dollars
($20,000) or less (except if the Alteration is limited to the installation of
telephone switching equipment, in which case, no dollar limit shall apply), and
(ii) the Alterations will not in any way affect or involve the structural,
exterior (including any portion of the Premises exposed to the atrium) or roof
elements of the Building or the elevator, mechanical, electrical, plumbing, life
safety or other systems of the Building, but Tenant shall give at least ten (10)
days prior written notice of any such Alterations, additions or improvements to
Landlord. All Alterations, including the tenant improvements (the "Initial
Tenant Improvements") to be constructed or installed in the Premises in
accordance with the Tenant Improvement Work Agreement attached as Exhibit C to
this Lease (the "Tenant Improvement Work Agreement"), shall be made by Tenant,
at Tenant's sole cost and expense, as follows:
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(a) All Alterations shall comply with all applicable codes, laws,
ordinances, rules and regulations, shall not adversely affect the Building shell
and shall comply with any material and design specifications adopted by Landlord
from time to time for uniform application to any tenant improvement work in the
Building.
(b) Tenant shall, through Tenant's licensed contractor(s), perform
all work in accordance with the plans and specifications approved by Landlord.
Tenant shall pay for all work (including the cost of all utilities, permits,
fees, taxes, and property and liability insurance premiums in connection
therewith) required to make the alterations, additions and improvements. Tenant
shall be responsible for any additional alterations, additions or improvements
required by law to be made by Landlord in or to the Building as a result of any
Alterations made by or for Tenant. Tenant shall engage responsible licensed
contractor(s) approved in writing by Landlord to perform all work. Tenant's
contractors, subcontractors, laborers and suppliers shall be recognized by the
Bay Area Building Trade Council, and shall be compatible with any union labor
agreements applicable to the Building and any other work planned or in progress
in the Building. Tenant shall notify Landlord in writing of the licensed
contractor(s) whom Tenant proposes to engage for the work. Landlord shall notify
Tenant in writing within ten (10) business days whether Landlord approves or
disapproves such contractor(s). All contractors and other persons shall at all
times be subject to Landlord's control while in the Building. Under no
circumstances shall Landlord be liable to Tenant for any damage, loss, cost or
expense incurred by Tenant on account of Tenant's plans and specifications,
Tenant's contractors or subcontractors, design of any work, construction of any
work, or delay in completion of any work.
(c) Tenant shall reimburse Landlord upon demand for all reasonable
out-of pocket expenses incurred by Landlord in connection with any Alterations
made by Tenant, including reasonable fees charged by Landlord's contractors or
consultants to review plans and specifications prepared by Tenant and to update
the existing as-built plans and specifications of the Building to reflect the
Alterations. Without limiting the generality of the foregoing, except as
provided in the Tenant Improvement Work Agreement, with respect to any work
requiring the prior written consent of Landlord, unless Tenant utilizes
Landlord's project manager and contractor for such work, Tenant shall pay to
Landlord an amount equal to ten percent (10%) of the cost of such work to
compensate Landlord for all overhead, general conditions, fees and other costs
and expenses arising from Landlord's involvement with such work (provided,
however, no charge shall be assessed with respect to the cost of the work
attributable to the cost of telephone switching equipment). If Tenant utilizes
Landlord's project manager and contractor for such work, the fee shall equal
five percent (5%) of the cost of the work.
(d) In addition to requirements of section 10.2 of this Lease, in the
event that Tenant makes any Alterations, prior to the commencement of such
Alterations, Tenant shall provide Landlord with evidence that Tenant carries
"Builder's All Risk" insurance in an amount approved by Landlord covering the
construction of such Alterations, and such other insurance as Landlord may
reasonably require, it being understood and agreed that all of
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such Alterations shall be insured by Tenant pursuant to section 10.2 of this
Lease immediately upon completion thereof. In addition, with respect to any
Alterations, the projected cost of which exceeds $100,000, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.
(e) At least ten (10) days prior to such date, Tenant shall give
written notice to Landlord of the date on which construction of any work will be
commenced. Tenant shall cause all work to be performed by the licensed
contractor(s) approved in writing by Landlord in accordance with the plans and
specifications approved in writing by Landlord and in compliance with all
applicable codes, laws, ordinances, rules and regulations. Notwithstanding the
notice given above, work shall not commence prior to Landlord's receipt and
approval of Tenant's licensed contractor(s), including all subcontractors, a
detailed project schedule, a valid building permit for the work, insurance
certificates with endorsements for additional insureds, all required bonds and a
list of 24-hour emergency contacts for Tenant, Tenant's contractor(s) and
subcontractor(s). Tenant shall keep the Premises and the Building free from
mechanics', materialmen's and all other liens arising out of any work performed,
labor supplied, materials furnished or other obligations incurred by Tenant.
Tenant shall promptly and fully pay and discharge all claims on which any such
lien could be based. Tenant shall have the right to contest the amount or
validity of any such lien, provided Tenant gives prior written notice of such
contest to Landlord, prosecutes such contest by appropriate proceedings in good
faith and with diligence, and, upon request by Landlord, furnishes such bond as
may be required by law to protect the Premises and the Building from such lien.
Landlord shall have the right to post and keep posted on the Premises any
notices that may be provided by law or which Landlord may deem to be proper for
the protection of Landlord, the Premises and the Building from such liens, and
to take any other action Landlord deems necessary to remove or discharge liens
or encumbrances at the expense of Tenant.
9.2 Approval of Plans and Specifications. In addition to the requirements
------------------------------------
of section 9.1, where the prior consent of Landlord is required with respect to
any Alterations, except as otherwise provided to the contrary in the Tenant
Improvement Work Agreement with respect to the Initial Tenant Improvements:
(a) Tenant shall submit to Landlord, for Landlord's written approval,
plans and specifications for all work to be done by Tenant. Such plans and
specifications shall be prepared, at Tenant's sole cost and expense, by
responsible licensed architect(s) and engineer(s) approved in writing by
Landlord shall be in a form sufficient to secure the approval of all government
authorities with jurisdiction over the Building, and shall be otherwise
satisfactory to Landlord in Landlord's reasonable discretion. Landlord shall
cooperate with Tenant in the application for, and in the pursuit of, all
governmental permits and approvals and shall execute, when required, any
applications reasonably requested by Tenant. Tenant shall notify Landlord in
writing of the licensed architect(s) and engineer(s)
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whom Tenant proposes to engage to prepare such plans and specifications.
Landlord shall notify Tenant in writing within ten (10) business days whether
Landlord approves or disapproves such architect(s) and engineer(s).
(b) Landlord shall notify Tenant in writing within ten (10) business
days whether Landlord approves or disapproves such plans and specifications and,
if Landlord disapproves such plans and specifications, Landlord shall describe
the reasons for disapproval. Tenant may submit to Landlord revised plans and
specifications for Landlord's prior written approval. Tenant shall pay all
costs, including the fees and expenses of the licensed architect(s) and
engineer(s), in preparing such plans and specifications and all revisions
requested by Landlord.
(c) All changes in the plans and specifications approved by Landlord
shall be subject to Landlord's prior written approval. If Tenant wishes to make
any such change in such approved plans and specifications, Tenant shall have
Tenant's architect(s) and engineer(s) prepare plans and specifications for such
change and submit them to Landlord for Landlord's written approval. Landlord
shall notify Tenant in writing within ten (10) business days whether Landlord
approves or disapproves such change and, if Landlord disapproves such change,
Landlord shall describe the reasons for disapproval. Tenant may submit to
Landlord revised plans and specifications for such change for Landlord's written
approval. After Landlord's written approval of such change, such change shall
become part of the plans and specifications approved by Landlord.
9.3 Ownership and Surrender of Alterations. All Alterations including,
--------------------------------------
without limitation, the Initial Tenant Improvements installed in the Premises,
which are attached to, or built into, the Premises, including without
limitation, floor coverings, wall coverings, paneling, molding, doors, vaults,
plumbing systems, electrical systems, mechanical systems, structural systems,
lighting systems, sound equipment, communication systems (including Tenant's
telecommunications switching equipment and racks) and outlets for the systems
mentioned above and for all telephone, computer, radio and television purposes,
and any special flooring or ceiling installations, shall be the property of
Tenant during the Term and Tenant shall be permitted to grant security interests
in such installations and improvements, subject to Landlord's reversionary
interest, so long as such security interests shall not result in a lien against
the Premises, or the Building. Upon the expiration of the Term or termination
of this Lease, all such Alterations shall become the property of Landlord and
shall be surrendered, lien free, with the Premises, as a part thereof; provided,
however, Tenant shall (i) cause those portions of the Premises (and/or portions
of the Building outside of the Premises used by Tenant for Tenant's Additional
Facilities) to be restored to shell condition (including the removal and/or
demolition of all improvements) that Landlord, upon approval by Landlord of
Tenant's plans and specifications for such Alternations, has determined are
specialized and/or non-reusable for general office tenants (including, without
limitation, classrooms, manufacturing areas, storage and labs), and (ii) remove
any dedicated telecommunication cabling and wiring in the Building risers and
above the ceiling tiles and within walls of the Premises that would ordinarily
not be used by a-general office tenant, and
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in all events to repair any damage to the Premises and the Building caused by
such work and/or removal of improvements, all at Tenant's sole expense and to
the reasonable satisfaction of Landlord. Any articles of personal property
including business and trade fixtures not attached to, or built into, the
Premises, machinery and equipment including Tenant's telecommunications
switching equipment and racks, free-standing cabinet work, and movable
partitions, shall be and remain the property of Tenant and Tenant shall remove
all such property at the expiration or earlier termination of this Lease.
Tenant shall repair any damage to the Premises and any other part of the
Building caused by such removal, reasonable wear and tear excepted. For
purposes of the insurance requirements of section 10.2, Tenant shall be deemed
to have an insurable interest in all Alterations in the Premises. Termination
of this Lease shall not affect the obligations of Tenant pursuant to this
section 9.2 to be performed after such termination.
9.4 Lien Waiver. Landlord shall have no lien or other security whatsoever
-----------
in any item of Tenant's Property, or any portion thereof or interest therein
located in the Premises or elsewhere, and Landlord hereby waives all such liens
and security interests. Upon Tenant's request, Landlord shall execute documents
in form reasonably acceptable to Landlord to evidence Landlord's waiver of any
right, title, lien or interest in Tenant's Property located in the Premises.
10. INSURANCE
---------
10.1 Release and Indemnity. Landlord shall not be liable to Tenant, and
---------------------
Tenant hereby waives all claims against Landlord, for any damage To or loss or
theft of any property or for any bodily or personal injury, illness or death of
any person in, on or about the Premises or the Building arising at any time and
from any cause whatsoever, except to the extent caused by the gross negligence
or willful misconduct of Landlord. Tenant shall indemnify and defend Landlord
against and hold Landlord harmless from all claims, demands, liabilities,
damages, losses, costs and expenses, including reasonable attorneys' fees and
disbursements, arising from or related to any use or occupancy of the Premises,
or any condition of the Premises, or any default in the performance of Tenant's
obligations, or any damage to any property (including property of employees and
invitees of Tenant) or any bodily or personal injury, illness or death of any
person (including employees and invitees of Tenant) occurring in, on or about
the Premises or any part thereof arising at any time and from any cause
whatsoever (except to the extent caused by the gross negligence or willful
misconduct of Landlord), or occurring in, on or about any part of the Building
other than the Premises when such damage, bodily or personal injury, illness or
death is caused by any act or omission of Tenant or its agents, officers,
employees, contractors, invitees or licensees. This section 10.1 shall survive
the termination of this Lease with respect to any damage, bodily or personal
injury, illness or death occurring prior to such termination.
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10.2 Tenant Insurance.
----------------
(a) Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, obtain and keep in force workers' compensation
insurance as required by law, including an employers' liability endorsement;
business interruption insurance in an amount equal to all Rent payable under
this Lease for a period of twelve (12) months (at the then current rent
charged); and commercial general liability insurance, including contractual
liability (specifically covering this Lease), fire, legal liability, and
premises operations, with a minimum combined single limit in the amount
specified in Item P of the Basic Lease Information per occurrence for bodily or
personal injury to, illness of, or death of persons and damage to property
occurring in, on or about the Premises or the Building. Not more frequently
than once each two (2) years, if, in the reasonable opinion of Landlord's
lender, or of the insurance broker retained by Landlord, the amount of public
liability and property damage insurance coverage at that time is not adequate,
Tenant shall increase the dollar amount of such insurance coverage as required
by Landlord's lender or Landlord's insurance broker; provided, however, with
respect to an increase in coverage required by Landlord's insurance broker, said
requirement must be consistent with coverages required by other landlords of
first class office projects.
(b) Tenant shall at all times during the Term maintain in effect
policies of insurance covering all leasehold improvements (including, but not
limited to, all Tenant Improvements and Alterations) trade fixtures, merchandise
and other personal property from time to time in, on or upon the Premises, in an
amount not less than one hundred percent (100%) of their actual replacement cost
from time to time during the Term as reasonably determined by Tenant, providing
protection against any peril included within the classification "All Risk
Coverage," together with insurance against sprinkler water damage, vandalism and
malicious mischief. The proceeds of such insurance, so long as this Lease
remains in effect, shall be used for the repair or replacement of the property
so insured. Upon termination of this Lease due to any casualty, the proceeds of
insurance shall be paid to Tenant. The full replacement value of the items to
be insured under this section 10.2(b) shall be determined by Tenant and
acknowledged by the company issuing the insurance policy by the issuance of an
agreed amount endorsement at the time the policy is initially obtained, and
shall be increased as reasonably requested by Landlord from time to time.
10.3 Policy Requirements. All insurance required under this Article 10 and
-------------------
all renewals thereof shall be issued by companies qualified to do and doing
business in the State of California and with a rating of A+, XI or better in
"Best's Insurance Guide." Each policy shall have a deductible or deductibles,
if any, which do not exceed one thousand dollars ($1,000) per occurrence. Each
policy shall expressly provide that the policy shall not be canceled or altered
without thirty (30) days' prior written notice to Landlord and shall remain in
effect notwithstanding any such cancellation or alteration until such notice
shall have been given to Landlord and such period of thirty (30) days shall have
expired. All liability insurance under this Article 10 shall name Landlord and
any other parties designated by Landlord as an additional insured, shall be
primary and noncontributing with any
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insurance which may be carried by Landlord, shall afford coverage for all claims
based on any act, omission, event or condition that occurred or arose (or the
onset of which occurred or arose) during the policy period, and shall expressly
provide that Landlord, although named as an insured, shall nevertheless be
entitled to recover under the policy for any loss, injury or damage to Landlord.
Upon the issuance thereof, Tenant shall deliver each such policy or a certified
copy and a certificate thereof to Landlord for retention by Landlord. If Tenant
fails to insure or fails to furnish to Landlord upon notice to do so any such
policy or certified copy and certificate thereof as required, Landlord shall
have the right from time to time to effect such insurance for the benefit of
Tenant or Landlord or both of them and all premiums paid by Landlord shall be
payable by Tenant as additional rent on demand. Neither the issuance of any
such insurance policy nor the minimum limits specified in section 10.2 shall be
deemed to limit or restrict in any way Tenant's liability arising under or Out
of this Lease.
10.4 Waiver of Subrogation. Tenant waives on behalf of all insurers under
---------------------
all policies of property, liability and other insurance (excluding workers'
compensation) now or hereafter carried by Tenant insuring or covering the
Premises, or any portion or any contents thereof, or any operations therein, all
rights of subrogation which any insurer might otherwise, if at all, have to any
claims of Tenant against Landlord. Landlord waives on behalf of all insurers
under all policies of property, liability and other insurance (excluding
workers' compensation) now or hereafter carried by Landlord insuring or covering
the Building or any portion or any contents thereof, or any operations therein,
all rights of subrogation which any insurer might otherwise, if at all, have to
any claims of Landlord against Tenant. Tenant shall, prior to or immediately
after the date of this Lease, procure from each of the insurers under all
policies of property, liability and other insurance (excluding workers'
compensation) now or hereafter carried by Tenant insuring or covering the
Premises, or any portion or any contents thereof, or any operations therein, a
waiver of all rights of subrogation which the insurer might otherwise, if at
all, have to any claims of Tenant against Landlord as required by this section
10.4.
11. COMPLIANCE WITH LEGAL REQUIREMENTS
----------------------------------
11.1 Tenant Compliance. Tenant shall, at Tenant's sole cost and expense,
-----------------
promptly comply with all laws, ordinances, rules, regulations, orders and other
requirements of any government or public authority now in force or which may
hereafter be in force, with all requirements of any board of fire underwriters
or other similar body now or hereafter constituted, and with all directions and
certificates of occupancy issued pursuant to any law by any governmental agency
or officer, insofar as any thereof relate to or are required by the condition,
use or occupancy of the Premises or the operation, use or maintenance of any
personal property, fixtures, machinery, equipment or improvements in the
Premises, but Tenant shall not be required to make structural changes unless
structural changes are related to or required by Tenant's acts or use of the
Premises or by improvements made by or for Tenant.
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12. ASSIGNMENT OR SUBLEASE
----------------------
12.1 Lease is Personal. The purpose of this Lease is to transfer
-----------------
possession of the Premises to Tenant for Tenant's personal use in return for
certain benefits, including Rent, to be transferred to the Landlord. Tenant's
right to assign or sublet as stated in this Article is subsidiary and incidental
to the underlying purpose of this Lease. Tenant acknowledges and agrees that it
has entered into this Lease in order to acquire the Premises for its own
personal use and for the use of Permitted Tenant Affiliates, as herein provided,
and not for the purpose of obtaining the right to convey the leasehold to
others.
12.2 "Transfer of the Premises" Defined. The terms "Transfer of the
------------------------
Premises" or "Transfer" as used herein shall include any assignment of all or
any part of this Lease (including assignment by operation of law), subletting of
all or any part of the Premises or transfer of possession, or granting of the
right of possession or contingent right of possession of all or any portion of
the Premises including, without limitation, license, concession, mortgage,
devise, hypothecation, agency, franchise or management agreement, or suffering
any other person (the agents and servants of Tenant excepted) to occupy or use
the Premises or any portion thereof. If Tenant is a corporation, the stock of
which is not regularly traded on a nationally recognized public stock exchange,
or is an unincorporated association or partnership, or Tenant consists of more
than one party, the transfer, assignment or hypothecation of any stock or
interest in such corporation, association, partnership or ownership interest, in
the aggregate in excess of twenty-five percent (25%), or the merger of
conversion of said entity into another entity, shall be deemed a Transfer of the
Premises. If Tenant is a corporation the stock of which is regularly traded on
a nationally recognized public stock exchange, any transaction (including,
without limitation, merger) that results in the shares of Tenant no longer being
regularly traded on a nationally recognized public stock exchange (commonly
referred to as a transaction pursuant to which Tenant goes private) shall be
deemed a Transfer. Notwithstanding anything in the foregoing to the contrary,
the co location in the Premises of telecommunication equipment owned by third
parties, and the maintenance and repair of such equipment by individuals under
the supervision and control of such third parties shall not be deemed a Transfer
provided that no demising walls are constructed in the Premises and/or that no
separately billed Building services are provided for such third party.
12.3 No Transfer Without Consent.
---------------------------
(a) Tenant shall not suffer a Transfer of the Premises or any interest
therein, or any part thereof, or any right or privilege appurtenant thereto
without the prior written consent of Landlord, and a consent to one Transfer of
the Premises shall not be deemed to be a consent to any subsequent Transfer of
the Premises. Any Transfer of the Premises without such consent shall (i) be
voidable, and (ii) terminate this Lease, in either case, at the option of
Landlord.
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(b) Notwithstanding the foregoing, Tenant shall have the right,
without the prior consent of Landlord (and without the right granted to Landlord
in section 12.4 to terminate this Lease), but upon prior written notice to
Landlord:
(i) provided that Focal Communications Corporation ("Focal") or
a Qualified Successor (as hereinafter defined) is the Tenant under this
Lease, to assign this Lease or to sublet all or a portion of the Premises
to any entity which is controlled by Focal or such Qualified Successor
(each such entity being referred to as a "Permitted Tenant Affiliate");
provided that in the case of an assignment of this Lease, the assignee
assumes, in full, the obligations of Tenant under this Lease, and if
Tenant's assignee does not have a net worth at least equal to the greater
of the net worth of Focal (aa) as of the date of this Lease or (bb) for the
fiscal year prior to the Transfer (the "Net Worth Test"), at the election
of Landlord, Focal or the Qualified Successor guarantees the obligations of
Tenant's assignee under this Lease in form and substance satisfactory to
Landlord. In the event that at any time following such assignment, Focal or
the Qualified Successor wishes to sell, mortgage, devise, hypothecate or in
any other manner whatsoever transfer any portion of the ownership or
beneficial control of the issued and outstanding shares in the capital
stock of such company, such transaction, unless otherwise exempt under
section 12.2 or this section 12.3(b), shall be deemed to constitute a
Transfer and shall be subject to all of the provisions of this Article 12
with respect to a Transfer of the Premises including, by specific
reference, the provisions of section 12.4. Upon request, Tenant shall
provide Landlord with a copy of any executed assignment or subletting
document executed by it with any Permitted Tenant Affiliate. As used
herein, the term "control" shall mean the beneficial ownership, directly or
indirectly, of at least 51% of the voting common stock or equity interests
of the controlled entity;
(ii) provided that the Net Worth Test shall be satisfied
immediately after the Transfer, and the Qualified Successor assumes, in
full, the obligations of Tenant under this Lease, to assign this Lease to a
Qualified Successor (as that term is hereinafter defined). As used herein,
the term "Qualified Successor" means an entity resulting from a merger or
consolidation of Tenant or from the sale of all or substantially all of
Tenant's assets;
(iii) provided that Focal is the Guarantor of this Lease and
satisfies the Net Worth Test, to sell or transfer the stock of Tenant
(whether or not a change in control occurs);
(iv) to issue additional stock pursuant to a transaction in
which the voting common stock of Tenant or a Qualified Successor is listed
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and thereafter traded on a national public stock exchange (commonly
referred to as an IPO).
(c) Notwithstanding anything to the contrary in this section 12,
Landlord agrees to release Tenant from any liability under this Lease arising
from and after a Transfer of the Premises provided the transferee (or Tenant, as
the case may be) delivers to Landlord (i) an irrevocable letter of credit issued
by a bank acceptable to Landlord in the amount of one year's Base Rent, and (ii)
a guaranty of this Lease from a creditworthy entity reasonably acceptable to
Landlord comparable to that of the Tenant as of the date of this Lease.
12.4 Recapture. By written notice to Tenant (the "Termination Notice")
---------
within ten (10) business days following submission to Landlord by Tenant of the
information specified in section 12.6, Landlord may terminate this Lease in the
event of an assignment of this Lease or sublease of the entire Premises, or
terminate this Lease as to the portion of the Premises to be sublet, if the
sublease is to be of less than the entire Premises; provided, however,
Landlord's right of recapture shall not apply unless and until the aggregate of
space subject to Transfer and all presently effective Transfers requiring the
prior consent of Landlord equals or exceeds fifty percent (50%) of the usable
square footage of the Premises. In the event Landlord elects to terminate this
Lease, any prior subleases properly entered into by Tenant shall remain in
effect in accordance with their terms with Landlord stepping into Tenant's shoes
as sublessor. Landlord shall have no right of termination with respect to a
transaction described in section 12.3 (b).
12.5 Effect of Lease Termination. In the event that Landlord terminates
---------------------------
this Lease or terminates this Lease as to that portion of the Premises to be
sublet, Landlord may, if it elects, enter into a new lease covering the Premises
or the affected portion thereof with the intended assignee or subtenant on such
terms as Landlord and such person may agree or enter into a new lease covering
the Premises or the affected portion thereof with any other person; in such
event, Tenant shall not be entitled to any portion of the profit if any which
Landlord may realize on account of such termination and reletting. From and
after the date of such termination of this Lease, the parties shall have no
further obligations to each other under this Lease except for matters occurring
or obligations arising prior to the date of such termination.
12.6 When Consent Granted. Where the consent of Landlord to a Transfer is
--------------------
required, the consent of Landlord to a Transfer may not be unreasonably
withheld, provided that it is agreed to be reasonable for Landlord to consider
any of the following reasons, which list is not exclusive, in electing to
consent or to deny consent:
(i) the financial strength of the proposed transferee is not at
least equal to that of Tenant at the time of execution of this Lease;
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(ii) a proposed transferee whose occupation of the Premises
would cause a diminution in the reputation of the Building or the other
businesses located therein;
(iii) a proposed transferee whose impact on the common
facilities would be greater or more intensive than Tenant;
(iv) a proposed transferee whose use presents a material risk of
violation of Article 22;
(v) that there are no uncured notices of default then
outstanding under the terms of this Lease;
(vi) that the validity of the Transfer is conditioned on the
conformity of the Tenant and transferee with all provisions of this Lease;
(vii) if required by Landlord, Tenant, in the case of a
sublease, or Tenant's transferee, in the case of an assignment, shall have
deposited an additional security deposit with Landlord in accordance with
section 3.4 of this Lease.
12.7 Procedure for Obtaining Consent.
-------------------------------
(a) Landlord need not commence its review of any proposed Transfer, or
respond to any request by Tenant with respect to such, unless and until it has
received from Tenant adequate descriptive information concerning the transferee,
the business to be conducted by the transferee, the transferee's financial
capacity, and such other information as may reasonably be required in order to
form a prudent judgment as to the acceptability of the proposed Transfer,
including, without limitation, the following:
(i) the past two years' Federal income tax returns of the
proposed transferee (or in the alternative the past two years' annual
balance sheets and profit and loss statements, certified correct by a
certified public accountant);
(ii) banking references of the proposed transferee;
(iii) a resume of the business background and experience of the
proposed transferee; and
(iv) an executed copy of the instrument by which Tenant proposes
to effectuate the Transfer.
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(b) Tenant shall reimburse Landlord as additional rent for Landlord's
reasonable costs and attorneys' fees incurred in conjunction with the processing
and documentation of any proposed Transfer of the Premises, whether or not
consent is granted.
12.8 Reasonable Restriction. The restrictions on Transfer described in
----------------------
this Article 12 are acknowledged by Tenant to be reasonable for all purposes,
including, without limitation, the provisions of California Civil Code The
"Code") section 1951.4(b)(2). Tenant expressly waives any rights which it might
otherwise be deemed to possess pursuant to applicable law, including, without
limitation, section 1997.040 of the Code, to limit any remedy of Landlord
pursuant to section 1951.2 or 1951.4 of the Code by means of proof that
enforcement of a restriction on use of the Premises would be unreasonable.
12.9 Effect of Transfer. Upon the consummation of a Transfer, the
------------------
following terms shall apply, as applicable:
(a) Each and every covenant, condition or obligation imposed upon
Tenant by this Lease and each and every right, remedy or benefit afforded
Landlord by this Lease shall not be impaired or diminished as a result of such
Transfer.
(b) In the event of a Transfer to a person where the prior consent of
Landlord is required, Tenant shall pay to Landlord on a monthly basis,
Landlord's Profit Sharing Percentage (as that term is hereinafter defined) of
the excess of any sums of money, or other economic consideration received by
Tenant from the transferee in such month (whether or not for a period longer
than one month), including higher rent, bonuses, key money, or the like over the
aggregate, of (i) the amortized portion of the reasonable expenses actually paid
by Tenant to unrelated third parties for brokerage commissions, tenant
improvements to the Premises, or design fees incurred as a direct consequence of
the Transfer, and, (ii) the total sums which Tenant pays Landlord under this
Lease in such month, or the prorated portion thereof if the Premises transferred
is less than the entire Premises. The amount so derived shall be paid with
Tenant's payment of Base Rent. The term "amortized portion" is that portion of
the applicable expenses derived by dividing such expenses by the number of
months in the original term of the Transfer transaction. As used herein, the
term "Landlord's Profit Sharing Percentage" shall equal seventy-five percent
(75%).
(c) No Transfer, whether or not the consent of Landlord is required
hereunder, shall relieve Tenant of its primary obligation to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any person shall not be deemed to be a
waiver by Landlord of any provision of this Lease or to be a consent to any
Transfer of the Premises.
(d) If Landlord consents to a sublease, such sublease shall not extend
beyond the expiration of the Term.
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(e) In connection with any Transfer where a person or entity other
than the named Tenant occupies all or any portion of the Premises, within ten
(10) days after the execution of the documentary evidence thereof, Tenant shall
deliver to Landlord a duly executed duplicate original of the Transfer
instrument in form satisfactory to Landlord which provides that (i) the
transferee assumes Tenant's obligations for the payment of rent and for the full
and faithful observance and performance of the covenants, terms and conditions
contained herein, (ii) such transferee will, at Landlord's election, attorn
directly to Landlord in the event Tenant's occupancy is terminated for any
reason on the terms set forth in the instrument of transfer and (iii) such
instrument of transfer contains such other assurances as Landlord reasonably
deems necessary.
13. RULES AND REGULATIONS
---------------------
13.1 Compliance With Rules and Regulations. Tenant shall faithfully
-------------------------------------
observe and comply with the Rules and Regulations (the "Rules and Regulations")
set forth in Exhibit D attached hereto and, after notice thereof, all
modifications thereof and additions thereto from time to time made in writing by
Landlord. If there is any conflict, this Lease shall prevail over the Rules and
Regulations and any modifications thereof or additions thereto. Landlord shall
not be liable to Tenant or responsible for the noncompliance by any other tenant
or occupant of the Building with any Rules and Regulations.
14. ENTRY BY LANDLORD
-----------------
14.1 Landlords Right to Enter Premises.
---------------------------------
(a) Landlord shall have the right to enter the Premises at any time to
(i) inspect the Premises, (ii) exhibit the Premises to prospective purchasers,
lenders or tenants, (iii) determine whether Tenant is performing all of Tenant's
obligations, (iv) supply any service to be provided by Landlord, (v) post
notices of nonresponsibility, and (vi) make any repairs, improvements, upgrading
or redevelopment (collectively "Repairs") to the Premises, or make any Repairs
to any adjoining space or utility services, or make any Repairs to any other
portion of the Building, provided all such work shall be done as promptly as
reasonably practicable and so as to cause as little interference to Tenant as
reasonably practicable. Tenant waives all claims for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises or any other loss occasioned by such entry.
All locks for all doors in, on or about the Premises (excluding Tenant's vaults,
safes and similar special security areas designated in writing by Tenant) shall
be keyed to the master system for the Building. Landlord shall at all times
have a key to unlock all such doors and Landlord shall have the right to use any
and all means which Landlord may deem proper to open such doors in an emergency
to obtain entry to the Premises. Any entry to the Premises obtained by Landlord
by any of such means shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
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(b) Except for entry to the Premises in the event of an emergency or
to provide regularly scheduled Building services, Landlord shall give Tenant
reasonable advance notice of Landlord's intent to enter the Premises, and shall,
as a general matter, limit its entry to the Premises to normal business hours.
Except in the case of an emergency, Landlord's employees (including, without
limitation, Landlord's agents and contractors) entering the Premises shall be
prepared to provide proper identification and, upon request by Tenant, shall
enter only in the presence of and accompanied by a Tenant representative.
15. EVENTS OF DEFAULT AND REMEDIES
------------------------------
15.1 Default. The occurrence of any one or more of the following events
-------
("Event of Default") shall constitute a breach of this Lease by Tenant:
(a) Tenant fails to pay any Base Rent or additional rent under section
3.1 hereof as and when such rent becomes due and payable; provided, however,
with respect to the first such delinquency in payment of rent during any twelve
(12) month period, such delinquency in payment of rent shall not, in and of
itself, be deemed to be an Event of Default until the failure of payment
continues for a period of five (5) days after written notice thereof (which
shall be concurrent with, and not in addition to, any statutory notice) from
Landlord to Tenant; or
(b) Tenant fails to perform or breaches any other agreement or
covenant of this Lease to be performed or observed by Tenant as and when
performance or observance is due and such failure or breach continues for more
than fifteen (15) days after Landlord gives written notice thereof to Tenant;
provided, however, that if, by the nature of such agreement or covenant, such
failure or breach cannot reasonably be cured within such period of fifteen (15)
days, an Event of Default shall not exist as long as Tenant commences with due
diligence and dispatch the curing of such failure or breach within such period
of fifteen (15) days and, having so commenced, thereafter prosecutes with
diligence and dispatch and completes the curing of such failure or breach within
a reasonable time; or
(c) Tenant (i) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (ii)
makes an assignment for the benefit of its creditors, (iii) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers of Tenant or of any substantial part of Tenant's property, or (iv) takes
action for the purpose of any of the foregoing; or
(d) Without consent by Tenant, a court or government authority enters
an order, and such order is not vacated within thirty (30) days, (i) appointing
a custodian, receiver, trustee or other officer with similar powers with respect
to Tenant or with respect to any substantial part of Tenants property, or (ii)
constituting an order for relief or approving a petition for relief or
reorganization or arrangement or any other petition in
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bankruptcy or for liquidation or to take advantage of any bankruptcy, insolvency
or other debtors' relief law of any jurisdiction, or (in ordering the
dissolution, winding-up or liquidation of Tenant); or
(e) This Lease or any estate of Tenant hereunder is levied upon under
any attachment or execution and such attachment or execution is not vacated
within thirty (30) days.
(f) A default or breach by any guarantor of this Lease (the
"Guarantor") under its guaranty.
15.2 Remedies Upon Default. If an Event of Default occurs, Landlord shall
---------------------
have the right at any time to give a written termination notice to Tenant and,
on the date specified in such notice, Tenant's right to possession shall
terminate and this Lease shall terminate. Upon such termination, Landlord shall
have the right to recover from Tenant:
(a) The worth at the time of award of all unpaid rent which had been
earned at the time of termination;
(b) The worth at the time of award of the amount by which all unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award of the amount by which all unpaid
rent for the balance of the term of this Lease after the time of award exceeds
the amount of such rental loss that Tenant proves could be reasonably avoided;
and
(d) All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom. The "worth at the time of award" of the amounts
referred to in clauses (a) and (b) above shall be computed by allowing interest
at the maximum annual interest rate allowed by law for business loans (not
primarily for personal, family or household purposes) not exempt from the usury
law at the time of termination or, if there is no such maximum annual interest
rate, at the rate of eighteen percent (18%) per annum. The "worth at the time
of award" of the amount referred to in clause (c) above shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%). For the purpose of
determining unpaid rent under clauses (a), (b) and (c) above, the rent reserved
in this Lease shall be deemed to be the total rent payable by Tenant under
Articles 3 and 5 hereof.
15.3 Continuation After Default. Even though Tenant has breached this
--------------------------
Lease, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord shall have the right to
enforce all its rights and remedies under this
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Lease, including the right to recover all rent as it becomes due under this
Lease. Acts of maintenance or preservation or efforts to relet the Premises or
the appointment of a receiver upon initiative of Landlord to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession unless written notice of termination is given by Landlord to
Tenant. In addition to all other rights and remedies it may have, Landlord
shall have all of the rights and remedies of a landlord under section 1951.4 of
the California Civil Code.
15.4 Remedies Cumulative. The remedies provided for in this Lease are in
-------------------
addition to all other remedies available to Landlord at law or in equity by
statute or otherwise.
15.5 Performance by Landlord. All agreements and covenants to be performed
-----------------------
or observed by Tenant under this Lease shall be at Tenant's sole cost and
expense and without any abatement of rent. If Tenant fails to pay any sum of
money to be paid by Tenant or to perform any other act to be performed by Tenant
under this Lease, Landlord shall have the right, but shall not be obligated, and
without waiving or releasing Tenant from any obligations of Tenant, to make any
such payment or to perform any such other act on behalf of Tenant in accordance
with this Lease. All sums so paid by Landlord ant all necessary incidental
costs shall be deemed additional rent hereunder and shall be payable by Tenant
to Landlord on demand, together with interest on all such sums from the date of
expenditure by Landlord to the date of repayment by Tenant at the maximum annual
interest rate allowed by law for business loans (not primarily for personal,
family or household purposes) not exempt from the usury law at the date of
expenditure or, if there is no such maximum annual interest rate, at the rate of
eighteen percent (18%) per annum. Landlord shall have, in addition to all other
rights and remedies of Landlord, the same rights and remedies in the event of
the nonpayment of such sums plus interest by Tenant as in the case of default by
Tenant in the payment of rent.
15.6 Tenant's Abandonment or Surrender. If Tenant abandons or surrenders
---------------------------------
the Premises, or is dispossessed by process of law or otherwise, any movable
furniture, equipment, trade fixtures or personal property belonging to Tenant
and left in the Premises shall be deemed to be abandoned, at the option of
Landlord, and Landlord shall have the right to sell or otherwise dispose of such
personal property in any commercially reasonable manner.
16. DAMAGE OR DESTRUCTION
---------------------
16.1 Landlord's Restoration and Rent Abatement. If the Building or the
-----------------------------------------
Premises, or any part thereof, is damaged by fire or other casualty before the
Commencement Date or during the term of this Lease, and this Lease is not
terminated pursuant to section 16.2 hereof, Landlord shall repair such damage
and restore the Building and the Premises (excluding any Alterations) to
substantially the same condition in which the Building and the Premises existed
before the occurrence of such fire or other casualty and this Lease shall,
subject to this section 16.1, remain in full force and effect. If such fire or
other casualty
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damages the Premises or common areas of the Building necessary for Tenant's use
and occupancy of the Premises and if such damage is not the result of the
negligence or willful misconduct of Tenant or Tenant's agents, officers,
employees, contractors, licensees or invitees, then, during the period the
Premises are rendered unusable by such damage, Tenant shall be entitled to a
reduction in Base Rent in the proportion that the area of the Premises rendered
unusable by such damage bears to the total area of the Premises. Landlord shall
not be obligated to repair any damage to, or to make any replacement of, any
leasehold improvements installed by or paid for by Tenant, movable furniture,
equipment, trade fixtures or personal property in the Premises. Tenant shall,
at Tenant's sole cost and expense, repair and replace all such movable
furniture, equipment, trade fixtures and personal property. Such repair and
replacement by Tenant shall be done in accordance with Article 9 hereof Tenant
hereby waives California Civil Code sections 1932(2) and 1933(4).
