As filed with the Securities and Exchange Commission on June 3, 1998
Registration No. 333-53441
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NORTHEAST OPTIC NETWORK, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 04-3056279
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
391 Totten Pond Road, Suite 401
Waltham, Massachusetts 02154
(781) 890-6868
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Victor Colantonio
President
NorthEast Optic Network, Inc.
391 Totten Pond Road, Suite 401
Waltham, Massachusetts 02154
(781) 890-6868
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
Alexander A. Bernhard, Esq. Kris Heinzelman, Esq.
John H. Chory, Esq. Cravath, Swaine & Moore
Hale and Dorr LLP, 60 State Street Worldwide Plaza, 825 Eighth Avenue
Boston, Massachusetts 02109 New York, New York 10019
(617) 526-6000 (212) 474-1000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ] ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ] ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to Section 8(a), may determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains alternate sections, paragraphs,
sentences or phrases which will be contained in two forms of Prospectus covered
by this Registration Statement, one to be used in connection with the offering
(the "Equity Offering") of shares of Common Stock of NorthEast Optic Network,
Inc. (the "Equity Prospectus") and the other to be used in connection with the
concurrent offering (the "Debt Offering") of % Senior Discount Notes Due
2008 of NorthEast Optic Network, Inc. (the "Debt Prospectus"). Those sections,
paragraphs, sentences or phrases that will appear only in the Equity Prospectus
are marked at the beginning of such section, paragraph, sentence or phrase by
the symbol [E] and those appearing only in the Debt Prospectus are designated
by the symbol [D]. Unless so indicated with a [D] or [E], the language therein
will appear in both forms of Prospectus. The closing of the Debt Offering is
conditioned upon the closing of the Equity Offering and the closing of the
Equity Offering is conditioned upon the closing of the Debt Offering.
<PAGE>
[E] SUBJECT TO COMPLETION, DATED JUNE 3, 1998
Shares
NorthEast Optic Network, Inc.
Common Stock
($.01 par value)
------------
Of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby (the "Equity Offering"), are being sold by
NorthEast Optic Network, Inc. ("NorthEast Optic Network" or the "Company") and
are being sold by certain selling stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any proceeds from the
sale of the shares being sold by the Selling Stockholders. See "Principal and
Selling Stockholders."
Prior to the Equity Offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial price to the
public will be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
price to the public.
Concurrently with the closing of the Equity Offering, the Company is offering
its % Senior Discount Notes Due 2008 (the "Debt Offering" and, together with
the Equity Offering, the "Offerings") for gross proceeds of approximately $
million. The closing of each Offering is conditioned upon the closing of the
other Offering.
Application will be made to list the Common Stock on The Nasdaq Stock Market's
National Market ("NNM") under the symbol NOPT.
For a discussion of certain factors that should be considered by prospective
investors, see "Risk Factors" beginning on page .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price Underwriting Proceeds Proceeds to the
to Discounts and to the Selling
Public Commissions Company(1) Stockholders
---------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Per Share ......... $ $ $ $
Total(2) .......... $ $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company and the Selling Stockholders have granted the Underwriters an
option exercisable for 30 days from the date of this Prospectus to
purchase a maximum of additional shares from the Company and an
aggregate of additional outstanding shares from the Selling
Stockholders to cover over-allotments. If the option is exercised in full,
the total Price to Public will be $ , Underwriting Discounts and
Commissions will be $ , Proceeds to the Company will be $ and
Proceeds to the Selling Stockholders will be $ .
The shares of Common Stock are being offered by the several Underwriters
when, as and if issued by the Company, delivered to and accepted by the
Underwriters and subject to their right to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made on or
about , 1998, against payment in immediately available funds.
Credit Suisse First Boston SBC Warburg Dillon Read Inc.
Prospectus dated , 1998.
[red herring]
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.
<PAGE>
[D] SUBJECT TO COMPLETION, DATED JUNE 3, 1998
$ (Gross Proceeds)
NorthEast Optic Network, Inc.
% Senior Discount Notes Due 2008
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NorthEast Optic Network, Inc. ("NorthEast Optic Network" or the "Company") is
offering (the "Debt Offering") $ (Gross Proceeds) of its % Senior
Discount Notes Due 2008 (the "Notes") with a principal amount at maturity of
$ . The Notes will mature on , 2008. The Notes begin to accrue
interest at a rate of % per annum commencing , 2003, and interest
will be payable thereafter on and of each year. The Notes will be
issued at a substantial original issue discount ("OID"), and the holders of the
Notes will be required to include such OID in gross income for U.S. federal
income tax purposes on a constant yield to maturity basis, in advance of the
receipt of the cash payments to which such income is attributable. See "Certain
United States Federal Income Tax Consequences." The price to investors for the
Notes shown below represents a yield to maturity of % per annum (computed on
a semi-annual bond equivalent basis).
The Notes will not be redeemable at the option of the Company prior to ,
2003, except that until , 2001, the Company may redeem, at its option, up
to 35% of the principal amount of the Notes at the redemption price set forth
herein with the net proceeds of one or more Public Equity Offerings (as
defined) if at least $ million principal amount at maturity of the Notes
remain outstanding after any such redemption. On or after 2003, the Notes
may be redeemed at the option of the Company, in whole or in part, at the
redemption prices set forth herein. Upon a Change of Control (as defined), each
holder of Notes may require the Company to repurchase all or a portion of such
holder's Notes at a purchase price equal to 101% of the Accreted Value (as
defined) thereof, plus accrued and unpaid interest, if any, to the date of
repurchase.
The Notes will be senior unsecured obligations of the Company, ranking pari
passu in right of payment with all existing and future senior unsecured
indebtedness of the Company, and will be senior in right of payment to all
future subordinated indebtedness of the Company. As of March 31, 1998, after
giving effect to the Offerings (as defined) and the application of the proceeds
therefrom, the Company would have had outstanding $ million of senior
indebtedness and no subordinated indebtedness.
The Notes will be represented by one or more Global Securities (as defined)
registered in the name of the nominee of The Depository Trust Company ("DTC").
Except as provided herein, Notes in definitive form will not be issued.