16.2 Landlord's Election to Terminate. If the Building or the Premises, or
--------------------------------
any part thereof, is damaged by fire or other casualty before the Commencement
Date or during the term of this Lease and (a) such fire or other casualty occurs
during the last twelve (12) months of the term of this Lease and the repair and
restoration work to be performed by Landlord in accordance with section 16.1
hereof cannot; as reasonably estimated by Landlord, be completed within two (2)
months after the occurrence of such fire or other casualty unless Tenant, within
thirty (30) days after such casualty elects to extend the term of this Lease, or
(b) the insurance proceeds received by Landlord in respect of such damage are
not adequate to pay the entire cost (excluding any applicable deductible), as
reasonably estimated by Landlord, of the repair and restoration work to be
performed by Landlord in accordance with section 16.1 hereof, or (c) the repair
and restoration work to be performed by Landlord in accordance with section 16.1
hereof cannot, as reasonably estimated by Landlord, be completed within four (4)
months after the occurrence of such fire or other casualty, then, in any such
event, Landlord shall have the right, by giving written notice to Tenant within
sixty (60) days after the occurrence of such fire or other casualty, to
terminate this Lease as of the date of such notice. Insurance proceeds payable
as a result of a casualty for which Landlord maintains insurance as required by
this Lease shall be deemed not available to Landlord if insurance proceeds must
be paid by Landlord to a mortgagee or a deed of trust beneficiary encumbering
the Premises or the Building to reduce any indebtedness of Landlord secured
thereby. If Landlord does not exercise the right to terminate this Lease in
accordance with this section 16.2, Landlord shall repair such damage and restore
the Building and the Premises in accordance with section 16.1 hereof and this
Lease shall, subject to section 16.1 hereof, remain in full force and effect. A
total destruction of the Building shall automatically terminate this Lease
effective as of the date of such total destruction.
16.3 Tenant's Election to Terminate. If the Premises, or any part of the
------------------------------
Building necessary for Tenant's access to or use of the Premises, is damaged by
fire or other casualty before the Commencement Date or during the term of this
Lease, and (a) such fire or other casualty occurs during the last twelve (12)
months of the term of this Lease, or (b) the repair and restoration work to be
performed by Landlord in accordance with section 16.1 hereof
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cannot, as reasonably estimated by Landlord within sixty (60) days following
such casualty, be completed within nine (9) months after the occurrence of such
fire or other casualty, then, in such event, Tenant shall have the right, by
giving written notice to Tenant within thirty (30) days after Landlord's
estimate of the time required to repair, to terminate this Lease as of the date
of such notice. The failure of Tenant to give Landlord the notice specified in
this section 16.3 in a timely fashion shall be deemed a waiver by Tenant of its
rights to terminate this Lease hereunder.
17. EMINENT DOMAIN
--------------
17.1 Right to Terminate. Landlord shall have the right to terminate this
------------------
Lease if any part (but less than all) of the Premises or any substantial part of
the Building (whether or not it includes the Premises) is taken by exercise of
the power of eminent domain before the Commencement Date or during the term of
this Lease. Tenant shall have the right to terminate this Lease if a
substantial portion of the Premises is taken by exercise of the power of eminent
domain before the Commencement Date or during the term of this Lease and the
remaining portion of the Premises is not reasonably suitable for Tenant's
purposes, in Tenant's judgment. In each such case, Landlord or Tenant shall
exercise such termination right by giving written notice to the other within
thirty (30) days after the date of such taking. If either Landlord or Tenant
exercises such right to terminate this Lease in accordance with this section
17.1, this Lease shall terminate as of the date of such taking. If neither
Landlord nor Tenant exercises such right to terminate this Lease in accordance
with this section 17.1, this Lease shall terminate as to the portion of the
Premises so taken as of the date of such taking and shall remain in full force
and effect as to the portion of the Premises not so taken, and the Base Rent and
Tenant's Percentage Share shall be reduced as of the date of such taking in the
proportion that the area of the Premises so taken bears to the total area of the
Premises. If all of the Premises is taken by exercise of the power of eminent
domain before the Commencement Date or during the term of this Lease, this Lease
shall terminate as of the date of such taking.
17.2 Awards. If all or any part of the Premises is taken by exercise of
------
the power of eminent domain, all awards, compensation, damages, income, rent and
interest payable in connection with such taking shall, except as expressly set
forth in this section 17.2, be paid to and become the property of Landlord, and
Tenant hereby assigns to Landlord all of the foregoing. Without limiting the
generality of the foregoing, Tenant shall have no claim against Landlord or the
entity exercising the power of eminent domain for the value of the leasehold
estate created by this Lease or any unexpired term of this Lease. Tenant shall
have the right to claim and receive directly from the entity exercising the
power of eminent domain only the share of any award determined to be owing to
Tenant for the taking of improvements installed by Tenant at Tenant's sole cost
and expense in the portion of the Premises so taken based on the unamortized
cost actually paid by Tenant for such improvements, for the taking of Tenant's
movable furniture, equipment, trade fixtures and personal property, for loss of
goodwill, for interference with or interruption of Tenant's business, or for
removal and relocation expenses.
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17.3 Temporary Taking. Notwithstanding anything in sections 17.1 and 17.2
----------------
hereof to the contrary, if the use of all or any part of the Premises is taken
by exercise of the power of eminent domain during the term of this Lease on a
temporary basis for a period less than the term of this Lease remaining after
such taking, this Lease shall continue in full force and effect, Tenant shall
continue to pay all of the rent and to perform all of the covenants of Tenant in
accordance with this Lease, to the extent reasonably practicable under the
circumstances, and the condemnation proceeds in respect of such temporary taking
shall be paid to Tenant.
17.4 Definition of "Taking". As used in this Article 17, a "taking" means
---------------------
the acquisition of all or part of the Premises for a public use by exercise of
the power of eminent domain or voluntary conveyance in lieu thereof and the
taking shall be considered to occur as of the earlier of the date on which
possession of the Premises (or part so taken) by the entity exercising the power
of eminent domain is authorized as stated in an order for possession or the date
on which title to the Premises (or part so taken) vests in the entity exercising
the power of eminent domain. Tenant hereby waives California Code of Civil
Procedure sections 1265.110 through 1265.160.
18. SUBORDINATION, MERGER AND SALE
------------------------------
18.1 Subordination, Nondisturbance, and Attornment. This Lease shall be
---------------------------------------------
subject and subordinate at all times to any and all ground leases and the lien
of any and all mortgages and deeds of trust securing any amount or amounts
whatsoever which may now exist or hereafter be placed on or against or
encumbering the Building or on or against or encumbering Landlord's interest or
estate therein ("Superior Leases and Mortgages"), all without the necessity of
having further instruments executed by Tenant to effect such subordination;
provided however, (i) with respect to that certain deed of trust encumbering the
Building of record as of the date of this Lease in favor of Bank of America (the
"Bank"), Landlord covenants to use commercially reasonable efforts (without any
requirement to pay any fees to said lender or to initiate litigation) to cause
the Bank to execute and deliver on or before the Delivery Date a non-disturbance
agreement on the current form used by Bank in favor of Tenant, and (ii) with
respect to any Superior Leases and Mortgages encumbering the Building after the
date of this Lease, Tenant shall execute a subordination agreement, provided
that the subordination of this Lease shall be conditioned upon such Landlord's
mortgagee executing a non-disturbance agreement in favor of Tenant on the
current form used by such lender. In the event of a foreclosure of any such
mortgage or deed of trust or of any other action or proceeding for the
enforcement thereof, or of any sale thereunder or in the event of a termination
of any such ground lease, this Lease shall not be terminated or extinguished,
nor shall the rights and possession of Tenant hereunder be disturbed, if no
Event of Default then exists under this Lease, and Tenant shall attorn to the
person who acquires Landlord's interest hereunder through any such mortgage or
deed of trust.
18.2 No Merger. The voluntary or other surrender of this Lease by Tenant,
---------
or a mutual cancellation thereof, shall not work a merger and shall, at the
option of Landlord,
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terminate all or any existing subleases or subtenancies or operate as an
assignment to Landlord of any or all such subleases or subtenancies.
18.3 Sale. If the original Landlord hereunder, or any successor owner of
----
the Building, sells or conveys the Building, all liabilities and obligations on
the part of the original Landlord, or such successor owner, under this Lease
accruing after such sale or conveyance shall terminate and the original
Landlord, or such successor owner, shall automatically be released therefrom,
and thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
19. ESTOPPEL CERTIFICATE
--------------------
19.1 Tenant's Certification. At any time and from time to time, Tenant
----------------------
shall, within ten (10) days after written request by Landlord, execute,
acknowledge and deliver to Landlord a certificate certifying: (a) that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect as modified, and
stating the date and nature of each modification); (b) the Commencement Date and
the Expiration Date determined in accordance with Article 2 hereof and the date,
if any, to which all rent and other sums payable hereunder have been paid; (c)
that no notice has been received by Tenant of any default by Tenant hereunder
which has not been cured, except as to defaults specified in such certificate;
(d) that Landlord is not in default under this Lease, except as to defaults
specified in such certificate; and (e) such other matters as may be reasonably
requested by Landlord or any actual or prospective purchaser or mortgage lender.
Any such certificate may be relied upon by Landlord and any actual or
prospective purchaser or mortgage lender of the Building or any part thereof.
At any time and from time to time, Tenant shall, within ten (10) days after
written request by Landlord, deliver to Landlord copies of all current financial
statements (including, without limitation, a balance sheet, an income statement,
and an accumulated retained earnings statement), annual reports, and other
financial and operating information and data of Tenant prepared by Tenant in the
course of Tenant's business. Unless available to the public, Landlord shall
disclose such financial statements, annual reports and other information or data
only to actual or prospective purchasers or mortgage lenders of the Building or
any part thereof, and otherwise keep them confidential unless other disclosure
is required by law.
20. HOLDING OVER
------------
20.1 Month to Month Tenancy. If, without objection by Landlord, Tenant
----------------------
holds possession of the Premises after expiration of the term of this Lease,
Tenant shall become a tenant from month to month upon the terms herein specified
but at a Base Rent equal to one hundred fifty percent (150%) of the Base Rent in
effect at the expiration of the term of this Lease, payable in advance on or
before the first day of each month. Such month to month tenancy may be
terminated by either Landlord or Tenant by giving thirty (30) days' written
notice of termination to the other at any time.
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21. NOTICES
-------
21.1 Communications. All requests, approvals, consents, notices and other
--------------
communications given by Landlord or Tenant under this Lease shall be properly
given only if made in writing and either (i) deposited in the United States
mail, postage prepaid, certified with return receipt requested, (ii) delivered
by hand (which may be through a messenger or recognized delivery, courier or air
express service) or (iii) sent by telephone facsimile (i.e., "fax"), and
addressed as follows: To Landlord at the address of Landlord specified in Item
O of the Basic Lease Information, or at such other place as Landlord may from
time to time designate in a written notice to Tenant; to Tenant, before the
Delivery Date, at the address of Tenant specified in Item P of the Basic Lease
Information, and after the Delivery Date, at the Premises, or at such other
place as Tenant may from time to time designate in a written notice to Landlord.
Such requests, approvals, consents; notices and other communications shall be
effective on the date of receipt (evidenced by the certified mail receipt) if
mailed, on the date of hand delivery if hand delivered, or on the date of
receipt at the telephone number designated for such party in the Basic Lease
Information, if by fax; provided, that such fax notice is also sent by some
other approved means in accordance with this section 21.1. If any such request,
approval, consent, notice or other communication is not received or cannot be
delivered due to a change in the address of the receiving party of which notice
was not previously given to the sending party or due to a refusal to accept by
the receiving party, such request, approval, consent, notice or other
communication shall be effective on the date delivery is attempted. Any
request, approval, consent, notice or other communication under this Lease may
be given on behalf of a party by the attorney for such party.
22. HAZARDOUS MATERIALS
-------------------
22.1 Definition of Hazardous Materials. As used herein, the term
---------------------------------
"Hazardous Material" means any hazardous or toxic substance, material or waste,
or any pollutant or contaminant, or words of similar import, which is or becomes
regulated by any local governmental authority, the state in which the Premises
are located, or the United States Government. The term "Hazardous Material"
includes, but is not limited to, any material or substance which is (i)
designated as a "hazardous substance" pursuant to section 311 of the Federal
Water Pollution Control Act (33 U.S.C. section 1317), (ii) defined as a
"hazardous waste" pursuant to section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C. section 6901, et seq. (42 U.S.C. section 6903),
(iii) defined as a "hazardous substance" pursuant to section 101 of the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.
section 9601, et seq.), (iv) asbestos, (v) petroleum (including crude oil or any
fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel, or any mixture thereof), (vi) petroleum products,
(vii) polychlorinated biphenyls, (viii) urea formaldehyde, (ix) radon gas, (x)
radioactive matter, (xi) medical waste, and (xii) chemicals which may cause
cancer or reproductive toxicity.
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<PAGE>
22.2 Definition of Environmental Requirements. As used herein, the term
----------------------------------------
"Environmental Requirements" means all laws, ordinances, rules, regulations,
orders and other requirements of any government or public authority now in force
or which may hereafter be in force relating to protection of human health or the
environment from Hazardous Material, including all requirements pertaining to
reporting, licensing, permitting, investigation and remediation of emissions,
discharges, storage, disposal or releases of Hazardous Materials and all
requirements pertaining to the protection of the health and safety of employees
or the public with respect to Hazardous Material.
22.3 Prohibited Activities. Tenant shall not permit or conduct the
---------------------
handling, use, generation, treatment, storage or disposal on, in or about the
Premises of any Hazardous Material in excess of permitted levels or reportable
quantities under applicable Environmental Requirements without prior written
notice to Landlord. Any such handling, use, generation, treatment, storage or
disposal of any Hazardous Material permitted by Landlord hereunder shall be in
compliance with all Environmental Requirements.
22.4 Notice of Violations. Tenant shall, within ten (10) days after
--------------------
Tenant's receipt thereof, give written notice to Landlord of any notice or other
communication regarding any (a) actual or alleged violation of Environmental
Requirements by Tenant or with respect to the Premises, (b) actual or threatened
migration of Hazardous Material from the Premises, or (c) the existence of
Hazardous Material in or on the Premises or regarding any actual or threatened
investigation, inquiry, lawsuit, claim, citation, directive, summons,
proceeding, complaint, notice, order, writ or injunction relating to any of the
foregoing.
22.5 Tenant Indemnification. Tenant shall indemnify and defend Landlord
----------------------
against and hold Landlord harmless from all claims, demands, liabilities,
damages, fines, encumbrances, liens, losses, costs and expenses, including
reasonable attorneys' fees and disbursements, and costs and expenses of
investigation, arising from or related to the existence on or after the
Commencement Date of Hazardous Material brought in or on the Premises by Tenant
or its agents, contractors, invitees or employees or the actual or threatened
migration on or after the Commencement Date of Hazardous Material from the
Premises as a result of contamination caused by Tenant or its agents,
contractors, invitees or employees, or the existence on or after the
Commencement Date of a violation of Environmental Requirements with respect to
the Premises. Notwithstanding the foregoing, Tenant shall not be required to
indemnify, defend or hold harmless Landlord with respect to Hazardous Materials
brought or migrating onto the Premises or for violations of Environmental
Requirements with respect to the Premises, unless Tenant or its agents,
contractors, invitees or employees, is responsible for bringing the Hazardous
Materials onto the Premises, for causing the migration or for the violation of
Environmental Requirements. To the extent Tenant has an indemnification
obligation under this section 22.5, Tenant shall, to the reasonable satisfaction
of Landlord, perform all remedial actions necessary to remove any Hazardous
Material in or on the Premises on or after the Commencement Date or to remedy
actual or threatened migration from the Premises of any Hazardous Material or to
remedy any actual or threatened violation of Environmental Requirements,
provided such
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<PAGE>
remedial action is required under Environmental Requirements. This section 22.5
shall survive termination of this Lease.
22.6 Permitted Activities. Notwithstanding the foregoing, Landlord
--------------------
acknowledges and agrees that Tenant shall be permitted to store and use on the
Premises from time to time certain Hazardous Material whose nature and
quantities are customary in connection with the permitted uses of the Premises
(and in connection with any permitted Alterations performed by Tenant), and that
Tenant shall not be required to provide Landlord with specific notice of any
such storage or use; provided that Tenant shall at all times comply with all
Environmental Requirements pertaining to any such Hazardous Material.
23. OPTION TO RENEW
---------------
23.1 Manner of Exercise. Tenant shall have the right and option to extend
------------------
the term of this Lease (the "Extension Option") for two (2) additional periods
of five years each (each such period being referred to as an "Option Period"),
provided that no Event of Default shall exist either at the time Tenant
exercises the Extension Option or as of the Expiration Date (as extended by any
previously effective Extension Option), and provided further that Tenant, and
Permitted Tenant Affiliate or Qualified Successor is in actual physical
occupancy of at least seventy-five percent (75%) of the Premises at the time
Tenant exercises the Extension Option and on the Expiration Date (as extended by
any previously effective Extension Option). Tenant may exercise the Extension
Option, if at all, by written notice to Landlord delivered no later than twelve
(12) months prior to the Expiration Date, as extended by any previously
effective Extension Option (the "Outside Exercise Date"). Unless all of the
above conditions precedent have been satisfied, Tenant's exercise of the Option
shall be of no force or effect and the Extension Option shall lapse. If all of
the above conditions precedent are satisfied, then the term of this Lease shall
automatically be extended for the Option Period, and all of the terms,
conditions and provisions of this Lease shall continue in full force and effect
throughout the Option Period, except that the Base Rent to be paid by Tenant for
the Option Period shall be the fair market rental value of the Premises as of
the Expiration Date, but in no event shall the Base Rent for the Option Period
be less than the total aggregate of the Base Rent, the Operating Expenses and
Property Taxes pass-throughs payable in the last month of the term of this Lease
prior to the Expiration Date.
23.2 Fair Market Rental Value. The fair market rental value of the
------------------------
premises shall initially be determined by Landlord, and Landlord shall notify
Tenant of Landlord's determination of fair market rental value on or before
thirty (30) days after the Outside Exercise Date. If Tenant disputes or
disagrees with Landlord's determination of fair market rental value, Landlord
and Tenant shall make themselves available to meet with each other within ten
(10) days of Tenant's notice to Landlord of such disagreement to attempt to
agree on the fair market rental value of the Premises. In the event Landlord
and Tenant cannot agree on the fair market rental value within thirty (30) days
of Landlord's determination of fair market rental value, then the process
described in subparagraphs (a) through (d) below shall be followed:
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<PAGE>
(a) If Landlord and Tenant are unable to agree on fair market rental
value within said thirty (30) day period, then within ten (10) business days
thereafter Landlord and Tenant shall each simultaneously submit to the other in
a sealed envelope their good faith estimates of the fair market rental value.
If the higher of such estimates is not greater than five percent (5%) of the
lower of such estimates, then the fair market rental value shall be the average
of the two estimates.
(b) If the matter is not resolved by the exchange of estimates as
provided in paragraph (a), above, then either Landlord or Tenant may, by written
notice to the other, on or before five (5) days after the exchange, require that
the disagreement be resolved by arbitration. Within seven (7) days after such
notice, the parties shall attempt to select a mutually acceptable appraiser. If
the parties cannot agree on an appraiser, then within a second period of seven
(7) days, each party shall select an independent appraiser, and within a third
period of seven (7) days, the two appointed appraisers shall select a third
appraiser. All appraisers appointed by Landlord or Tenant, or both of them,
shall be members of the American Institute of Real Estate Appraisers (or its
successor), or real estate professionals qualified by appropriate training or
experience and having at least ten (10) years' experience dealing with
commercial office leasing in the San Francisco South of Market and financial
districts.
(c) If a single appraiser is selected, then the parties shall share
equally the costs and expenses of the appraiser. If more than one appraiser is
selected, then each party shall pay the fees and expenses of its own appraiser,
and if a third appraiser is selected, the party whose fair market rental value
determination is not chosen shall pay one hundred percent (100%) of the fees and
expenses of the third appraiser.
(d) The appraisers (or sole appraiser) shall select one of the two
fair market rental value estimates proposed by Landlord and Tenant, and shall
have no right to propose a middle ground or any modification of either of the
two proposed estimates; provided, however, the appraiser(s) shall have no
authority or power to select a fair market rental value less than the amount
provided in section 25.1 above. The fair market rental value the appraiser(s)
choose(s) shall constitute the decision of the appraiser(s) and shall be final
and binding upon the parties and is not subject to appeal. In the event of a
failure, refusal or inability of any appraiser to act, his successor shall be
appointed in the same manner as provided for appointment of the original third
appraiser. The appraiser(s) shall have the right to consult experts and
competent professionals pertaining to a determination of fair market rental
value, and may hold a hearing not to exceed one (1) business day at which time
and place the parties may present competent evidence. Any consultation by the
appraiser(s) of experts or other competent professionals shall be made in the
presence of both parties with full right of the other party to cross-examine.
The appraiser(s) shall render a decision and award in writing with counterpart
copies to each party. The appraiser(s) shall have no power to modify the
provisions of this Lease.
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<PAGE>
(e) Should the fair market rental value not be established by the
Expiration Date, then Tenant shall pay Base Rent plus additional rent at the
same rate as payable by Tenant on the first day of the last month of the initial
term of this Lease, and a lump sum payment by Tenant shall be made promptly upon
the determination of fair market rental value.
(f) The appraiser(s) shall determine the fair market rental value of
the Premises using the "market comparison approach," with the relevant market
being that for new and renewal tenants for comparable office space in the San
Francisco South of Market district as of the Expiration Date, and assuming a
base year of the calendar year in which the extension period commences. The
"market comparison approach" shall take into consideration and make adjustments
for the creditworthiness of Tenant, the age and condition of the existing
improvements in the Premises, any concessions then being offered by landlords of
comparable buildings in the South of Market district to new and renewal tenants
(but excluding Landlord's transaction costs, such as brokerage commissions, the
cost of building out and/or improving space for a tenant's occupancy in excess
of tenant improvements allowance, and the like), and such other terms and
conditions not inconsistent herewith deemed relevant by the appraiser(s).
24. PARKING
-------
24.1 Tenant Parking. Tenant may obtain on a monthly basis permits for
--------------
unreserved parking for up to the number of parking spaces identified in Item P
of the Basic Lease Information in the garage located at the Building (the
"Garage") at the same monthly rates as are established from time to time by the
Garage owner or operator for other spaces in the Garage. The use by Tenant, its
employees or other users of such parking spaces of the Garage shall be subject
to the rules and regulations established from time to time by the owner or
operator of the Garage. If Tenant has not rented the number of parking spaces
to which it is entitled within three (3) months after the Commencement Date, or
if any time thereafter Tenant releases any parking space or spaces by which its
entitlement under this section 24.1 exceeds the parking spaces actually rented,
Landlord and the Garage operator may allow others to use such spaces on a long
term or short term basis, and Landlord shall only be obligated to use reasonable
efforts to make such number of parking spaces available to Tenant in the future
should Tenant desire to rent the same. If the Garage owner or operator changes
the parking arrangements in the Garage (for instance, a change to reserved,
self-park parking), then Tenant's right under this section 24.1 shall be subject
to modification to reflect such change, so long as Tenant is not
disproportionately prejudiced by such change as compared to other tenants of the
Building.
25. SIGNAGE
-------
25.1 Building Signage. Landlord may elect to create signage on the outside
----------------
of the Building for the common usage of tenants of the Building. If such
signage is erected, Tenant
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<PAGE>
shall receive its pro rata share, size and ranking based on classes of tenants,
to be established by Landlord. Landlord may erect signage which is not for use
of the tenants in the Building.
26. MISCELLANEOUS
-------------
26.1 Defined Terms. The words "Landlord" and "Tenant" as used herein shall
-------------
include the plural as well as the singular. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
Tenant shall indemnify and defend Landlord against and hold Landlord harmless
from all claims, demands, liabilities, damages, losses, costs and expenses,
including reasonable attorneys' fees and disbursements, arising out of or
resulting from any failure by Tenant to perform any of its obligations or any
breach by Tenant of any of its representations or warranties in accordance with
this Lease. If there is more than one Tenant, the obligations hereunder imposed
upon Tenant shall be joint and several. Time is of the essence of this Lease
and each and all of its provisions. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant. Subject to Article 12
hereof, this Lease shall benefit and bind Landlord and Tenant and the personal
representatives, heirs, successors and assigns of Landlord and Tenant. Tenant
shall not use the name of the Building for any purpose whatsoever other than as
the address of Tenant at the Premises. If any provision of this Lease is
determined to be illegal or unenforceable, such determination shall not affect
any other provision of this Lease and all such other provisions shall remain in
full force and effect. If Tenant requests the consent or approval of Landlord to
any assignment, sublease or other action by Tenant, Tenant shall pay to Landlord
on demand, as additional rent, all costs and expenses, including reasonable
attorneys' fees and disbursements, incurred by Landlord in connection therewith.
This Lease shall be governed by and construed in accordance with the laws of the
State of California.
26.2 Waiver. The waiver by Landlord or Tenant of any breach of any
------
covenant in this Lease shall not be deemed to be a waiver of any subsequent
breach of the same or any other covenant in this Lease, nor shall any custom or
practice which may grow up between Landlord and Tenant in the administration of
this Lease be construed to waive or to lessen the right of Landlord or Tenant to
insist upon the performance by Landlord or Tenant in strict accordance with this
Lease. The subsequent acceptance of rent hereunder by Landlord or the payment
of rent by Tenant shall not waive any preceding breach by Tenant of any covenant
in this Lease, nor cure any Event of Default, nor waive any forfeiture of this
Lease or unlawful detainer action, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord's or Tenant's knowledge of
such preceding breach at the time of acceptance or payment of such rent.
26.3 Attorneys' Fees. If there is any legal action or proceeding
---------------
(including arbitration) between Landlord and Tenant arising out of any default
by Tenant in the observance or performance of any obligation under this Lease or
to enforce this Lease or to
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<PAGE>
protect or establish any right or remedy under this Lease, the unsuccessful
party to such anion or proceeding shall pay to the prevailing party all costs
and expenses, including reasonable attorneys' fees and disbursements, incurred
by such prevailing party in such anion or proceeding and in any appeal in
connection therewith. If such prevailing party recovers a judgment in any such
anion or proceeding (including arbitration) or appeal thereon, such costs,
expenses and attorneys' fees and disbursements shall be included in and as a
part of such judgment.
26.4 Real Estate Brokers. Tenant warrants and represents to Landlord that
-------------------
Tenant has negotiated this Lease directly with the real estate broker(s)
specified in Item S of the Basic Lease Information and has not authorized or
employed, or acted by implication to authorize or to employ, any other real
estate broker or salesman to am for Tenant in connection with this Lease.
Landlord shall pay the commission due Landlord's Broker and Tenant's Broker
pursuant to a separate agreement between Landlord and Landlord's Broker. Tenant
shall indemnify Landlord for, and hold Landlord harmless from and against, any
and all claims of any person, other then Landlord's Broker and Tenant's Broker,
who claims to have been engaged by Tenant to represent Tenant in connection with
this Lease and all liabilities arising out of or in connection with such claims.
26.5 Corporate and Partnership Authority. If Tenant is a corporation,
-----------------------------------
Tenant and each person executing this Lease on behalf of Tenant represents and
warrants to Landlord that (a) Tenant is duly incorporated and validly existing
under the laws of its state of incorporation, (b) Tenant is qualified to do
business in California, (c) Tenant has full corporate right, power and authority
to enter into this Lease and to perform all of Tenant's obligations hereunder,
and (d) each person signing this Lease on behalf of the Corporation is duly and
validly authorized to do so. Concurrently with signing this Lease, Tenant shall
deliver to Landlord a true and correct copy of resolutions duly adopted by the
board of directors of Tenant, certified by the secretary of Tenant to be true
and correct, unmodified and in full force, which authorize and approve this
Lease and authorize each person signing this Lease on behalf of Tenant to do so.
26.6 Relocation.
----------
(a) Subject to the terms of subparagraph (b) hereof, Landlord shall
have the right, at any time and from time to time before the Delivery Date and
during the term of this Lease, by giving at least thirty (30) days' prior
written notice to Tenant, to substitute other space in the Building (the
"Substitute Premises") for the Premises and to relocate Tenant to the Substitute
Premises. Landlord shall designate the effective date for the substitution of
the Substitute Premises for the Premises and the relocation of Tenant to the
Substitute Premises in such notice. The area of the Substitute Premises shall
be approximately comparable to the area of the Premises. Landlord shall, at
Landlord's expense before such effective date, construct and install in the
Substitute Premises improvements substantially similar in quality and quantity
to the improvements in the Premises. Landlord shall pay the reasonable costs of
moving Tenant's movable furniture,
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<PAGE>
equipment, trade fixtures and personal property from the Premises to the
Substitute Premises. As of the effective date for the substitution of the
Substitute Premises for the Premises and the relocation of Tenant to the
Substitute Premises, Tenant shall vacate the Premises and move to the Substitute
Premises, and the Substitute Premises shall be substituted for the Premises
under this Lease. Landlord and Tenant each shall, promptly after such effective
date, execute and deliver to the other an amendment to this Lease which sets
forth the substitution of the Substitute Premises for the Premises, with an
appropriate new Exhibit A, and the effective date of such substitution, but the
Substitute Premises shall be substituted for the Premises on such effective date
whether or not such amendment is executed.
(b) Notwithstanding anything to the contrary in subparagraph (a)
above, Landlord will not exercise the relocation right granted Landlord therein
as to any space used by Tenant (or any co-location party) for the installation
of telecommunications equipment, plus, in the aggregate, an additional 500
usable square feet.
26.7 Entire Agreement. There are no oral agreements between Landlord and
----------------
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, offers, agreements and
understandings, oral or written, if any, between Landlord and Tenant or
displayed by Landlord to Tenant with respect to the subject matter of this
Lease, the Premises or the Building. There are no representations between
Landlord and Tenant or between any real estate broker and Tenant other than
those expressly set forth in this Lease and all reliance with respect to any
representations is solely upon representations expressly set forth in this
Lease. This Lease may not be amended or modified in any respect whatsoever
except by an instrument in writing signed by Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date first hereinabove written.
ZORO, LLC, FOCAL COMMUNICATIONS
a California limited liability company CORPORATION
a Delaware corporation
By: /s/ Martin Zankel By: /s/ Brian F. Addy
------------------ ------------------
Title: Managing Member Title: Executive Vice President
--------------- -------------------------
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EXHIBIT B
[Intentionally Omitted]
-----------------------
B-1
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT WORK LETTER
This form shall be negotiated between the parties and agreed to on/or before
5:00 p.m. PST, January 30, 1998. If the parties are unable to reach agreement
on this Exhibit C by such time, this Lease shall be terminable by either party
upon Notice to the other.
The provisions of the Work Letter shall provide the following essential
elements:
1. There will be a Tenant Improvement Allowance of $15.00 per Rentable
Square Foot, payable by the Landlord to the Tenant upon completion of the work,
receipt of unconditional lien releases and a Certification of Completion.
2. The Tenant may select its own contractor.
3. If the Tenant uses as a contractor, DBD Structures, Inc., the
Construction Management Fee shall be 3% of total Tenant Improvement Costs; if
another contractor is selected by the Tenant, the Construction Management Fee
shall be 10% of the total Tenant Improvement Costs.
C-1
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
---------------------
1. Common Areas. The sidewalks, halls, passages, exits, entrances,
------------
elevators and stairways of the Building shall not be obstructed by Tenant or
used for any purpose other than for ingress to and egress from the Premises.
The halls, passages, exits, entrances, elevators and stairways are not for the
general public and Landlord shall in all cases have the right to control and
prevent access thereto of all persons (including, without limitation, messengers
or delivery personnel not wearing uniforms) whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation or interests
of the Building and its tenants. Neither Tenant nor any agent, employee,
contractor, invitee or licensee of Tenant shall go upon the roof of the
Building. Landlord shall have the right at any time, without the same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement or location of entrances
or passageways, doors or doorways, corridors, elevators, stairs, toilets and
common areas of the Building.
2. Signs. No sign, placard, picture, name, advertisement or notice
-----
visible from the exterior of the Premises shall be inscribed, painted, affixed
or otherwise displayed by Tenant on any part of the Building or the Premises
without the prior written consent of Landlord. Landlord will adopt and furnish
to tenants general guidelines relating to signs inside the Building. Tenant
agrees to conform to such guidelines. All approved signs or lettering shall be
printed, painted, affixed or inscribed at the expense of Tenant by a person
approved by Landlord. Material visible from outside the Building will not be
permitted.
3. Prohibited Uses. The Premises shall not be used for the storage of
---------------
merchandise held for sale to the general public or for lodging. No cooking
shall be done or permitted on the Premises except that private use by Tenant of
microwave ovens and/or Underwriters' Laboratory-approved equipment for brewing
coffee, tea, hot chocolate and similar beverages will be permitted, provided
that such use is in accordance with all applicable federal, state and municipal
laws, codes, ordinances, rules and regulations.
4. Janitorial Service. Tenant shall not employ any person other than the
------------------
janitor of Landlord for the purpose of cleaning the Premises unless otherwise
agreed to by Landlord in writing. Except with the written consent of Landlord,
no persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the Premises. Tenant shall not cause any
unnecessary labor by reason of Tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall not be responsible
to Tenant for any loss of property in the Premises, however occurring, or for
any damage done to the effects of Tenant by the janitor or any other employee or
any other person.
D-1
<PAGE>
5. Keys. Landlord will furnish Tenant without charge with two (2) keys
----
to each door lock provided in the Premises by Landlord. Landlord may make a
reasonable charge for any additional keys. Tenant shall not have any such keys
copied or any keys made. Tenant shall not alter any lock or install a new or
additional lock or any bolt on any door of the Premises. Tenant, upon the
termination of this Lease, shall deliver to Landlord all keys to doors in the
Building.
6. Moving Procedures. Landlord shall designate appropriate entrances for
-----------------
deliveries or other movement to or from the Premises of equipment, materials,
supplies, furniture or other property, and Tenant shall not use any other
entrances for such purposes. All moves shall be scheduled and carried out
during nonbusiness hours of the Building. All persons employed and means or
methods used to move equipment, materials, supplies, furniture or other property
in or out of the Building must be approved by Landlord prior to any such
movement. Landlord shall have the right to prescribe the maximum weight, size
and position of all equipment, materials, furniture or other property brought
into the Building. Heavy objects shall, if considered necessary by Landlord,
stand on a platform of such thickness as is necessary properly to distribute the
weight. Landlord will not be responsible for loss of or damage to any such
property from any cause, and all damage done to the Building by moving or
maintaining such property shall be repaired at the expense of Tenant.
7. No Nuisances. Tenant shall not use or keep in the Premises or the
------------
Building any kerosene, gasoline or inflammable or combustible fluid or material
other than limited quantities thereof reasonably necessary for the operation or
maintenance of office equipment. Tenant shall not use any method of heating or
air conditioning other than that supplied by Landlord. Tenant shall not use or
keep or permit to be used or kept any foul or noxious gas or substance in the
Premises, or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, or interfere in any way with other tenants
or those having business in the Building, nor shall any animals be brought or
kept in the Premises or the Building.
8. Change of Address. Landlord shall have the right, exercisable without
-----------------
notice and without liability to Tenant, to change the name or street address of
the Building or the room or suite number of the Premises.
9. Business Hours. Landlord establishes the hours of 8:00 a.m. to 6:00
--------------
p.m., Monday through Friday, except union holidays and legal holidays, as
reasonable and usual business hours for the purposes of section 7.1 of this
Lease. If Tenant requests electricity or heat or air conditioning or any other
services during any other hours or on any other days, and if Landlord is able to
provide the same, Tenant shall pay Landlord such charge as Landlord shall
establish from time to time for providing such services during such hours. Any
such charges which Tenant is obligated to pay shall be deemed to be additional
rent under this Lease.
D-2
<PAGE>
10. Access to Building. Landlord reserves the right to exclude from the
------------------
Building during the evening, night and early morning hours beginning at 6 P.M.
and ending at 8 A.M. Monday through Friday, and at all hours on Saturdays,
Sundays, union holidays and legal holidays, all persons who do not present
identification acceptable to Landlord. Tenant shall provide Landlord with a
list of all persons authorized by Tenant to enter the Premises and shall be
liable to Landlord for all acts of such persons. Landlord shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In the case of invasion, mob, riot, public
excitement or other circumstances rendering such action advisable in Landlord's
opinion, Landlord reserves the right to prevent access to the Building during
the continuance of the same by such action as Landlord may deem appropriate,
including closing doors.
11. Building Directory. The directory of the Building will be provided
------------------
for the display of the name and location of Tenant and a reasonable number of
the principal officers and employees of Tenant at the expense of Tenant.
Landlord reserves the right to restrict the amount of directory space utilized
by Tenant.
12. Window Coverings. No curtains, draperies, blinds, shutters, shades,
----------------
screens or other coverings, hangings or decorations shall be attached to, hung
or placed in, or used in connection with any window of the Building without the
prior written consent of Landlord. In any event, with the prior written consent
of Landlord, such items shall be installed on the office side of Landlord's
standard window covering and shall in no way be visible from the exterior of the
Building. Tenant shall keep window coverings closed when the effect of sunlight
(or the lack thereof) would impose unnecessary loads on the Building's air
conditioning systems.