Concurrently with the Debt Offering, the Company and certain shareholders of
the Company are offering shares of Common Stock (the "Equity
Offering" and, together with the Debt Offering, the "Offerings"). The
closing of each Offering is conditioned upon the closing of the other
Offering.
For a discussion of certain factors that should be considered in connection
with an
investment in the Notes, see "Risk Factors" beginning on page .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to the
Public(1) Commissions Company(1)(2)
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<S> <C> <C> <C>
Per Note ......... % % %
Total ............ $ $ $
</TABLE>
(1) Plus the increase in Accreted Value, if any, on the Notes from , 1998.
(2) Before deducting expenses payable by the Company estimated at $ .
The Notes are offered by the several Underwriters when, as and if issued
by the Company, delivered to and accepted by the Underwriters and subject to
their right to reject orders, in whole or in part. It is expected that delivery
of the Notes will be made on or about , 1998, against payment in
immediately available funds.
Credit Suisse First Boston SBC Warburg Dillon Read Inc.
Prospectus dated , 1998.
[red herring]
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.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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NEON[RegTM] is a trademark of the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read
in conjunction with the more detailed information, consolidated financial
statements and other financial data appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus gives effect to
(i) the completion of the Reorganization (as such term is defined below), (ii)
the conversion of all outstanding shares of Series A and Series B Convertible
Preferred Stock of the Company (the "Preferred Stock") to shares of Common
Stock at the closing of the Offerings (the "Preferred Stock Conversion"), and
(iii) a for stock split of the Company's Common Stock (the
"Stock Split"). [E] Unless otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. As
used herein "NorthEast Optic Network" or the "Company" refers to NorthEast
Optic Network, Inc. and its subsidiaries, including predecessor companies,
except where the context otherwise requires. Certain terms used herein are
defined in the Glossary beginning on page G-1.
THE COMPANY
The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic transmission capacity for communications carriers
on local loop, inter-city and interstate facilities. The Company is currently
expanding its fiber optic network, the NEON system, to encompass approximately
1,000 route miles, or approximately 80,000 fiber miles, concentrated in the
northeastern United States, including New York and New England (the
"Northeast"). The Company believes that the Northeast, which in 1996
represented a $29.3 billion telephony services market and which has one of the
highest population densities and concentrations of businesses, universities,
phone lines, personal computers and television sets in the country, is a region
characterized by significant and growing demand for broadband communications
infrastructure. The Company is constructing the NEON system utilizing primarily
electric utility rights-of-way ("ROWs"), which allow the Company to provide
secure fiber optic capacity at competitive prices with access to virtually any
location where the local utility provides electrical service. The Company is
using advanced fiber optic technology in the NEON system, including non-zero
dispersion shifted fiber, dense wave division multiplexing optronics and SONET
four-fiber ring self-healing technology, to allow the Company's carrier
customers to meet the demand for reliable, high-bandwidth voice, data and video
transmission capacity in the Northeast. For example, a pair of fiber optic
strands on the NEON system can transmit up to approximately 10 gigabits of data
per second, or the equivalent of approximately 129,000 simultaneous voice
conversations.
The Company has already completed and currently operates fiber optic
routes from Hartford, Connecticut to Springfield, Massachusetts and from
Nashua, New Hampshire to Portland, Maine, totaling approximately 212 route
miles, or approximately 13,700 fiber miles. The Company is currently
engineering or constructing additional routes in New York, Connecticut,
Massachusetts and New Hampshire to create a continuous fiber optic link between
White Plains, New York and Portland, Maine with access into and around Boston,
Massachusetts and numerous other major cities in the Northeast. These
additional routes are expected to be substantially completed in 1998 and will
add approximately 380 route miles, or approximately 30,800 fiber miles, to the
NEON system. The Company is also planning to complete further expansion routes
in 1999 connecting New York City, Providence and other metropolitan areas to
the NEON system. The completion of routes under construction and currently
planned will enable the NEON system to connect more than 540 cities and towns
in six states and pass more than 200 points-of-presence ("POPs"), tandem
switches and central offices, which the Company believes serve over 18 million
people and over 470,000 businesses.
Commencing in September 1994, the Company entered into a series of ROW
agreements with the three principal operating subsidiaries of Northeast
Utilities ("NU"), the largest electric utility service provider in New England,
serving over 1.7 million customers in Connecticut, Massachusetts and New
Hampshire, to build fiber optic facilities utilizing NU's transmission and
distribution infrastructure, including utility towers, poles, underground ducts
and urban conduit systems (the "NU Agreements"). In January 1997, the Company
entered into a similar ROW agreement with Central Maine Power Company ("CMP"),
the largest electric utility service provider in Maine, serving over 500,000
customers, to build fiber optic facilities utilizing CMP's transmission and
distribution infrastructure (the "CMP Agreement"). NU and CMP have also
financed substantially all of the construction and operations of the NEON
system to date and currently beneficially own (prior to the sale of shares in
the Equity Offering) 41.37% and 53.53%, respectively, of the Company's capital
stock.
The Company has pursued a strategy of establishing relationships with
electric utilities and building the NEON system utilizing primarily electric
utility ROWs. The Company believes that the use of such ROWs provides
3
<PAGE>
significant advantages, including: (i) potentially ubiquitous inter-city and
intra-city coverage in the local electric utility's service territory,
including throughout downtown areas and directly into buildings, (ii) use of
existing electric transmission infrastructures, including towers, poles, ducts
and conduits, to achieve faster, less costly installation, (iii) generally more
secure and reliable routes than other ROWs, such as railroad beds, streets and
highways, (iv) highly desirable redundant and geographically diverse fiber
optic routes for communications carriers and (v) establishment of an extensive
ROW network through negotiation with relatively few parties, rather than with
numerous parties such as municipalities, transit authorities and governmental
agencies.
The Company currently intends to target only communications carriers as
customers, rather than end-users of telecommunications services. The Company
believes that this strategy allows it to: (i) maximize the Company's
opportunities to sell its capacity regardless of the end-user's selection of a
retail provider, (ii) avoid the significant initial and ongoing investment
required in selling, marketing and providing services to end-users, (iii)
attract carrier customers that may be reluctant to contract with a direct
competitor, (iv) generate revenues quickly from carriers that are easily
identifiable and require large amounts of fiber optic capacity, and (v) lock in
relatively secure long-term revenue streams from customers that are generally
more creditworthy than end-users and are likely to make long-term capital
commitments in advance of the provision of services. Carrier customers
typically lease fiber optic capacity under multi-year contracts with which they
enhance or develop their own communications networks as a cost-effective
alternative to constructing their own infrastructure or purchasing measured
services from other carriers with whom they may compete. Carriers targeted by
the Company include a broad range of communications companies such as incumbent
local exchange carriers ("ILECs"), competitive local exchange carriers
("CLECs"), long distance companies/interexchange carriers ("IXCs"), paging,
cellular and PCS companies, cable television companies and Internet service
providers ("ISPs"). Currently, the Company has contracts with Brooks Fiber
Properties, Inc. ("Brooks Fiber") (now owned by WorldCom, Inc. ("WorldCom")),
Teleport Communications Group Inc. ("Teleport") (expected to be acquired by
AT&T Corp. ("AT&T")), MCI Communications Corporation ("MCI") (expected to be
acquired by WorldCom), Sprint Corporation ("Sprint") and Global NAPs, Inc., a
regional ISP.
The Company intends to offer its carrier customers leases of both dark
fiber (fiber optic transmission lines leased without optronics equipment
installed by the Company) and lit fiber (fixed amounts of capacity, such as
DS-1, DS-3, OC-3, OC-12, OC-48 and higher, on fiber optic transmission lines
that use the Company's optronics equipment) at fixed-cost pricing and over
multi-year lease terms. The Company intends to lease approximately one-third of
the available fibers in the NEON system as dark fiber and one-third as lit
fiber. In addition, the Company plans to reserve approximately one-third of its
available fibers for future services that the Company may provide to capitalize
on future technological advances or changes that the Company expects to occur
in the communications industry. Because of the geographic flexibility and
virtual ubiquity of the electric utility ROWs used in construction of the NEON
system, the Company expects that it will be able to provide fiber optic
connectivity for its carrier customers to and from virtually any location in
the NEON service territory, including intra-city local loop facilities,
inter-city long-haul or short-haul facilities, or a combination of both.
History of the Company
The Company was incorporated in 1989 in Massachusetts under the name
"FiveCom, Inc." to develop fiber-optic networks in secondary and tertiary
markets in the Northeast. Prior to 1994, the Company was the managing general
partner of a venture which built a competitive access provider ("CAP") network
in Springfield, Massachusetts and also built several small private networks in
eastern Massachusetts. In February 1994, the Company sold its interest in the
Springfield network to Brooks Fiber. Following this sale, the Company expanded
its business strategy to include intra-LATA and long distance facilities using
electric utility ROWs and changed its focus to target carrier customers rather
than end-users. Commencing in September 1994, the Company entered into the NU
Agreements, pursuant to which the Company obtained ROWs in the service
territories of NU and its subsidiaries. In 1996, the Company raised
approximately $16.7 million from private placements of equity securities to
MaineCom Services ("MaineCom"), an affiliate of CMP, and Mode 1 Communications,
Inc. ("Mode 1"), an affiliate of NU. In January 1997, the Company entered into
the CMP Agreement, under which the Company obtained ROWs in CMP's service
territory, and raised an additional $2.6 million from CMP and other investors in
a private equity financing. In 1998, the Company was reincorporated in Delaware
under the name "NorthEast Optic Network, Inc." See "Business--Reorganization."
4
<PAGE>
Market Opportunity
The Company believes that there is a significant demand for high-bandwidth
communications services and a limited supply of technologically advanced dark
and lit fiber optic facilities in the Northeast to meet such demand. The
Company believes the needs of communications carriers for advanced,
high-bandwidth voice, data and video transmission capacity will increase over
the next several years due to various factors, including:
Rapid Growth of Communications Traffic. The Company believes that total
telephony service revenue in the United States grew by approximately 9%
annually from 1992 to 1996, to $222.3 billion. Data traffic service grew by 28%
from 1996 to 1997 to $16 billion and is projected to grow by 38% to $22.1
billion in 1998. Much of this growth in data traffic is attributable to
increased Internet traffic and its corresponding demands for increased data
communications bandwidth. For example, the number of Americans using the
Internet is estimated to have grown from fewer than 5 million in 1993 to as
many as 62 million by the end of 1997. The Company believes that the growth of
communications traffic in the Northeast will be enhanced by the high population
density, income and education levels, number of phone lines per household and
other favorable demographic characteristics of the region. With its advanced
fiber optic transmission capacity, the Company believes that it will be
well-positioned to capitalize on this growth.
Capacity Required by New Entrants. Competition and deregulation are
attracting new entrants to the telecommunications market. The
Telecommunications Act of 1996 (the "1996 Act") allows the Regional Bell
Operating Companies ("RBOCs") to enter the long distance business upon meeting
certain competitive conditions and also eliminates certain barriers to entry in
the local exchange market. The 1996 Act also enables other entities, including
entities affiliated with power utilities and ventures between ILECs and cable
television companies, to provide a wider range of telecommunications products
and services. The Company believes that the deregulation of various
telecommunications markets will lead to an increase in the number of
telecommunications providers needing fiber optic transmission capacity as more
parties choose to compete. The Company believes that many carrier customers
will choose to lease fiber optic capacity from facilities providers such as the
Company to enhance or develop their own communications networks as a lower-cost
alternative to constructing their own infrastructure or purchasing measured
services from other carriers. The Company believes that the NEON system will
provide a cost-effective alternative in a number of communications industry
segments for new market entrants, including ILECs, CLECs, IXCs, wireless
companies, cable companies and ISPs.
Need for Redundant Routing and Geographic Diversity of ROWs. Carriers
require redundant paths throughout their networks to provide reliability in the
event of an equipment failure, break in one of their fiber lines or other
outage. In order to ensure the required redundancy, carriers typically build,
swap or lease capacity along fiber routes that do not share a common point of
potential failure. In the Northeast, however, there are relatively few pre-
assembled ROWs available to support new telecommunications infrastructure and
many of the carriers' routes currently run within the same ROWs. As a result,
many carriers are unable to establish secure redundant routing. In the event
such a common ROW were to be damaged or cut, the consequences would be severe
for the carriers and their customers. This lack of geographic diversity of
fiber optic routes in the Northeast has created a substantial need for network
capacity on new and alternative ROWs, such as those offered by the Company.