13. Food and Beverages. Tenant shall not obtain for use in the Premises
------------------
ice, drinking water, food, beverage, towel or other similar services, except at
such reasonable hours and under such reasonable regulations as may be
established by Landlord.
14. Procedures When Leaving. Tenant shall ensure that the doors of the
-----------------------
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant and its employees leave the Premises so as
to prevent waste or damage. For any default or carelessness in this regard,
Tenant shall be liable and pay for all damage and injuries sustained by Landlord
or other tenants or occupants of the Building. On multiple-tenancy floors,
Tenant shall keep the doors to the Building corridors closed at all times except
for ingress and egress.
15. Bathrooms. The toilet rooms, toilets, urinals, wash bowls and other
---------
apparatus shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be paid by Tenant if caused by Tenant or its
agents, employees, contractors, invitees or licensees.
D-3
<PAGE>
16. Prohibited Activities. Except with the prior written consent of
---------------------
Landlord, Tenant shall not sell at retail newspapers, magazines, periodicals,
theater or travel tickets or any other goods or merchandise to the general
public in or on the Premises, nor shall Tenant carry on or permit or allow any
employee or other person to carry on the business of stenography, typewriting,
printing or photocopying or any similar business in or from the Premises for the
service or accommodation of occupants of any other portion of the Building, nor
shall the Premises be used for manufacturing of any kind, or any business or
activity other than that specifically provided for in this Lease.
17. No Antenna. Tenant shall not install any radio or television antenna,
----------
loudspeaker, or other device on the roof or exterior walls of the Building. No
television or radio or recorder shall be played in such a manner as to cause a
nuisance to any other tenant.
18. Vehicles. There shall not be used in any space, or in the public
--------
halls of the Building, either by Tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord approves. No other vehicles of any kind shall be brought
by Tenant into the Building or kept in or about the Premises.
19. Trash Removal. Tenant shall store all its trash and garbage within
-------------
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of office building trash and
garbage in the city or county in which the Building is located without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal shall be made only through entryways and elevators provided for
such purposes and at such times as Landlord shall designate. Tenant shall crush
and flatten all boxes, cartons and containers. Tenant shall pay extra charges
for any unusual trash disposal.
20. No Soliciting. Canvassing, soliciting, distribution of handbills or
-------------
any other written material and peddling in the Building are prohibited, and
Tenant shall cooperate to prevent the same.
21. Services. The requirements of Tenant will be attended to only upon
--------
application in writing at the office of the Building. Personnel of Landlord
shall not perform any work or do anything outside of their regular duties unless
under special instructions from Landlord.
22. Waiver. Landlord may waive any one or more of these Rules and
------
Regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord shall be construed as a waiver of such Rules and Regulations
in favor of any other tenant or tenants, nor prevent Landlord from thereafter
enforcing any such Rules and Regulations against any or all of the tenants of
the Building.
D-4
<PAGE>
23. Supplemental to Lease. These Rules and Regulations are in addition
---------------------
to, and shall not be construed to in any way modify or amend, in whole or in
part, the covenants of this Lease.
24. Amendments and Additions. Landlord reserves the right to make such
------------------------
other rules and regulations, and to amend or repeal these Rules and Regulations,
as in Landlord's judgment may from time to time be desirable for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.
D-5
<PAGE>
EXHIBIT E
EXCLUSIONS FROM OPERATING EXPENSES
----------------------------------
1. Operating Expenses shall not include any charge for janitorial
services to the Premises. Tenant shall pay for all janitorial services directly
to the provider for such service in accordance with the terms of the Lease.
Operating Expenses may include charges for common area janitorial services.
2. Operating Expenses shall not include any charge for electricity for
equipment (as opposed to electricity for any Building services provided to the
Premises by Landlord, such as VAC). Operating Expenses may include electricity
for equipment operated and maintained for general tenant use elsewhere in the
Building.
E-6
<PAGE>
EXHIBIT F-1
Roof Top License Area
---------------------
This Exhibit shall be finalized prior to 5:00 p.m. PST, January 30, 1998 or
else it shall be deemed deleted from this Lease.
F-1-1
<PAGE>
EXHIBIT F-2
Roof Top Facilities
-------------------
This Exhibit shall be finalized prior to 5:00 p.m. PST, January 30, 1998 or
else it shall be deemed deleted from this Lease.
F-2-1
<PAGE>
EXHIBIT F-3
ROOF TOP LICENSE TERMS
----------------------
(a) Term. The term of the Licenses shall commence on the Commencement
----
Date and shall terminate on the Expiration Date, or any earlier termination of
the Lease.
(b) Landlord's Prior Approval. Prior to any installation of Facilities,
-------------------------
Tenant shall submit to Landlord's proposed plans and specifications for the
installation of the Facilities for Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed, provided that landlord
may withhold its approval to the installation of the Facilities for any of the
following reasons: (i) the installation or operation of the Facilities may
damage the structural integrity of the Building (including the roof); (ii) the
installation or operation of the facilities is likely to result in an unsafe
condition affecting Landlord's employees or contractors authorized to have
access to the roof or to other tenants of the Building or pedestrians or other
persons in the vicinity of the Building; (iii) the installation or operation of
the Facilities may interfere with any services provided by or to be provided by
Landlord or any third party with respect to the operation of the Building,
including another tenant at the Building; and (iv) the installation of the
Facilities compromises the exterior aesthetics of the Building, as determined by
Landlord in its reasonable discretion. Without limiting the generality of the
foregoing, all Facilities shall be capable of being operated without the need
for engineers or other personnel to be stationed on the Roof Area (other than
for normal maintenance and repair).
(c) Installation. Tenant shall install the Facilities at its own cost and
------------
expense, and in compliance with the requirements of any and all local, State and
Federal Laws, applicable to the Facilities and Tenant shall maintain the
facilities in compliance with such Laws; provided, however, the location and
manner of any penetrations of the roof membrane to accommodate the Facilities
shall be determined by Landlord in it sole and absolute discretion. Tenant
covenants and warrants that neither Tenant nor any of its agents, contractors or
subcontractors shall cause any damage to the roof of the Building in connection
with the installation of the Facilities.
(d) Tenant's Indemnification. Tenant covenants that the installation,
------------------------
operation, maintenance and use of the Facilities shall be at Tenant's sole cost
and risk. Tenant shall indemnify, defend and hold Landlord and Landlord's
Affiliates harmless from and against any and all claims, actions, damages,
liability, costs and expenses (including attorneys' fees) in connection with
loss of life, personal injury, damage to the property or business or any other
loss or injury arising out of the installation, operation or removal of the
Facilities, or a breach by Tenant of the terms of the Licenses, unless caused
solely by Landlord's willful misconduct or gross negligence.
(e) Utilities. If and to the extent the local utility consents thereto,
---------
Tenant will install, at its sole cost and expense, a separate meter for Tenant's
electrical power usage and
F-3-1
<PAGE>
Tenant shall pay directly to the public utility for all electrical power usage.
For so long as Tenant pays directly to the public utility for all electrical
power, Tenant shall have no obligation to reimburse Landlord for electricity.
Landlord shall have no obligation to provide Tenant with any utilities,
facilities, outlets or Building services, other than the existing electrical
power serving the Roof Area. If and to the extent Tenant utilizes electricity
or other utilities that are not separately metered to, and payable directly by,
Tenant, Landlord shall, at Tenant's expense, install a submeter to measure the
utilities consumed by the Facilities and Tenant shall pay to Landlord, monthly,
together with the payment of Rent, as an additional license fee, the allocated
charges for all electrical power and other utilities used to operate the
Facilities, as determined by Landlord based on the usage reflected by the
submeter, at the rates payable by Landlord. Landlord may estimate such charges
on a monthly basis, subject to quarterly adjustments based on actual readings.
Tenant shall not alter, reconfigure relabel or in any manner manipulate the
existing utility and cabling serving the Roof Area without the prior approval of
Landlord.
(f) Interruption of Services. Tenant acknowledges that interruptions may
------------------------
occur in the operation of the Facilities as a result of Landlord's operation of
the Building, and while Landlord agrees to use its best efforts to prevent such
interruption, Tenant acknowledges that any such operation shall in no way excuse
or reduce Tenant's obligation to pay Base Rent hereunder, nor shall Landlord be
liable to Tenant as a result thereof.
(g) Access to License Areas. Tenant shall give Landlord not less than
-----------------------
forty-eight (48) hours prior written notice (other than emergency repairs
necessary for the uninterrupted operation of the Facilities) each time Tenant
intends to go onto the roof of the Building, and Tenant shall obey all
reasonable requirements imposed by Landlord for the protection of the roof,
including, without limitation, a requirement that Tenant shall be accompanied by
a representative of Landlord. Tenant, at any time mutually convenient with
Landlord's Building engineer, shall have the right of access to the Building's
utility and communications conduits, ducts and cabling located outside of the
Premises (subject to reasonable limitations as to point of access as determined
by Landlord) for purposes of maintenance and repair of the transmission lines
leading to the Facilities; provided, however, Tenant shall not alter,
reconfigure, relabel or in any manner manipulate the existing utility and
communications conduits, ducts and cabling in the Building without the prior
approval of Landlord.
(h) Removal of Facilities. At the expiration or sooner termination of the
---------------------
Lease or the Licenses, Tenant shall remove the Facilities and any and all
cabling, wiring, conduit and ducts installed by Tenant and connecting the
Facilities to the Premises, repair any damage as a result thereof, and leave the
portion of the roof of the Building where the Facilities were located in good
condition and repair, ordinary wear and tear excepted.
(i) Insurance. For purposes of section 13 the Facilities shall be
---------
considered "Tenant's Property," such that Tenant shall carry casualty insurance
on the Facilities as provided therein. In addition, Tenant's liability
insurance shall extend to the ownership, maintenance, use, operation and
condition of the Facilities as if the same were located in the
F-3-2
<PAGE>
Premises. Landlord may refuse to permit Tenant to install any Facilities on the
roof until Tenant provides Landlord with a certificate of insurance evidencing
the insurance required by this section.
(j) Relocation. Landlord, at Landlord's sole cost and option, shall have
----------
the right to relocate the Facilities; provided Landlord shall notify Tenant in
advance and shall use commercially reasonable efforts to minimize any disruption
in Tenant's use of the Facilities occurring during such relocation and shall
cooperate in good faith with Tenant to ensure that Tenant is able to send and
receive a clear signal from the Facilities in the proposed location to which the
Facilities are to be move.
(k) Hazardous Materials. No Hazardous Materials (as that term is defined
-------------------
in the Lease) shall be used in the operation or maintenance of the Facilities or
stored by Tenant on the roof, except as may be in compliance with applicable
law.
(l) Limit on License. Tenant acknowledges and agrees that Landlord has
----------------
made no representation or warranty to Tenant that the Facilities are permitted
under applicable building, land use or zoning laws, ordinances or codes or that
the roof location for the Facilities is suitable for Tenant's intended purposes
or will otherwise provide adequate reception and/or transmission capabilities.
Tenant represents and warrants to Landlord that it is accepting the Licenses
based on its own determination regarding compliance with applicable law and
suitability of location.
F-3-3
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT WORK AGREEMENT
---------------------------------
ZORO, LLC
650 Townsend Street
San Francisco, California 94103
January 30, 1998
Focal Communications Corporation
200 North LaSalle Street
Chicago, IL 60601
Re: "Work Letter" for a portion of the Second Floor of
650 Townsend Street, San Francisco, CA 94105 as described in the Lease
----------------------------------------------------------------------
Gentlemen:
Reference is made to the Lease (the "Lease") of even date between you, as
Tenant, and the undersigned, as Landlord, covering the captioned premises (the
"Premises").
Landlord and Tenant agree that the work to be done to the Premises in order
to prepare the same for Tenant's occupancy shall be performed by a contractor
selected by Tenant and reasonably acceptable to Landlord, in accordance with the
following terms and conditions:
1. PLANS/SPECIFICATIONS
--------------------
1.1 Prior to commencing work on the leasehold improvements to the Premises
as hereinafter provided ("Tenant Improvements"), Tenant shall submit to Landlord
complete and detailed plans and specifications for the Tenant Improvements
("Tenant's Plans"). Tenant's Plans shall be prepared by an architectural firm
("Architect") and by an engineering firm ("Engineer"), both licensed to practice
in the State of California who shall be designated by Tenant and subject to the
reasonable approval of Landlord. If Tenant hereafter shall desire to change the
Architect or Engineer, that change shall be satisfactory to Landlord, in
Landlord's reasonable discretion.
1.2 The Architect shall coordinate with Landlord's designated
representative to assure that Tenant's Plans are consistent with the existing
design and construction of the Premises. Tenant acknowledges that Landlord has
provided Tenant with a set of base building drawings for the Premises ("Building
Drawings"). However, Landlord does not warrant, and Tenant should not rely
upon, the accuracy of the Building Drawings. Tenant,
C-1
<PAGE>
therefore, should undertake its own investigation of the Premises to confirm
existing conditions, rather than relying on the Building Drawings.
1.3 Tenant shall deliver to Landlord the schematic drawings ("Schematic
Drawings") upon which Tenant's Plans shall be based not later than March 15,
1998. The Schematic Drawings and Tenant's Plans shall conform with any
standards set forth by Landlord for material specifications and construction
specifications which are applicable for the Building in general. Landlord shall
have ten (10) working days after receipt thereof to review and
approve/disapprove the Schematic Drawings. If Landlord does not respond to any
proposed submittal within such ten (10) day period, the Schematic Drawings shall
be deemed approved. Once Landlord has approved the Schematic Drawings, Tenant
shall cause the Architect to prepare Tenant's Plans which must be consistent
with the approved Schematic Drawings. Provided Landlord has approved the
Schematic Drawings, Tenant shall deliver Tenant's Plans to Landlord for its
approval, in one or more stages, during the period between April 1 and May 15,
1998. Landlord shall not unreasonably withhold its approval of Tenant's Plans
so long as Tenant's Plans are consistent with the Schematic Drawings. In
scheduling the preparation of the Schematic Drawings and Tenant's Plans, Tenant
shall allow sufficient time for review and approval by Landlord and by the
appropriate government agencies.
1.4 If Landlord disapproves of the Schematic Drawings or Tenant's Plans or
any portion of either, Landlord shall promptly notify Tenant thereof in writing
and of the revisions which Landlord requires in order for Tenant to obtain
Landlord's approval. As promptly as reasonably possible, but in no event longer
than fifteen (15) days thereafter, Tenant shall submit to Landlord a revised set
of Schematic Drawings or Tenant's Plans incorporating the changes required by
Landlord. Said revisions shall also be subject to Landlord's approval.
Landlord shall have five (5) working days after receipt of the revised Schematic
Drawings or Tenant's Plans to notify Tenant in writing of Landlord's approval or
disapproval of same. If Landlord again disapproves of or requests revisions to
the Schematic Drawings or Tenant's Plans, Tenant shall submit to Landlord,
within ten (10) business days after receiving Landlord's written disapproval or
request for revisions, a further revised set of Schematic Drawings or Tenant's
Plans incorporating the changes required by Landlord. This process shall
continue until Landlord has approved the Schematic Drawings and Tenant's Plans.
1.5 The final Tenant Plans, approved by Landlord, shall be referred to as
the "Final Plans." The Final Plans shall be signed by Landlord and Tenant.
After approval of the Final Plans, Tenant shall not make any changes thereto
without Landlord's prior written approval in accordance with the provisions of
this Work Letter.
1.6 Tenant shall be solely responsible for obtaining all necessary
governmental approvals and permits (including but not limited to the approval of
the San Francisco City Planning Department) required to commence and complete
the Tenant Improvements; and
C-2
<PAGE>
immediately upon receipt thereof, Tenant shall deliver copies of all such
approvals and permits to Landlord.
1.7 Except as expressly set forth in section 2.2 of the Lease with respect
to Code Compliance, it shall be Tenant's sole responsibility to satisfy all
applicable building code requirements and governmental rules and regulations
concerning the design and construction of the Tenant Improvements. Landlord's
approval of the Final Plans is not intended, and should not be understood by
Tenant, as an affirmation that the Final Plans comply with applicable building
codes or other governmental rules and regulations or that the Final Plans are in
conformance with standards of good workmanship as practiced by
architects/engineers in the San Francisco Bay Area. Landlord's review of the
Final Plans is solely for Landlord's benefit, and Tenant shall not rely upon
that review for any purpose whatsoever in connection with the work on or the
design of the Tenant Improvements.
1.8 Tenant shall select a general contractor to perform the work on the
Tenant Improvements ("Contractor"), duly licensed in the State of California and
familiar with all applicable building code requirements, who shall be
satisfactory to Landlord, in Landlord's reasonable discretion.
2. SCHEDULING AND TENANT'S PRIOR ACCESS TO THE PREMISES
----------------------------------------------------
2.1 At least five (5) days prior to the start of construction on the
Tenant Improvements, Tenant shall deliver to Landlord the acts-planned" schedule
of the work to be performed ("TI Schedule"). The TI Schedule shall be prepared
by the Contractor, and it shall show the schedule for the submission of all shop
drawings/submittals and for the performance of each portion of the work on the
Tenant Improvements. Tenant and the Architect shall either consult with the
Contractor or the Architect shall perform the necessary investigation to
determine the availability of the equipment and materials to be incorporated
into the Tenant Improvements and which portions of the Tenant Improvements will
require long lead time for ordering and/or manufacturing. The TI Schedule shall
be in the form of a Critical Path Method schedule.
2.2 Reference is hereby made to Section 2.3 of the Lease. Landlord
acknowledges that, upon approval of Tenant's Plans and the acquisition by Tenant
of all necessary permits, Tenant may commence the construction of its tenant
improvements and that Landlord will afford Tenant access for such purpose. For
purposes hereof, "Predelivery Functions" shall mean any and all tenant
improvement work to be constructed by Tenant including but not limited to
demolition work, construction of demising walls and partitions, rerouting of
ducts, installation of sprinklers, unistruts and ladder racks. Landlord and
Tenant agree that Landlord must perform certain Landlord's Work, as defined in
the Lease, and that both parties will use all commercially reasonable efforts to
coordinate their respective work inside the space; however, in event of any
conflict between Landlord's Work and Tenant's Work, on one day's prior written
notice Tenant shall either accommodate Landlord's requirements or vacate the
Premises until completion of Landlord's Work. Landlord acknowledges that
C-3
<PAGE>
Tenant intends to have commenced its construction prior to the completion of, or
even commencement of, Landlord's Work. In addition to the foregoing, Landlord
shall permit Tenant access to the Premises, prior to final approval of Tenant's
Plans and the acquisition of permits, for the purposes of obtaining measurements
of the Premises, confirming existing conditions and for space planning
preparation purposes.
2.3 Tenant shall be solely responsible for all costs and expenses incurred
in connection with the Pre-Delivery Functions.
2.4 Tenant's entry to the Premises prior to the Delivery Date for purposes
of the Pre-Delivery Functions shall be upon all of the terms and conditions of
the Lease, including, without limitation the provisions regarding insurance and
indemnification, but excepting the payment of Base Rent and additional rent.
2.5 Tenant hereby agrees to indemnify, defend, and hold harmless Landlord
from and against any loss, cost, expense, liability, damage, or injury in
connection with any of the Pre-Delivery Functions.
3. PAYMENT FOR TENANT IMPROVEMENTS AND THE CONSTRUCTION CONTRACT
-------------------------------------------------------------
3.1 Construction Costs. As an inducement to Tenant to enter into the
------------------
Lease, but subject to paragraph 3.2 below and as otherwise provided in the Lease
and this Work Letter, Landlord agrees to pay for (1) the cost of construction of
the Tenant Improvements identified on the approved Final Plans; (2) costs of any
permits or licensing fees; (3) payment of the fees of the "Architect" and
"Engineer"; and (4) any other costs approved by Landlord ("Tenant Improvement
Costs") up to a cost not to exceed $262,455 (the "Allowance"). If the Allowance
is not used for Tenant Improvement Costs, the unused portion shall revert to
Landlord and shall not be available for any other purpose by Tenant.
3.2 Payment of Allowance.
--------------------
(a) Payment Procedure. Landlord shall pay for the Tenant Improvement
-----------------
Costs up to the Allowance upon substantial completion of the Tenant Improvements
(as hereinafter defined in section 6 hereof (i) upon presentation to Landlord of
invoices therefor from the person(s) performing the work or rendering the
services and such supporting documentation as Landlord may reasonably request in
connection therewith, and (ii) receipt by Landlord of unconditional lien
releases with respect to the Tenant Improvement work performed from all
contractors, subcontractors and materialmen who perform the work. Landlord
shall have no obligation to pay all or any portion of the Allowance at any time
following the occurrence, and during the continuance, of any Event of Default
under the Lease.
C-4
<PAGE>
(b) Excess Cost. Tenant shall pay all costs incurred in connection
-----------
with the construction of the Tenant Improvements subject to the Allowance.
(c) Project and Construction Management Services. In consideration
--------------------------------------------
of the supervisory, logistical and oversight and review work to be performed by
Landlord in connection with the Tenant Improvements, Tenant agrees that Landlord
shall be entitled to charge against the Allowance a construction management fee
(the "Coordination Fee") in the amount of ten percent (10%) of the total cost of
the Tenant Improvements. Notwithstanding he foregoing, if Tenant uses DBD
Structures, Inc. as its Contractor, the Coordination Fee shall be three percent
(3%) of the total cost of the Tenant Improvements. Under no circumstance shall
any Coordination Fee be due or payable with respect to the cost of any
telecommunications equipment to be installed, including the switch, ladder racks
and unistruts. Landlord shall deduct the Coordination Fee from the Allowance.
Landlord's Project Manager is DBD Structures, Inc. All such Coordination Fees
are in complete satisfaction of any and all amounts owed under Section 9.1(c) of
the Lease.
3.3 The construction contract for the Tenant Improvements shall include
all of the provisions which are attached hereto and identified as "Construction
Contract Terms;" provided, however, that the Construction Contract Terms may be
revised with Landlord's approval, which approval shall not be unreasonably
withheld, in a manner which does not expose Landlord to additional liability.
4. CHANGES, ADDITIONS, AND ALTERATIONS
-----------------------------------
4.1 From time to time Tenant may make nonmaterial changes in the Final
Plans prior to final completion with Landlord's prior approval, which approval
shall not be unreasonably withheld. Tenant shall not make any material changes
to the Final Plans (which shall mean a change that is in excess of $10,000.00,
is visible from the exterior of the Premises, or affects the structure, roof,
central building systems or exterior walls of the Premises), without securing
the prior written approval of Landlord, which approval may be withheld by
Landlord in its sole discretion. In seeking Landlord's approval for changes to
the Final Plans, Tenant shall deliver to Landlord such documentation as the
Construction Contract shall require for changes in the Contract Price or an
extension of the Completion Date.
4.2 No such changes in the Final Plans shall delay the Rent Commencement
Date set forth in the Lease. Landlord shall approve or disapprove any such
changes within ten (10) working days after the receipt of a request from Tenant.
Upon approval by Landlord, such change shall be included within the phrase
"Final Plans."
5. CONSTRUCTION AND DELAYS
-----------------------
5.1 The performance of the work on the Tenant Improvements shall be
subject to the following terms and conditions:
C-5
<PAGE>
(a) except to the extent of a conflict between Article 9 of the Lease
and this Work Letter (in which case this Work Letter shall govern), compliance
by Tenant and the Contractor and its subcontractors, material suppliers, and
equipment renters of whatever tier ("Tenant's Contractors") with the applicable
provisions of Article 9 of the Lease;
(b) all of the work on the Tenant Improvements, which are performed
by Tenant's Contractors, shall be scheduled through Tenant;
(c) all work on the Tenant Improvements shall be performed in
accordance with the reasonable rules and regulations which Landlord may issue
from time to time;
(d) Landlord shall have no responsibility whatsoever for the
supervision or coordination of Tenant's Contractors, the Architect, or the
Engineer, the quality of their work or any other matter with respect to Tenant's
Contractors, the Architect, or the Engineer; however, Tenant shall coordinate
all Tenant Improvements with Landlord's Project Manager as described herein and
as set forth in the TI Schedule.
6. SUBSTANTIAL COMPLETION
----------------------
6.1 For purposes of this Work Letter and the Lease, "Substantial
Completion" of the Tenant Improvements shall mean the date that (i) the
Architect certifies to Landlord that the Tenant Improvements have been completed
in accordance with the Final Plans; and (ii) the Rent Commencement Date under
the Lease has occurred, and (iii) Landlord has received unconditional lien
releases with respect to the Tenant Improvement work performed.
7. DEFAULT
-------
7.1 Any default by Tenant under this Work Letter shall be deemed an
immediate Event of Default under the Lease, entitling Landlord to exercise any
and all of its rights and remedies available to Landlord under the Lease at law
or in equity for nonpayment of rent. In addition to all other amounts payable
by Tenant hereunder, upon the default by Tenant under this Work Letter, and
notwithstanding anything to the contrary contained herein, Tenant shall pay
Landlord upon demand all costs and expenses incurred by Landlord in connection
with its review of Tenant's Plans, the TI Schedule, and any construction
documents, and in connection with the construction of the Tenant Improvements.
C-6
<PAGE>
Very truly yours,
ZORO, LLC,
a California limited liability company
By: /s/ Martin Zankel
----------------------------------------
Its: Managing Member
---------------------------------------
CONFIRMED AND AGREED TO:
FOCAL COMMUNICATIONS
CORPORATION
By: /s/ Brian F. Addy
----------------------------------------
Its: Executive Vice President
---------------------------------------
Date: January 30, 1998
C-7
<PAGE>
EXHIBIT F-2
One Global Timing Receiver to be 12 inches in diameter and 7 inches high, in the
location designated in Exhibit F-1.
F-2-i
<PAGE>
Exhibit 10.13
MELLON INDEPENDENCE CENTER
PHILADELPHIA, PENNSYLVANIA
LEASE
LANDLORD: INDEPENDENCE CENTER REALTY L.P. II,
a Delaware Limited Partnership
TENANT: FOCAL COMMUNICATIONS CORPORATION,
a Delaware corporation
DATE: March 10, 1998
LEASE NO.: C-206W
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. BASIC LEASE PROVISIONS................................................ 1
2. CONSTRUCTION OF PREMISES.............................................. 2
3. TERM.................................................................. 2
4. RENT.................................................................. 2
5. TAXES................................................................. 2
6. OPERATING COSTS. [INTENTIONALLY OMITTED]............................. 3
7. ANNUAL TAX STOP; ESTIMATED PAYMENTS................................... 3
8. UTILITIES............................................................. 3
9. USE OF PREMISES....................................................... 4
10. SERVICES, MAINTENANCE AND REPAIRS..................................... 4
11. ALTERATIONS........................................................... 5
12. INSURANCE............................................................. 6
13. SATISFACTION OF REMEDIES; LIABILITY; INDEMNITY........................ 7
14. COMMON AREA AND PARKING............................................... 8
15. DAMAGE OR DESTRUCTION................................................. 8
16. CONDEMNATION.......................................................... 8
17. ASSIGNMENT AND SUBLETTING............................................. 9
18. MORTGAGEE PROTECTION.................................................. 11
19. ESTOPPEL CERTIFICATES................................................. 11
20. DEFAULT............................................................... 11
21. REMEDIES FOR DEFAULT.................................................. 11
22. BANKRUPTCY. [SEE EXHIBIT "F"]........................................ 14
23. GENERAL PROVISIONS.................................................... 14
24. HAZARDOUS SUBSTANCES.................................................. 17
EXHIBIT A PREMISES.................................................... 19
EXHIBIT B WORKLETTER.................................................. 1
EXHIBIT C BASE RENT................................................... 1
EXHIBIT D RULES AND REGULATIONS....................................... 1
EXHIBIT E CLEANING SPECIFICATIONS..................................... 1
EXHIBIT F BANKRUPTCY PROVISIONS....................................... 1
ADDENDUM #1 TELECOMMUNICATIONS ANTENNA.................................. 1
ADDENDUM #2 EXTENSION OPTIONS........................................... 1
</TABLE>
(i)
<PAGE>
INDEX TO CERTAIN DEFINED TERMS
------------------------------
<TABLE>
<S> <C>
Affiliates 17
Alterations 5
Annual Operating Cost Stop 1
Annual Tax Stop 1
Bankruptcy Code 1
Base Rent 1
Building 1
Common Area 8
Condemnation 9
CPI 17
Default Rate 14
force majeure 15
hazardous substances 17
Landlord's Mortgagees 17
Laws 17
Lease 17
Lease Year 2
Liabilities 17
Liens 5
Premises 1
Project 1
rent 2
Rent Commencement Date 1
Tenant's Percentage 1
Security Deposit 1
Superior Leases and Mortgages 17
Systems and Equipment 17
Taxes 2
Tenant's Broker 1
Tenant's Equipment 17
Tenant's Work 2
Tenant's Property 14
Transfer 9
</TABLE>
(ii)
<PAGE>
LEASE
-----
THIS LEASE, dated as of March 10, 1998, is between INDEPENDENCE CENTER
REALTY L.P.II, a Delaware limited partnership ("Landlord"), and FOCAL
COMMUNICATIONS CORPORATION, a Delaware corporation ("Tenant").
Landlord leases the Premises to Tenant and Tenant leases the Premises from
Landlord, together with the non-exclusive right to use elevators, stairways,
lobbies and corridors in the Building necessary for access to the Premises, on
the following terms and conditions:
1. BASIC LEASE PROVISIONS.
----------------------
(a) Rent Commencement Date: July 1, 1998, or when Tenant begins to conduct
----------------------
business with its telecommunications customers in the Premises, whichever is
earlier. (Preliminary testing shall not be deemed to constitute the conduct of
business by Tenant for these purposes.)
(b) Term: Ten (10) Lease Years after the Rent Commencement Date, unless
----
terminated earlier or extended in accordance with this Lease.
(c) Premises: Space on the Concourse Level of the Building (as shown in
--------
Exhibit "A"), with an agreed rentable area of 17,608 square feet.
(d) Building: The land, improvements and appurtenances, both above and
--------
below grade, now commonly known as Mellon Independence Center, located at 701
Market Street, Philadelphia, Pennsylvania. (The Building is sometimes referred
to as the "Project".)
(e) Base Rent: See Exhibit "C".
---------
(f) Annual Operating Cost Stop: N/A.
--------------------------
(g) Annual Tax Stop: An amount that would equal Tenant's Percentage of
---------------
Taxes for the 1998 calendar year, as reconciled.
(h) Tenant's Percentage: 2.9%.
-------------------
(i) Security Deposit: $40,351.
----------------
(j) Use of Premises: For the purpose of installing and operating a
---------------
telecommunications switch and associated equipment, and for associated office
use.
(k) Notice to Tenant Before Possession of Premises:
----------------------------------------------
Focal Communications Corporation
200 North LaSalle Street
Chicago, Illinois 60601
Attn: Brian Addy
(l) Notice to Landlord:
------------------
Independence Center Realty L.P. II
Mellon Independence Center
701 Market Street
Philadelphia, Pennsylvania 19106
Attn: John Connors
With a Copy to:
--------------
The Brickstone Companies
The Plaza at Continental Park
2101 Rosecrans Avenue, Suite 5252
El Segundo, California 90245
Attn: John G. Baker, Esq.
(m) Guarantor: N/A.
---------
(n) Tenant's Broker: Grubb & Ellis Company.
---------------
(o) Certain Other Defined Terms: See Section 23.18
---------------------------
If there is a conflict between this summary and the rest of this Lease, the rest
of this Lease will control.
1
<PAGE>
2. CONSTRUCTION OF PREMISES.
------------------------
Landlord represents and warrants that it has received no written notice
that the Premises currently does not comply with any applicable Laws and, to the
best of Landlord's knowledge, the current condition of the Premises does not
violate any applicable Laws. If and to the extent that, on the date that
Landlord first delivers possession of the Premises to Tenant, there is asbestos
in the Premises, Landlord shall at its cost remove or otherwise abate such
asbestos if and to the extent required in order to comply with applicable Laws.
Subject to the foregoing, the parties acknowledge and agree that Tenant is
accepting the Premises and the rest of the Building "as is" in all respects, and
that, as more particularly described in the Workletter attached as Exhibit "B",
Landlord is not required to perform any work or services to or for the initial
occupancy of the Premises or that is required for or as a result of thereof (but
this shall not affect Landlord's ongoing repair and maintenance obligations as
specifically set forth in this Lease). Tenant will diligently perform "Tenant's
Work" as described in Exhibit "B" and in accordance with this Lease.
3. TERM.
----
(a) This Lease is effective as of the date first set forth above, and the
Lease term will be for the period set forth in Section 1(b), unless terminated
earlier or extended in accordance with this Lease. Tenant will have the right
to terminate this Lease without further liability on written notice to Landlord
within thirty-five (35) days after this Lease has been fully executed and
delivered by both parties, if Tenant has not received within thirty (30) days
after this Lease has been fully executed and delivered by both parties: a
subordination non-disturbance agreement signed by Landlord's mortgagee and one
or more subordination non-disturbance agreements signed by Independence Center
Realty L.P. and Mellon Bank; and Landlord and Tenant have not mutually agreed on
the form of Exhibit "A-1" to be attached to this Lease (Exhibit "A-1" currently
is not attached to this Lease).
(b) A "Lease Year" is a period of twelve (12) consecutive calendar months
during the Lease term, starting with the Rent Commencement Date. However, the
first Lease Year is the first twelve (12) full calendar months plus the partial
month (if any) after the Rent Commencement Date if the Rent Commencement Date is
not the first day of the month, and the last Lease Year may be less than twelve
(12) months if the expiration or termination date of the Lease is not the last
day of a Lease Year. At Landlord's request, Tenant will execute a document
confirming the Rent Commencement Date, but Tenant's failure to execute this
document will not affect the actual Rent Commencement Date.
4. RENT.
----
Tenant will pay the base rent as shown in Exhibit "C" in monthly
installments in advance beginning on the Rent Commencement Date and thereafter
on the first day of each month during the term, prorated for any partial month.
The term "rent" includes base rent, additional rent and all other amounts to be
paid by Tenant under this Lease, whether or not specifically described as rent.
All rent will be paid without demand, deduction, counterclaim or offset of any
type in good and clear U.S. funds payable to the order of Independence Center
Realty L.P. II at The Plaza at Continental Park, 2101 Rosecrans Avenue, Suite
5252, El Segundo, California 902454709, Attn: Accounting Dept., or to such other
person or place as Landlord may designate from time to time by written notice to
Tenant. Tenant will pay the first full month's base rent when it executes this
Lease.
5. TAXES.
-----
5.1 Definition of Taxes. "Taxes" means all taxes, assessments, levies,
-------------------
charges and fees imposed against, for or in connection with all or any portion
of: the Project; the use, ownership, leasing, occupancy, operation, management,
repair, maintenance, demolition or improvement of the Project; Landlord's right
to receive, or the receipt of, rent, profit or income from the Project
(including any gross receipts tax); improvements, utilities and services,
whether because of special assessment districts or otherwise; the value of
Landlord's interest in the Project; a reassessment due to any change in
ownership or other transfer of all or any portion of the Project; and fixtures,
equipment and other real or personal property used in connection with the
Project. Taxes also include, without limitation, license fees, sales, use,
privilege, capital and value-added taxes, penalties (but only if Tenant fails to
pay when due its share of Taxes to which the penalties relate), interest and
costs incurred in a good-faith contest of taxes, and any charges or taxes in
addition to, in substitution or in lieu of, partially or totally, any taxes or
charges previously included within this definition, including taxes or charges
completely unforeseen by the parties and collected from whatever source. Taxes
do not include: Landlord's federal or state net income, capital stock,
franchise, excise, inheritance, gift or estate taxes, or the charges described
in Section 5.3.
5.2 Payment of Taxes. Subject to and in accordance with Article 7, during
----------------
the term Tenant will pay directly to Landlord as additional rent within thirty
(30) days after receipt of Landlord's bill, but in any event before delinquency,
the excess of: (a) Tenant's Percentage all Taxes; minus (b) the Annual Tax Stop.
5.3 Tenant's Taxes. Tenant will pay before delinquency all taxes
--------------
assessments, license fees and charges (collectively, "Tenant's Taxes") levied,
assessed or imposed directly on Tenant and/or Tenant's Property, and those that
Landlord is required or authorized to collect from Tenant or any occupant of the
Premises, or which are imposed directly or indirectly on Landlord or imposed on
the Project with respect to Tenant's or any occupant's use or occupancy of the
Premises, including, without limitation, Use and Occupancy taxes.
2
<PAGE>
6. OPERATING COSTS. [INTENTIONALLY OMITTED]
---------------
7. ANNUAL TAX STOP; ESTIMATED PAYMENTS.
-----------------------------------
7.1 Annual Stops. Tenant only will be required to pay its share of Taxes
------------
under this Lease if and to the extent that the annual amount of Tenant's share
of Taxes, determined in accordance with this Lease (and prorated for any period
of less than one year), exceeds the Annual Tax Stop (also prorated for any
period of less than one year). Tenant will not receive any credit or other
consideration if the amount of these charges is less than the Annual Tax Stop.
7.2 Estimated Payments. At any time and from time to time, and subject to
------------------
revision, Landlord may elect to have Tenant pay Tenant's share of Taxes as
determined above in monthly, quarterly or semi-annual installments, based on
amounts reasonably estimated by Landlord (as revised from time to time). If
these estimated payments are required, at least after the end of each Lease Year
or calendar year (or other shorter period selected by Landlord), Landlord will
deliver to Tenant a reconciling statement of the actual amounts due for the
period, determined in accordance with this Lease, and supported by copies of the
actual tax bills received by Landlord. Any additional amounts due from Tenant
will be payable as additional rent within thirty (30) days after receipt of
Landlord's statement, and any overpayment by Tenant will be refunded by Landlord
within thirty (30) days or credited against the next monthly installments due
for that particular payment category. Tenant's obligation to pay any amounts
due and Landlord's obligation to refund any overpayment will survive the
expiration or earlier termination of this Lease. At any time or from time to
time, Landlord may deliver a bill to Tenant for Tenant's share of Taxes due, and
Tenant will pay the amount due to Landlord as additional rent within thirty (30)
days after receipt of Landlord's bill. Tenant will receive a credit for any
estimated monthly payments already paid by Tenant for that particular charge for
the period covered by that bill.