Expected Upgrades to Older Communications Networks. Many of the fiber
optic networks currently operated by existing carriers in the Northeast were
constructed prior to 1990, using asynchronous, non-SONET ring architecture and
earlier generation fiber that cannot optimally deploy dense wave division
multiplexing ("DWDM") optronics for high capacity transmission. The Company
believes that these carriers will need to improve or replace parts of their
networks to complete the SONET ring architecture and also add more high
capacity fiber optic transmission lines to remain competitive in the future. In
addition, the Company believes that approximately 92% of the RBOCs' networks
currently are comprised of copper cable located on antiquated infrastructure.
The RBOCs will likely need to replace or upgrade their networks to remain
competitive and satisfy their customers' increasing demand for reliable,
high-bandwidth capacity in the coming years. The Company believes that carriers
with older, more limited networks will seek cost-effective and expedient
solutions when faced with the decision to lease, buy or build fiber optic
capacity, which could result in increased demand for the Company's fiber optic
capacity.
Accommodation of Multimedia and Other New Applications. The Company
believes that additional transmission capacity and faster response times will
be required to accommodate the needs of multimedia (voice,
5
<PAGE>
data and video) and other potential high-bandwidth applications, including the
deployment of corporate intranets and wide area networks, and the use of the
telecommunications infrastructure for providing cable television and other
entertainment services. In addition, the Company's SONET technology and
high-bandwidth fiber optic capacity support advanced communications
applications, such as Frame Relay, ATM and Internet Protocol ("IP") platforms.
The Company believes that these capacity-intensive requirements will create
significant demand for its high quality, high-bandwidth fiber optic capacity.
Carriers' Desire for Low-Cost Local and Regional Transport. The Company
believes that it has an opportunity to fill the needs of the predominant
interstate carriers that are building or have completed their backbone networks
to most of the Northeast's key Local Access Transport Areas ("LATAs").
Generally, an IXC constructs a network with trunk lines terminating into tandem
switches in LATAs. To get from the tandem switch to the end-user, or vice
versa, IXCs typically pay to a local exchange carrier ("LEC") access and egress
charges, which often comprise the largest component of the IXCs' transmission
costs. For this reason, IXCs are seeking less costly, alternative local access
within LATAs. One alternative for the IXCs is to carry their traffic deeper
into the region's telecommunications base and to hand off their traffic at a
LEC host switch, which is located much closer to the end-user than the tandem
switch, or to terminate their traffic directly at the customer's premises.
Similarly, the Company believes that LECs with inter-LATA traffic, including
the RBOCs when they are permitted to provide long-distance traffic, desire to
minimize the transportation costs imposed by the IXCs and are seeking lower
cost, alternative regional transport. The NEON system, which will connect into
and around numerous cities and towns in the Northeast, will be able to provide
such local access and regional transport.
Business Strategy
The Company's objective is to become the preferred facilities-based
provider of fiber optic network capacity in the Northeast. The following are
the key elements of the Company's strategy to achieve this objective:
Leverage Electric Utility ROWs. The Company is pursuing a strategy of
building the NEON system utilizing primarily electric utility ROWs, which the
Company believes provide significant competitive advantages compared to
alternative ROWs in the Northeast such as railbeds and highways. Using electric
utility ROWs, the Company can provide fiber optic connectivity for its carrier
customers to and from virtually any location in the utilities' service
territory, including throughout downtown areas and directly into buildings. The
Company also intends to utilize existing, pre-assembled electric utility
transmission infrastructure, including towers, poles, ducts and conduits for
faster, less costly installation. In addition, since electric utility ROWs are
generally more secure than other ROWs and provide valuable geographic route
diversity for carriers, the Company can offer its customers highly reliable
primary and redundant network capacity. In addition to the Company's existing
ROW agreements with NU and CMP, the Company is currently pursuing additional
agreements with other utilities in adjoining territories to expand the
Company's network footprint and gain access to further ROWs through negotiation
with relatively few parties, rather than numerous municipalities, transit
authorities and governmental agencies.
Target Carrier Customers. The Company intends to target communications
carriers as customers, rather than end-users of telecommunications services.
This enables the Company to maximize its opportunities to sell its capacity
regardless of the end-user's selection of a retail provider and to attract
carrier customers that may be reluctant to purchase services from a direct
competitor that serves the same retail market. Carrier customers are also
easily identifiable, which allows the Company to focus its sales and marketing
and customer services efforts and avoid the significant initial and ongoing
investment required to attract and retain numerous retail customers. In
addition, the Company believes that it can generate revenues more quickly from
carrier customers, which are generally more creditworthy than end-users,
require large amounts of fiber optic capacity and are more likely to make
long-term capital commitments in advance of the provision of services. To date,
the Company has entered into contracts with five carriers, including Brooks
Fiber/WorldCom, Teleport/AT&T, MCI/WorldCom, Sprint and Global NAPs, Inc., a
regional ISP.
Reduce Construction and Operating Costs. The Company is reducing the
construction and operating costs of the NEON system in order to offer its
customers competitive prices while maximizing its operating margins and return
on investment. The Company is using primarily pre-assembled electric utility
transmission and distribution infrastructure, including towers, poles, ducts
and conduits, in the construction of the NEON system, which reduces the need to
obtain local permits, conduct surveys, cut tracks, install conduits and ducts
and erect towers and poles prior to installation. In
6
<PAGE>
addition, the Company's electric utility ROWs typically provide easy and safe
access to the fiber cable for low cost maintenance and repair. The Company is
also installing high fiber count cable in the NEON system--64 to 96 fiber optic
strands per cable in the routes currently under construction and up to 144 to
432 fiber optic strands on future installations, depending on the anticipated
demand for a particular route and the Company's ROW agreements. This high fiber
count reduces the Company's fiber cost per mile and provides reserve capacity,
which will reduce the cost of providing additional services in the future. The
Company's newly-constructed network also provides significant operating and
maintenance cost advantages because of the high quality, advanced fiber optic
technology utilized by the NEON system.
Establish a Reliable, Technologically Advanced Network. The Company
believes that the characteristics of its network will allow it to meet its
customers' demands for reliability and high capacity. The Company is
constructing the NEON system utilizing bi-directional, self-healing SONET
four-fiber ring architecture on primarily electric utility ROWs, which allow
for enhanced physical security and more geographic flexibility than other ROWs.
The Company uses both non-zero dispersion shifted Truewave[RegTM] fiber and
conventional single-mode fiber manufactured by Lucent Technologies Inc., which
the Company believes to be the highest quality fiber optic cable available. The
Company is also using Nortel's DWDM optronics and forward error correction
technology at high optical carrier ("OC") levels that enable the highest
commercially available transmission capacity (OC-192) and data integrity level
(10(-15) Bit Error Rate). The NEON system can also accommodate advanced
communications applications such as Frame Relay, ATM and IP.
Focus on High Demand Northeast Market. The Northeast is one of the most
densely-populated regions of the United States. The Company believes that the
Northeast market, which in 1996 represented a $29.3 billion telephony services
market and which has one of the highest population densities and concentrations
of businesses, universities, phone lines, personal computers and television
sets in the country, is a region characterized by significant and growing
demand for broadband communications infrastructure. The Northeast market is
dependent in part upon antiquated communications infrastructure currently
lacking sufficient fiber optic capacity, route diversity and redundancy. The
Company's strategy is to focus on serving the present and future needs of this
market by constructing and operating a technologically advanced network
offering (i) more capacity, (ii) enhanced capabilities, such as SONET ring
architecture and route diversity, and (iii) near-ubiquitous coverage.
Capitalize on Management Experience. The Company's management team
includes individuals with significant experience in the telecommunications and
utility industries which will be important in the build-out and management of
the NEON system. Victor Colantonio, the Company's founder and President, has 25
years of experience in the telecommunications industry having previously served
as President of International Communications Services Corp. and Murray
International Inc., providers of network services to AT&T, SNET and Sprint,
among others. The Company's Chairman and Chief Executive Officer, Richard
Crabtree, has 27 years of utility experience including serving as Chief
Financial Officer to CMP. William Fennell, the Company's Chief Financial
Officer and Treasurer, held several positions at GTE Corporation over 16 years
before becoming Chief Financial Officer of Philips Electronics Group of North
America. James Mack, the Company's head of sales, has worked in the
telecommunications industry since 1966 having held various sales positions at
Bell Atlantic and NYNEX. The Company's head of operations, Michael Musen, has
spent 18 years in telecommunications having previously worked at International
Communications Services Corp., a provider of network services.
Leverage Utility Relationships. The Company intends to leverage its
relationships with NU and CMP. The Company directly benefits from these
relationships for the following reasons: (i) the Company believes relationships
with electric utilities enhance the Company's credibility with large carrier
customers and facilitate new customer contracts with such carriers, (ii) the
Company outsources substantially all of its engineering and design, maintenance
and repair requirements to NU and CMP, thereby increasing the Company's mission
critical preparedness and the reliability of the Company's network and
enhancing the Company's ability to respond to emergency repair needs, (iii) NU
and CMP have significant resources and experience in the engineering and
construction of large transmission and distribution networks and (iv) the
Company's experience with NU and CMP creates opportunities to establish
relationships with other electric utility companies. The Company is currently
in the process of pursuing additional agreements with other electric utilities.
The Company's principal executive offices are located at 391 Totten Pond
Road, Suite 401, Waltham, Massachusetts 02154, and its telephone number is
(781) 890-6868.
7
<PAGE>
[D] The Debt Offering
<TABLE>
<S> <C>
Issuer .......................... NorthEast Optic Network, Inc.
Securities Offered .............. $ principal amount at maturity of % Senior Discount
Notes Due 2008.
Gross Proceeds .................. $ .
Maturity Date ................... , 2008.
Yield and Interest .............. The issue price per Note represents a yield to maturity on the
Notes of % (computed on a semi-annual bond equivalent
basis) calculated from the Issue Date (as defined). No interest
will accrue on the Notes prior to , 2003. Thereafter,
interest will accrue at a rate of % per annum and will be
payable on and of each year, commencing ,
2004.
Original Issue Discount ......... The Notes are being offered at an original issue discount
("OID") for United States federal income tax purposes equal to
the excess of the principal amount at maturity of the Notes over
the Issue Price (as defined). Each holder of a Note must include
such OID in gross income for U.S. federal income tax purposes
in advance of the receipt of the cash payments to which such
income is attributable. See "Certain United States Federal
Income Tax Consequences."
Optional Redemption ............. The Notes will not be redeemable at the option of the Company
prior to , 2003, except that until , 2001, the
Company may redeem, at its option, up to 35% of the principal
amount at maturity of the Notes at the redemption price set forth
herein with the net proceeds of one or more Public Equity
Offerings (as defined) if at least $ million principal amount
at maturity of the Notes remains outstanding after any such
redemption. On or after , 2003, the Notes may be
redeemed at the option of the Company, in whole or in part, at
the redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. See "Description of
the Notes--Optional Redemption."
Change of Control ............... Upon a Change of Control, each Holder will be entitled to
require the Company to repurchase all or a portion of such
Holder's Notes at a purchase price equal to 101% of the
Accreted Value (as defined) thereof, plus accrued and unpaid
interest to the date of repurchase. See "Risk Factors--Purchase
of Notes Upon Change of Control" and "Description of the
Notes--Change of Control."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Ranking ............................ The Notes will be senior unsecured obligations of the Company
and will rank pari passu in right of payment with all existing
and future senior unsecured indebtedness of the Company and
will be senior in right of payment to all future subordinated
indebtedness of the Company. As of March 31, 1998, after
giving effect to the Offerings and the application of the proceeds
therefrom, the Company would have had outstanding $
million of senior indebtedness and no subordinated
indebtedness.