8. UTILITIES.
---------
Tenant will pay when due to the furnishing parties all costs for utility
services (not including trash removal, sewer, water or gas service for normal
once use) furnished for the Premises, including, without limitation, electricity
for the Building's air handler that services the Premises and for any Tenant's
Equipment (in addition to any other utility charges for utilities that are used
in connection with Tenant's Equipment). Tenant's electrical service will be
submetered at Tenant's cost. Tenant will pay the charges for its utility
services directly to Landlord as additional rent within thirty (30) days after
receipt of Landlord's bills. If other utility services are not separately
submetered or charged, Tenant will pay its proportionate share as reasonably
determined by Landlord. Electricity costs charged by Landlord will not exceed
the rates charged to the Building by the applicable government authority or
public or private utility, plus Landlord's actual out-of-pocket cost of
supplying such service, which includes, without limitation, any fees and charges
paid or payable by Landlord to the government authority or public or private
utility and any connection, metering, meter-reading and transfer charges, all
without markup by Landlord. Landlord will make available to Tenant from
Landlord's existing substation in the Building up to approximately 500 kw of
electrical capacity for use in the Premises. Tenant will be responsible, at its
cost and as part of Tenant's Work, to supply all necessary labor, services,
installations and materials to bring such electrical service from the substation
to the Premises and any Tenant's Equipment. Notwithstanding anything to the
contrary, although Landlord will diligently attempt to restore utility service
provided by Landlord that malfunctions or is interrupted due to Landlord's
negligence, Landlord is not responsible for any Liabilities incurred by Tenant
or any of Tenant's Affiliates nor may Tenant abate rent, terminate this Lease or
pursue any other right or remedy against Landlord or its Affiliates as a result
of any malfunction, interruption or suspension of any utilities, services or
associated systems and equipment, and all associated claims are hereby waived by
Tenant.
Notwithstanding anything to the contrary, Tenant shall be solely
responsible, at its cost, for ensuring that its electrical "power factor",
including, without limitation, all Tenant's Equipment, wherever located, shall
be sufficiently within the electrical utility's rate structure so that no
penalty, cost or additional assessment shall be imposed, and Tenant shall
install such systems and equipment as may be necessary to control and/or adjust
its Power factor" to comply with the foregoing and shall indemnify Landlord and
its Affiliates from any penalty, cost, assessment or other Liabilities resulting
from its failure to so control its "power factor".
Landlord shall have the right in its sole discretion to designate the sole
electricity provider(s) to the Building (including the Premises) from time to
time.
Landlord shall permit Tenant, at Tenant's sole cost and expense, and in
accordance with applicable Laws and the rest of this Lease, to have at least
three (3) points of entry into the Building and the Premises to permit Tenant's
telecommunications customers that are serviced from the Premises to install new
conduit or share existing conduit.
No more than twice during each 12-month period during the term, Tenant may
audit Landlord's books and records relating to Tenant's electricity charges for
the current and/or prior Lease Year during Landlord's normal business hours on
at least one (1) week's prior written notice. Such audit shall be conducted in
a manner that will not unreasonably disrupt Landlord's business operations and
shall be performed at Tenant's sole cost. Tenant agrees to keep strictly
confidential the results of such audit and any claims, negotiations, proceedings
or settlements with Landlord in connection therewith and shall cause its
Affiliates to comply with the same requirements.
3
<PAGE>
9. USE OF PREMISES.
---------------
Tenant will use the Premises subject to the terms of this Lease and for the
purposes described in Section 10, but for no other purpose. Without limiting
the generality of the foregoing Tenant will:
(a) Operate its business in a first class manner and not permit any
objectionable or unreasonable noises, vibrations, odors or fumes in or to
emanate from the Premises, nor commit or permit any waste, improper, immoral or
offensive use of the Premises, any public or private nuisance or anything that
disturbs the quiet enjoyment of the other tenants, licensees, occupants or
invitees in or the proper operation of the Project. All deliveries and pickups
must be conducted at times and in the manner prescribed by Landlord, and only in
those areas specified by Landlord. All trash and waste products must be stored,
discharged, processed and removed in the manner prescribed by Landlord, and so
as not to be visible to other tenants or create any health or fire hazard.
(b) Install only window coverings and treatments approved by Landlord and,
once installed, keep them sufficiently closed to shield from outside view any
machinery or other equipment that Landlord determines is unsightly or
inconsistent with that portion of the Project.
(c) Not permit any coin or token operated vending, video, pinball, gaming
or other similar electrical or mechanical devices on the Premises, except for
vending machines solely for use by Tenant's employees; not permit diplomatic,
governmental, quasi-governmental or social services agencies or authorities to
occupy the Premises; not use the Premises for manufacturing, retail sales, or
the sale or storage of food or drinks, or as medical or legal offices, a school,
a day-care or educational institution, a laboratory, an employment or messenger
service, or living or sleeping quarters; not store, sell or distribute obscene,
lewd or pornographic materials or engage in related businesses in or from the
Premises; and not conduct any auction, distress, fire, bankruptcy, moving or
going-out-of-business sale.
(d) Comply at its expense with Laws and reasonable and customary insurance
requirements affecting the Premises and/or any use and occupancy thereof
(including, without limitation, making required improvements or alterations to
the Premises required by applicable Laws if and to the extent such improvements
or alterations are required because or as a result of Tenant's specific
business, use or manner of use in or of the Premises, but Tenant will not be
required to make such improvements or alterations if required as a result of
Laws that apply generally to the Building [e.g., all occupied space must be
sprinklered]) and Landlord's existing Rules and regulations and reasonable
changes to those rules and regulations made by Landlord from time to time.
Tenant will promptly deliver to Landlord copies of all notices of non-compliance
or required compliance received by Tenant. Tenant will, at its expense, obtain
and maintain all licenses, approvals and variances necessary to conduct its
business and occupy the Premises, but none of those licenses, permits or
variances will be binding on or in any way affect or restrict Landlord, any
other tenants in the Project or the Project itself.
(e) If it wishes, install signs or levering on the entry doors to the
Premises identifying its tenancy in the manner customary to first-class office
buildings. Tenant will conform to standards established by Landlord from time
to time for these signs or lettering and submit for Landlord's prior approval a
plan or sketch of the Tenant's proposed sign or lettering. Landlord also will
place Tenant's name on a directory sign in the Building. All other signs,
lettering, awnings, canopies or other decorations require Landlord's prior
approval.
(f) Not distribute handbills, advertising, promotional or other materials
anywhere in the Project or solicit business in the Project other than within or
from its own Premises.
10. SERVICES, MAINTENANCE AND REPAIRS.
---------------------------------
10.1 Landlord's Obligations.
----------------------
(a) Landlord will repair and maintain the Common Areas, the
structural parts of the Premises (but not the interior surfaces), and the
Project's common plumbing, electrical, life safety and HVAC systems serving or
passing through the Premises, excluding any Tenant's Equipment, such as
supplemental electrical, plumbing or HVAC systems that are above base-building
standard or involve special Tenant requirements or equipment, which will be
Tenant's responsibility (e.g., computer-room electrical or supplemental HVAC
systems and equipment, Tenant's telecommunications switch, audio/visual,
computer, data or telephone systems and equipment, security systems and
equipment for the Premises, interior bathrooms, kitchens and kitchen appliances,
etc.), ordinary wear and tear excepted. However, Tenant will be responsible for
all repairs and maintenance resulting from or required for Tenant's Alterations
or the negligent or intentional acts or omissions of Tenant or its Affiliates,
although Landlord at its option may perform any of such repairs and maintenance
at Tenant's expense which will include a five percent (5%) charge for Landlord's
supervision and administration, all of which will be paid by Tenant to Landlord
within fifteen (15) days after delivery of Landlord's statement. Landlord will
commence required repairs within a reasonable time following Tenant's
notification that the repairs are needed and on prior notice to Tenant, except
in emergencies when no notice will be required.
(b) Landlord will provide: cleaning services for the office areas of
the Premises per Exhibit "E" (which are subject to reasonable changes from time
to time); water and sewer service for the bathrooms within the Premises or, if
there are no bathrooms within the Premises, for the bathrooms on the floor on
which the Premises are located; replacement of standard fluorescent bulbs in the
Premises at Tenant's expense; and HVAC
4
<PAGE>
for normal Office excluding HVAC required for Tenant's telecommunications switch
and other Tenant's Equipment) in the Premises during the applicable heating and
cooling seasons during normal business hours. Normal business hours are Monday
through Friday from 8:00 A.M. - 6:00 P.M. and Saturdays from 8:00 A.M. - 12:00
P.M., federal, state, city and union holidays excepted. Tenant may request HVAC
service before and after normal business hours at Tenant's expense pursuant to
procedures promulgated by Landlord from time to time at a rate per hour or
fraction thereof equal to Forty-five and No/100 Dollars ($45.00), increased at
the beginning of each calendar year by an amount equal to three percent (3%).
(c) Landlord's obligations are subject to the provisions of Articles
15 and 16 and the rest of this Lease.
10.2 Tenant's Obligations. Except for Landlord's obligations in Section
--------------------
10.1, Tenant will at its cost maintain and repair the Premises, and keep the
Premises in good condition (ordinary wear and tear and casualty excepted),
including, without limitation, Tenant's Property, all audiovisual, computer,
data, telephone and other systems and equipment, all doors, windows, window
treatments, wall coverings, floor coverings, non-structural portions of the
ceiling, floor and walls, and Tenant's Alterations. Without limiting the
generality of the foregoing, Tenant also will be solely responsible at its cost
to repair and maintain all Tenant's Equipment, wherever located, and Tenant
agrees that Landlord shall have absolutely no obligations to repair or maintain
Tenant's Equipment nor will Landlord have any Liabilities in connection
therewith, and all claims in connection therewith are hereby waived by Tenant.
11. ALTERATIONS.
-----------
11.1 Landlord's Consent. "Alterations" means Tenant's alterations,
------------------
additions, installations, improvements, demolition, remodeling, repainting,
decoration or other similar activities. Tenant may make nonstructural
Alterations to the interior of the Premises without Landlord's consent as long
as the Alterations do not: affect the windows, the exterior of the Project, or
any part of the Project outside of the Premises; affect the strength, structural
integrity or load-bearing capacity of any portion of the Project; affect the
Project's systems and equipment or materially increase Tenant's usage; or, in
Landlord's reasonable judgment, cost more than a total of Two Hundred Thousand
Dollars ($200,000) exclusive of the cost of Tenant's telecommunications
equipment in any twelve (12)-month period when combined with the cost of other
Alterations made in that twelve (12)-month period. All other Alterations
require Landlord's prior written consent. Whether or not Landlord's consent is
required, Alterations are subject to the rest of this Article. Landlord's
consent for Tenant's Work for the initial occupancy of the Premises is covered
separately in Exhibit "B".
11.2 Notice. Tenant will notify Landlord not less than twenty (20) days
------
before beginning any Alterations and include a detailed description of the
proposed Alterations, copies of the necessary permits and approvals and, if
Landlord deems it necessary, detailed plans and specifications for the
Alterations (but not for minor, non-structural Alterations such as wall
coverings, wall hangings, built-in cabinetry, movable partitions and painting).
Landlord's review or approval of Tenant's descriptions, plans and specifications
is solely for Landlord's benefit and will not be considered a representation or
warranty to Tenant as to safety, adequacy, efficiency, compliance with Laws or
any other matter, or a waiver of any of Tenant's obligations. If Landlord's
consent is required for the Alterations and Tenant has failed to pay rent when
due hereunder, Landlord also may require Tenant to furnish a performance bond
from an issuer and in a form satisfactory to Landlord for at least one hundred
five percent (105%) of the costs of the Alteration as reasonably estimated by
Landlord. Unless Landlord otherwise elects in writing before the end of the
Lease term (in which case Tenant, at its cost, will remove the specified
Alterations and Tenant's Equipment, repair all damage and restore the Premises
and/or other areas of the Project, as applicable, to the condition existing on
the date hereof), all Alterations and Tenant's Equipment (other than Tenant's
removable personal property, moveable partitions, emergency generator, UPS
system and telecommunications switch) will be deemed to be a part of the realty
and will be surrendered with the Premises at the end of this Lease without
compensation to Tenant.
11.3 Compliance with Laws. Alterations will comply in all respects with
--------------------
this Lease and applicable Laws and insurance requirements. Alterations will be
done in a first-class manner, using first quality materials, and so as not to
interfere in any way with Landlord or any other tenant in the Project, cause
labor disputes, disharmony or delay, or impose any Liabilities on Landlord.
Alterations will be performed only by experienced, licensed and bonded
contractors and subcontractors approved in writing by Landlord. Tenant will
cause its contractors and subcontractors to carry adequate workmen's
compensation insurance and other insurance as set forth in Exhibit "B" and as
otherwise may be set forth in this Lease.
11.4 Liens. Tenant will pay when due all claims for labor, materials and
-----
services claimed to be furnished for Tenant or Tenant's Affiliates or for their
benefit and keep the Premises and the Project free from all liens, security
interests and encumbrances resulting (or alleged to result) therefrom ("Liens").
Tenant shall have the right to contest Liens provided that such contest is
undertaken in accordance with all applicable Laws and that Tenant first provides
a bond or other security sufficient to cause any Liens to be discharged of
record. Subject to the foregoing, Tenant immediately will remove and discharge
all Liens and if Tenant fails to do so Landlord may discharge or remove any such
Liens at Tenant's sole expense, and without incurring any liabilities to Tenant,
and Tenant immediately will pay to Landlord the amounts so spent by Landlord
upon presentation of Landlord's statement. Tenant will require Lien waivers
from all of Tenant's and its Affiliates' contractors, subcontractors and
materialmen, and, before beginning any Alterations, and in any event within ten
(10) days following the execution
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of any contract for such work, Tenant will cause to be filed in the Office of
the Prothonotary of Philadelphia County waivers of mechanic's and materialmen's
liens in the form attached as Exhibit "B-1" (if the form is still applicable at
that time) or otherwise in form satisfactory to Landlord's counsel, such waivers
to be binding on all contractors, subcontractors and materialmen. Copies of
these filed waivers must be delivered to Landlord before any work begins.
Tenant will indemnify Landlord for, and hold Landlord harmless from, all Liens,
the removal of all Liens and any related actions or proceedings, and all
Liabilities incurred by Landlord in connection therewith. NOTHING IN THIS LEASE
OR IN ANY SUBLEASE OR ASSIGNMENT WILL BE DEEMED OR CONSTRUED IN ANY WAY AS
CONSTITUTING THE CONSENT OR REQUEST OF LANDLORD, EXPRESS OR IMPLIED, TO ANY
CONTRACTOR, SUBCONTRACTOR, LABORER OR MATERIALMAN FOR THE PERFORMANCE OF ANY
LABOR OR THE FURNISHING OF ANY MATERIALS FOR ANY ALTERATION, REPAIR OR
MAINTENANCE OF THE PREMISES OR ANY PART THEREOF. NOTHING IN THIS LEASE OR IN
ANY OTHER DOCUMENT EXECUTED BY LANDLORD WILL BE CONSTRUED TO CONSTITUTE AN
ACKNOWLEDGMENT THAT ANY WORK DONE OR MATERIAL PROVIDED BY ANY CONTRACTOR,
SUBCONTRACTOR OR MATERIALMAN OF TENANT OR ANY SUBTENANT OR ASSIGNEE WAS DONE OR
PROVIDED FOR THE IMMEDIATE USE AND BENEFIT OF LANDLORD.
11.5 Labor Harmony. Tenant shall not, directly or indirectly, employ or
-------------
permit the employment of any contractor, mechanic or laborer, or permit any
materials to be brought into the Premises or the rest of the Project, if it
would create any work slow down, sabotage, strike, wild-cat strike, picketing or
jurisdictional dispute (a "Labor Incident"), or would in any way disturb the
peaceful and harmonious operation, management, maintenance, cleaning, security
or improvement of the Project or any part thereof. Tenant shall be solely
responsible for all Liabilities resulting from any such Labor Incident or
disturbance, and, without limiting any other rights and remedies of Landlord,
upon demand of Landlord Tenant immediately shall cause all contractors,
mechanics, laborers or materials employed or delivered by or for Tenant that are
the subject of such Labor Incident or disturbance to be removed from the
Project.
12. INSURANCE.
---------
12.1 Tenant's Insurance.
------------------
(a) Tenant will maintain during the term:
(i) Commercial general liability insurance (Broad Form CGL),
with contractual liability, cross-liability and fire legal liability
endorsements, protecting against all claims and liabilities for personal, bodily
and other injuries, death and property damage including, without limitation,
broad form property damage insurance, automobile and personal injury coverage.
This insurance also will insure Tenant's indemnities of Landlord. The amount of
this insurance will not be less than $5 Million combined single limit for each
occurrence.
(ii) "All risk" casualty insurance, covering all of Tenant's
Work, Tenant's Property and all Alterations made by or for the benefit of
Tenant. This insurance will be for at least 95% of full replacement value.
(iii) [INTENTIONALLY OMITTED]
(iv) Employer's liability insurance of not less than $1
Million, and worker's compensation insurance in statutory limits.
(v) if not already covered by the insurance policies described
above, Builder's risk insurance (completed value form) for work required of or
permitted to be made by Tenant. The amount of this insurance will be reasonably
satisfactory to Landlord and must be obtained before any work is begun.
(b) All policies of insurance carried by Tenant (except those
insuring Tenant's personal property and improvements) must: name Landlord and
its designees as additional insureds; contain a waiver by the insurer of any
right to subrogation against Landlord and its Affiliates; be written on an
"occurrence" basis; be from insurers reasonably acceptable to Landlord; and
state that the insurers will not cancel, fail to renew or modify the coverage
without first giving Landlord and any other additional insureds at least thirty
(30) days prior written notice.
(c) Tenant will supply copies of each paid-up policy or a
certificate from the insurer certifying that the policy has been issued and
complies with all of the terms of this Article. The policies or certificates
will be delivered to Landlord when the Lease is signed and renewals provided not
less than thirty (30) days before the expiration of the coverage. Landlord
always may inspect and copy any of the policies. Tenant waives subrogation (and
its insurance policies will contain such a waiver) and any claim or right to
recover against Landlord for Liabilities arising out of loss or damage to
tangible property or that are otherwise insured against by the property
insurance policies that Tenant actually carries or is required to carry
hereunder, without regard to any deductibles or collectibility under any
insurance policies or the sufficiency of such policies. Tenant and its
Affiliates will not undertake, fail to undertake or permit any acts or omissions
which will in any way increase the cost of, violate, void or make voidable all
or any portion of any insurance policies maintained by Landlord, unless Landlord
gives its specific written consent and Tenant pays all increased costs directly
to Landlord on demand.
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12.2 Landlord's Insurance. Landlord will maintain casualty insurance of
--------------------
at least 95% of the full replacement cost of the Project (excluding foundations,
footings, below-grade space and historic items and structures, and provided that
such insurance is available at commercially reasonable and competitive prices),
commercial general liability insurance (Broad Form CGL or the functional
equivalent) of at least $10 Million, and other insurance policies (including,
without limitation, rental loss insurance policies) in such amounts as Landlord
may determine, all with such deductibles and providing protection against such
perils as Landlord determines to be necessary in its sole discretion. All losses
on all policies maintained pursuant to this Article will be settled in
Landlord's name (or as otherwise designated by Landlord) and proceeds will
belong and be paid to Landlord. Landlord waives subrogation (and its insurance
policies also will contain such a waiver) and any claim or right to recover
against Tenant for Liabilities arising out of loss or damage to tangible
property or that are otherwise insured against by the property insurance
policies that Landlord actually carries or is required to carry hereunder,
without regard to any deductibles or collectibility under any insurance policies
or the sufficiency of such policies. Landlord makes no representations or
warranties as to the adequacy of any insurance to protect Landlord's or Tenant's
interests. Tenant specifically acknowledges and agrees that Landlord will not be
responsible for insuring, nor will Landlord have any other Liabilities for or in
connection with, any of Tenant's Property and/or any Tenant's Equipment (whether
due to loss, damage, theft or otherwise, and regardless of Landlord's
negligence), and all claims in connection therewith are hereby waived by Tenant.
13. SATISFACTION OF REMEDIES; LIABILITY; INDEMNITY.
----------------------------------------------
13.1 Satisfaction of Remedies. Notwithstanding anything in this Lease or
------------------------
elsewhere to the contrary: Tenant and its Affiliates will look solely to
Landlord's interest in the Project to satisfy any claims, rights or remedies,
and Landlord and its Affiliates, at every level of ownership and interest, have
no personal or individual liability of any type, whether for breach of this
Lease or otherwise, their assets will not be subject to lien or levy of any
type, nor will they be named individually in any suits, actions or proceedings
of any type, and all other claims, rights or remedies are hereby waived by
Tenant.
13.2 Damage to Persons or Property. Subject to the terms of this Article
-----------------------------
and the rest of this Lease and any disclaimers, exculpations or other
limitations on liability therein, Landlord will be liable for damages caused
directly by its own negligence or willful misconduct in breach of this Lease,
but Landlord will not be liable for any special, indirect, consequential,
punitive or similar damages (including, without limitation, any loss of use or
revenue by Tenant or any other person) under any circumstances, and Landlord's
Liabilities arising from or in connection with the following, if any, will be
limited solely to its specific repair and/or maintenance obligations, if any,
under Sections 10.1, 15.1 and 16: acts or omissions of Tenant, any other tenants
of the Project, any other persons or entities, or their Affiliates, including,
without limitation, damage to property, burglary, vandalism, theft, or criminal
or illegal activity; explosion, fire or damage by steam, electricity, water,
gas, pollution, contamination, hazardous substances, motor vehicles or any
casualties; breakage, cracking, obstruction, failure, interruption, leakage,
malfunction, obstruction or other defects of or in systems and equipment or the
roof, walls, floors, surfaces or structure, or any services or utilities; any
work, demolition, maintenance or repairs as and if permitted under this Lease;
any other exercise of Landlord's rights under any Laws or under this Lease,
including any entry by Landlord or its Affiliates on the Premises in accordance
with this Lease; or any of the matters described in Section 23.5. Tenant and
its Affiliates assume the risk of all of these Liabilities and waive all claims
against Landlord in connection therewith and in connection with any matters for
which Tenant is required to indemnify Landlord or hold it harmless under this
Lease. Unless expressly permitted elsewhere in this Lease, Tenant also waives
rights under any Laws or otherwise that would permit Tenant to terminate this
Lease, perform repairs or maintenance in lieu of Landlord (or on Landlord's
behalf), or offset or withhold any amounts due because of damage to or
destruction of the Premises, any repairs or maintenance or any other reason.
Tenant promptly will notify Landlord of any damage or injury to persons or
property and any events which could be anticipated to give rise to any of the
foregoing Liabilities. This exculpation of Landlord and all of Tenant's waivers
in this Lease will apply to all of Tenant's Affiliates to the greatest extent
possible. If and to the extent that this exculpation and these waivers do not
so apply, Tenant will indemnify Landlord for and hold Landlord free and harmless
from all Liabilities incurred by Landlord to or in connection with Tenant's
Affiliates.
13.3 Indemnification. Except as limited by Landlord's waivers as set
---------------
forth in Section 12.2, Tenant will indemnify Landlord for and hold Landlord
harmless from Liabilities arising from or in connection with: acts or omissions
of Tenant or its Affiliates or the conduct of Tenant's business; injuries, death
or damage occurring in or on the Premises or in connection with or as a result
of any Tenant's Equipment or any installation, operation, repair, maintenance or
removal thereof or damage thereto (except if and to the extent caused directly
by Landlord's negligence or willful misconduct in breach of this Lease);
Tenant's breach of or default under this Lease; claims made by Tenant's
Affiliates against Landlord if Tenant has waived those claims in this Lease or
Landlord would not be responsible to Tenant for such claims if such claims were
made by Tenant hereunder; and claims made by or Liabilities to Tenant's
Affiliates or other persons if Landlord declines to consent to any act, event or
document requiring Landlord's consent under this Lease (although, subject to the
terms of this Lease, this will not prevent Tenant from making its own claim
solely on its own behalf if Landlord declines to consent where Landlord is
required to consent under the terms of this Lease). Tenant will not be
responsible for consequential damages incurred by Landlord by reason of this
Section 13.3, but this shall not in any way apply to or limit Landlord's rights
and remedies and Tenant's obligations under Article 21 of this Lease nor shall
it prevent Landlord from collecting consequential damages from Tenant to the
extent that Landlord becomes liable to a third party for consequential damages
as a result of any acts, events or omissions for which Tenant has otherwise
agreed to indemnify Landlord for or hold Landlord harmless from pursuant to this
Section 13.3.
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14. COMMON AREA AND PARKING.
-----------------------
14.1 Common Area. "Common Area" and improvements within the Project, as
-----------
it now exists or as it exists in the future, not held or designated for the
exclusive use or occupancy of Landlord, Tenant, or other tenants. Subject to the
terms, conditions and limitations in this Lease, Tenant may use the Common Area
on a non-exclusive basis during the term of this Lease. Otherwise, Landlord
reserves all rights in connection with the Common Area, including, without
limitation, the right to change, relocate, improve or demolish portions,
promulgate rules and regulations for its use, limit the use of any portion of
the Common Area by Tenant or its Affiliates, and place certain portions of the
Common Area off limits to Tenant and its Affiliates, including, without
limitation, janitorial, maintenance, equipment and storage areas, and entrances,
loading docks, corridors, elevators and parking areas. Landlord reserves the
space above hung ceilings, below the floor and within the walls of the Premises,
and the right to install, relocate, remove, use, maintain, repair and replace
systems and equipment within or serving the Premises or other parts of the
Project. If Landlord is repairing or replacing systems and equipment it shall
attempt in a commercially reasonable manner not to unreasonably interfere with
Tenant's business operations (except in emergencies), but this shall not be
interpreted so as to prevent Landlord from exercising such rights. Landlord's
exercise of its rights will not require Landlord to compensate Tenant in any
way, result in any Liabilities to Landlord, entitle Tenant to abate rent, or
reduce Tenant's Lease obligations. Landlord also reserves the right to change
the name and/or street address of the Project or portions of the Project and to
affix signs anywhere on or in the Project in its sole discretion.
15. DAMAGE OR DESTRUCTION.
---------------------
15.1 Repairs. Subject to the rest of this Article and the rest of this
-------
Lease (including, without limitation, Tenant's waivers in this Lease), Landlord
will repair damage to the Premises caused by casualties insured against under
standard "all risk" casualty policies, and except as may otherwise be required
by then applicable Laws, Landlord will attempt to restore the damaged portions
to their prior condition. However, Landlord is not obligated to repair damage
for which Landlord has no liability under other provisions of this Lease, and
Landlord is not required to undertake repairs unless insurance proceeds
(exclusive of deductibles) are available, spend more than the net insurance
proceeds it actually receives (exclusive of deductibles) and is permitted to
retain for any repair or replacement, or repair, replace or be responsible for
any damage to Tenant's Work, Tenant's Property, Tenant's Equipment, or any
Alterations. Landlord will begin repairs within a reasonable time after
receiving notice of the damage, required building permits or licenses and the
insurance proceeds payable on account of the damage.
15.2 Landlord and Tenant Election to Terminate.
-----------------------------------------
(a) Landlord has the option either to repair the casualty damage, or
terminate this Lease by delivering written notice within seventy-five (75) days
after the damage occurs, if: the damage occurs during the last year of the term;
or Tenant is in default; or Landlord also terminates the rest of the retail
tenancies in the first three floors of the Project (including the Concourse
Level).
(b) Tenant also has the option to terminate this Lease by delivering
written notice to Landlord if: the casualty damages the Premises and renders it
untenantable, and: (i) the estimated time to substantially complete the repairs
and render the Premises tenantable again, as estimated by Landlord's
professionals or contractors in good faith, exceeds twelve (12) months (or,
during the last year of the term, exceeds fifty percent (50%) of the remainder
of the term), provided that Tenant delivers its written termination notice to
Landlord within fifteen (15) days after receiving such estimate; or (ii)
Landlord is required or elects to repair and the repairs which Landlord is
required to make are not substantially completed within eight (8) months after
the damage occurs (subject to extension of this period for up to an additional
two (2) months for delays caused by force majeure), the damage was not caused by
the intentional acts or omissions of Tenant or its Affiliates, and Tenant
delivers its written termination notice to Landlord within fifteen (15) days
after the end of Landlord's repair period and Landlord fails to substantially
complete within sixty (60) days after receiving this notice, in which event this
Lease will terminate at the end of this sixty (60)-day period.
15.3 Abatement of Rent. If the Premises are damaged by casualty so as to
-----------------
be untenantable for more than three (3) consecutive business days and Tenant
vacates and discontinues business operations, base rent and Tenant's share of
Taxes will abate entirely until the date that Landlord has substantially
completed the repairs and given Tenant access to the Premises, or the date that
Tenant again begins to conduct business operations from the Premises, whichever
is earlier. If Tenant continues or begins to conduct business operations or
reoccupies the Premises before substantial completion of these repairs but
cannot conduct substantial business operations because of these ongoing repairs,
base rent will abate in proportion to the degree to which Tenant's use of the
Premises is impaired, as reasonably determined by Landlord. The abatement of
base rent and Tenant's share of Taxes will not exceed the annual base rent for
the Lease Year in which the damage occurs. These abatements described above and
Tenant's right to terminate as described in Section 15.2(b) are Tenant's sole
rights, remedies and compensation in connection with any damage, destruction or
repairs.
16. CONDEMNATION.
------------
If all or substantially all of the Premises are condemned, taken or
appropriated by any public or quasi-public authority under the power of eminent
domain, police power or otherwise, or if there is a sale in lieu
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thereof ("Condemned" or a "Condemnation"), this Lease will terminate when
possession is taken by the condemning authority or its designee.
(a) If more than twenty-five percent (25%) of the usable area of the
Premises is Condemned, either Landlord or Tenant may terminate this Lease when
possession is taken by the condemning authority or its designee by delivering
written notice to the other within fifteen) days thereafter. Landlord also may
terminate this Lease as described above if: the Condemnation occurs during the
last year of the term; or Tenant is in default; or the repairs would take more
than one hundred twenty (120) days to complete, in Landlord's reasonable
judgment; or the Condemnation affects an area equal to more than twenty-five
percent (25%) of the area held for lease in the first three floors of the
Project (including the Concourse Level); or the Condemnation affects more than
thirty-five percent (35%) of the area held for lease on Tenant's floor.
(b) If part of the Premises is Condemned and this Lease is not terminated,
Landlord will make the necessary repairs to the Premises so that, to the extent
reasonably possible, the remaining part of the Premises will be a complete
architectural unit. Otherwise, Landlord's repair obligations will be as
described in Section 15.1, except that Landlord will not be required to begin
repairs until a reasonable time after it receives any necessary building permits
and licenses and substantially all of the proceeds of any awards granted for the
Condemnation. After the date possession is taken by the condemning authority or
its designees, base rent will abate and Tenant's Percentage and the Annual Tax
Stop will be reduced in proportion to the area of the Premises Condemned.
All proceeds, income, rent, awards and interest in connection with any
Condemnation will belong to Landlord, whether awarded as compensation for
diminution of value to the leasehold improvements, or the unexpired portion of
this Lease, or otherwise. Tenant waives all claims against Landlord and the
condemning authority with respect thereto, but nothing in this Section prevents
Tenant from bringing a separate action against the condemning authority for
moving costs or for lost goodwill (as long as this separate action does not
diminish Landlord's recovery).
17. ASSIGNMENT AND SUBLETTING.
-------------------------
17.1 Landlord's Consent Required. Tenant will not, and does not have the
---------------------------
right or power to, voluntarily, involuntarily or by operation of any Laws, sell,
convey, mortgage, subject to a security interest, license, assign, sublet or
otherwise transfer or encumber all or any part of Tenant's interest in this
Lease or the Premises, or allow anyone other than Tenant's employees to occupy
the Premises (singularly or collectively, "Transfer"), without, first obtaining
Landlord's prior written consent in each case except as specifically set forth
in Section 1 7.5(c) and complying with this Article and any attempt to do so
without this consent and compliance will be null and void and a default, unless
otherwise specifically elected by Landlord in writing. (See Sections 17.3 and 1
7.5(c).) A "Transfer" will not be deemed to include any rights that Tenant may
grant to its telecommunications customers to access or service equipment located
within the Premises in the so-called "collocation room," provided that all such
rights otherwise shall be subject and subordinate to the terms of this Lease.
17.2 Notice. Tenant will notify Landlord in writing at least thirty (30)
------
days before any proposed or pending Transfer and will deliver to Landlord such
information as Landlord may reasonably request in connection with the proposed
or pending Transfer and the proposed Transferee, including, without limitation,
a copy of the final executed Transfer documents, certified current financial
statements, a current Dun Bradstreet report (if available), banking references
and other relevant financial information for the proposed Transferee, and
information as to the type of business and business experience of the proposed
Transferee. All of this information must be suitably authenticated.
17.3 Reasonable Consent. Subject to Section 17.5(c), Landlord will not
------------------
unreasonably withhold, condition or delay its consent to an assignment or
sublease by Tenant, but Landlord may withhold its consent arbitrarily and in its
sole discretion to any hypothecation, assignment for security purposes or other
Transfer or to any requested assignment or sublease before Tenant completes
Tenant's Work, acknowledges that the Rent Commencement Date has occurred and
pays its first full month's rent under the Lease. Tenant agrees that Landlord's
withholding of consent to a proposed sublease or assignment will be deemed
reasonable if Tenant is in default or any of the other terms and conditions of
this Article have not been complied with, or if any of the following conditions
are not satisfied: (a) the subtenant or assignee will use the Premises only for
the uses permitted in Section 1.10 and otherwise in accordance with this Lease,
and the business and reputation of the subtenant or assignee are consistent with
the other tenancies and standards of the Project in Landlord's reasonable
judgement; (b) the subtenant or assignee is reputable and creditworthy and has
the independent financial ability to perform the obligations of Tenant under
this Lease without undue financial burden in Landlord's reasonable judgement,
and neither it nor its predecessors in interest has been subject to a bankruptcy
or reorganization, or had a receiver appointed to manage its affairs or in
connection with any of its assets, and has not been subject to criminal
judgments, sanctions, consent decrees or similar actions by the SEC or other
governmental or quasi-governmental authorities; (c) Landlord's Mortgagees
consent (if their consent is required); and (d) at any time there will be no
more than an aggregate of two (2) subleases of the Premises. These conditions
are not exclusive and Landlord may consider other factors deemed to be relevant
in determining if Landlord should grant or reasonably withhold its consent.
17.4 No Release of Tenant. Whether or not Landlord consents, no Transfer
--------------------
will release or alter the liability of Tenant to pay rent and perform all of
Tenant's other obligations under this Lease. The acceptance of rent by Landlord
from any person other than Tenant is not a waiver by Landlord. Consent to one
Transfer will not
9
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be deemed to be consent to any subsequent Transfer. If Tenant or any Transferee
defaults under this Lease, Landlord may proceed directly against the Transferee
and/or against Tenant without proceeding or exhausting its remedies against the
other. After any Transfer, Landlord may consent to subsequent Transfers of or
amendments to this Lease without notifying Tenant or any other person, without
obtaining consent thereto, and without relieving Tenant of its Liabilities under
this Lease (as it may be modified).
17.5 Additional Terms.
----------------
(a) This Article is binding on and will apply to every Transferee,
at every level. The surrender of this Lease or its termination will not be a
merger, but Landlord will have the right to terminate all subleases and the
occupancy rights of all Transferees. Tenant will pay to Landlord as additional
rent: (i) fifty (50%) of all consideration paid or payable for or by reason of
any assignment of this Lease (but excluding any consideration paid or payable in
connection with the sale of all or substantially all of Tenant's assets); or
(ii) in the case of sublease, fifty percent (50%) of the amount by which the
sublease rent and additional rent and other consideration paid or payable
exceeds the base rent and additional rent for the sublease term (prorated if the
area subleased is less than the entire area of the Premises), in each case after
Tenant first recovers its bona fide, reasonable out-of-pocket costs paid to
unaffiliated third parties to obtain the subtenant or assignee, including
without limitation, attorneys fees, brokerage commissions, new tenant
improvements made solely for the subtenant or assignee and free rent. At
Landlord's option, Landlord may collect all or any part of this additional rent
directly from the payer, and consideration paid or payable will be defined in
its broadest sense. Tenant will promptly deliver to Landlord copies of all
executed Transfer documents, all collateral agreements and all later amendments.
Tenant will pay Landlord's reasonable attorneys' fees and other costs in
connection with any request for Landlord's consent to a Transfer.