Restrictive Covenants .............. The indenture under which the Notes will be issued (the
"Indenture") will contain certain covenants that, among other
things, will limit (i) the incurrence of additional Indebtedness
by the Company and its Restricted Subsidiaries (as defined), (ii)
the payment of dividends and other restricted payments by the
Company and its Restricted Subsidiaries, (iii) the creation of
restrictions on distributions from Restricted Subsidiaries, (iv)
asset sales, (v) transactions with affiliates, (vi) sales or issuances
of Restricted Subsidiary capital stock, (vii) the incurrence of
liens and the entering into of sale/leaseback transactions and
(viii) mergers and consolidations. All these limitations and
prohibitions, however, are subject to a number of important
qualifications and exceptions. See "Description of the
Notes--Change of Control--Certain Covenants."
Use of Proceeds .................... The net proceeds to the Company from the Offerings will be
used for capital expenditures associated with the continued
construction and expansion of the NEON system, to repay
outstanding debt and for working capital and other general
corporate purposes. See "Use of Proceeds."
Concurrent Equity Offering ......... Concurrently with the Debt Offering, the Company and certain
shareholders of the Company are offering shares
( shares if the over-allotment option granted to the
underwriters thereof is exercised in full) of its Common Stock
(the "Common Stock"), by a separate prospectus. The closing
of each Offering is conditioned upon the closing of the other
Offering.
</TABLE>
[D] Risk Factors
An investment in the Notes offered hereby involves a high degree of risk.
Prospective investors should consider carefully the risk factors and other
information set forth in this Prospectus before making an investment in the
Notes offered hereby. See "Risk Factors."
9
<PAGE>
[E] THE EQUITY OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company ...................... shares
By the Selling Stockholders ......... shares
-----
Total .............................. shares (1)
=====
Common Stock to be outstanding after
the Equity Offering ................. shares (1)(2)
Use of Proceeds ...................... The net proceeds to the Company from the Offerings will be
used for capital expenditures associated with the continued
construction and expansion of the NEON system, to repay
outstanding debt and for working capital and other general
corporate purposes. See "Use of Proceeds." The Company will
not receive any proceeds from the sale by the Selling
Stockholders of Common Stock in the Equity Offering.
Dividend Policy ...................... The Company does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future.
Concurrent Debt Offering ............. Concurrently with the Equity Offering, the Company is offering
$ (Gross Proceeds) of its % Senior Discount Notes
Due 2008 (the "Notes") by a separate prospectus. The closing
of each Offering is conditioned on the closing of the other
Offering.
Proposed NNM symbol .................. NOPT
</TABLE>
- ---------------------
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Based on shares outstanding as of March 31, 1998 (after giving effect to
the Reorganization, the Stock Split and the Preferred Stock Conversion).
Excludes (i) shares of Common Stock issuable upon the exercise of
stock options outstanding as of March 31, 1998 with an exercise price of
$ per share, (ii) an additional shares of Common Stock
reserved for future issuance under the Company's 1998 Stock Incentive Plan
and (iii) shares of Common Stock issuable upon the exercise of
warrants outstanding as of March 31, 1998 with an exercise price of $
per share.
[E] Risk Factors
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should consider carefully the risk factors and
other information set forth in this Prospectus before making an investment in
the Common Stock offered hereby. See "Risk Factors."
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
years in the three-year period ended December 31, 1997 and as of December 31,
1997 have been derived from the Consolidated Financial Statements of the
Company, which have been audited by Arthur Andersen LLP, independent public
accountants. The selected consolidated financial data for each of the
three-month periods ended March 31, 1997 and 1998 and as of March 31, 1998 have
been derived from the unaudited consolidated financial statements of the
Company, which have been prepared on the same basis as the Consolidated
Financial Statements of the Company and, in the opinion of management, reflect
all normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations for such periods and as of such
dates. The results for the three months ended March 31, 1998 are not
necessarily indicative of the operating results to be expected for the entire
year.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------- ---------------------------
1995 1996 1997(1) 1997 1998(1)
------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ............................. $ 42,598 $ 13,773 $ 394,704 $ -- $ 151,363
Operating expenses ................... 487,159 1,185,595 2,693,037 345,620 774,521
---------- ------------ ------------ ---------- ----------
Loss from operations ................. (444,561) (1,171,822) (2,298,333) (345,620) (623,158)
Interest income (expense), net ....... (42,401) 125,838 (2,893) 56,638 (61,494)
Minority interest .................... -- 353,222 1,080,200 137,620 314,498
Provision for (benefit from)
income taxes ....................... -- 16,000 (261,000) (33,000) (77,000)
---------- ------------ ------------ ---------- ----------
Net loss ............................. (486,962) (708,762) (960,026) (118,362) (293,154)
Basic and diluted loss per share ..... (4.28) (6.22) (8.43) (1.04) (2.57)
Basic and diluted weighted average
shares outstanding ................. 113,831 113,894 113,931 113,931 113,931
Other Financial Data:
EBITDA(2) ............................ $ (420,386) $ (794,432) $ (665,271) $ (178,121) $ (6,647)
Capital expenditures ................. 4,596,901 6,711,082 5,609,459 3,978,512 3,297,062
Ratio of earnings to fixed
charges(3) ......................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1997
--------------------------------------------------
Pro Forma
Actual As Adjusted(4) As Adjusted(5)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital .............. $ (3,463,011) $ (3,463,011)
Total assets ................. 23,461,000 76,577,888
Note payable to related
party ...................... 2,100,000 2,100,000
Long-term debt,
including current
maturities ................. 2,118,905 2,118,905
Total liabilities ............ 8,275,154 8,275,154
Minority interest(6) ......... 5,338,786 --
Stockholders equity .......... 9,847,060 68,302,734
<CAPTION>
As of
March 31, 1998
-------------------------------------------------
Pro Forma
Actual As Adjusted(4) As Adjusted(5)
---------------- ---------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital .............. $ (5,500,383) $ (5,500,383) $
Total assets ................. 26,183,672 79,300,560
Note payable to related
party ...................... 3,975,000 3,975,000
Long-term debt,
including current
maturities ................. 1,987,577 1,987,577
Total liabilities ............ 11,605,478 11,605,478
Minority interest(6) ......... 5,024,288 --
Stockholders equity .......... 9,553,906 62,670,794
</TABLE>
- ---------------------
(See footnotes on the following page)
11
<PAGE>
(1) If the Reorganization had occurred as of January 1, 1997, the pro forma
impact on the Company's Statement of Operations for the year ended
December 31, 1997 would reflect depreciation and amortization of
$1,603,087, a net loss of $(2,563,113) and a loss per share of $ ,
after giving effect to the Stock Split. The pro forma impact on the
Company's Statement of Operations for the quarter ended March 31, 1998
would reflect depreciation and amortization of $400,772, a net loss of
$(693,926) and a loss per share of $ , after giving effect to the
Stock Split.
(2) EBITDA is defined herein as net loss before interest income (expense), loan
commitment fees, provision for (benefit from) income taxes, depreciation
and amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare a company's operating
performance and to determine a company's ability to incur and service
debt. EBITDA should not be considered in isolation from, or as a
substitute for, net income, cash flow from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
(3) For purposes of calculating the ratio of earnings to fixed charges: (i)
earnings consist of loss before income tax benefit, plus fixed charges,
excluding capitalized interest, and (ii) fixed charges consist of interest
expense and capitalized interest, plus amortization of deferred financing
costs. For the years ended December 31, 1995, 1996 and 1997 and for the
three months ended March 31, 1997 and 1998, the Company's earnings were
insufficient to cover fixed charges by approximately $(431,579),
$(1,206,438), $(3,123,787), $(376,612) and $(878,731), respectively. For
the year ended December 31, 1997 and for the three months March 31, 1998,
on a pro forma basis after giving effect to the Debt Offering, as if it
had occurred at the beginning of these periods, the Company's earnings
would have been insufficient to cover fixed charges by approximately
$ and $ , respectively.
(4) Adjusted to give effect to the Reorganization. In connection with the
Reorganization, the Company recorded an intangible asset of $48,092,600 to
reflect the Company's acquisition of NU's minority interest in
subsidiaries (NECOM LLC and FiveCom LLC), in accordance with AICPA
Accounting Interpretation 39 to APB Opinion No. 16, Business Combinations
(AIN-39).
(5) Pro forma and adjusted to give effect to (i) the Offerings and the
application of the estimated net proceeds therefrom and (ii) the
Reorganization.
(6) Minority interest consists of the interests of members other than CMP in
FiveCom LLC, NECOM LLC and FiveCom of Maine LLC. See
"Business--Reorganization." Changes in minority interest reflect such
other members' capital adjusted by their portion of the net loss.
12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be carefully considered by prospective investors when
evaluating an investment in the securities offered hereby. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The cautionary statements contained in this Prospectus should be
read as being applicable to all related forward-looking statements wherever
they appear in this Prospectus. The Company's actual results could differ
materially from those discussed here. Important factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this Prospectus.
Limited History of Operations; Negative Cash Flow
Although the Company has conducted business since 1989, the Company's
current business has only a very limited history. As a facilities-based
provider of fiber optic transmission capacity, the Company is a development
stage company in the process of constructing the NEON system throughout the
Northeast. Although limited portions of the NEON system are currently
operational, those portions represent less than 21% of the route miles of the
NEON system as currently planned, and until the NEON system is substantially
completed, the Company does not expect to begin to realize any substantial
revenues. See "--Risks Associated with Completing the NEON System." Prospective
investors, therefore, have no meaningful historical operating or financial
information about the Company's current business upon which to base an
evaluation of the Company's performance or their investment in the securities
offered hereby. The Company does not expect to achieve substantial completion
of the NEON system as currently planned until the end of 1999. The Company's
future operating results will fluctuate annually and quarterly due to several
factors, some of which are outside the control of the Company. These factors
include the cost of construction of the NEON system (including any
unanticipated costs associated therewith), the availability of ROWs, the cost
and timely availability of equipment and construction contractors, pricing
strategies for its services, changes in the regulatory environment, changes in
telecommunications technology and changes in general and local economic
conditions. In addition, the extent of the demand for the Company's services
cannot be estimated with any degree of certainty. See "--Risks Associated with
Implementing the Company's Strategy."
In addition, the development of the Company's business, the completion of
the NEON system and the development of its services and customer base will
require significant expenditures, most of which will need to be made before the
Company is able to offer services over substantially all of the NEON system.
These expenditures, together with associated operating expenses, will adversely
impact operating cash flow and profitability until an adequate customer base is
established. To date, the Company has expended substantial amounts on
construction of the NEON system. Such cash expenditures have been funded by
proceeds from the Company's financing activities. Accordingly, the Company's
operations have resulted in negative cash flow. Moreover, the Company expects
to continue generating negative cash flow from operations through at least
2000. There can be no assurance that the Company will not need to obtain
additional financing to complete the NEON system.
As a result of the foregoing factors, there can be no assurance that the
Company will generate significant revenues, achieve or sustain profitability or
generate positive cash flow from operating activities in the future. If the
Company cannot generate significant revenues, achieve and sustain profitability
or generate positive cash flow from operating activities in the future, it will
not be able to make principal and interest payments with respect to its
indebtedness (including the Notes) or meet its other debt service or working
capital requirements, and the securities offered hereby would have little or no
value.
Risks Associated with Completing the NEON System
The Company's ability to achieve its strategic objectives will depend in
large part upon the successful, timely and cost-effective completion of the
NEON system. Factors that could affect such completion include, among other
things, (i) obtaining adequate ROWs on acceptable terms in and between major
cities in the Northeast, (ii) obtaining required governmental permits and
certifications where necessary and (iii) delays or disruptions resulting from
physical damage, power loss, defective equipment or the failure of third-party
suppliers or contractors to meet their obligations in a timely and
cost-effective manner. No assurance can be given that the Company will be able
to complete the NEON system or achieve completion on time or within the
anticipated budget.
In order to complete the NEON system, the Company must obtain additional
rights-of-way and other permits from third parties, including electric
utilities and transit authorities to install fiber optic cables. In particular,
the
13
<PAGE>
Company has not yet obtained the necessary ROWs to or within the planned
Boston, Massachusetts segment of the NEON system, the planned segment of the
system from White Plains, New York to Manhattan or the planned segment in and
around Rhode Island. Nor has the Company yet obtained the necessary ROWs to
expand the NEON system to encompass the planned New York local loop or the
extensions therefrom into New Jersey. There can be no assurance that the
Company will be successful in obtaining such agreements on acceptable terms.