(b) An assignee will be deemed to have assumed all of Tenant's
obligations and Liabilities under this lease and will be deemed to be bound by
this Lease, and Tenant and the assignee will indemnify Landlord and hold it
harmless from all Liabilities in connection with the assignment. To confirm the
foregoing, a prospective assignee will be required to execute and deliver to
Landlord an unconditional written assumption of Tenant's Liabilities under this
Lease and the indemnity described above. Tenant and the assignee will be deemed
to be jointly and severally liable for all Liabilities of the tenant under this
Lease and any existing and future amendments thereto. A sublease will be deemed
to be subject and subordinate to this Lease in all respects. Tenant and the
subtenant will indemnify Landlord and hold it harmless from all Liabilities in
connection with the sublease. The subtenant will acquire no rights or claims
against Landlord or its Affiliates and will not have the right to enforce any of
Tenant's rights and remedies under this Lease against Landlord. If this Lease
is terminated or Landlord rightfully reenters or repossesses the Premises,
Landlord may terminate the sublease, or at its option, become the sublessor
under the sublease and the subtenant will attorn to Landlord, but Landlord will
not be liable for Tenant's acts or omissions, subject to any existing defenses
or offsets against Tenant or bound by any amendment to the sublease made without
Landlord's prior written consent. By entering into a sublease, Tenant and the
sublessee agree that if the sublessee breaches an obligation under its sublease
which would also constitute a default by Tenant under this Lease if not cured
within applicable grace periods, then Landlord will have all of the rights and
remedies against the subtenant that is also has against Tenant for such a
default. Without limiting the generality of the foregoing, Landlord will be
permitted (by assignment of the cause of action or otherwise) to join the
subtenant in any action or proceeding against Tenant or to proceed against the
subtenant directly in the name of Tenant to enforce these rights and remedies.
Tenant will cooperate with Landlord and execute such documents as may be
reasonably necessary to implement these rights granted to Landlord. The
exercise of these rights and remedies will not constitute an election of
remedies and will not in any way impair Landlord's right to pursue other or
similar rights and remedies directly against Tenant, nor will the grant or
exercise of these rights or remedies result in the subtenant acquiring any
rights or claims against Landlord or its Affiliates. Tenant and its Affiliates
will not, directly or indirectly, assign, sublease or otherwise transfer to, or
take an assignment or sublease from, or otherwise occupy premises leased to, any
current or then-existing tenants (or their Affiliates, assignees, sublessees or
successors) in the Project or anyone with whom Landlord negotiated during the
prior six (6) months, and any attempt to do so will be null and void.
Transferees (other than permitted assignees) will not have the right or power to
make further Transfers, and any attempt to do so will be null and void and a
default unless otherwise specifically elected by Landlord in writing. As a
material inducement to Landlord to enter into this Lease, Tenant agrees to make
each prospective Transferee aware of the terms of this Article and will deliver
to each prospective Transferee a true and correct copy of this Lease prior to
any Transfer, and each document of assignment, sublease or other Transfer, at
every level, will include or explicitly incorporate the terms of this Article.
Landlord may require confirming and/or additional assurances and agreements for
its protection from Tenant and the assignee or subtenant, each of whom agrees to
give such assurances and execute such agreements.
(c) The sale of stock in Tenant shall not be deemed to be an
attempted Transfer hereunder, but any dissolution, merger, consolidation or
other reorganization of Tenant, or the Transfer of all or substantially all of
Tenant's assets, will deemed to be an attempted assignment of this Lease and
subject to all of the terms of this Article and the rest of this Lease and the
other party will be deemed to be a prospective assignee. HOWEVER, THE ASSIGNMENT
OF THIS LEASE BY TENANT TO AN ENTITY THAT ACQUIRES ALL OR SUBSTANTIALLY ALL OF
TENANT'S ASSETS, OR AN ASSIGNMENT OR SUBLEASE BY TENANT TO ITS PARENT
CORPORATION OR WHOLLY-OWNED SUBSIDIARY OR TO AN ENTITY UNDER COMMON CONTROL WITH
TENANT, WILL BE DEEMED TO BE A PERMITTED ASSIGNMENT OR SUBLEASE, AS APPLICABLE,
PROVIDED THAT THE REST OF THIS ARTICLE IS COMPLIED WITH (OTHER THAN THE
REQUIREMENT OF LANDLORD'S CONSENT) AND THE TRANSFEREE HAS A NET WORTH, CREDIT
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RATING AND FINANCIAL CAPABILITY AT LEAST EQUAL TO TENANT'S WHEN TENANT EXECUTED
THIS LEASE.
18. MORTGAGEE PROTECTION.
--------------------
18.1 Subordination and Attornment. This Lease is subordinate to all
----------------------------
Superior Leases and Mortgages, and Tenant will attorn to each person or entity
that succeeds to Landlord's interest under this Lease. This subordination and
adornment are self-operative as to Landlord's Mortgagees existing when this
Lease is executed, but if requested to confirm a subordination and/or
attornment, Tenant will execute the standard-form subordination and/or
attornment and/or non-disturbance agreements requested by those existing
Landlord's Mortgagees. These subordination and attornment provisions also will
apply to any subsequent Superior Leases and Mortgages and Landlord's Mortgagees,
provided that those subsequent Landlord's Mortgagees agree not to disturb
Tenant's rights under this Lease as long as Tenant is not in default, and if
requested by any subsequent Landlord's Mortgagees, Tenant will execute the
standard form subordination and/or non-disturbance and/or attornment agreement
provided by those Landlord's Mortgagees. Notwithstanding the foregoing, if any
Landlord's Mortgagee elects in writing at any time, this Lease will be superior
to that Landlord's Mortgagee's Superior Leases and Mortgages specified,
regardless of the date of recording, and Tenant will execute an agreement
confirming this election on request.
18.2 Mortgagee's Liability. The obligations and Liabilities of Landlord,
---------------------
Landlord's Mortgagees or their successors under this Lease will exist only if
and for so long as each of these respective parties owns fee title to the
Project or is the lessee under a ground lease of the Project. If any of
Landlord's Mortgagees become the owner or a mortgagee-in-possession of the
Project or any portion thereof, Tenant will be liable to those Landlord's
Mortgagees for any base rent paid more than thirty (30) days in advance.
Landlord's Mortgagees and their successors will not be liable for: (a) acts or
omissions of prior Landlords; (b) the return of any security deposit not
delivered to them; or (c) amendments to this Lease made without their consent
(if their consent is required under a Superior Lease or Mortgage).
18.3 Mortgagee's Right to Cure. No act or omission (if any) which
-------------------------
otherwise entitles Tenant under the terms of this Lease to be released from any
Lease obligations or to terminate this Lease (except as specifically set forth
in Articles 15 and 16) will result in such a release or termination unless
Tenant first gives written notice of the act or omission to Landlord and
Landlord's Mortgagees and those parties then fail to correct or cure the act or
omission within a reasonable time thereafter (which will not be less than sixty
(60) days). Nothing in this Section or the rest of this Lease obligates
Landlord's Mortgagees to correct or cure any act or omission or is meant to
imply that Tenant has the right to terminate this Lease or be released from its
obligations unless that right is explicitly granted elsewhere in this Lease.
19. ESTOPPEL CERTIFICATES.
---------------------
Tenant will from time to time, within fifteen (15) days after request by
Landlord, execute and deliver estoppel certificates in form satisfactory to
Landlord or its designees which will certify (except as may be truthfully and
accurately noted to the contrary by Tenant therein) such information concerning
this Lease or Tenant or it's Affiliates as Landlord or its designees may
request. Each estoppel certificate will be binding on Tenant as of the date of
execution with respect to the information presented, and may be relied on by
Landlord and Landlord's designees. If Tenant fails to execute and deliver
estoppel certificates as required, Landlord's representations concerning the
matters covered by the estoppel certificate will conclusively be presumed to be
correct and binding on Tenant and its Affiliates.
20. DEFAULT.
-------
The occurrence of one or more of the following events will be a default by
Tenant under this Lease: (a) [INTENTIONALLY OMITTED]; (b) the failure to pay
rent or any other required amount within five (5) days after written notice that
the payment is due, although no further notice or grace period will be required
or granted if two (2) such notices have been given in any twelve (12)-month
period; (c) as provided in Articles 22 and 24; (d) a Transfer or attempted
Transfer in violation of Article 17; (e) the failure to maintain its required
insurance policies if such failure continues for more than five (5) days after
written notice from Landlord; (fl if there is a guaranty of this Lease, a
default not cured within applicable cure periods by any guarantor thereunder; or
(9) the failure to observe or perform any other obligation, term or condition
within the time period specified in this Lease; if no time period is specified,
it will be a default if this failure continues for fifteen (15) days after
written notice from Landlord to Tenant, but if more than fifteen (15) days are
reasonably required to cure, Tenant will not be in default if Tenant promptly
begins to cure within the fifteen (1 5)-day period, and then diligently
completes the cure as soon as reasonably possible but no later than forty-five
(45) days after the notice of default is given.
21. REMEDIES FOR DEFAULT.
--------------------
21.1 General. If Tenant defaults, Landlord may at any time thereafter,
-------
with or without notice or demand, choose any or all of the following remedies or
pursue any other right or remedy now or hereafter available to Landlord under
this Lease or at law or in equity:
(a) At Landlord's written election the following amounts will become
immediately due and payable in advance:
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(i) The unpaid rent which has accrued and would have accrued
up to the date of payment plus late charges and interest from the dates such
rent was due to the date of payment at the Default Rate; plus
(ii) The whole balance of unpaid rent which would have become
due had this Lease continued for the balance of the term (discounted to the date
of payment at the rate of seven percent (7%) per annum); plus
(iii) All reasonable costs incurred by Landlord in enforcing the
provisions of this Lease, including, without limitation, attorneys' fees and
costs, and/or
(b) Landlord may terminate this Lease by written notice to Tenant.
If Landlord elects to terminate this Lease under the provisions of this Section,
Landlord may recover from Tenant a judgment and Tenant will be liable for
damages computed in accordance with the following formula, in addition to
Landlord's other remedies:
(i) The unpaid rent which has accrued and would have accrued
up to the time of judgment plus late charges and interest from the dates such
rent was due to the date of the judgment at the Default Rate; plus
(ii) The amount (discounted to the date of payment at the rate
of seven percent (7%) per annum) by which the whole balance of unpaid rent which
would have become due had this Lease continued for the balance of the term after
the date of judgment exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided (also discounted at the rate of 7% per
annum); plus
(iii) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease and/or which in the ordinary course would be likely to result
therefrom including, without limitation, the reasonable costs of enforcing the
terms of this Lease, repossessing, repairing, altering, performing tenant
improvements to and reletting the Premises, and reasonable marketing, brokerage
and attorneys' fees and costs; plus
(iv) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted by applicable Laws.
Notwithstanding the foregoing, to avoid a duplication of payments, if Landlord
has actually received payment in full of all accelerated rent for the Lease term
and the other amounts as described in Section 21.1 (a) above, it cannot
thereafter also receive additional amounts under this Section 21.1 (b). If
Landlord elects the remedy in this Section 21.1 (b) and has actually received
payment in full of all amounts as described in this Section 21.1(b), it cannot
thereafter also receive additional amounts under Section 21.1(a) above, and/or
(c) Subject to the terms of this Lease, Landlord or its designee
may, without further notice or demand but otherwise subject to law, enter the
Premises without Liabilities for damages for such entry or for the manner
thereof, for the purpose of distraint or execution and/or to take possession of
the Premises to minimize the loss by reason of Tenant's default.
(d) [INTENTIONALLY OMITTED]
(e) IF THIS LEASE OR TENANTS RIGHT OF POSSESSION IS TERMINATED
BECAUSE OF TENANT'S DEFAULT OR FOR ANY OTHER REASON, OR IF THE TERM EXPIRES (AND
IT IS AGREED THAT THE REMEDIES PROVIDED IN THIS SUBSECTION (e) ARE AVAILABLE TO
LANDLORD WHENEVER THIS LEASE OR TENANT'S RIGHT OF POSSESSION IS TERMINATED OR
EXPIRES, WHETHER BECAUSE OF TENANT'S DEFAULT OR OTHERWISE), ANY ATTORNEY OF ANY
COURT OF RECORD AS ATTORNEY FOR TENANT AND ALL PERSONS CLAIMING BY, UNDER OR
THROUGH TENANT, IS HEREBY AUTHORIZED AND EMPOWERED TO CONFESS JUDGMENT IN
EJECTMENT AGAINST TENANT AND ALL PERSONS CLAIMING BY, UNDER OR THROUGH TENANT
FOR THE RECOVERY BY LANDLORD OF POSSESSION OF THE PREMISES, FOR WHICH THIS LEASE
SHALL BE HIS SUFFICIENT WARRANT, WHEREUPON IF LANDLORD SO DESIRES, A WRIT OF
POSSESSION AND/OR EXECUTION MAY ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR
PROCEEDINGS WHATSOEVER, AND IF FOR ANY REASON AFTER SUCH ACTION SHALL HAVE BEEN
COMMENCED IT SHALL BE CANCELED OR SUSPENDED AND POSSESSION OF THE PREMISES
REMAINS IN OR IS RESTORED TO TENANT OR ANY PERSON CLAIMING BY, UNDER OR THROUGH
TENANT, LANDLORD WILL HAVE THE RIGHT UPON ANY SUBSEQUENT DEFAULT OR UPON THE
EXPIRATION OR TERMINATION OF THIS LEASE OR TENANTS RIGHT OF POSSESSION TO
CONFESS JUDGMENT IN EJECTMENT AS SET FORTH ABOVE TO RECOVER POSSESSION OF THE
PREMISES, AND/OR
(f) IN ANY ACTION OF OR FOR EJECTMENT OR POSSESSION, OR FOR RENT OR
CHARGES OR OTHER AMOUNTS, LANDLORD WILL CAUSE TO BE FILED IN SUCH ACTION AN
AFFIDAVIT SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT
AND IF A TRUE COPY OF THIS LEASE (AND SUCH AFFIDAVIT SHALL BE SUFFICIENT PROOF
OF
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THE TRUTH OF THE COPY) BE FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO
FILE THE ORIGINAL, NOTWITHSTANDING ANY LAW, RULE OF COURT, CUSTOM OR PRACTICE TO
THE CONTRARY. TENANT RELEASES TO LANDLORD, AND TO ANY AND ALL ATTORNEYS WHO MAY
APPEAR FOR TENANT, ALL PROCEDURAL ERRORS IN ANY PROCEEDINGS TAKEN BY LANDLORD,
WHETHER BY VIRTUE OF THE POWERS OF ATTORNEY CONTAINED IN THIS LEASE OR NOT, AND
ALL LIABILITIES THEREFOR.
TENANT SPECIFICALLY ACKNOWLEDGES AND AGREES THAT THE PROVISIONS OF SECTIONS
21.1(e) AND (f) AUTHORIZE AND EMPOWER LANDLORD, WITHOUT TENANT RECEIVING ANY
PRIOR NOTICE OR PRIOR HEARING IN ANY COURT, TO CAUSE THE ENTRY OF JUDGMENTS
AGAINST TENANT FOR POSSESSION OF THE PREMISES AND IMMEDIATELY THEREAFTER,
WITHOUT THE UNDERSIGNED RECEIVING ANY PRIOR NOTICE (EXCEPT THAT LANDLORD HEREBY
AGREES TO GIVE TENANT NOTICE OF THE ENTRY OF JUDGMENT WITHIN THREE (3) BUSINESS
DAYS AFTER THE JUDGMENT IS ENTERED AND LANDLORD IS OFFICIALLY NOTIFIED THEREOF)
OR PRIOR HEARING IN ANY COURT, TO EXERCISE POST-JUDGMENT ENFORCEMENT AND
EXECUTION REMEDIES. TENANT ACKNOWLEDGES THAT IT HAS AGREED TO WAIVE ITS RIGHTS
TO A PRIOR NOTICE AND HEARING UNDER THE CONSTITUTION OF THE UNITED STATES, THE
CONSTITUTION OF THE COMMONWEALTH OF PENNSYLVANIA AND ALL OTHER APPLICABLE STATE
AND FEDERAL LAWS IN CONNECTION WITH LANDLORD'S ABILITY TO CAUSE THE ENTRY OF
JUDGMENTS AGAINST TENANT AND IMMEDIATELY THEREAFTER TO EXERCISE ITS POST-
JUDGMENT ENFORCEMENT AND EXECUTION REMEDIES. TENANT HAS DISCUSSED THE LEGAL
IMPACT OF THIS WAIVER WITH ITS INDEPENDENT COUNSEL AND ACKNOWLEDGES THAT IT HAS
FREELY WAIVED SUCH RIGHTS. TENANT'S INITIALS [ ].
Tenant expressly waives the benefits of all Laws, now or hereafter in
force, exempting any property within the Premises or elsewhere from distraint,
levy or sale, and/or
(g) After reentry, retaking or recovering of the Premises, with or
without terminating this Lease, and without limiting Landlord's acceleration
right or other rights and remedies, Landlord may (but will not be obligated to)
relet the Premises or any part(s) thereof to such person(s) upon such terms as
may in Landlord's sole discretion seem best for a term within or beyond the term
of this Lease. Any such reletting by Landlord before termination of this Lease
will be for Tenant's account, and may be in Landlord's name or Tenant's name,
and Tenant will remain liable for all rent and additional rent (including all
charges and damages) due at the time of the reletting plus all of such amounts
that otherwise would have been due under this Lease for the balance of the term
absent any expiration, termination, repossession or reletting, plus all costs of
the type described in Sections 21.1(b)(iii) and (iv), as accelerated or, if not
accelerated, as they accrue. However, until this Lease expires or is
terminated, each month Tenant will receive a credit against its obligations
equal to the net rental proceeds (excluding any utility charges or charges that
must be remitted by Landlord to any governmental or quasi-governmental
authority), if any, actually paid to Landlord in that month the party or parties
to whom the Premises were relet, but this credit will never be more than the
amounts owed by Tenant to Landlord for that month. Further, Tenant, for itself
and its successors and assigns, hereby irrevocably constitutes and appoints
Landlord as Tenant's agent to collect the rents due and to become due from all
sublessees and Transferees and apply the same to the rent due hereunder without
in any way affecting Tenant's obligation to pay any unpaid balance of rent due
or to become due hereunder.
Tenant waives the right to any notice to remove as may be specified in the
Landlord and Tenant Act of Pennsylvania, Act of April 6, 1951, as amended, or
any similar or successor provision of law, and agrees that five (5) days notice
shall be sufficient in any case where a longer period may be statutorily
specified. For the purposes of computing any rent due hereunder, the amounts of
additional rent which would have been payable per year under this Lease will be
such amounts as were or would have been payable as specified in this Lease or,
if not specified, as reasonably estimated by Landlord (in either case without
the benefit of any abatement to which Tenant may have been entitled). As used
in this Article 21, the "term" means the initial term of this Lease and any
renewals or extensions to which Tenant shall have become bound prior to the
default.
21.2 Remedies Cumulative. All remedies available to Landlord hereunder
-------------------
and at law and in equity will be cumulative and concurrent. No termination of
this Lease nor taking or recovering possession of the Premises will deprive
Landlord of any remedies or actions against Tenant for rent, for charges or for
damages for the breach of any covenant, agreement or condition, nor will the
bringing of any such action for rent, charges or breach, nor the resort to any
other remedy or right for the recovery of rent, charges or damages for such
breach be construed as a waiver or release of the right to insist upon the
forfeiture and to obtain possession. No reentering or taking possession of the
Premises, or making of repairs, alterations or improvements thereto, or
reletting thereof, will be construed as an election by Landlord to terminate
this Lease unless specific written notice of such election is given by Landlord
to Tenant.
21.3 Performance by Landlord. If Tenant breaches any of its obligations
-----------------------
under this Lease, Landlord, without waiving or curing the breach may, but will
not be obligated to, perform Tenant's obligations for the account and at the
expense of Tenant. Landlord will attempt to provide Tenant with oral or written
notice before performing Tenant's obligations, but if Landlord believes that its
performance is necessary due to an emergency or to prevent damage or injury or
protect health, safety or property, Landlord need not give any notice before
performing Tenant's obligations. Tenant will pay on demand all reasonable costs
and expenses incurred by Landlord in
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connection with Landlord's performance of Tenant's obligations, and Tenant will
indemnify Landlord for and hold Landlord harmless from all Liabilities incurred
by Landlord in connection therewith.
21.4 Default Rate. The amount of any judgment obtained by Landlord
------------
against Tenant in any legal proceeding arising out of Tenant's default under
this Lease will bear interest until paid at the Wells Fargo Bank prime rate plus
three percent (3%), or the maximum rate permitted by law, whichever is less (the
"Default Rate"). Notwithstanding anything to the contrary contained in any Laws,
with respect to any damages that are certain or ascertainable by calculation,
interest will accrue from the day that the right to the damages vests in
Landlord, and in the case of any unliquidated claim, interest will accrue from
the day the claim arose.
22. BANKRUPTCY. [SEE EXHIBIT "F"]
----------
23. GENERAL PROVISIONS.
------------------
23.1 Surrender of Premises. When this Lease terminates, Tenant will
---------------------
remove all of its signs, movable trade fixtures and equipment, inventory and
other personal property, whether owned by Tenant or its Affiliates ("Tenant's
Property") and such of Tenant's Equipment (whether or not it constitutes
Tenant's Property) as may be specified by Landlord. Tenant's Property remaining
after termination will be deemed abandoned and Landlord may store, keep, sell,
destroy or dispose of it without incurring any Liabilities to Tenant or its
Affiliates. Tenant will repair all damage, remove Alterations and Tenant's
Equipment and perform any necessary restoration if and to the extent required in
Article 11, and surrender the Premises broom clean and in good condition and
repair, reasonable wear and tear and fire and other casualty excepted. The
surrender of the Premises or the expiration or earlier termination of this Lease
will not relieve Tenant of any Liabilities owed or incurred by Tenant prior
thereto (including, without limitation, the payment of base rent, utilities,
Taxes or other amounts payable by Tenant during the term even if not billed to
Tenant until after the end of the term), all of which will survive.
23.2 Holding Over. Tenant will surrender possession of the Premises as,
------------
when and in the condition required by this Lease and will not hold over in the
Premises after the end of the Lease term without the express prior written
consent of Landlord. However, provided that Tenant is not in default, Tenant
will not be deemed to have held over in the Premises if at least sixty (60) days
before the end of the Lease term Tenant notifies Landlord in writing that it
irrevocably wishes to extend the term for an additional calendar month, in which
case the term shall be so extended. Tenant will indemnify Landlord for, and
hold Landlord harmless from, any and all Liabilities arising out of or in
connection with its failure to surrender possession as required and/or any
holding over, including, without limitation, any claims made by any succeeding
tenant, any loss of rent suffered by Landlord and any consequential or other
damages. If, despite this express agreement, any tenancy is created by Tenant's
holding over, except as specifically set forth in the next sentence the tenancy
will be a tenancy at will terminable immediately at Landlord's sole option on
written notice to Tenant, but otherwise subject to the terms of this Lease,
except that the most recent annual base rent rate will be doubled and payable
weekly in advance. Nothing in this Article or elsewhere in this Lease permits
Tenant to hold over or in any way limits Landlord's other rights and remedies if
Tenant fails to surrender possession as required or holds over.
23.3 Entry By Landlord. Landlord in good faith will attempt to give
-----------------
Tenant at least 24 hours' oral or written notice before entering the Premises,
avoid disturbing the conduct of Tenant's business by such entry more than is
reasonably necessary under the circumstances and comply with Tenant's reasonable
security procedures. But, Landlord need not give prior notice and will have the
right to use any means necessary to enter the Premises if Landlord believes
there is an emergency or that entry is necessary to prevent damage or injury or
protect health, safety or property. Subject to the foregoing, Landlord and its
Affiliates at all times have the right to enter the Premises, and Landlord will
retain (or be given by Tenant) keys to unlock all the doors to or within the
Premises, excluding doors to Tenant's vaults and files and other secured
installations. Entry to the Premises and the exercise of Landlord's rights will
not be deemed to be a default, a forcible or unlawful entry into or a detainer
of the Premises or an eviction of Tenant from the Premises or any portion
thereof, nor will it subject Landlord to any Liabilities or entitle Tenant to
any compensation, abatement of rent or other rights and remedies, all of which
are waived by Tenant.
23.4 Brokers. Subject to Tenant's representation and warranty below,
-------
Landlord will pay a brokerage commission to Tenant's Broker (if any, as
identified in Article 1) provided that Landlord and Tenant's Broker have
executed and delivered a written commission agreement prior to or concurrently
with the execution and delivery of this Lease, and Landlord's Liabilities in
connection with the payment of such brokerage commission will be governed solely
by the terms of that written agreement. Tenant represents and warrants that it
has had no dealings with any agent, broker, finder or other person who is or
might be entitled to a commission or other fee from Landlord in connection with
the Project or this or any related transaction, except for Tenant's Broker, and
will indemnify Landlord and hold it harmless from any Liabilities for breach of
this representation or warranty. Landlord will indemnify Tenant and hold it
harmless from any Liabilities incurred by Tenant by reason of any claims for a
commission or other similar consideration in connection with this or any related
transaction made by any agent, broker, finder or other similar party employed or
engaged by Landlord.
23.5 Quiet Enjoyment. So long as Tenant pays all rent and performs its
---------------
other obligations as required, Tenant may quietly enjoy the Premises without
hindrance or molestation by Landlord or any person lawfully claiming through or
under Landlord, subject to the terms of this Lease and the terms of any Superior
Leases and Mortgages, and all other agreements or matters of record to which
this Lease is subordinate.
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23.6 Security. As a material inducement to Landlord, Tenant specifically
--------
waives all Liabilities against Landlord in connection with security personnel,
protection and systems and agrees that Tenant is solely responsible for
providing security for the Premises and Tenant's personnel. Without limiting
the generality of this Section, Tenant agrees that: (a) Landlord may, but will
not be required to, supply security personnel, protection and systems for the
Premises, the Common Area or the rest of the Project and remove or restrain
unauthorized persons and prevent unauthorized acts; (b) Tenant waives and
Landlord will not be responsible for any Liabilities resulting from failing to
provide security personnel, protection or systems or, if provided, for failures,
acts, omissions, malfunctions or the level of the security personnel, protection
or systems; and (c) Landlord and its Affiliates make no representations or
warranties of any kind in connection with the security or safety of the
Premises, the Common Area or the rest of the Project.
23.7 Obligations; Time of Essence; Successors; Recordation. If Tenant
-----------------------------------------------------
consists of more than one person or entity, the obligations and liabilities of
all of those persons or entities are joint and several. Time is of the essence
of this Lease. Subject to the restrictions in Article 17, this Lease inures to
the benefit of and binds Landlord, Tenant and their respective Affiliates.
Tenant will not record this Lease or a memorandum of lease without Landlord's
prior written consent.
23.8 Late Charges. If any rent or other amounts due and payable by Tenant
------------
are not received within five (5) days after written notice from Landlord, Tenant
will pay to Landlord on demand a late charge equal to three percent (3%) of the
overdue amount, and if not received within ten (10) days after the due date
(regardless of notice), the amounts also will bear interest at the Default Rate
from the due date until paid. Collection of these late charges and interest
will not: be a waiver or cure of Tenant's default or failure to perform; be
deemed to be liquidated damages, an invalid penalty or an election of remedies;
or prevent Landlord from exercising any other rights and remedies.
23.9 Accord and Satisfaction. Payment by Tenant or acceptance by Landlord
-----------------------
of less than the full amount of rent due is not a waiver or an award and
satisfaction, but will be deemed to be on account of amounts next due, and no
endorsements or statements on any check or any letter accompanying any check or
payment will be deemed an accord and satisfaction or binding on Landlord.
Landlord may accept the check or payment without prejudice to any of Landlord's
rights and remedies, including, without limitation, the right to recover the
full amount due.
23.10 Integrated Agreement; Invalidity; Amendment; Waiver. This Lease is
---------------------------------------------------
an integrated document and except for the Letter Agreement regarding demolition
work, dated February 5, 1998, between Landlord and Tenant, this Lease contains
all of the agreements of the parties with respect to any matter covered or
mentioned in this Lease, and supersedes all prior agreements or understandings.
Any provision of this Lease which is invalid, void or illegal will not affect,
impair or invalidate any of the other provisions and the other provisions will
remain in full force and effect. This Lease may not be amended except by an
agreement in writing signed by the parties. All waivers must be in writing,
specify the act or omission waived and be signed by the party charged with the
waiver. No other alleged waivers will be effective, including, without
limitation, Landlord's acceptance of rent, collection of a late charge or
application of a security deposit. Landlord's waiver of any specific act,
omission, term or condition will not be a waiver of any other or subsequent act,
omission, term or condition.
23.11 Representations; Inability to Perform. Unless specifically set
-------------------------------------
forth in the body of this Lease, Landlord and its Affiliates have not made, and
Tenant is not relying on, any representations or warranties of any kind
(including, without limitation, those concerning the suitability of the Premises
or the rest of the Building for Tenant's use), express or implied, with respect
to the Premises, the Building or this transaction. Landlord will not be in
default nor incur any Liabilities if it can't fulfill any of its obligations, or
is delayed in doing so, because of accidents, casualties, breakage, repairs,
strike, labor troubles, war, sabotage, Laws, governmental regulations, controls
or guidelines, inability to obtain materials or services, acts of God, or any
other cause, whether similar or dissimilar, beyond Landlord's reasonable control
(collectively, "force majeure"). However, the previous sentence will not serve
to extend the dates set forth in Section 15.2(b) or article 16.
23.12 Legal Proceedings; Choice of Law. In any action or proceeding
--------------------------------
involving or relating in any way to this Lease, the court or other person or
entity having jurisdiction in such action or proceeding will award to the party
in whose favor judgment is entered the actual attorneys' fees and costs
incurred. Tenant also will indemnify Landlord for, and hold Landlord harmless
from and against, all Liabilities incurred by Landlord if Landlord becomes or is
made a party to any proceeding or action: (a) involving Tenant and any third
party, or by or against any person holding any interest under or using the
Premises by license of or agreement with Tenant; or (b) to protect Landlord's
interest under this Lease in a proceeding under or involving the Bankruptcy
Code. Unless prohibited by law, each party waives the right to trial by jury in
all actions involving or related to this Lease, the Project or any collateral or
subsequent agreements between the parties, and Tenant waives any right to impose
a counterclaim in any proceeding brought for possession of the Premises as a
result of Tenant's default (although this waiver of counterclaim will not be
deemed to prohibit Tenant from raising any claims it may have in a separate,
non-consolidated action). Each party also submits to and agrees not to contest
the jurisdiction of the state and federal courts located in Philadelphia,
Pennsylvania to adjudicate all matters in connection with this Lease or
involving the other party or its Affiliates in any way, and each party agrees
that it will bring all suits actions and claims only in such Philadelphia,
Pennsylvania courts and not to seek a change of venue. In any circumstance
where a party is obligated to indemnify the other party or hold the other party
harmless under this Lease, that obligation also will run in favor of the other
party's Affiliates, and will include the obligation to protect the other
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party and its Affiliates, and defend them with counsel acceptable to the other
party or, at the other party's election, the other party or its Affiliates may
employ their own counsel and the indemnifying party will pay when due all
attorneys' fees and costs. These obligations to indemnify, hold harmless,
protect and defend will survive the expiration or termination of this Lease.
This Lease is governed by the laws of Pennsylvania applicable to transactions to
be performed wholly therein.
23.13 Ownership. As used in this Lease, the term "Landlord" means only
---------
the current owner or owners of the fee title to the Premises. Upon each
conveyance (whether voluntary or involuntary) of fee title, the conveying party
will be relieved of all Liabilities and obligations contained in or derived from
this Lease or arising out of any act, occurrence or omission occurring after the
date of such conveyance. Landlord may Transfer all or any portion of its
interests in this Lease, the Premises, or the Project without affecting Tenant's
obligations and Liabilities under this Lease. Tenant has no right, title or
interest in the name of the Project or the Project, and may use these names only
to identify its location.
23.14 Submission of Lease; Consent. The submission of this Lease to
----------------------------
Tenant or its broker, agent or attorney for review or signature is not an offer
to Tenant to lease the Premises or the grant of an option to lease to Premises.
This Lease will not be binding unless and until it is executed and delivered by
both of Landlord's partners and by Tenant. Landlord has specifically agreed to
act "reasonably" in a number of instances throughout this Lease. So, in order
to avoid misunderstandings, except where it is expressly provided that Landlord
will not unreasonably withhold its consent or approval or exercise its judgment
reasonably, Landlord may grant or withhold its consent or approval and exercise
its judgment arbitrarily and in its sole and absolute discretion. In any
dispute involving Landlord's withholding of consent or exercise of judgement,
the sole right and remedy of Tenant and its Affiliates is declaratory relief
(i.e., that such consent should be granted), and Tenant and its Affiliates waive
all other rights and remedies, including, without limitation, claims for
damages.
23.15 Presumptions; Exhibits; Authority. This Lease will be construed
---------------------------------
without regard to any presumption or other rule requiring construction or
interpretation for or against the party drafting the document. The titles to
the Articles and Sections of this Lease are not a part of this Lease and will
have no effect on its construction or interpretation. Whenever required by the
context of this Lease, the singular includes the plural and the plural includes
the singular, and the masculine, feminine and neuter genders each include the
others, and the word "person" includes individuals, corporations, partnerships
or other entities. All exhibits, addenda and riders attached to or referred to
in this Lease are incorporated in this Lease by this reference. Tenant, and
each person signing on behalf of Tenant, or any partners of Tenant, represents
and warrants both for himself or herself and as agent on behalf of the
applicable entity, that he or she has the right, power and authority to sign on
behalf of Tenant, that Tenant is duly formed and in good standing and has taken
all necessary action to carry out the transaction contemplated hereby, and that
this Lease constitutes a valid and binding obligation enforceable against Tenant
in accordance with its terms. Upon Landlord's request, Tenant will provide
Landlord with corporate resolutions or other evidence acceptable to Landlord
corroborating these representations and warranties.
23.16 Cooperation; Statements. Tenant understands that the Project is
-----------------------
large and contains many other tenants, and so Tenant agrees to cooperate with
Landlord in connection with this Lease, Landlord's ownership, operation,
management, improvement, maintenance and repair of the Premises and the rest of
the Project, and Landlord's exercise of its rights and obligations under this
Lease. Any bill or statement furnished to Tenant by or on behalf of Landlord
will be deemed conclusively binding on Tenant unless Tenant gives written notice
to Landlord within sixty (60) days after its receipt of the bill or statement
disputing the statement and specifying in detail the basis for the dispute.
However, any additional amounts due may be required to be paid by any
supplemental bill or statement furnished by Landlord. Pending resolution of any
dispute, Tenant will pay the amount set forth in the bill or statement.
23.17 Notices. All notices, demands or communications required or
-------
permitted under this Lease (a "notice" or "notices") will be in writing and
personally delivered. Delivery by hand or messenger or overnight delivery
services such as Federal Express is permitted, and delivery by telecopy is
permitted provided that the notice is personally delivered within three (3) days
thereafter.. Delivery shall be deemed to occur on actual delivery of the notice
to the correct address, regardless of whether a party refuses to accept
delivery. In the case of suits, actions or other legal proceedings, delivery in
accordance with applicable Laws also shall be deemed acceptable. Before Tenant
takes possession of the Premises, notices to Tenant will be delivered to the
address for Tenant in Article 1, and when Tenant takes possession of the
Premises, the address of the Premises will be the address for the purpose of
delivering notices to Tenant. Notices to Landlord will be delivered to the
addresses for Landlord in Article 1, and if the notices involve any alleged
breach by Landlord, a copy will be concurrently delivered to mortgagees of whom
Tenant has received written notice. Notices will be effective on the earlier
of: delivery; or, if mailed, four (4) days after they are mailed in accordance
with this Section. Each party may change the address for notice purposes by
delivering notice to the other party in accordance with this Section.
23.18 Security Deposit. On the execution of this Lease, Tenant will
----------------
deposit the Security Deposit with Landlord as security for the performance of
Tenant's obligations. If Tenant fails to perform its Lease obligations as
required, Landlord may, but will not be obligated to, apply all or any part of
the Security Deposit for the payment of any amounts due or any other Liabilities
which Landlord may incur. If any part of the Security Deposit is so applied,
Tenant will, within five (5) days after written demand, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its previous
amount. Landlord need not keep the Security Deposit separate from its general
funds, and Tenant will not receive interest on the Security Deposit. Landlord's
application
16
<PAGE>
of or failure to apply all or any part of the Security Deposit will not be
deemed to be a waiver or election of remedies of any type, a limitation on
Landlord's damages, a payment of liquidated damages or an accord and
satisfaction. If Tenant complies with all of the provisions of this Lease, the
unused portion of the Security Deposit will be returned to Tenant after and the
surrender of possession of the Premises to Landlord in the condition required.
23.19 Other Defined Terms.
-------------------
(a) "Affiliates" means: partners, directors, officers,
shareholders, agents, employees, parents, subsidiaries, affiliated parties,
invitees, customers, licensees, concessionaires, contractors, subcontractors,
successors, assigns, subtenants, and representatives.
(b) "CPI" means the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index for Urban Wage Earners and Clerical
Workers (Philadelphia-New Jersey) 1982-1984 = 100. If the manner in which the
CPI is determined is substantially changed, or if 1982-1984 no longer is used as
the base year, an adjustment will be made in the revised index as may be
specified by the issuing agency for the purpose of compensating for the change,
or in the absence of such a specification, as reasonably determined by Landlord.
If the CPI becomes unavailable because publication is discontinued, or
otherwise, Landlord will substitute an index reasonably determined by it to be
comparable.
(c) "Landlord's Mortgagees" means the lessors or mortgagees under
the Superior Leases and Mortgagees and their successors and assigns.
(d) "Laws" means: local, state and federal laws, codes, decisions,
ordinances, rules, regulations, licenses, permits, and directives of
governmental and quasi-governmental officers, including, without limitation,
those relating to building and safety, fire prevention, health, energy
conservation, Hazardous Substances and environmental protection, and all rules,
regulations, guidelines and standards required to be met to maintain the status
of the Project and/or portions thereof as National Historic Monuments and/or
certified historic structures and to permit full realization of all tax benefits
and credits with respect thereto (including with respect to the rehabilitation
thereof).
(e) "Lease" means this Lease, together with all exhibits, addenda
and riders, and any future amendments.
(f) "Liabilities" means: all costs, damages, claims, injuries,
liabilities and judgments, including, without limitation, attorneys' fees and
costs (whether or not suit is commenced or judgment entered).
(g) [INTENTIONALLY OMITTED]
(h) "Superior Leases and Mortgages" means: all present and future
ground leases, underlying leases, mortgages, deeds of trust or other
encumbrances, and all renewals, modifications, consolidations, replacements or
extensions thereof and advances made thereunder, affecting all or any portion of
the Premises or the Project.
(i) "Systems and Equipment" means: all HVAC, plumbing, mechanical,
electrical, telecommunications, data, audio visual, computer, lighting, water,
gas, sewer, safety, sanitary and any other utility or service facilities,
systems and equipment, and all pipes, ducts, poles, stacks, chases, conduits,
cables and wires.
(j) "Tenant's Equipment" means all systems and equipment installed
by or for Tenant, wherever located, including, without limitation, Tenant's
telecommunication switch and associated systems and equipment, any supplemental
HVAC units and associated systems and equipment, and any power generation units
or power transmission equipment and associated systems and equipment.
24. HAZARDOUS SUBSTANCES.
--------------------
Without limiting the generality of any portion of this Lease, Tenant and
its Affiliates will:
(a) Not store, handle, transport, use, process, generate, discharge or
dispose of any hazardous, toxic, corrosive, dangerous, explosive, flammable or
noxious substances, gasses or waste, whether now or hereafter defined under any
Laws or otherwise (collectively, "hazardous substances"), from, in or about the
Premises or the rest of the Project, or create any release or threat of release
of any hazardous substances, nor permit any of the foregoing to occur by Tenant
or its Affiliates. If any of the foregoing occurs, or if Landlord in good faith
believes that any of the foregoing has occurred or are likely to occur or that
Tenant and its Affiliates are not complying fully with the requirements of this
Article, in addition to any other rights and remedies of Landlord, Tenant and
its Affiliates immediately will cease the acts or omissions and in addition to
any other rights and remedies (all of which are cumulative), at Landlord's
request Tenant will take such actions as may be required by Laws and as Landlord
may direct to cure or prevent the problem. Tenant and its Affiliates will
comply fully with all Laws and insurance requirements in connection with or
related to hazardous substances, whether now or hereafter existing, including,
without limitation, CERCLA, SARA, RCRA, TSCA, CWA, and any other Laws
promulgated by the EPA, OSHA or the Commonwealth of Pennsylvania.
17
<PAGE>
(b) Immediately pay, and indemnify Landlord for and hold Landlord harmless
from, all Liabilities in connection with or arising directly or indirectly from
any breach by Tenant or its Affiliates of their obligations in this Article,
including, without limitation, the costs of any of the following, whether
required by Landlord, applicable Laws or insurance requirements or otherwise:
any "response actions" or "responses"; any surveys, "audits", inspections,
tests, reports or procedures deemed necessary or desirable by Landlord or
governmental or quasi-governmental authorities to determine the existence or
scope of any hazardous substances or Tenant's compliance with this Article, and
any actions recommended to be taken in connection therewith; compliance with any
applicable Laws and insurance requirements; any requirements, directives or
plans for the prevention, containment, processing, storage, clean-up or disposal
of hazardous substances; the release and discharge of any resulting liens; and
any other injury or damage. On the expiration or earlier termination of this
Lease, Tenant will leave the Premises free of hazardous substances.
(c) Immediately deliver to Landlord copies of any notices, information,
reports, and communications of any type received or given in connection with
hazardous substances, including, without limitation, notices of violation and
settlement actions from or with governmental or quasi-governmental authorities,
reports from Tenant's engineers or consultants, and the results of any analyses
conducted by or for Tenant. Tenant specifically grants Landlord the right to
participate in all discussions and meetings regarding actual or potential
violations, settlements or abatements.
Tenant's failure to comply with the requirements of this Article will be a
material default under this Lease. All of Tenant's obligations under this
Article will survive the expiration or earlier termination of this Lease.
IN WITNESS WHEREOF, intending to be legally bound, each party has executed
this Lease as a sealed instrument as of the date first set forth above on the
date specified below next to its signature.
"LANDLORD"
Executed: March 10, 1988 INDEPENDENCE CENTER REALTY L.P. II, a
Delaware limited partnership
WITNESS: By: Independence Center Realty, Inc. a
Pennsylvania corporation, general
partner
By: /s/ Mark P. Merlini
__________________________________ -------------------------
Name printed: Name: Mark P. Merlini
Title: Vice President
Authorized Signature
"TENANT"
Executed: March 4, 1988 FOCAL COMMUNICATIONS CORPORATION, a
Delaware corporation
WITNESS:
/s/ Patricia L. Metzger By: /s/ Brian F. Addy
- ---------------------------------- -------------------------------
Name Printed: Patricia L. Metzger Name: Brian F. Addy
Title: Executive Vice President
Authorized Signature
WITNESS:
By: _______________________________
__________________________________
Name printed: Name:
Title:
Authorized Signature
18
<PAGE>
EXHIBIT A
PREMISES
[GRAPHIC]
<PAGE>
EXHIBIT "B"
WORKLETTER
1.1 All designs, plans, drawings, construction, materials, services,
licenses, permits, approvals, costs, installations and equipment to or for the
initial occupancy of the Premises (including, without limitation, Tenant's
Equipment), or required for or as a result thereof, are called "Tenant's Work,"
and will be performed by Tenant at Tenant's sole cost, diligently and in a good
and workmanlike manner, in compliance with all Laws, and subject to the rest of
the terms of this Workletter and this Lease. Tenant has inspected and accepts
the Premises and the rest of the Project "as is" in all respects, except as may
be otherwise specifically provided in this Lease.
1.2 Tenant's design professional will, at Tenant's cost, deliver to
Landlord a proposed final space plan/layout for the Premises. Landlord and
Tenant shall discuss any proposed changes to that space plan/layout suggested by
Landlord, and a final space plan payout shall be approved in writing by both
parties. Incorporating the final, approved space plan/layout, Tenant's
architect (who must be licensed and in good standing in the state in which the
Project is located, and who otherwise is subject to Landlord's prior written
approval, which shall not be unreasonably withheld) shall prepare proposed
engineered, biddable, permittable and constructable final plans and construction
drawings, including, without limitation, any required mechanical, electrical,
HVAC and partition plans, and all plans and engineering required in connection
with Tenant's Equipment, that are necessary for any Tenant's Work (collectively,
the Proposed Planer) and deliver them to Landlord and its professionals for
approval and comment. Landlord shall notify Tenant in writing of all changes
that Landlord and its professionals require to be made to the Proposed Plans
within ten (10) business days thereafter, and if requested by Tenant, Landlord
or its professionals, shall provide explanations for such changes. Landlord's
failure to respond within the 10-day period shall be deemed approval.
Landlord's changes shall not prevent Tenant from installing its
telecommunications switch and its emergency generator and HVAC system, but it is
possible (and permissible) that Landlord's changes may require additional
expense by Tenant for such installations. Tenant's architect shall, within ten
(10) business days thereafter, incorporate those changes into the Proposed Plans
and resubmit them to the parties for approval. The revised Proposed Plans
(including Landlord's and its professionals' changes), when approved by Landlord
and its professionals, collectively are called the "Plans." Tenant's Work shall
thereafter be completed by Tenant in accordance with the Plans and the rest of
this Workletter and this Lease.
1.3 Tenant shall select a licensed general contractor to perform the
construction of Tenant's Work, and such contractor shall be subject to
Landlord's prior written approval, which shall not be unreasonably withheld.
Construction shall commence promptly after such approval and Landlord's approval
of the Plans. Landlord shall have approval over, but no responsibility for, the
means, methods or timing of the construction of Tenant's Work or any delay in
completion of such construction for any reason. Tenant shall obtain all
permits, licenses and approvals of any governmental authority which may be
required for the construction of Tenant's Work and the occupancy of the Premises
including, without limitation, a final Certificate of Occupancy for the
Premises, if necessary. Landlord shall reasonably cooperate with Tenant, at
Tenant's sole expense and without any liability to Landlord, in the obtaining of
any such permits, licenses and approvals.
1.4 Landlord shall have the right to inspect any and all work done in
connection with construction of Tenant's Work and to require correction at
Tenant's cost of any work which does not, in Landlord's reasonable judgment,
comply with applicable Laws or the Plans or this Lease. Tenant understands that
any such inspection will be done for the benefit of Landlord only and Tenant
will not rely on any such inspection or subsequent payment by the Landlord as
evidence that the work subject to such inspection and payment has been done in a
good and workmanlike manner or that complies with the terms of this Exhibit,
such compliance to be solely Tenant's responsibility.
1.5 Tenant shall bear all costs and expenses in connection with, and shall
indemnify and hold Landlord and its Affiliates harmless from, all Liabilities
arising from or in connection with Tenant's Work, including, without limitation
the obtaining of all necessary permits, licenses and approvals, the preparation
of the Plans and all revisions thereof, and any additional work or other
obligations with respect to the rest of the Building resulting from Tenant's
Work. Without limiting the generality of the foregoing, Tenant shall pay for
the reasonable costs of any architects, engineers or other professionals engaged
by Landlord to review and approve the Proposed Plans and the Plans and the
compliance of Tenant's Work with the terms of this Exhibit (and Tenant
acknowledges that Landlord is particularly concerned with, and so will engage
engineers to review, the proposed design and installation of Tenant's
Equipment).
1.6 Any delays, disputes or problems in connection with Tenant's Work
shall be Tenant's sole responsibility and shall not cause the Rent Commencement
Date to be extended in any way. Tenant shall cause its contractors and
subcontractors (whether in connection with Tenant's Work or any other work by or
for the benefit of Tenant) to carry at all times comprehensive general liability
insurance in such form and with such endorsements as may be acceptable to
Landlord and Landlord's Mortgagees of at least $1,000,000.00 naming Landlord and
its general partners, the property manager and Landlord's Mortgagees as
additional insureds and to carry at all times workers compensation insurance in
statutory limits and employers liability insurance. All of such insurance shall
contain waivers of subrogation.
EXHIBIT "B"
Page 1 of 2
<PAGE>
1.7 Without limiting the generality of the foregoing, Landlord understands
that Tenant intends to install at least the following Tenant's Equipment in or
for the benefit of the Premises as part of Tenant's Work and at its sole cost
and expense, all of which will be located as set forth in Exhibit A-1, attached
hereto (and such location shall be incorporated into Tenant's final space
plan/layout and other Plans unless otherwise agreed by Landlord and Tenant):
(a) A telecommunications switch in the Premises.
(b) Supplemental cooling equipment up to one hundred (100) tons of
capacity. If Tenant installs such supplemental cooling equipment, subject to
review and approval of Landlord's engineers and the installation at Tenant's
cost of recommended systems and equipment therefor, Landlord will make available
to Tenant condenser water sufficient for such cooling capacity.
(c) A diesel-powered emergency generator (and fuel tank) of between
350 KW-500KW.
(d) A telecommunications antenna on the roof.
EXHIBIT "B"
Page 2 of 2
<PAGE>
EXHIBIT "C"
BASE RENT
The base rent payable under this Lease consists of the aggregate amounts payable
under Sections (a) and (b) below:
(a) Annual Amount Per Square Foot
Lease Year of Rentable Area in the Premises
1-5 $ 11.00
6-10 13.75
(b) As of January 1, 1999, and as of each successive January 1 thereafter
during the Lease term additional base rent shall be payable per square foot
of rentable area in the Premises in an amount calculated as follows: (a)
$6.50; multiplied by (b) a fraction, the numerator of which is the CPI for
the month of December of the prior year and the denominator of which is the
average of the CPI for each of the 12 months (in the 1998 calendar year)
(the Average Base CPI"); less (c) $6.50. (The use of the CPI for the
December prior to the January 1 rent adjustment date is due to the time lag
in the reporting of the applicable CPI.) In no event will the base rent
(including the base rent payable pursuant to this Clause (b)) be decreased
from its then-current levels by reason of these calculations or any
reduction in the CPI. If the applicable rental increase (if any) has not
been determined as of a January 1 increase date, then base rent will
continue to be paid at then-current levels until the applicable increase
(if any) has been determined, at which point the increased base rent will
begin to be payable together with the shortfall from the January 1 increase
date until the date that the new increased rent begins to be paid.
As a purely hypothetical example, if the CPI for December, 1998 is 102 and
the Average Base CPI is 100, then starting as of January 1, 1999, the base
rent per square foot of rentable area in the Premises will be increased by
13c per annum ($6.50 x 102/100 - $6.50 = 13c).
EXHIBIT "C"
Page 1 of 1
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. Fire exits and stairways are for emergency use only, and they shall
not be used for any other purposes. Tenant shall not encumber or obstruct, or
permit the encumbrance or obstruction of or store or place any materials on any
of the sidewalks, plazas, entrance, corridors, elevators, fire exits or
stairways of the Project.
2. The cost of repairing any damage to the public portions of the Project
or the public facilities or to any facilities used in common with other tenants
caused by Tenant or its Affiliates shall be paid by Tenant.
3. Any person whose presence in the Project at any time shall, in the
judgment of the Landlord, be prejudicial to the safety, character, reputation
and interests of the Project or its tenants may be denied access to the Project
or may be ejected therefrom. In case of emergency, invasion, riot, public
excitement or other commotion the Landlord may prevent all access to the Project
during the continuance of the same, by closing the doors or otherwise, for the
safety of the tenants and protection of property, and without incurring any
Liabilities, all of which are waived by Tenant. Also, Landlord shall in no way
be liable to any tenant for damages or loss arising from the admission,
exclusion or ejection of any person to or from Tenant's premises or the Project
under the provisions of this rule.
4. No awnings or other projections over or around the windows shall be
installed by Tenant and only such window blinds and treatments as are permitted
by the Landlord shall be used in Tenant's premises.
5. Hand trucks shall not be used in any space, or in the public halls of
the Project in the delivery or receipt of merchandise, except those equipped
with rubber tires and side guards. Tenant shall repair all damage to floors
both in the Premises and the Common Area caused by its use of material-handling
equipment and, if requested by Landlord, Tenant shall install at its expense
suitable floor covering to protect the floors and shall remove such floor
covering (and repair any damage caused by the removal) at its expense at the
expiration or earlier termination of this Lease. All air compressors, electric
motors and other machinery and equipment shall be shock-mounted so as not to
transmit vibrations.
6. All entrance doors in Tenant's premises shall be kept locked when
Tenant's premises are not in use. Entrance doors shall not be left open at any
time. All windows in Tenant's premises shall be kept closed at all times and
all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the air conditioning system to cool or ventilate the tenant's premises, and
Tenant will comply with Landlord's reasonable rules and regulations, including
conservation guidelines, with respect to use of the air conditioning or heating
systems. Tenant understands that certain services (e.g. janitorial) may be
provided by Landlord's direct employees or by third parties who are generally in
the business of providing such services, and if such services are provided by
third parties those third parties shall be deemed to be independent contractors
and Landlord will not be responsible for loss or damage to Tenant's property
caused by such third parties.
7. Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, Tenant agrees to pay Landlord as
additional rent, on demand, a processing fee in a sum equal to the reasonable,
out-of-pocket charges payable to any unrelated architect, contractor, engineer
and attorney employed by Landlord to review said plan, agreement or document.
Within fifteen (15) days after Landlord's request from time to time, Tenant
shall deliver to Landlord Tenant's audited or credited financial statements,
including a balance sheet, income statements and bank references.
8. Nothing shall be done or permitted in Tenant's premises which would
impair, interfere with or overload any of the Systems or Equipment or the proper
and economic servicing of the Project or the Premises, or the use or enjoyment
by any other tenant of any other premises, nor shall there be installed by
Tenant any Systems or Equipment or other equipment of any kind which, in
Landlord's judgment, could result in such impairment, overload or interference
(Tenant's Work for the initial occupancy of the Premises shall be governed by
the Workletter as set forth in Exhibit "B"). If necessary in Landlord's
judgment, Landlord may install, relocate, remove, use, maintain, repair and
replace Systems and Equipment within or serving the Tenant's premises or other
parts of the Project, and perform other work and alterations within the Tenant's
premises. No dangerous, inflammable, combustible or explosive object or
material shall be brought into the Project by Tenant or with the permission of
Tenant.
9. No acids, vapors hazardous or other materials shall be discharged or
permitted to be discharged into the waste lines, ducts, vents or flues which may
damage them or any other portions of the Project. The water and wash closets
and other plumbing fixtures in or serving any tenant's premises shall not be
used for any purpose other than the purpose for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or other foreign substances
shall be deposited therein. All damage resulting from any misuse of the
fixtures shall be borne by the tenant who, or whose servants, employees, agents,
visitors or licensees, shall have caused the same. Landlord reserves the right
to control and operate the public portions of the Project and the Project and
public facilities, as well as facilities furnished for the common use of the
tenants, and access thereto, and make any alterations or changes thereto, in
such manner as it deems best, including, without limitation, temporarily closing
doors, entry ways or other public access ways or interrupting or temporarily
suspending services or the use of
EXHIBIT D
Page 1 of 2
<PAGE>
facilities, all without affecting any of Tenant's obligations or incurring any
Liabilities, as long as the Premises are reasonably accessible and usable
(except during emergencies).
10. No signs, advertisements, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside or
inside the premises, the windows, or the Project without the prior written
consent of Landlord or as otherwise specifically permitted in this Lease. Tenant
shall cause the exterior of any permitted sign to be kept clean, properly
maintained and in good order and repair throughout the term of its lease. In the
event of the violation of the foregoing by Tenant, Landlord may remove the same
without any liability, and may charge the expense incurred by such removal to
Tenant. Landlord shall have the right to prohibit any advertising by Tenant
which impairs the reputation of Landlord or the Project and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
11. Tenant's employees shall not loiter around the hallways, stairways,
elevators, front, roof or any other part of the Project used in common by the
occupants thereof.
12. All movers used by Tenant shall be appropriately licensed and shall
maintain adequate insurance coverage (proof of such coverage shall be delivered
to Landlord prior to movers providing service in and throughout the Project),
and shall perform their duties in locations and during times specified by
Landlord. Tenant shall protect the premises and the rest of the Project from
damage or soiling by Tenant's movers and contractors and shall pay for extra
cleaning or replacement or repairs by reason of Tenant's failure to do so, and
Tenant assumes and will be responsible for all rights and Liabilities in
connection with moving items in and out of the Project.
EXHIBIT D
Page 2 of 2
<PAGE>
EXHIBIT "E"
CLEANING SPECIFICATIONS
I. DEMISED PREMISES NOTE: CLEANING APPLIES TO THE OFFICE AREAS OF THE
PREMISES ONLY.
----
Daily:
1. Collect trash.
2. Empty ash trays; damp wipe clean.
3. Dust furniture, desks, machines, phones, file cabinets,
window ledges, etc. (Papers left on desks will not be
disturbed.)
4. Vacuum carpet; dry sweep resilient tile and wood floors,
spot clean.
5. Spot clean walls, doors and partitions.
Weekly:
1. Vacuum upholstered furniture.
Monthly:
1. Recondition resilient tile floors
2. Dust picture frames, charts, graphs, etc.
3. Vacuum air vents.
Quarterly:
1. Clean partitions.
2. Dust vertical surfaces; walls, etc.
TRASH:
Daily:
1. Deposit all trash in the designated area.
NOTE: Only trash placed in waste containers, or clearly
marked "TRASH," will be removed.
PRIVATE LAVATORIES AND KITCHENS:
Daily:
1. Remove all trash, garbage and refuse.
II. PUBLIC AREAS:
(A) Lavatories:
Daily:
1. Clean and disinfect all toilet bowls, wash bowls and
urinals.
2. Resupply all dispensers.
As Needed:
1. Wash and wipe all surfaces in rest rooms.
EXHIBIT E
Page 1 of 2
<PAGE>
(B) Corridors:
Daily:
1. Collect trash.
2. Empty ash trays; damp wipe clean.
3. Vacuum carpet, dry sweep resilient tile and wood floors,
spot clean.
4. Spot clean walls and doors. Spot clean carpet.*
* Where possible, spots and spills that are soluble and respond to standard
spotting procedures will be removed.
Should Tenant install specialty items that reasonably will cause an
increase in the rate being charged by the cleaning contractor for the demised
premises, Tenant will reimburse Landlord for any reasonable additional cost.
EXHIBIT E
Page 2 of 2
<PAGE>
EXHIBIT "F"
BANKRUPTCY PROVISIONS
This Article is incorporated into the Lease as Article 22:
22. BANKRUPTCY OR INSOLVENCY.
------------------------
22.1 Tenant's Interest Not Transferable. Neither Tenant's interest in this
----------------------------------
Lease nor any estate hereby created in Tenant nor any interest herein or therein
will pass to any trustee or receiver or assignee for the benefit of creditors or
otherwise by operation of law except as may specifically be provided pursuant to
the Bankruptcy Code, 11 U.S.C. Section 101 et. seq. (the "Bankruptcy Code").
22.2 Default and Termination. If:
-----------------------
(a) Tenant or Tenant's Guarantor, if any, or its executors,
administrators, or assigns, will generally not pay its debts as they become due
or will admit in writing its inability to pay its debts, or will make a general
assignment for the benefit of creditors; or
(b) Tenant or Tenant's Guarantor, if any, will commence any case,
proceeding or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property; or
(c) Tenant or Tenant's Guarantor, if any, will take any corporate,
partnership or other action to authorize or in furtherance of any of the actions
set forth above in subsection (a) or (b); or
(d) Any case, proceeding or other action against Tenant or Tenant's
Guarantor, if any, will be commenced seeking to have an order for relief entered
against it as debtor, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action: results in the entry of an order for relief against
it which is not fully stayed within seven (7) business days after the entry
thereof; or remains undismissed for a period of sixty (60) days, then it will be
a default hereunder and this Lease and all rights of Tenant hereunder will
automatically cease and terminate as if the date of such event were the original
expiration date of this Lease and Tenant will vacate and surrender the Premises
but will remain liable as herein provided.
22.3 Rights and Obligations Under the Bankruptcy Code.
------------------------------------------------
(a) Upon the filing of a petition by or against Tenant under the
Bankruptcy Code, Tenant, as debtor and as debtor in possession, and any trustee
who may be appointed agree as follows: (i) to perform all obligations of Tenant
under this Lease, including, but not limited to, the covenants regarding the
operations and uses of the Premises until such time as this Lease is either
rejected or assumed by order of the United States Bankruptcy Court; (ii) to pay
monthly in advance on the first day of each month as reasonable compensation for
use and occupancy of the Premises an amount equal to all Monthly Minimum Rental
and other rent otherwise due pursuant to this Lease; (iii) to reject or assume
this Lease within sixty (60) days of the filing of a petition under any Chapter
of the Bankruptcy Code or under any Law relating to bankruptcy, insolvency,
reorganization or relief of debtors (any such rejection being deemed an
automatic termination of this Lease); (iv) [INTENTIONALLY OMITTED]; (v)
[INTENTIONALLY OMITTED; (vi) to do all other things of benefit to Landlord
otherwise required under the Bankruptcy Code or under any Law relating to
bankruptcy, insolvency, reorganization or relief of debtors; (vii) to be deemed
to have rejected this Lease in the event of the failure to comply with any of
the above; and (viii) to have consented to the entry of an order by an
appropriate United States Bankruptcy Court providing all of the above, waiving
notice and hearing of the entry of same.
(b) No default under this Lease by Tenant, either prior to or
subsequent to the filing of such petition, will be deemed to have been waived
unless expressly done so in writing by Landlord.
(c) Included within and in addition to any other conditions or
obligations imposed upon Tenant or its successor in the event of assumption
and/or assignment are the following: (i) the cure of any monetary defaults and
the reimbursement of pecuniary loss by the time of the entry of the order
approving such assumption and/or assignment (pecuniary loss will include,
without limitation, any attorneys' fees and costs and expert witness fees
incurred by Landlord in protecting its rights under this Lease, including
representation of Landlord in any proceeding commenced under the Bankruptcy Code
or under any Law relating to bankruptcy, insolvency, reorganization or relief of
debtor); (ii) the deposit of an additional sum equal to three (3) months' base
rent; (iii) the use of the Premises only as set forth in this Lease; (iv) the
reorganized debtor or assignee of such debtor in possession or of Tenant's
trustee demonstrates in writing that it has sufficient background including, but
not limited to, substantial experience in operating businesses in the manner
contemplated in this Lease and meet all other reasonable criteria of Landlord as
did Tenant upon execution of this Lease; (v) meet all other criteria of 11
U.S.C.
EXHIBIT F
Page 1 of 2
<PAGE>
Section 365(b)(3); and (v) the prior written consent of any mortgagee to which
this Lease has been assigned as collateral security; and (vi) the Premises at
all times remains a single unit and no Alterations or physical changes of any
kind may be made unless in compliance with the applicable provisions of this
Lease.
(d) Any person or entity to whom this Lease is assigned pursuant to
the provisions of the Bankruptcy Code will be deemed without further act or deed
to have assumed all of the obligations arising under this Lease on or after the
date of such assignment. Any such assignee will upon demand execute and deliver
to Landlord an instrument confirming such assumption.
22.4 Construction. The terms of this Article will be in addition to, but
------------
not exclusive of, any rights or remedies of Landlord in Article 21 and elsewhere
in this Lease or otherwise available at law or in equity, and will not be deemed
to limit Landlord, except as may be required by law.
EXHIBIT F
Page 2 of 2
<PAGE>
ADDENDUM #1
-----------
TELECOMMUNICATIONS ANTENNA
This Addendum is incorporated into this Lease.
Subject to the following and the rest of this Lease, Tenant at its cost may
install a telecommunications antenna on the roof of the Building in the location
shown in Exhibit "A-1." Tenant also will be solely responsible for securing all
federal, state and local permits in connection with the installation and
operation of this satellite dish or antenna and for complying with all Laws
applicable thereto. Tenant will secure from the membrane roofing manufacturer
certification that this installation (and the installation of any other Tenant's
Equipment on the rood is compatible with all design requirements and that the
installations will not void the existing roof warranty. This certification must
be delivered to Landlord before installation begins. Tenant also will use only
a manufacturer-authorized roofing contractor for any work that requires the
penetration of the existing membrane roofing system. Upon the expiration or
earlier termination of this Lease, Tenant, at its expense, will remove this
antenna and all associated systems and equipment and repair all damage. Tenant
shall not permit its antenna to cause any measurable interference with other
communications equipment on the Building's roof or elsewhere in the Building
that exists as of the date of Tenant's installation, and shall use commercially
reasonable efforts to avoid causing any measurable interference with
communications equipment on the Building's roof or elsewhere in the Building
installed after Tenant's installation. Notwithstanding anything to the
contrary, Tenant, and not Landlord, will be responsible for, and will indemnify
and defend Landlord for and hold it harmless from, all costs, expenses and other
Liabilities in connection with this antenna (and any other Tenant's Equipment)
and associated systems and equipment, including, without limitation,
installation, removal, operation, maintenance, utilities, insurance, taxes and
other costs and fees, and any necessary alterations or improvements to the
Building.
Landlord, at its cost, shall have the right at any time to relocate the
antenna to another location on or about the roof, provided that such relocation
does not materially degrade Tenant's transmissions.
ADDENDUM #1
-----------
Page 1 of 1
<PAGE>
ADDENDUM #2
-----------
EXTENSION OPTIONS
This Addendum is incorporated into the Lease.
1. Landlord grants to Tenant two (2) extension options (the "Extension
Options") to extend the Lease term for an additional term of five (5) years (for
the first Extension Option) and from the end of the first Extension Option until
December 19, 2015 (for the second Extension Option) on the same terms and
conditions as this Lease, except that there will be no further right to extend
and except as set forth below. The Extension Options can be exercised only by
Tenant complying with this Addendum and delivering unconditional written notice
of exercise to Landlord at least nine (9) months before the expiration of the
initial term (for the first Extension Option) and at least nine (9) months
before the expiration of the first Extension Option term (for the second
Extension Option). If for any reason Tenant does not so comply or Landlord does
--- ------
not actually receive these unconditional written notices of exercise when
required, the Extension Option to which such notice would have applied and any
future Extension Option (if any) will lapse and become void and there will be no
further right to extend the Lease term, unless Landlord specifically agrees
otherwise in writing. If Tenant does not validly exercise the first Extension
Option, or if it lapses or becomes void, the second Extension Option will lapse
and be void and there will be no further right to extend the Lease term. TIME
IS ABSOLUTELY OF THE ESSENCE IN THIS ADDENDUM.
2. The Extension Options are personal to the Tenant originally named in this
Lease and may not be exercised by or for anyone else (except for a permitted
assignee). An Extension Option (and any future Extension Option) will lapse and
become void if, prior to the beginning of its term, Tenant assigns, subleases or
otherwise Transfers (except pursuant to a valid assignment of this Lease, or a
sublease pursuant to Section 17.5(c)), unless Landlord specifically agrees
otherwise in writing. The Extension Options are granted to and may be exercised
by Tenant on the express condition that, at the time of the exercise and at all
times before the beginning of each applicable Extension Option term, Tenant is
not in default.
3. Landlord will not be required to perform or pay for any work or other
improvement to the Premises, and Tenant will accept the Premises in its then "as
is" condition in all respects.
4. (a) The annual base rent per square foot of agreed rentable area in the
Premises for each year of the first Extension Option term will be Sixteen
Dollars ($16.00).
(b) The annual base rent per square foot of agreed rentable area in the
Premises for each year of the second Extension Option term will be Eighteen
Dollars and Fifty-Three Cents ($18.53).
ADDENDUM #2
-----------
Page 1 of 1
<PAGE>
Exhibit 10.14
FOCAL COMMUNICATIONS CORPORATION
1997 NONQUALIFIED STOCK OPTION PLAN
-----------------------------------
ARTICLE I
Purpose of Plan
---------------
The 1997 Stock Option Plan (the "Plan") of Focal Communications
----
Corporation (the "Company"), adopted by the Board of Directors of the Company on
-------
February 27, 1997, for executive and other key employees of the Company, is
intended to advance the best interests of the Company by providing those persons
who have a substantial responsibility for its management and growth with
additional incentives by allowing them to acquire an ownership interest in the
Company and thereby encouraging them to contribute to the success of the Company
and to remain in its employ. The availability and offering of stock options
under the Plan also increases the Company's ability to attract and retain
individuals of exceptional managerial talent upon whom, in large measure, the
sustained progress, growth and profitability of the Company depends.
ARTICLE II
Definitions
-----------
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
"Board" shall mean the Board of Directors of
-----
the Company.
"Code" shall mean the Internal Revenue Code of
----
1986, as amended, and any successor statute.
"Common Stock" shall mean the Company's Class A Common Stock, par
------------
value $.01 per share, or if the outstanding Common Stock is hereafter changed
into or exchanged for different stock or securities of the Company, such other
stock or securities.
"Company" shall mean Focal Communications Corporation, a Delaware
-------
corporation, and (except to the extent the context requires otherwise) any
subsidiary corporation of Focal Communications Corporation as such term is
defined in Section 425(f) of the Code.
1
<PAGE>
"Disability" shall mean the inability, due to illness, accident,
----------
injury, physical or mental incapacity or other disability, of any Participant to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company for a
period anticipated to last at least 6 months, as determined by the Board in its
good faith discretion.
"Fair Market Value" of the Common Stock shall be the average, over a
-----------------
period of 21 days consisting of the day as of which Fair Market Value is being
determined and the 20 consecutive business days prior to such day, of the
average of the closing prices of the sales of such Common Stock on all
securities exchanges on which such Common Stock may at that time be listed, or,
if there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day the Valued Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated or any similar successor organization. If at any time the
Common Stock is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the Fair Market Value shall be the fair
value of the Common Stock determined in good faith by the Board.
"Options" shall have the meaning set forth in Article IV.
-------
"Participant" shall mean any executive or other key employee of the
-----------
Company who has been selected to participate in the Plan by the Board.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Sale of the Company" shall mean a merger or consolidation effecting a
-------------------
change in control of the Company, a sale of all or substantially all of the
Company's assets or a sale of a majority of the Company's outstanding voting
securities.
ARTICLE III
Administration
--------------
The Plan shall be administered by the Board. Subject to the
limitations of the Plan, the Board shall have the sole and complete authority
to: (i) select Participants, (ii) grant Options (as defined in Article IV below)
to Participants in such forms and amounts as it shall determine, (iii) impose
such limitations, restrictions and conditions upon such Options as it shall deem
appropriate, (iv) interpret the Plan and adopt, amend and rescind administrative
guidelines
-2-
<PAGE>
and other rules and regulations relating to the Plan, (v) correct any defect or
omission or reconcile any inconsistency in the Plan or in any Option granted
hereunder and (vi) make all other determinations and take all other actions
necessary or advisable for the implementation and administration of the Plan.
The Board's determinations on matters within its authority shall be conclusive
and binding upon the Participants, the Company and all other Persons. All
expenses associated with the administration of the Plan shall be borne by the
Company. The Board may, to the extent permissible by law, delegate any of its
authority hereunder to such persons as it deems appropriate.
ARTICLE IV
Limitation on Aggregate Shares
------------------------------
The number of shares of Common Stock with respect to which options may
be granted under the Plan (the "Options") and which may be issued upon the
-------
exercise thereof shall not exceed, in the aggregate, 5,260 shares; provided that
--------
the type and the aggregate number of shares which may be subject to Options
shall be subject to adjustment in accordance with the provisions of paragraph
6.7 below, and provided further that to the extent any Options expire
--------------------
unexercised or are canceled, terminated or forfeited in any manner without the
issuance of Common Stock thereunder, or if any Options are exercised and the
shares of Common Stock issued thereunder are repurchased by the Company, such
shares shall again be available under the Plan. The 5,260 shares of Common Stock
available under the Plan may be either authorized and unissued shares, treasury
shares or a combination thereof, as the Board shall determine.
ARTICLE V
Awards
------
5.1 Options. The Board may grant Options to Participants in
-------
accordance with this Article V.
5.2 Form of Option. Options granted under this Plan shall be
--------------
nonqualified stock options and are not intended to be "incentive stock options"
within the meaning of Section 422A of the Code or any successor provision.
5.3 Exercise Price. The option exercise price per share of Common
--------------
Stock shall be fixed by the Board at not less than 100% of the Fair Market Value
of a share of Common Stock on the date of grant.
5.4 Exercisability. Options shall be exercisable at such time or
--------------
times as the Board shall determine at or subsequent to grant.
-3-
<PAGE>
5.5 Payment of Exercise Price. Options shall be exercised in whole
-------------------------
or in part by written notice to the Company (to the attention of the Company's
Secretary) accompanied by payment in full of the option exercise price. Payment
of the option exercise price shall be made in cash (including check, bank draft
or money order) or, in the discretion of the Board, by delivery of a promissory
note (if in accordance with policies approved by the Board).
5.6 Terms of Options. The Board shall determine the term of each
----------------
Option, which term shall in no event exceed ten years from the date of grant.
ARTICLE VI
General Provisions
------------------
6.1 Conditions and Limitations on Exercise. Options may be made
--------------------------------------
exercisable in one or more installments, upon the happening of certain events
(including, without limitation, a Sale of the Company), upon the passage of a
specified period of time, upon the fulfillment of certain conditions or upon the
achievement by the Company of certain performance goals, as the Board shall
decide in each case when the Options are granted.
6.2 Written Agreement. Each Option granted hereunder to a
-----------------
Participant shall be embodied in a written agreement (an "Option Agreement")
----------------
which shall be signed by the Participant and by the President of the Company for
and in the name and on behalf of the Company and shall be subject to the terms
and conditions of the Plan prescribed in the Agreement (including, but not
limited to, (i) the right of the Company and such other Persons as the Board
shall designate ("Designees") to repurchase from each Participant, and such
---------
Participant's transferees, all shares of Common Stock issued or issuable to such
Participant on the exercise of an Option in the event of such Participant's
termination of employment or upon a Sale of the Company, (ii) rights of first
refusal granted to the Company and Designees, (iii) holdback and other
registration right restrictions in the event of a public registration of any
equity securities of the Company and (iv) any other terms and conditions which
the Board shall deem necessary and desirable).
6.3 Listing, Registration and Compliance with Laws and Regulations.
--------------------------------------------------------------
Options shall be subject to the requirement that if at any time the Board shall
determine, in its discretion, that the listing, registration or qualification of
the shares subject to the Options upon any securities exchange or under any
state or federal securities or other law or regulation, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of the Options or the issuance
or purchase of shares thereunder, no Options may be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board. The holders of such Options shall supply the Company
with such certificates, representations and information as the Company shall
request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification,
-4-
<PAGE>
consent or approval. In the case of officers and other Persons subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, the Board may
at any time impose any limitations upon the exercise of an Option that, in the
Board's discretion, are necessary or desirable in order to comply with such
Section 16(b) and the rules and regulations thereunder. If the Company, as part
of an offering of securities or otherwise, finds it desirable because of federal
or state regulatory requirements to reduce the period during which any Options
may be exercised, the Board, may, in its discretion and without the
Participant's consent, so reduce such period on not less than 15 days written
notice to the holders thereof.
6.4 Nontransferability. Options may not be transferred other than
------------------
by will or the laws of descent and distribution and, during the lifetime of the
Participant, may be exercised only by such Participant (or his legal guardian or
legal representative). In the event of the death of a Participant, exercise of
Options granted hereunder shall be made only:
(i) by the executor or administrator of the estate of the
deceased Participant or the Person or Persons to whom the deceased
Participant's rights under the Option shall pass by will or the laws of
descent and distribution; and
(ii) to the extent that the deceased Participant was entitled
thereto at the date of his death, unless otherwise provided by the Board in
such Participant's Option Agreement.
6.5 Expiration of Options.
---------------------
(a) Normal Expiration. In no event shall any Option be exercisable
-----------------
after the date of expiration thereof (the "Expiration Date"), as determined by
---------------
the Board pursuant to paragraph 5.6 above.
(b) Early Expiration upon Termination of Employment. Except as
-----------------------------------------------
otherwise provided by the Board in the Option Agreement, any of a Participant's
Options that were not vested and exercisable on the date of the termination of
such Participant's employment shall expire and be forfeited as of such date, and
any of a Participant's Options that were vested and exercisable on the date of
the termination of such Participant's employment shall expire and be forfeited
60 days after the date of his termination, but in no event after the Expiration
Date.
(c) Early Expiration upon a Sale of the Company. Upon a Sale of the
-------------------------------------------
Company, the Board or the board of directors of the surviving or acquiring
entity may elect, upon written notice to the Participants, that any of a
Participant's Options that were not vested and exercisable prior to or in
connection with such Sale of the Company shall expire and be forfeited as of the
date of such Sale of the Company, and that any of a Participant's Options that
were vested and exercisable prior to or in connection with such Sale of the
Company shall expire and be forfeited if not repurchased or exercised prior to
or contemporaneously with such Sale of the Company.
-5-
<PAGE>
6.6 Withholding of Taxes. The Company shall be entitled, if
--------------------
necessary or desirable, to withhold from any Participant from any amounts due
and payable by the Company to such Participant (or secure payment from such
Participant in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to any shares issuable under the Options, and
the Company may defer such issuance unless indemnified to its satisfaction.
6.7 Adjustments. In the event of a reorganization,
-----------
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Board may, in order to prevent the dilution
or enlargement of rights under outstanding Options, make such adjustments in the
number and type of shares authorized by the Plan, the number and type of shares
covered by outstanding Options and the exercise prices specified therein as may
be determined to be appropriate and equitable. The issuance by the Company of
shares of stock of any class, or options or securities exercisable or
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale, or upon the exercise of rights or
warrants to subscribe therefor, or upon exercise or conversion of other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock then subject to
any Options.
6.8 Retention of Company's Rights. The Company's adoption of this
-----------------------------
Plan and its issuance of Options to the Participants hereunder shall not
interfere with or limit in any way the right of the Company to terminate any
Participant's employment at any time and for any reason, nor confer upon any
Participant any right to continue in the employ of the Company for any period of
time or to continue his present (or any other) rate of compensation, and except
as otherwise provided under this Plan or by the Board in the Option Agreement,
in the event of any Participant's termination of employment for any reason, any
portion of such Participant's Options that were not previously vested and
exercisable shall expire and be forfeited as of the date of such termination. No
employee shall have a right to be selected as a Participant or, having been so
selected, to be selected again as a Participant.
6.9 Amendment, Suspension and Termination of Plan. The Board may
---------------------------------------------
suspend or terminate the Plan or any portion thereof at any time and may amend
it from time to time in such respects as the Board may deem advisable; provided
that no such amendment shall be made without stockholder approval to the extent
such approval is required by law, agreement or the rules of any exchange upon
which the Common Stock is listed, and no such amendment, suspension or
termination shall impair the rights of any Participant under outstanding Options
without the consent of a majority (based on the number of Option Shares (as
defined in the Option Agreements) held) of the Participants affected thereby. No
Options shall be granted hereunder after November 27, 2000.
6.10 Amendment, Modification and Cancellation of Outstanding
-------------------------------------------------------
Options. The Board may amend or modify any Option in any manner to the extent
- -------
that the Board would have had the authority under the Plan initially to grant
such Option; provided that no such amendment or modification shall impair the
rights of any Participant under any Option without the consent of a majority
(based on the number of Option Shares (as defined in the Option Agreements)
held)
-6-
<PAGE>
of the Participants whose Options are so amended. With the Participant's
consent, the Board may cancel any Option and issue a new Option to such
Participant.
6.11 Indemnification. In addition to such other rights of
---------------
indemnification as they may have as members of the Board, the members of the
Board shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted thereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding; provided that any such Board member shall be entitled to the
--------
indemnification rights set forth in this paragraph 6.11 only if such member has
acted in good faith and in a manner that such member reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any such
action, suit or proceeding a Board member shall give the Company written notice
thereof and an opportunity, at its own expense, to handle and defend the same
before such Board member undertakes to handle and defend it on his own behalf.
* * * *
-7-
<PAGE>
Exhibit 10.15
Form of Stock Option Agreement
FOCAL COMMUNICATIONS CORPORATION
200 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601
_______________, 1998
[PARTICIPANT]
_________________________
_________________________
Re: Focal Communications Corporation (the "Company")
------------------------------------------------
Grant of Nonqualified Stock Option
----------------------------------
Dear [PARTICIPANT]:
The Company is pleased to advise you that its Board of Directors has
granted to you stock options (the "Options"), as provided below, under the Focal
Communications Corporation 1997 Stock Option Plan (as amended or modified from
time to time as provided therein, the "Plan"), a copy of which is attached
hereto and incorporated herein by reference.
1. Definitions. For the purposes of this Agreement, the following
-----------
terms shall have the meanings set forth below:
"Board" shall mean the Board of Directors of the Company.
-----
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
any successor statute.
"Common Stock" shall mean the Company's Class A Common Stock, par
------------
value $.01 per share, or in the event that the outstanding Common Stock is
hereafter changed into or exchanged for different stock or securities of the
Company, such other stock or securities.
"Company" shall mean Focal Communications Corporation, a Delaware
-------
corporation, and (except to the extent the context requires otherwise) any
subsidiary corporation of Focal Communications Corporation as such term is
defined in Section 424(f) of the Code.
"Disability" shall mean your inability, due to illness, accident,
----------
injury, physical or mental incapacity or other disability, to carry out
effectively your duties and obligations to the Company or to participate
effectively and actively in the management of the Company for a period
anticipated to last at least 6 months, as determined by the Board in its good
faith discretion.
<PAGE>
"Fair Market Value" of the Common Stock shall be the average, over a
-----------------
period of 21 days consisting of the day as of which Fair Market Value is being
determined and the 20 consecutive business days prior to such day, of the
average of the closing prices of the sales of such Common Stock on all
securities exchanges on which such Common Stock may at that time be listed, or,
if there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day the Common Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated or any similar successor organization. If at any time the
Common Stock is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the Fair Market Value shall be the fair
value of the Common Stock determined in good faith by the Board.
"Grant Date" shall mean the date of this Option grant letter first
----------
written above.
"Option Shares" shall mean (i) all shares of Common Stock issued or
-------------
issuable upon the exercise of the Options and (ii) all shares of Common Stock
issued with respect to the Common Stock referred to in clause (i) above by way
of stock dividend or stock split or in connection with any conversion, merger,
consolidation or recapitalization or other reorganization affecting the Common
Stock. Option Shares shall continue to be Option Shares in the hands of any
holder other than you (except for the Company and any purchaser of Option Shares
pursuant to the repurchase provisions in paragraph 12 hereof or pursuant to the
provisions in paragraphs 14(b)-(c) and 16 hereof), and each such transferee
thereof shall succeed to the rights and obligations of a holder of Option Shares
hereunder.
"Public Offering" means any underwritten sale of the Company's Common
---------------
Stock pursuant to an effective registration statement under the Securities Act
filed with the Securities and Exchange Commission on Form S-1 (or a successor
form adopted by the Securities and Exchange Commission); provided that the
--------
following shall not be considered a Public Offering: (i) any issuance of Common
Stock as consideration or financing for a merger or acquisition, and (ii) any
issuance of Common Stock or rights to acquire Common Stock to employees of the
Company as part of an incentive or compensation plan.
"Registration Agreement" shall mean that certain Registration
----------------------
Agreement, dated as of November 27, 1997, by and among the Company and certain
investors as amended from time to time.
"Sale of the Company" shall mean a merger or consolidation effecting a
-------------------
change in control of the Company, a sale of all or substantially all of the
Company's assets or a sale of a majority of the Company's outstanding voting
securities.
-2-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and any successor statute.
2. The Options.
-----------
(a) Terms. The Company is granting to you ___________ Options. Each
-----
of your Options is for the purchase of 1/500th of a share of Common Stock at a
price per share of $________ (the "Exercise Price"), payable upon exercise as
set forth in paragraph 2(b) below. Your Options shall expire at the close of
business on the tenth anniversary of the Grant Date (the "Expiration Date"),
subject to earlier expiration as provided in paragraph 4 below. Your Options are
not intended to be "incentive stock options" within the meaning of Section 422
of the Code.
(b) Payment of Option Price. Subject to paragraph 3 below, your
-----------------------
Options may be exercised in whole or in part upon payment of an amount (the
"Option Price") equal to the product of (i) the Exercise Price multiplied by
(ii) the number of Option Shares (including fractional shares) to be acquired.
Payment shall be made in cash (including check, bank draft or money order) or,
in the discretion of the Board, by delivery of a promissory note (if in
accordance with policies approved by the Board).
3. Exercisability/Vesting.
----------------------
(a) Vesting Schedule. Your Options may be exercised only to the
----------------
extent they have become vested. Your options shall vest and become exercisable
with respect to the following percentages of your Option Shares (rounded to the
nearest whole share) on the following vesting dates, in each case if and only if
-----------
you are, and have been continuously employed by the Company or served as a
director from the date of this Agreement through such vesting date:
<TABLE>
<CAPTION>
Cumulative Percentage of Options
Vesting Date Vested on such Vesting Date
------------ ---------------------------
<S> <C>
12-month anniversary of the Grant Date 25%
18-month anniversary of the Grant Date 37.5%
24-month anniversary of the Grant Date 50%
30-month anniversary of the Grant Date 62.5%
36-month anniversary of the Grant Date 75%
42-month anniversary of the Grant Date 87.5%
48-month anniversary of the Grant Date 100%
</TABLE>
(b) Treatment of Options upon a Sale of the Company. In the event of
-----------------------------------------------
a Sale of the Company, the Board or the board of directors of the surviving or
acquiring entity shall, in connection with the Sale of the Company, either (i)
provide for the continuation of your Options under this Agreement after the Sale
of the Company by substituting an equivalent amount (as determined by the Board
in its good faith discretion) of shares of stock in the surviving or
-3-
<PAGE>
acquiring entity, or of the consideration payable for the Common Stock in
connection with the Sale of the Company, or of such other securities as the
Board deems appropriate, in place of the Common Stock issuable upon the exercise
of your Options as specified in Section 2(a) above (which substitution shall be
binding on you and shall not constitute an amendment or waiver of any provision
hereof under Section 18 below), or (ii) upon written notice to you, elect for
your Options to expire in accordance with Section 4(c) below.
(c) Acceleration of Vesting upon a Sale of the Company. In the event
--------------------------------------------------
of a Sale of the Company, if you have been continuously employed by the Company
or served as a director from the date of this Agreement until the date of such
Sale of the Company, there shall vest immediately prior to such Sale of the
Company (or immediately prior to any repurchase of your Option Shares in
connection with such Sale of the Company) the number of your Options that were
expected to vest within the 12-month period following such Sale of the Company.
(d) Acceleration of Vesting upon Discharge after a Sale of the
----------------------------------------------------------
Company. In the event of a Sale of the Company, if your employment is
- -------
terminated by the Company (or by the surviving or acquiring company, as the case
may be) in connection with such Sale of the Company or at any time during the 2-
year period commencing on the date of consummation thereof, all of your unvested
Options shall become vested on the date of such termination. For purposes of
this paragraph (d) only, "terminated by the Company (or by the surviving or
----
acquiring company, as the case may be" shall mean actual termination by the
Company or such other company, as well as your voluntary termination as a result
of either of the following: (i) a material reduction in your total compensation
without your consent, it being understood that a change in the form or measure
-------------------
of compensation (including, but not limited to, a change from salary-based
compensation to commission-based compensation, or a rearrangement of your
compensation package to include a different combination of salary, bonus,
commission, options, incentive equity, etc.) shall not in and of itself
constitute such a material reduction, or (ii) a relocation of your place of
employment to a site at least 50 miles away without your consent.
4. Expiration of Option.
--------------------
(a) Normal Expiration. In no event shall any part of your Options be
-----------------
exercisable after the Expiration Date set forth in paragraph 2(a) above.
(b) Early Expiration upon Termination of Employment. In the event your
-----------------------------------------------
employment with the Company is terminated at any time prior to the Expiration
Date for any reason, any portion of your Options that were not vested and
exercisable on the date your employment with the Company terminated shall expire
and be forfeited on such date, and any portion of your Options that were vested
and exercisable on the date your employment with the Company terminated shall
expire and be forfeited 60 days from the date of termination, but in no event
after the Expiration Date.
(c) Early Expiration upon a Sale of the Company. Upon a Sale of the
-------------------------------------------
Company, the Board or the board of directors of the surviving or acquiring
entity may elect, upon
-4-
<PAGE>
written notice to you, that any portion of your Options that were not vested and
exercisable prior to or in connection with such Sale of the Company shall expire
and be forfeited as of the date of such Sale of the Company, and that any of
your Options that were vested and exercisable prior to or in connection with
such Sale of the Company shall expire and be forfeited if not repurchased or
exercised prior to or contemporaneously with such Sale of the Company.
5. Procedure for Exercise. You may exercise all or any portion of
----------------------
your Options, to the extent they have vested and are outstanding, at any time
and from time to time prior to their expiration, by delivering written notice to
the Company (to the attention of the Company's Secretary) and your written
acknowledgment that you have read and have been afforded an opportunity to ask
questions of management of the Company regarding all financial and other
information provided to you regarding the Company, together with payment of the
Option Price in accordance with the provisions of paragraph 2(b) above. As a
condition to any exercise of your Options, you shall permit the Company to
deliver to you all financial and other information regarding the Company it
believes necessary to enable you to make an informed investment decision, and
you shall make all customary investment representations which the Company
requires.
6. Securities Laws Restrictions and Other Restrictions on Transfer
---------------------------------------------------------------
of Option Shares. You represent that when you exercise any of your Options you
- ----------------
shall be purchasing Option Shares for your own account and not on behalf of
others. You understand and acknowledge that federal and state securities laws
govern and restrict your right to offer, sell or otherwise dispose of any Option
Shares unless your offer, sale or other disposition thereof is registered under
the Securities Act and state securities laws, or in the opinion of the Company's
counsel, such offer, sale or other disposition is exempt from registration or
qualification thereunder. You agree that you shall not offer, sell or otherwise
dispose of any Option Shares in any manner which would: (i) require the Company
to file any registration statement with the Securities and Exchange Commission
(or any similar filing under state law) or to amend or supplement any such
filing or (ii) violate or cause the Company to violate the Securities Act, the
rules and regulations promulgated thereunder or any other state or federal law.
You further understand that the certificates for any Option Shares you purchase
shall bear such legends as the Company deems necessary or desirable in
connection with the Securities Act or other rules, regulations or laws, and you
agree that at the time of such purchase you shall execute such documents
necessary for the Company to perfect exemptions from registration under federal
and state securities laws as the Company may reasonably request.
7. Non-Transferability of Options. Your Options are personal to you
------------------------------
and are not transferable by you other than by will or the laws of descent and
distribution. During your lifetime only you (or your guardian or legal
representative) may exercise your Options. In the event of your death, your
Options may be exercised only (i) by the executor or administrator of your
estate or the person or persons to whom your rights under the Options shall pass
by will or the laws of descent and distribution and (ii) to the extent that you
were entitled hereunder at the date of your death.
-5-
<PAGE>
8. Conformity with Plan. Your Options are intended to conform in all
--------------------
respects with, and are subject to all applicable provisions of, the Plan (which
is incorporated herein by reference). Inconsistencies between this Agreement and
the Plan shall be resolved in accordance with the terms of the Plan. By
executing and returning the enclosed copy of this Agreement, you acknowledge
your receipt of this Agreement and the Plan and agree to be bound by all of the
terms of this Agreement and the Plan.
9. Rights of Participants. Nothing in this Agreement shall
----------------------
interfere with or limit in any way the right of the Company to terminate your
employment at any time and for any reason, nor confer upon you any right to
continue in the employ of the Company for any period of time or to continue your
present (or any other) rate of compensation, and in the event of your
termination of employment at any time and for any reason, any portion of your
Options that were not previously vested and exercisable shall be forfeited.
Nothing in this Agreement shall confer upon you any right to be selected again
as a Plan participant, and nothing in the Plan or this Agreement shall provide
for any adjustment to the number of Option Shares subject to your Options upon
the occurrence of subsequent events except as provided in paragraph 11 below.
10. Withholding of Taxes. The Company shall be entitled, if
--------------------
necessary or desirable, to withhold from you from any amounts due and payable by
the Company to you (or secure payment from you in lieu of withholding) the
amount of any withholding or other tax due from the Company with respect to any
Option Shares issuable under this Agreement, and the Company may defer such
issuance unless indemnified by you to its satisfaction.
11. Adjustments. In the event of a reorganization, recapitalization,
-----------
stock dividend or stock split, or combination or other change in the shares of
Common Stock, the Board may, in order to prevent the dilution or enlargement of
rights under your Option, make such adjustments in the number and type of shares
authorized by the Plan, the number and type of shares covered by your Options
and the Exercise Price specified herein as may be determined to be appropriate
and equitable. The issuance by the Company of shares of stock of any class, or
options or securities exercisable or convertible into shares of stock of any
class, for cash or property, or for labor or services either upon direct sale,
or upon the exercise of rights or warrants to subscribe therefor, or upon
exercise or conversion of other securities, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock then subject to any Options.
12. Right to Purchase Option Shares upon Termination or a Sale of the
-----------------------------------------------------------------
Company.
- -------
(a) Repurchase of Option Shares. If your employment with the Company
---------------------------
shall terminate at any time for any reason (the date on which such termination
occurs being referred to as the "Termination Date"), or in the event of a Sale
----------------
of the Company (the date of the consummation of such Sale of the Company being
referred to as the "Sale Date") then the Company (or its assignee pursuant to
---------
paragraph 12(c) below) shall have the option to repurchase all or any portion of
your Option Shares issued or issuable upon exercise of your Options,
-6-
<PAGE>
whether held by you or by one or more of your transferees, at the price
determined in accordance with the provisions of paragraph 13 hereof (the
"Repurchase Option").
-----------------
(b) Repurchase by Company. The Company may elect to purchase all or
---------------------
any portion of the Option Shares by delivery of written notice (the "Repurchase
----------
Notice") to you or any other holders of the Option Shares within the 20 days
- ------
ending on, or within the 120 days after, the Termination Date or the Sale Date
(as applicable). The Repurchase Notice shall set forth the number of Option
Shares to be acquired from you and such other holder(s), the aggregate
consideration to be paid for such shares and the time and place for the closing
of the transaction. The number of Option Shares to be repurchased by the
Company shall first be satisfied to the extent possible from the Option Shares
held by you at the time of delivery of the Repurchase Notice. If the number of
Option Shares then held by you is less than the total number of Option Shares
the Company has elected to purchase, then the Company shall purchase the
remaining shares elected to be purchased from the other holders thereof, pro
rata according to the number of shares held by each such holder at the time of
delivery of such Repurchase Notice (determined as close as practical to the
nearest whole shares).
(c) Assignment of Company's Repurchase Option. The Company, by action
-----------------------------------------
of the Board, will have the right to assign all or any portion of its repurchase
rights hereunder to any holder of Class A Common (any "Other Stockholder") or
-----------------
any executive employee of the Company or any of its subsidiaries.
Notwithstanding the foregoing sentence, the Company may not assign its right
under paragraph 13(b) to pay a portion of the repurchase price for your Option
Shares repurchased hereunder in the form of a promissory note or to offset such
repurchase price against obligations or indebtedness owed by you to the Company.
(d) Closing of Repurchase of Option Shares. The purchase of Option
--------------------------------------
Shares pursuant to this paragraph 12 shall be closed at the Company's executive
offices at least 20 days after the giving of the Repurchase Notice, but in no
event more than 20 days after the expiration of the 140-day period referred to
in paragraph 12(b). At the closing, the purchaser or purchasers shall pay the
purchase price in the manner specified in paragraph 13(b) and you and any other
holders of Option Shares being purchased shall deliver the certificate or
certificates representing such shares to the purchaser or purchasers or their
nominees, accompanied by duly executed stock powers. (If any Option Shares
issuable upon exercise of your Options are repurchased hereunder, such Options
- --------
shall be deemed to be exercised simultaneously with such repurchase.) Any
purchaser of Option Shares under this paragraph 12 shall be entitled to receive
customary representations and warranties from you and any other selling holders
of Option Shares regarding the sale of such shares (including representations
and warranties regarding good title to such shares, free and clear of any liens
or encumbrances) and to require all sellers' signatures to be guaranteed by a
national bank or reputable securities broker.
13. Purchase Price for Option Shares.
--------------------------------
(a) Purchase Price. The purchase price per share to be paid for the
--------------
Option Shares purchased by the Company and the Other Stockholders pursuant to
paragraph 12 shall be
-7-
<PAGE>
equal to (i) in the case of Option Shares issued upon exercise of your Options
prior to such repurchase, the Fair Market Value of such Option Shares as of the
Termination Date, or (ii) in the case of Option Shares issuable upon exercise of
your Options (which Options shall be deemed exercised simultaneously with such
repurchase), the Fair Market Value of such Option Shares minus the Option Price
-----
for such Option Shares.
(b) Manner of Payment. If the Company elects to purchase all or any
-----------------
part of the Option Shares, including Option Shares held by one or more
transferees, the Company shall pay for such shares by delivery of a cashier's or
certified check or wire transfer of immediately available funds in an amount
equal to the purchase price of the Option Shares to be repurchased; provided
--------
that in the event the Board determines in its good faith discretion that the
Company is not in a position to pay in immediately available funds any or all of
such repurchase price, the Company may pay for a portion of the repurchase price
for such Option Shares (which portion shall in no event exceed the Fair Market
Value of such Option Shares minus the Option Price (at the time such Option
-----
Shares were issued upon exercise of Options) for such Option Shares) in the form
of a subordinated promissory note of the Company. Such subordinated promissory
note shall bear interest at the rate paid on the Company's senior debt
obligations (or if the Company has no such senior debt, at the prime rate
announced or published by Citibank, N.A. from time to time), shall have all
principal and accrued interest due and payable on the fifth anniversary of the
date of issuance and shall be subordinated on terms and conditions satisfactory
to the holders of the Company's indebtedness for borrowed money. In addition,
the Company may pay the purchase price for such shares by offsetting amounts
outstanding under any indebtedness or obligations owed by you to the Company.
If the Company assigns any part of its Repurchase Option, each such assignee
shall pay for that portion of such Option Shares with a cashier's or certified
check or wire transfer of immediately available funds in an amount equal to the
repurchase price for such Option Shares to be repurchased by such assignee.
14. Restrictions on Transfer.
------------------------
(a) Transfer of Option Shares. You shall not sell, pledge or
-------------------------
otherwise transfer any interest in any Option Shares (a "Transfer") except
--------
pursuant to the provisions of paragraphs 14(d), 12 or 16 hereof ("Exempt
------
Transfers"), or (but only after the consummation of a Public Offering) except
- ---------
pursuant to the provisions of this paragraph 14. At least 60 days prior to
making any Transfer other than an Exempt Transfer, you shall deliver a written
notice (the "Sale Notice") to the Company and the Other Stockholders, specifying
-----------
in reasonable detail the identity of the prospective transferee(s), the number
of shares to be transferred and the terms and conditions of the Transfer.
(b) First Refusal.
-------------
(i) The Company shall notify you and the Other Stockholders in
writing, within 20 days after its receipt of the Sale Notice, whether it
desires to purchase any of the shares offered for sale in the Sale Notice
(the "Offered Shares") and, if so, how many Offered Shares it desires to
--------------
purchase (the "Company Notice"). Subject to
--------------
-8-
<PAGE>
subparagraph 14(b)(vii) below, the Company shall have the right to purchase
all the Offered Shares which it elects to purchase in the Company Notice,
at the price and on the other terms (subject to subparagraph 14(b)(iii)
below) set forth in the Sale Notice. If the Company elects to purchase all
of the Offered Shares, the Company Notice shall also set forth the time and
place of the closing of such purchase (the "Closing"), which shall occur
-------
not more than 90 days after the Company's receipt of the Sale Notice.
(ii) Each Other Stockholder shall have the right to purchase its
pro rata portion (based upon the number of shares of Class A Common held by
each Other Stockholder electing to purchase any of the Offered Shares) of
the Offered Shares not purchased by the Company under subparagraph 14(b)(i)
above or by Other Stockholders under this subparagraph 14(b)(ii), at the
price and on the other terms (subject to subparagraph 14(b)(iii) below) set
forth in the Sale Notice, by so notifying the Company in writing 10 days
after receipt of the Company Notice (each, a "Stockholder Notice"). Each
------------------
Stockholder Notice shall specify the maximum number of shares which the
Other Stockholder sending such Stockholder Notice desires to purchase.
(iii) Notwithstanding any other provision hereof, in the event
that the sale price, or any portion thereof, for the Offered Shares
described in the Sale Notice is not payable in the form of cash or simple
promissory notes issued by the prospective purchaser described therein, the
Company and any Other Stockholders electing to purchase Offered Shares
pursuant to subparagraphs 14(b)(i) or (ii) above shall be required to pay
only such portion, if any, of the sale price described in the Sale Notice
as consists of cash and simple promissory notes (the latter to be issued by
the Company or the Other Stockholder purchasing such shares, as
applicable), and delivery of such consideration to you shall be payment in
full for the Offered Shares.
(iv) If the Company does not elect to purchase all of the
Offered Shares, it shall notify all Other Stockholders in writing within 35
days after the Company's receipt of the Sale Notice whether the Company and
the Other Stockholders have elected, in the aggregate, to purchase all of
the Offered Shares (the "Second Company Notice").
---------------------
(v) If the Company and the other Stockholders have elected
pursuant to subparagraph 14(b)(i) or (ii) above, in the aggregate, to
purchase all Offered Shares, the Second Company Notice shall set forth the
number of Offered Shares to be purchased by the Company and by each Other
Stockholder that elected to purchase Offered Shares and the time and place
of the Closing, which shall occur not less than 60 nor more than 90 days
after the Company's receipt of the Sale Notice.
(vi) At the Closing, the Company (if it elected to purchase any
Offered Shares) and each Other Stockholder electing to purchase Offered
Shares (if the Company did not elect to purchase all Offered Shares) shall
deliver to you the cash and, if applicable, the promissory notes
constituting the purchase price for the Offered Shares to be purchased by
such purchaser, and the you will deliver to the Company and/or each
-9-
<PAGE>
purchasing Other Stockholder the certificate(s) representing the Offered
Shares being purchased by such purchaser.
(vii) If the Company and all Other Stockholders do not elect, in
the aggregate, to purchase all Offered Shares pursuant to subparagraphs
14(b)(i) and (ii) above, all elections pursuant to subparagraphs 14(b)(i)
or (ii) to purchase Offered Shares shall be null and void (which fact shall
be stated in the Second Company Notice), and you shall have the right,
subject to paragraph 14(c) below, to Transfer the Offered Shares to the
transferee described in the Sale Notice at the price and on the other terms
described therein, within 90 days after the date of the Sale Notice. If
after such 90-day period, the Offered Shares which you are entitled to
transfer pursuant to this subparagraph (vii) have not been so transferred,
they shall thereafter again be subject to this paragraph 14(b).
(c) Participation Rights.
--------------------
(i) Any Other Stockholder not electing to purchase any Offered
Shares pursuant to subparagraph 14(b)(ii) above may elect to participate in
any sale of Offered Shares pursuant to subparagraph 14(b)(vii) above (and
only in a sale pursuant to such subparagraph) by so stating in the
Stockholder Notice.
(ii) If any Other Stockholders have elected to participate in
such Transfer, you and such electing Other Stockholders shall each be
entitled to sell in the contemplated Transfer, at the same price and on the
same terms, a number of shares of Class A Common equal to the product of
(x) the quotient determined by dividing the number of shares of Class A
Common owned by such Person by the number of shares of Class A Common owned
by all Stockholders participating in such Transfer (including you) and (y)
the number of Offered Shares specified in the Sale Notice.
(iii) You will use best efforts to obtain the agreement of the
prospective transferee(s) to the participation of the participating Other
Stockholder(s) in any contemplated Transfer, and you will not transfer any
of the Offered Shares to any prospective transferee unless (x) such
prospective transferee agrees to the participation of the participating
Other Stockholder(s) in such Transfer, or (y) you purchase from each
participating Other Stockholder the same number of shares (at the same
price and on the same terms) that such participating Other Stockholder
would have been entitled to sell had the prospective transferee so agreed.
(iv) Each Other Stockholder transferring shares pursuant to this
paragraph 14(c) shall pay its pro rata share (based on the number of shares
of Class A Common to be transferred by such Stockholder) of the expenses
incurred by you and the Other Stockholders in connection with such transfer
and shall be obligated to join on a pro rata basis (based on the number of
shares of Class A Common Stock to be sold) in any indemnification or other
obligations that you agree to provide in connection with such transfer
(other than any such obligations that relate specifically to a particular
stockholder
-10-
<PAGE>
such as indemnification with respect to representations and warranties
given by a stockholder regarding such stockholder's title to and ownership
of shares); provided that no holder shall be obligated in connection with
--------
such Transfer to agree to indemnify or hold harmless the transferee(s) with
respect to an amount in excess of the net cash proceeds paid to such holder
in connection with such Transfer.
(d) Certain Permitted Transfers. The restrictions contained in this
---------------------------
paragraph 14 shall not apply with respect to transfers of Option Shares (i)
pursuant to applicable laws of descent and distribution or (ii) among your
family group; provided that the restrictions contained in this paragraph shall
continue to be applicable to the Option Shares after any such transfer and the
transferees of such Option Shares shall agree in writing to be bound by the
provisions of this Agreement. Your "family group" means your spouse and
descendants, or any trust solely for the benefit of you, your spouse, or your
descendants.
(e) Termination of Restrictions. The restrictions on the transfer of
---------------------------
Option Shares set forth in this paragraph 14 shall continue with respect to each
Option Share until the date on which such Option Share has been transferred in a
transaction permitted by this paragraph (including Exempt Transactions but
excluding a transaction contemplated by paragraph 14(d)).
15. Additional Restrictions on Transfer.
-----------------------------------
(a) Restrictive Legend. The certificates representing the Option
------------------
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
________ __, ____, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
OPTION AGREEMENT BETWEEN THE COMPANY AND ONE OF ITS EMPLOYEES, DATED AS OF
[_______________, ______], A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) Opinion of Counsel. You may not sell, transfer or dispose of any
------------------
Option Shares (except pursuant to an effective registration statement under the
Securities Act) without first delivering to the Company an opinion of counsel
reasonably acceptable in form and substance to the Company that registration
under the Securities Act or any applicable state securities law is not required
in connection with such transfer.
-11-
<PAGE>
(c) Holdback. You agree not to effect any public sale or distribution
--------
of any equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 180 days after the effectiveness of any underwritten Demand Registration
or any underwritten Piggyback Registration (as such terms are defined in the
Registration Agreement), except as part of such underwritten registration if
otherwise permitted.
16. Sale of the Company.
-------------------
(a) Consent to Sale of Company. If a Sale of the Company is approved
--------------------------
by the Company and the holders of at least 67% of the Institutional Investor
Stock (as that term is defined in the stock purchase agreement dated as of
November 27, 1996, by and among the Company and certain investors (as amended
from time to time according to its terms, the "Stock Purchase Agreement")) then
------------------------
outstanding (the "Approved Sale"), you shall consent to and raise no objections
-------------
against the Approved Sale of the Company, and if the Approved Sale of the
Company is structured as a sale of stock, you shall agree to sell all of your
Option Shares and rights to acquire Option Shares on the terms and conditions
approved by the Board and the holders of at least 67% of the Institutional
Investor Stock then outstanding. You shall take all necessary and desirable
actions in connection with the consummation of the Approved Sale of the Company.
(b) Purchaser Representative. If the Company or the holders of the
------------------------
Company's securities enter into any negotiation or transaction for which Rule
506 (or any similar rule then in effect) promulgated by the Securities Exchange
Commission may be available with respect to such negotiation or transaction
(including a merger, consolidation or other reorganization), you shall, at the
request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company. If you appoint the
purchaser representative designated by the Company, the Company shall pay the
fees of such purchaser representative, but if you decline to appoint the
purchaser representative designated by the Company you shall appoint another
purchaser representative (reasonably acceptable to the Company), and you shall
be responsible for the fees of the purchaser representative so appointed.
(c) Termination of Restrictions. The provisions of this paragraph 16
---------------------------
shall terminate upon the consummation of a Sale of the Company.
17. Remedies. The parties hereto (and the Other Stockholders as
--------
third-party beneficiaries) shall be entitled to enforce their rights under this
Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in their
favor. The parties hereto acknowledge and agree that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party hereto (and any Other Stockholders as a third-party beneficiary) may,
in its sole discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
-12-
<PAGE>
18. Amendment. Except as otherwise provided herein, any provision of
---------
this Agreement may be amended or waived only with the prior written consent of
the Company and a majority (based on the number of Option Shares held) of the
Participants (as defined in the Plan) negatively affected by a similar amendment
made to their Option Agreement; provided that no provision of paragraph 12, 13,
14, 15, 16, 17, or 18 may be amended or waived, if such amendment or waiver
would have a detrimental effect on the Other Stockholders, without the prior
written consent of the holders of at least 67% of the Institutional Investor
Stock then outstanding.
19. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto whether so
expressed or not.
20. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts (including by facsimile), each of which shall
constitute an original, but all of which taken together shall constitute one and
the same Agreement.
22. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
23. Governing Law. The corporate law of Delaware shall govern all
-------------
questions concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity and interpretation of
this Agreement shall be governed by the internal law, and not the law of
conflicts, of Illinois.
24. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally,
one business day after being sent by reputable overnight courier (charges
prepaid) or four business days after being mailed by certified or registered
mail (postage prepaid and return receipt requested), to the recipient. Such
notices, demands and other communications shall be sent to you and to the
Company and to the Original Stockholders at the addresses indicated below:
-13-
<PAGE>
(a) If to the Optionee:
2420 Brockton Circle
Naperville, IL 60565
(b) If to the Company:
Focal Communications Corporation
200 North LaSalle Street
Chicago, Illinois 60601
Attention: President
(c) If to the Other Stockholders, at the address listed in the
Company's records,
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
25. Third-Party Beneficiary. The Company and you acknowledge that
-----------------------
the Other Stockholders are third-party beneficiaries under this Agreement.
26. Entire Agreement. This Agreement constitutes the entire
----------------
understanding between you and the Company, and supersedes all other agreements,
whether written or oral, with respect to the acquisition by you of Common Stock
of the Company.
* * * *
-14-
<PAGE>
Please execute the extra copy of this Agreement in the space below
and return it to the Company's Secretary at its executive offices to confirm
your understanding and acceptance of the agreements contained in this Agreement.
Very truly yours,
FOCAL COMMUNICATIONS CORPORATION
By _____________________________________
Its President and Chief Executive Officer
Enclosures: 1. Extra copy of this Agreement
2. Copy of the Plan
The undersigned hereby acknowledges having read this Agreement and
the Plan and hereby agrees to be bound by all provisions set forth herein and in
the Plan.
Dated as of: _____________, ________
OPTIONEE
_______________________________
-15-
<PAGE>
Exhibit 10.16
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Executive Employment Agreement is made as of this 20th day of March,
1998, by and between Focal Communications Corporation, a Delaware corporation
(the "Company") and Renee M. Martin, whose address is 398 Whispering Pines Ct.,
Barrington, IL (the "Executive").
WHEREAS, the Company and the Executive wish to enter into an agreement for
employment which shall provide certain terms of employment. The parties
acknowledge that all terms of employment may not be contained in this Agreement,
but that as to other conflicting terms of employment, which may be initiated
from time to time by the Company, the terms contained herein, or as amended from
time to time by the parties hereto, shall control.
NOW THEREFORE, in accordance with the premise above, the parties agree as
follows:
1. Terms of Executive's Employment.
-------------------------------
(a) Employment. The Company hereby employs Executive, and Executive hereby
----------
accepts employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
The Company shall have the right to terminate the Executive's employment for any
reason, at any time, with or without Cause (defined below). Executive shall have
the right to terminate his employment for any reason, at any time, upon giving
the Company written notice two weeks prior to such termination.
(b) Duties and Responsibilities.
---------------------------
(i) Initially, the Executive shall serve as Senior Vice President and
General Counsel of the Company, and so long as Executive is employed by the
Company or any of its Subsidiaries, the Executive shall serve in such position
as may be determined by the Board of Directors ("Board") and shall perform all
duties and accept all responsibilities incident to such position or as may be
assigned to him by the Board, and shall at all times comply with the policies
and procedures adopted by the Company for its employees.
(ii) The Executive represents and covenants to the Company that he is
not subject or a party to any employment agreement, non-competition agreement,
nondisclosure agreement or any similar agreement, covenant or restriction that
would prohibit the Executive from executing this Agreement and performing his
duties and responsibilities assigned by the Company.
<PAGE>
(c) Extent of Service. So long as Executive is employed by the Company or
-----------------
any of its Subsidiaries, the Executive agrees to use his best efforts to carry
out his duties and responsibilities under paragraph 1(b) hereof and to devote
his full professional time and attention thereto.
(d) Base Compensation. For all the services rendered by the Executive
-----------------
hereunder, the Company shall, commencing on the agreed upon start date of March
31, 1998 and continuing so long as Executive is employed by the Company or any
of its Subsidiaries, pay the Executive an annual salary at the rate of $127,000
per year, plus any additional amounts, if any, as may be approved by a majority
of the Board, less withholding required by law or agreed to by the Executive,
and payable in installments at such times as is customary with the Company but
in any event no less frequently than monthly. The Company agrees that the
Executive's salary will be reviewed annually by the Board to determine if any
adjustment is appropriate. For purposes of paragraph 1(f) and Section 3 herein,
Executive's annual salary shall not be less than $120,000. So long as Executive
is employed by the Company or any of its Subsidiaries, the Executive shall also
be entitled to participate in such vacation pay and any other fringe benefit
plans as may from time to time be adopted by a majority of the Board.
(e) Incentive Compensation. In addition to the compensation set forth
----------------------
in paragraph 1(d) above, so long as the Executive is employed by the Company or
its Subsidiaries the Executive shall be entitled to participate in a
discretionary annual bonus plan providing for the payment to Executive of an
annual bonus, in an amount to be determined by a majority of the Board or
another officer of the Company as the Board determines. The annual bonus is
discretionary in nature and is determined in the exclusive discretion of the
Board or other officer so designated by the Board. The Company may adopt from
time to time a bonus program, in which the Executive shall participate, the
terms of which require the Company to achieve certain performance goals which
are set in advance each year in the sole discretion of the Board.
(f) Severance Pay. If at any time after the date hereof Executive ceases
-------------
to be employed by the Company and its Subsidiaries ("Termination") for death or
disability or by the Company for any reason other than Cause, Executive (or, in
the case of death, Executive's estate) shall, until the end of the Severance Pay
Period (as defined below), be entitled to receive a salary at the same rate of
pay as, and on the same schedule and terms as was customary for, the salary
Executive received under paragraph 1(d) above immediately prior to the
Termination, as well as (except in the case of Executive's death) comparable
medical benefits to those provided by the Company to Executive immediately prior
to the Termination (such salary and benefits collectively, the "Severance Pay");
-------------
provided that if at any time during the Severance Pay Period Executive obtains
- --------
other employment, Executive's Severance Pay shall during the period of such
employment be reduced (but not below zero) by the amount of salary and benefits
Executive receives as compensation for such employment. The payment of such
Severance Pay shall in no way be construed as a continuation of Executive's
2
<PAGE>
employment after the Termination. The "Severance Pay Period" shall be equal to
--------------------
(i) if Executive is terminated by the Company for any reason other than Cause,
the longer of (A) the period between Termination and the 12-month anniversary of
the start date of employment of Executive, and (B) the 6-month period commencing
on the date of Termination, or (ii) if Executive's employment is terminated due
to death or Disability, the 6-month period commencing on the date of
Termination. If Executive resigns or is terminated by the Company for Cause, the
Company shall not be obligated to pay any Severance Pay.
(g) Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
(i) Nondisclosure Obligation. Executive shall not disclose or use at any
------------------------
time, either during his employment with the Company or thereafter, any
Confidential Information (as defined below) of which Executive is or becomes
aware, whether or not such information is developed by him, except to the extent
that such disclosure or use is directly related to and required by Executive's
performance of duties assigned to Executive by the Company. Executive shall
take all appropriate steps to safeguard Confidential Information and to protect
it against disclosure, misuse, espionage, loss and theft.
(ii) Confidential Information. As used in this Agreement, the term
------------------------
"Confidential Information" means information that is not generally known to the
------------------------
public and that is used, developed or obtained by the Company in connection with
its business, including but not limited to (i) products or services, (ii) fees,
costs and pricing structures, (iii) designs, (iv) analysis, (v) drawings,
photographs and reports, (vi) computer software, including operating systems,
applications and program listings, (vii) flow charts, manuals and documentation,
(viii) data bases, (ix) accounting and business methods, (x) inventions,
devices, new developments, methods and processes, whether patentable or
unpatentable and whether or not reduced to practice, (xi) customers and clients
and customer or client lists, (xii) copyrightable works, (xiv) all technology
and trade secrets, (xv) business plans and financial models, and (xvi) all
similar and related information in whatever form. Confidential Information shall
not include any information that has been published in a form generally
available to the public prior to the date Executive proposes to disclose or use
such information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately published,
but only if all material features constituting such information have been
published in combination.
(h) Cause. Cause means a finding by 2/3 of the Board members then serving,
-----
after Executive has been given the opportunity for a formal hearing, of (A)
Executive's theft or embezzlement, or attempted theft or embezzlement, of money
or property of the Company, Executive's perpetration or attempted perpetration
of fraud, or Executive's participation in a fraud or attempted fraud, on the
Company, or Executive's unauthorized appropriation of , or attempt to
misappropriate, any tangible or intangible
3
<PAGE>
assets or property of the Company, (B) any act or acts of disloyalty, misconduct
or moral turpitude by Executive injurious to the interest, property, operations,
business or reputation of the Company or Executive's conviction of a crime the
commission of which results in injury to the Company or (C) Executive's repeated
refusal or failure (other than by reason of disability) to carry out reasonable
instructions by his superiors or the Board.
2. The Company's Ownership of Intellectual Property.
------------------------------------------------
(a) Acknowledgement of Company Ownership. In the event that Executive as
------------------------------------
part of his activities on behalf of the Company generates, authors or
contributes to any invention, design, new development, device, product, method
or process (whether or not patentable or reduced to practice or constituting
Confidential Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information relating
directly or indirectly to the Company's business as now or hereinafter conducted
(collectively, "Intellectual Property"), Executive acknowledges that such
---------------------
Intellectual Property is the exclusive property of the Company and hereby
assigns all right, title and interest in and to such Intellectual Property to
the Company. Any copyrightable work prepared in whole or in part by Executive
will be deemed "a work made for hire" under Section 201(b) of the 1976 Copyright
Act, and the Company shall own all of the rights comprised by the copyright
therein. Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate with the Company to protect the Company's
interests in and rights to such Intellectual property (including, without
limitation, providing reasonable assistance in securing patent protection and
copyright registrations and executing all documents as reasonably requested by
the Company, whether such requests occur prior to or after Termination of
Executive's employment with the Company).
(b) Executive Invention. Executive understands that paragraph 2 of this
-------------------
Agreement regarding the Company's ownership of Intellectual Property does not
apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company were used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business of the
Company or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by Executive
for the Company.
(c) Delivery of Materials upon Termination of Employment. As requested
----------------------------------------------------
by the Company from time to time and upon the Termination of Executive's
employment with the Company for any reason, Executive shall promptly deliver to
the Company all copies and embodiments, in whatever form, of all Confidential
Information and Intellectual Property in Executive's possession or within his
control (including, but not limited to, written records, notes, photographs,
manuals, notebooks, documentation, program listings, flow charts, magnetic
media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of
4
<PAGE>
the location or form of such material and, if requested by the Company shall
provide the Company with written confirmation that all such materials have been
delivered to the Company.
3. Noncompetition and Nonsolicitation.
----------------------------------
(a) Noncompetition. Executive acknowledges and agrees with the Company
--------------
that Executive's services to the Company are unique in nature and that the
Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing with the Company or engaged in a
similar business. For and in consideration of the terms contained herein
Executive covenants and agrees with the Company that during the Noncompetition
Period (as defined below), Executive shall not, directly or indirectly, either
for himself or for any other individual, corporation, partnership, joint venture
or other entity, participate in any business division, group or franchise (or if
there are no divisions, any business) where such division, group or franchise
(or business, if applicable) engages or proposes to engage in any business
conducted by the Company or proposed to be conducted pursuant to a Board
resolution or Subsequent Business Plan (including, but not limited to, the sale
or distribution of local switched dial tone telecommunication services) in any
metropolitan statistical area ("MSA") in which the Company conducts such
business or proposes to conduct such business pursuant to a Board resolution or
Subsequent Business Plan. For purposes of this Agreement, the term "participate
in" shall include, without limitation, having any direct or indirect interest in
any corporation, partnership, joint venture or other entity, whether as a sole
proprietor, owner, stockholder, partner, joint venturer, creditor or otherwise,
or rendering any direct or indirect service or assistance to any individual,
corporation, partnership, joint venture and other business entity (whether as a
director, officer, manager, supervisor, employee, agent, consultant or
otherwise), other than ownership of up to 2% of the outstanding stock of any
class which is publicly traded.
(b) Nonsolicitation. During the Noncompetition Period, Executive shall
---------------
not (i) induce or attempt to induce any employee of the Company to leave the
employ of the Company, or in any way interfere with the relationship between the
Company and any employee thereof, (ii) hire directly or through another entity
any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
(c) Noncompetition Period. The "Noncompetition Period" shall commence
--------------------- ---------------------
on the date hereof and continue (i) if Executive is terminated by the Company
with or without Cause, until such date as shall be specified by the Company in
writing within the 14 days after Termination, provided that such date shall not
--------
be later
5
<PAGE>
than the first anniversary of the Termination, or (ii) otherwise, until such
date as shall be specified by the Company in writing within the 30 days after
Termination, provided that such date shall not be later than the 18-month
--------
anniversary of the Termination. After the end of the Severance Pay Period (or if
there is no Severance Pay, the date upon which the Company elects the duration
of the Noncompetition Period), the Company shall until the end of the
Noncompetition Period pay Executive his Noncompete Compensation (unless
Executive breaches his obligations under this paragraph 3, it being understood
that in such case Executive shall continue to be bound by such obligations as if
the Company were continuing to pay Noncompete Compensation). If there is no
Severance Pay, the Company shall during the period from Termination until such
time as the Company elects the duration of the Noncompetition Period (the
"Interim Period"), pay Executive his Interim Compensation (unless Executive
--------------
breaches his obligations under this paragraph 3, it being understood that in
such case Executive shall continue to be bound by such obligations as if the
Company were continuing to pay Interim Compensation). "Noncompete Compensation"
-----------------------
shall consist of 50% of the salary that Executive received under paragraph 1(d)
above as compensation from the Company and its Subsidiaries immediately prior to
termination (Executive's "Previous Salary") together with the continuation of
---------------
the medical benefits that the Company provided to Executive immediately prior to
Termination (Executive's "Previous Benefits"); provided that if at any time
----------------- --------
during the Noncompetition Period Executive obtains other employment (i) with
comparable medical benefits to Executive's Previous Benefits, Executive's
Noncompete Compensation shall during the period of such employment not include
the continued provision of medical benefits, and (ii) with a salary exceeding
50% of Executive's Previous Salary, Executive's Noncompete Compensation shall
during the period of such employment be reduced (but not below zero) by the
amount of such excess. "Interim Compensation " shall consist of 100% of
--------------------
Executive's Previous Salary and Previous Benefits, provided that if at any time
--------
during the Interim Period Executive obtains other employment, Executive's
Interim Compensation shall during the period of such employment be reduced (but
not less than zero) by the amount of salary and benefits received as
compensation for such other employment.
4. Notices. Any notice provided for in this Agreement must be in writing and
-------
must be either personally delivered, mailed by first class mail (postage prepaid
and return receipt requested) or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address below indicated:
To the Company: Focal Communications Corporation
300 W. Washington Blvd., Suite 1408
Chicago, Illinois 60606
Attention: President
with a copy to: Bischoff, Kenney, and Niehaus
3630 North Main Street
Sylvania, Ohio 43360
6
<PAGE>
Attention: Charles Niehaus
To Executive: Renee Martin
398 Whispering Pines Ct.
Barrington, IL 60010
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement shall be deemed to have been given when
personally delivered, one business day after being sent by reputable overnight
courier service, or three business days after being deposited in the U.S. mail.
5. General Provisions.
------------------
(a) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(c) Counterparts. This Agreement may be executed in separate counterparts,
------------
none of which need contain the signature of more than one party hereto but each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(d) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns.
(e) Choice of Law. All questions concerning the construction, validity,
-------------
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the laws of the State of Illinois.
7
<PAGE>
(f) Remedies. Each of the parties to this Agreement (including the
--------
Investors shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and cost (including reasonable attorney's fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that, money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(g) Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
and waived only with the prior written consent of the Company and Executive.
(h) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois, the time period shall be automatically extended to the
business day immediately following such Saturday, Sunday or holiday.
* * * * * * * * * * *
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
FOCAL COMMUNICATIONS CORPORATION
By: /s/Robert C. Taylor, Jr.
-----------------------------------
Its: President
------------
EXECUTIVE: /s/ Renee Martin
-------------------
9
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
------------------------------
Name of Subsidiary State of Incorporation
------------------ ----------------------
1) Focal Communications Corporation of Illinois Delaware
2) Focal Communications Corporation of New York Delaware
3) Focal Communications Corporation of the Mid Atlantic Delaware
4) Focal Communications Corporation of California Delaware
5) Focal Communications Corporation of New Jersey Delaware
6) Focal Communications Corporation of Massachusetts Delaware
7) Focal Communications Corporation of Pennsylvania Delaware
8) Focal Communications Corporation of Washington Delaware
9) Focal Communications Corporation of Florida Delaware
10) Focal Communications Corporation of Michigan Delaware
11) Focal Telecommunications Corporation Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion
in this registration statement on Form S-4 of our report dated January 14, 1998
(except with respect to the matters discussed in Note 14, as to which the date
is February 18, 1998) and our report dated January 23, 1998 on the pro forma
adjustment, on our audit of the consolidated financial statements of Focal
Communications Corporation and Subsidiaries and to all references to our firm
included in this registration statement.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 1, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ___
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Carolyn Potter, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
312-461-2531 phone 312-461-3525 facsimile
(Name, address and telephone number for agent for service)
FOCAL COMMUNICATIONS CORPORATION
(Name of obligor)
Delaware 36-4167094
(State of Incorporation) (I.R.S. Employer Identification No.)
200 North La Salle Street Suite 820
Chicago, Illinois 60601
(Address of principal executive offices)
12.125% Senior Discount Notes due February 15, 2008
(Title of indenture securities)
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System,Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee is now in effect
which includes the authority of the trustee to commence business and
to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in
effect and includes the authority of the Trustee to commence business
and to exercise corporate trust powers was filed in connection with
the Registration Statement of Louisville Gas and Electric Company,
File No. 2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation,
File No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
1
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 20th day of March, 1998.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
-----------------
J. Bartolini
Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
-----------------
J. Bartolini
Vice President
2
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of December 31, 1997, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
[HARRIS BANK LOGO]
HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on December 31, 1997, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin.................... $ 1,252,381
Interest bearing balances.............................................. $ 598,062
Securities:.............................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 3,879,399
Federal funds sold and securities purchased under agreements to resell $ 71,725
Loans and lease financing receivables:
Loans and leases, net of unearned income............................... $ 8,813,821
LESS: Allowance for loan and lease losses............................. $ 99,678
----------------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b).................................................. $ 8,714,143
Assets held in trading accounts......................................... $ 136,538
Premises and fixed assets (including capitalized leases)................ $ 221,312
Other real estate owned................................................. $ 642
Investments in unconsolidated subsidiaries and associated companies..... $ 103
Customer's liability to this bank on acceptances outstanding............ $ 46,480
Intangible assets....................................................... $ 279,897
Other assets............................................................ $ 653,101
-------------
TOTAL ASSETS $15,853,783
=============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
Deposits:
<S> <C>
In domestic offices................................................................... $ 8,926,635
Non-interest bearing............................................................. $ 3,692,891
Interest bearing................................................................. $ 5,233,744
In foreign offices, Edge and Agreement subsidiaries, and IBF's........................ $ 1,763,669
Non-interest bearing............................................................. $ 22,211
Interest bearing................................................................. $ 1,741,458
Federal funds purchased and securities sold under agreements to repurchase in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's:
Federal funds purchased.& securites sold under agreements to repurchase............... $ 2,693,600
Trading Liabilities 82,861
Other borrowed money:...................................................................
a. With remaining maturity of one year or less $ 601,799
b. With remaining maturity of more than one year $ 0
Bank's liability on acceptances executed and outstanding $ 46,480
Subordinated notes and debentures....................................................... $ 325,000
Other liabilities....................................................................... $ 134,309
-------------
TOTAL LIABILITIES $14,574,353
=============
EQUITY CAPITAL
Common stock............................................................................ $ 100,000
Surplus................................................................................. $ 601,026
a. Undivided profits and capital reserves.............................................. $ 573,416
b. Net unrealized holding gains (losses) on available-for-sale securities $ 4,988
-------------
TOTAL EQUITY CAPITAL $ 1,279,430
=============
Total liabilities, limited-life preferred stock, and equity capital..................... $15,853,783
=============
</TABLE>
I, Pamela Piarowski, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
PAMELA PIAROWSKI
1/30/98
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD E. TERRY
Directors.
4
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE ITS 12.125% SENIOR DISCOUNT NOTES
DUE FEBRUARY 15, 2008 WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING
12.125% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2008, SERIES B
PURSUANT TO THE PROSPECTUS DATED , 1998
FOCAL COMMUNICATIONS CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
The Exchange Agent for the Exchange Offer is:
HARRIS TRUST AND SAVINGS BANK
By Facsimile: By Mail: By Overnight Courier or
By Hand:
(212) 701-7636 Harris Trust and Savings
Bank C/O
(212) 701-7637 Harris Trust and Savings
Confirm by Telephone to: Harris Trust Company of Bank
(212) 701-7624 New York Wall Street Plaza
Wall Street Station 88 Pine Street, 19th
P.O. Box 1010 Floor
New York, New York 10268- New York, New York 10005
1010 Attn: Reorganization
Attention: Reorganization Dept.
Dept.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Senior Notes (as
defined below) either if Senior Notes are to be forwarded herewith or if
tenders of Senior Notes are to be made by book-entry transfer to an account
maintained by Harris Trust and Savings Bank (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering Senior Notes" in the Prospectus.
Holders of Senior Notes whose certificates (the "Certificates") for such
Senior Notes are not immediately available or who cannot deliver their
Certificates, this Letter of Transmittal and all other required documents to
the Exchange Agent on or prior to the Expiration Date or who cannot complete
the procedures for book-entry transfer on a timely basis, may tender their
Senior Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering Senior Notes" in the Prospectus.
<PAGE>
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
List below the Senior Notes of which you are a holder. If the space provided
below is inadequate, list the certificate numbers and principal amount on a
separate signed schedule and attach that schedule to this Letter of
Transmittal. See Instruction 3.
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF SENIOR NOTES TENDERED
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES)
OF REGISTERED HOLDER
(FILL IN, IF BLANK) SENIOR NOTES TENDERED
- -----------------------------------------------------------
CERTIFICATE ADDITIONAL PRINCIPAL
NUMBER(S)* AMOUNT TENDERED**
(ATTACH (ATTACH (ATTACH
ADDITIONAL ADDITIONAL ADDITIONAL
LIST IF LIST IF LIST IF
NECESSARY) NECESSARY) NECESSARY)
--------------------------
<S> <C> <C> <C>
$ $
--------------------------
--------------------------
Total Amount Tendered: $ $
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
*Need not be completed by book-entry holders. Such holders should check the
appropriate box below and provide the requested information.
**Need not be completed if tendering for exchange all Senior Notes held.
Senior Notes may be tendered in whole or in part in integral multiples of
$1,000 stated principal amount at maturity. All Senior Notes held shall be
deemed tendered unless a lesser number is specified in this column. See
Instruction 4.
2
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY. SEE INSTRUCTION 1)
[_]CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
DTC Account Number: ________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Notice of Guaranteed Delivery: _____________________________________
Institution Which Guaranteed Delivery: _____________________________________
If Guaranteed Delivery is to be made by book-entry transfer:
Name of Tendering Institution: _____________________________________________
DTC Account Number: ________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED SENIOR NOTES FOR YOUR
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
----------------------------------------------------------------------
Telephone Number and Contact Person: _______________________________________
3
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Focal Communications Corporation, a
Delaware corporation (the "Company"), the above described principal amount of
the Company's 12.125% Senior Discount Notes due February 15, 2008 (the "Senior
Notes") in exchange for a like principal amount of the Company's 12.125%
Senior Discount Notes due February 15, 2008, Series B (the "Exchange Notes")
which have been registered under the Securities Act of 1933 (the "Securities
Act"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (as the same may be amended or supplemented from time
to time, the "Prospectus"), receipt of which is hereby acknowledged, and in
this Letter of Transmittal (which, together with the Prospectus, constitute
the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of the Senior
Notes tendered herewith, the undersigned hereby sells, assigns and transfers
to or upon the order of the Company all right, title and interest in and to
such Senior Notes as are being tendered herewith. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting
as agent of the Company in connection with the Exchange Offer and as Trustee
under the Indenture for the Senior Notes and the Exchange Notes) with respect
to the tendered Senior Notes, with full power of substitution (such power of
attorney being an irrevocable power coupled with an interest), subject only to
the right of withdrawal described in the Prospectus, to: (i) deliver such
Senior Notes to the Company together with all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company upon receipt
by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to be
issued in exchange for such Senior Notes; (ii) present Certificates for such
Senior Notes for transfer, and to transfer such Senior Notes on the account
books maintained by DTC; and (iii) receive for the account of the Company all
benefits and otherwise exercise all rights of beneficial ownership of such
Senior Notes, all in accordance with the terms and conditions of the Exchange
Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE SENIOR
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE
SENIOR NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES.
THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL
DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR
DESIRABLE TO COMPLETE THE EXCHANGE, SALE, ASSIGNMENT AND TRANSFER OF THE
SENIOR NOTES TENDERED HEREBY. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF
THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Senior Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Senior Notes. The
Certificate number(s) and the Senior Notes that the undersigned wishes to
tender should be indicated in the appropriate boxes above.
If any tendered Senior Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Senior Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Senior Notes will be returned (or, in the case of Senior Notes
tendered by book-entry transfer, such Senior Notes will be credited to an
account maintained at DTC), without expense to the tendering holder promptly
following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Senior Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering
Senior Notes" in the Prospectus and in the instructions herein will, upon the
Company's acceptance for exchange of such tendered Senior Notes, constitute a
binding
4
<PAGE>
agreement between the undersigned and the Company upon the terms and subject
to the conditions of the Exchange Offer. The undersigned recognizes that,
under certain circumstances set forth in the Prospectus, the Company may not
be required to accept for exchange any of the Senior Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Senior Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Senior Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Senior
Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver Exchange Notes to the undersigned at the address shown below
the undersigned's signature.
BY TENDERING SENIOR NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT: (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY (WITHIN THE MEANING OF RULE 405 UNDER THE
SECURITIES ACT), OR IF THE UNDERSIGNED IS AN AFFILIATE, THE UNDERSIGNED WILL
COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT TO THE EXTENT APPLICABLE; (II) ANY EXCHANGE NOTES TO BE
RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS
BUSINESS; AND (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH
ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE
SECURITIES ACT) OF EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IF THE
UNDERSIGNED IS NOT A BROKER-DEALER, BY TENDERING SENIOR NOTES AND EXECUTING
THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED REPRESENTS AND AGREES THAT IT IS
NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF EXCHANGE
NOTES. IF THE UNDERSIGNED IS A BROKER-DEALER, BY TENDERING SENIOR NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED REPRESENTS AND AGREES
THAT SUCH SENIOR NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT
AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT
WILL DELIVER A PROSPECTUS MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN
CONNECTION WITH ANY RESALE OF EXCHANGE NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT). THE COMPANY HAS AGREED THAT STARTING ON THE EXPIRATION DATE
AND ENDING ON THE CLOSE OF BUSINESS ON THE FIRST ANNIVERSARY OF THE EXPIRATION
DATE, IT WILL MAKE THE PROSPECTUS AVAILABLE TO ANY PARTICIPATING BROKER-DEALER
IN CONNECTION WITH ANY SUCH RESALE.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus and in the Instructions contained in this Letter of
Transmittal, this tender is irrevocable.
5
<PAGE>
PLEASE SIGN HERE PLEASE SIGN HERE
- ------------------------------------- -------------------------------------
Authorized Signature Authorized Signature
Name: _______________________________ Name: _______________________________
Title: ______________________________ Title: ______________________________
Address: ____________________________ Address: ____________________________
Telephone Number: ___________________ Telephone Number: ___________________
Dated: ______________________________ Dated: ______________________________
- ------------------------------------- -------------------------------------
Taxpayer Identification or Taxpayer Identification or
Social Security Number Social Security Number
(NOTE: Signature(s) must be guaranteed if required by Instructions 2 and 5.
This Letter of Transmittal must be signed by the registered holder(s) exactly
as the name(s) appear(s) on Certificate(s) for the Senior Notes hereby
tendered or on a security position listing, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith, including such opinions of counsel, certifications and other
information as may be required by the Company or the Trustee for the Senior
Notes to comply with the restrictions on transfer applicable to the Senior
Notes. If signature is by an attorney-in-fact, executor, administrator,
trustee, guardian, officer of a corporation or another acting in a fiduciary
capacity or representative capacity, please set forth the signer's full title.
See Instructions 2 and 5. Please complete substitute Form W-9 below.)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 2 AND 5)
Signature(s) Guaranteed by an
Eligible Institution: _________________ Date: __________________________
AUTHORIZED SIGNATURE
Name of Eligible Institution
Guaranteeing Signature: _______________ Address: _______________________
Capacity (full title): ________________ --------------------------------
Telephone Number: _____________________ --------------------------------
6
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS (SEE
SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 2, 5 AND 6)
INSTRUCTIONS 2, 5 AND 6)
To be completed ONLY if Exchange
To be completed ONLY if the Notes or any Senior Notes that are
Exchange Notes or any Senior Notes not tendered are to be sent to
that are not tendered are to be someone other than the registered
issued in the name of someone other holder(s) of the Senior Notes whose
than the registered holder(s) of name(s) appear(s) above, or to such
the Senior Notes whose name(s) registered holder at an address
appear(s) above. other than that shown above.
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
------------------------------------
------------------------------------
Mail:
Issue:
[_] Senior Notes not tendered, to:
[_] Senior Notes not tendered, to:
[_] Exchange Notes, to:
[_] Exchange Notes, to:
Name: ______________________________
Name: ______________________________
Address: ___________________________ Address: ___________________________
------------------------------------
------------------------------------
Telephone Number: __________________
Telephone Number: __________________
------------------------------------ ------------------------------------
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER) SECURITY NUMBER)
7
<PAGE>
INSTRUCTIONS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER)
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering Senior Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such Senior
Notes into the Exchange Agent's account at DTC, as well as this Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address
set forth herein on or prior to the Expiration Date. The term "book-entry
confirmation" means a timely confirmation of book-entry transfer of Senior
Notes into the Exchange Agent's account at DTC. Senior Notes may be tendered
in whole or in part in integral multiples of $1,000 stated principal amount at
maturity.
Holders who wish to tender their Senior Notes and: (i) whose Certificates
for such Senior Notes are not immediately available; (ii) who cannot deliver
their Certificates, this Letter of Transmittal and all other required
documents to the Exchange Agent prior to the Expiration Date; or (iii) who
cannot complete the procedures for delivery by book-entry transfer on a timely
basis, may tender their Senior Notes by properly completing and duly executing
a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for Tendering Senior Notes" in
the Prospectus. Pursuant to such procedures: (i) such tender must be made by
or through an Eligible Institution (as defined below); (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in
the form accompanying this Letter of Transmittal, must be received by the
Exchange Agent prior to the Expiration Date; and (iii) the Certificates (or a
book-entry confirmation) representing all tendered Senior Notes, in proper
form for transfer, together with a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other documents required by this Letter of Transmittal,
must be received by the Exchange Agent within three New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in "The Exchange Offer--Procedures for Tendering
Senior Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery. For Senior Notes to be properly tendered pursuant to the guaranteed
delivery procedure, the Exchange Agent must receive a Notice of Guaranteed
Delivery prior to the Expiration Date. As used herein and in the Prospectus,
"Eligible Institution" means a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as "an eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF SENIOR NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE
OBTAINED. NO LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH
HOLDERS.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance
of such tender.
8
<PAGE>
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if: (i) this Letter of Transmittal is signed by the
registered holder (which shall include any participant in DTC whose name
appears on a security position listing as the owner of the Senior Notes) of
Senior Notes tendered herewith, unless such holder has completed either the
box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" above; or (ii) such Senior Notes are tendered for the
account of a firm that is an Eligible Institution. In all other cases, an
Eligible Institution must guarantee the signature(s) on this Letter of
Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description
of Senior Notes Tendered" is inadequate, the Certificate number(s) and/or the
principal amount of Senior Notes and any other required information should be
listed on a separate signed schedule and attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Senior Notes will be
accepted only in integral multiples of $1,000 stated principal amount at
maturity. If less than all the Senior Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Senior Notes
which are to be tendered in the box entitled "Principal Amount Tendered (if
less than all)." In such case, new Certificate(s) for the remainder of the
Senior Notes that were evidenced by the old Certificate(s) will be sent to the
tendering holder, unless the appropriate boxes on this Letter of Transmittal
are completed, promptly after the Expiration Date. All Senior Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Senior Notes may be
withdrawn at any time prior to the Expiration Date. In order for a withdrawal
to be effective, a written, telegraphic or facsimile transmission of such
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth above prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Senior Notes
to be withdrawn, the aggregate principal amount of Senior Notes to be
withdrawn, and (if Certificates for such Senior Notes have been tendered) the
name of the registered holder of the Senior Notes as set forth on the
Certificate(s), if different from that of the person who tendered such Senior
Notes. If Certificates for Senior Notes have been delivered or otherwise
identified to the Exchange Agent, the notice of withdrawal must specify the
serial numbers on the particular Certificates for the Senior Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by
an Eligible Institution, except in the case of Senior Notes tendered for the
account of an Eligible Institution. If Senior Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Senior Notes," the notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawal of Senior Notes and must otherwise comply with the procedures of
DTC. Withdrawals of tenders of Senior Notes may not be rescinded. Senior Notes
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering Senior Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. Neither the Company, any affiliates of the Company, the Exchange
Agent or any other person shall be under any duty to give any notification of
any defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Senior Notes which
have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Senior
Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) or on a security position
listing, without alteration, enlargement or any change whatsoever.
If any of the Senior Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
9
<PAGE>
If any tendered Senior Notes are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are names in
which Certificates are registered.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons'
authority to so act.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Senior Notes listed and transmitted hereby, the
Certificate(s) must be endorsed or accompanied by appropriate bond power(s),
signed exactly as the name(s) of the registered owner appear(s) on the
Certificate(s), and also must be accompanied by such opinions of counsel,
certifications and other information as the Company or the Trustee for the
Senior Notes may require in accordance with the restrictions on transfer
applicable to the Senior Notes. Signature(s) on such Certificate(s) or bond
power(s) must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes or
Certificates for Senior Notes not exchanged are to be issued in the name of a
person other than the signer of this Letter of Transmittal, or are to be sent
to someone other than the signer of this Letter of Transmittal or to an
address other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. In the case of issuance in a different name,
the taxpayer identification number of the person named must also be indicated.
Holders tendering Senior Notes by book-entry transfer may request that Senior
Notes not exchanged be credited to such account maintained at DTC as such
holder may designate. If no such instructions are given, Senior Notes not
exchanged will be returned by mail or, if tendered by book-entry transfer, by
crediting the account indicated above maintained at DTC.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Senior Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders determined by it not to be in proper form or the acceptance for
exchange of which may, in the view of counsel to the Company, be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer set forth in the Prospectus under
"The Exchange Offer--Conditions to the Exchange Offer" or any defect or
irregularity in any tender of Senior Notes of any particular holder whether or
not similar defects or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Senior Notes will be deemed to have been
validly made until all defects or irregularities with respect to such tender
have been cured or waived. Neither the Company, any affiliates of the Company,
the Exchange Agent, or any other person shall be under any duty to give any
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth above. Additional copies of the Prospectus, the
Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained
from the Exchange Agent or from your broker, dealer, commercial bank, trust
company or other nominee.
9. BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax
law, a holder whose tendered Senior Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Senior Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
10
<PAGE>
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 3 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN
is provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-
9. If the holder furnishes the Exchange Agent with its TIN within 60 days
after the date of the Substitute Form W-9, the amounts retained during the 60
day period will be remitted to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent with its TIN within such 60 day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Senior Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Senior Notes. If the Senior Notes are registered in
more than one name or are not in the name of the actual owner, consult the
Instructions to Form W-9 (Request for Identification Number and Certification)
for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the
face thereof, to avoid possible erroneous backup withholding. A foreign person
may qualify as an exempt recipient by submitting a properly completed IRS Form
W-8, signed under penalties of perjury, attesting to that holder's exempt
status. Please consult the Instructions to Form W-9 (Request for
Identification Number and Certification) for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather, the
U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. MUTILATED, LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate
representing Senior Notes has been mutilated, lost, destroyed or stolen, the
holder should promptly notify the Exchange Agent. The holder will then be
instructed as to the steps that must be taken in order to replace the
Certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing mutilated, lost, destroyed or
stolen Certificates have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Senior Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith, except that if Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the
Senior Notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of Senior Notes in connection with the Exchange Offer, then
the amount of any such transfer tax (whether imposed on the registered holder
or any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such transfer tax or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer tax will
be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF), TOGETHER
WITH CERTIFICATES REPRESENTING TENDERED SENIOR NOTES OR A BOOK ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS:
(SEE INSTRUCTION 9)
PAYER'S NAME: HARRIS TRUST AND SAVINGS BANK
PART 1--PLEASE PROVIDE SOCIAL SECURITY NUMBER
SUBSTITUTE YOUR TIN ON THE LINE AT OR EMPLOYER IDENTIFICA-
RIGHT AND CERTIFY BY TION NUMBER
SIGNING AND DATING BELOW
FORM W-9
-------------------------------------------------------
PART 2--CERTIFICATION--Under penalties of perjury, I
certify that:
DEPARTMENT OF THE (1) The number shown on this form is my correct
TREASURY INTERNAL taxpayer identification number (or I am waiting
REVENUE SERVICE for a number to be issued to me);
-------------------------------------------------------
PAYER'S REQUEST FOR (2) I am not subject to backup withholding either
TAXPAYER'S because: (a) I am exempt from backup
IDENTIFICATION NUMBER withholding; (b) I have not been notified by the
(TIN) Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of a
failure to report all interest or dividends; or
(c) the IRS has notified me that I am no longer
subject to backup withholding; and
(3) Any other information provided on this form is
true and correct.
-------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must cross out item
(2) above if you have been notified by the IRS that
you are subject to backup withholding because of
under reporting interest or dividends on your tax
return and you have not been notified by the IRS
that you are no longer subject to backup
withholding.
-------------------------------------------------------
SIGNATURE ___________________ PART 3--
Awaiting
TIN [ ]
DATE ________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all payments made to
me on account of the Exchange Notes shall be retained until I provide a
taxpayer identification number to the Exchange Agent and that, if I do not
provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
SIGNATURE: _______________________________ DATE:
12
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
12.125% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2008
(THE "SENIOR NOTES")
OF
FOCAL COMMUNICATIONS CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to tender Senior Notes pursuant to the Exchange Offer
described in the Prospectus dated , 1998 (as the same may be amended
or supplemented from time to time, the "Prospectus") of Focal Communications
Corporation, a Delaware corporation (the "Company"), if certificates for the
Senior Notes are not immediately available, or time will not permit the Senior
Notes, the Letter of Transmittal and all other required documents to be
delivered to Harris Trust and Savings Bank (the "Exchange Agent") prior to
5:00 p.m., New York City time, on , 1998 or such later date and time
to which the Exchange Offer may be extended (the "Expiration Date"), or the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be delivered by hand or sent by facsimile transmission or mail
to the Exchange Agent, and must be received by the Exchange Agent prior to the
Expiration Date. See "The Exchange Offer--Procedures for Tendering Senior
Notes" in the Prospectus. Capitalized terms used but not defined herein shall
have the same meaning given them in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
HARRIS TRUST AND SAVINGS BANK
By Facsimile: By Mail: By Overnight Courier or
Hand
(212) 701-7636 Harris Trust and Savings
(212) 701-7637 Bank C/O Harris Trust and Savings
Harris Trust Company of Bank
New York
Confirm by telephone to Wall Street Plaza
(212) 701-7624 Wall Street Station 88 Pine Street, 19th
P.O. Box 1010 Floor
New York, New York New York, New York 10005
10268-1010 Attention:
Attention: Reorganization Dept.
Reorganization Dept.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, the Senior Notes indicated below pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering Senior Notes."
Name(s) of Registered Holder(s): ______________________________________________
(Please Print or Type)
Signature(s): _________________________________________________________________
Address(es): __________________________________________________________________
- -------------------------------------------------------------------------------
Area Code(s) and Telephone Number(s): _________________________________________
Account Number: _______________________________________________________________
Date: _________________________________________________________________________
Certificate No(s). Principal Amount of
(if available) Senior Notes Tendered*
_____________________________________ _____________________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
* Must be in integral multiples of $1,000 stated principal amount at
maturity.
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank
or trust company having an office or a correspondent in the United States or
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, hereby guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing
the Senior Notes being tendered hereby in proper form for transfer (or a
confirmation of book-entry transfer of such Senior Notes, into the Exchange
Agent's account at the book-entry transfer facility of The Depository Trust
Company ("DTC")) with delivery of a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, all within three New York Stock
Exchange trading days after the date of execution of the Notice of Guaranteed
Delivery.
The institution that completes this form must communicate the guarantee to
the Exchange Agent and must deliver the certificates representing any Senior
Notes (or a confirmation of book-entry transfer of such Senior Notes into the
Exchange Agent's account at DTC) and the Letter of Transmittal to the Exchange
Agent within the time period shown herein. Failure to do so could result in a
financial loss to such institution.
Name of Firm ________________________ _____________________________________
Authorized Signature
Address _____________________________ Name ________________________________
Please Print or Type
_______________________Zip Code Title _______________________________
Telephone No. _______________________ Dated _______________________________
2