The Company is currently in negotiations with several electric utilities to
install extensions to the NEON system and with certain transit authorities to
install redundant NEON system paths. If the Company is unable to reach
agreement with the foregoing parties on terms acceptable to the Company, then
such failure may prevent the completion of the NEON system as currently planned
by the Company, and such a result would have a material adverse effect on the
Company's business, financial condition and results of operation. In addition,
if CMP or NU or any other entity with whom the Company has an agreement seeks
bankruptcy or other protection from its creditors, the Company's ability to
exercise rights to obtain route extensions or other rights under its agreement
with such entity may be adversly affected.
Risks Associated with Implementing the Company's Strategy
The Company's ability to implement its business strategy is dependent upon
the Company's ability to secure a market for its leased fiber optic capacity
and obtain service contracts with communications carriers.
The Company's ability to attract and retain customers is crucial to the
Company's success. Many of the Company's targeted customers are companies that
may also be the Company's potential competitors. If the Company's services are
not satisfactory or cost competitive, the Company's potential customers may
elect to develop their own competing systems in the Company's markets. The
Company has incurred and will continue to incur significant operating expenses,
has made and will continue to make significant capital investments and has
entered into equipment supply contracts and service arrangements, in each case
based upon certain expectations as to the anticipated customer demand for the
Company's services in its markets. Accordingly, the failure of the Company to
attract and retain sufficient communications carriers for its services would
materially and adversely affect the Company's business, financial condition and
results of operations.
The Company's business strategy assumes that its current and future
revenues will come from its services to communications carriers, which are
limited in number. Therefore, dissatisfaction with the Company's services by a
relatively few number of communications carriers could have a material adverse
effect on the Company's business, financial condition and results of
operations. For the year ended December 31, 1997, the Company's two largest
customers accounted for 69% and 10% of total revenues, respectively, and for
the three months ended March 31, 1998, the Company's two largest customers
accounted for 76% and 10% of total revenues, respectively. The Company is aware
that certain IXCs are constructing or considering constructing new networks, or
buying companies with local networks, which could reduce their need for the
Company's services. See "--Competition." Accordingly, there can be no assurance
that any of the Company's customers or potential customers will use or increase
their use of the Company's services, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
Implementation of the Company's business strategy also will require
substantial growth in the Company's management base, systems and other
operations and may be affected by factors such as: (i) the availability of
financing and regulatory approvals; (ii) the existence of strategic alliances
or relationships; (iii) technological, regulatory or other developments in the
Company's business; (iv) changes in the competitive climate in which the
Company operates; and (v) the emergence of future opportunities.
Risks Associated with Contractual Rights-of-Way
The construction and operation of the NEON system by the Company is
dependent upon indefeasible rights of use ("IRUs") granted to the Company in
ROWs and in fiber optic filaments. IRUs, which are created by contract, have
been used extensively in the telecommunications industry. Although IRUs confer
upon the holder certain indicia of ownership, legal title and the right to
control the ROW or the fiber optic filaments, as the case may be, remain in the
hands of the grantor. Therefore, while IRUs might be construed as conferring a
significant equitable right in the ROW or the fiber optic filaments, as the
case may be, the legal status of IRUs remains uncertain, and there can be no
assurance that a trustee in bankruptcy would not void an IRU in the event of
the bankruptcy of the grantor of such IRU. In addition, the IRUs granted by CMP
and the NU companies are subject to pre-existing,
14
<PAGE>
system-wide mortgages used to secure utility bonds issued by those companies.
The Company has sought acknowledgments from the NU companies' indenture
trustees that the Company's rights under the NU Agreements would be recognized
in the event of the foreclosure of the related mortgage. Such agreements have
been obtained from the indenture trustees for The Connecticut Light and Power
Company and Western Massachusetts Electric Company, and negotiations are
ongoing with the indenture trustee of Public Service Company of New Hampshire
("PSNH"). If such an agreement is not obtained from PSNH's indenture trustee, a
default by PSNH under its mortgage that resulted in the foreclosure of the
mortgage could result in the Company losing its rights under the NU Agreements
in the State of New Hampshire. The Company has not sought such acknowledgments
from CMP's indenture trustees and a default by CMP under its mortgage that
resulted in the foreclosure of the mortgage could result in the Company losing
its rights under the CMP Agreement.
The Company's IRUs are derivative of the grantor's interest in the real
property on which the NEON system is located. To the extent that the grantor
only has a limited easement in such property, the IRUs granted to the Company
may be alleged to be insufficient for the Company's uses. Although the Company
believes that its existing IRUs are sufficient for the Company's purposes,
there have been in the past and may be in the future disputes from time to time
over the scope of the related easements. If any such dispute cannot be
satisfactorily resolved, including by the Company obtaining its own easement,
the Company might be required to reroute portions of the NEON system, which
would result in additional costs and possible delays in constructing and
operating the NEON system.
The NU Agreements and the CMP Agreement contain provisions which
acknowledge the right of NU and CMP, respectively, to make the provision of
electrical services to their own customers their top priority; NU and CMP are
required only to exercise "reasonable care" with respect to the Company's
facilities and are otherwise free to take whatever actions they deem
appropriate with respect to ensuring or restoring service to their electricity
customers, any of which actions could impair the operation of the NEON system.
In addition, the Company's construction efforts are constrained by the ability
of NU and CMP to shut down certain segments of their transmission facilities in
order to permit construction crews to work safely. The Company has experienced
construction delays in the past as a result of the inability of NU to shut down
segments of its facilities scheduled for fiber installation and may experience
such delays in the future.
Some of the agreements that the Company enters into to construct and
operate the NEON system may be non-exclusive, short-term or revocable at will,
and there can be no assurance that the Company will have continued access to
existing rights-of-way after their expiration or termination. If any of these
agreements were terminated as a result of among other things a default by the
Company of its obligations thereunder including failure to maintain any
necessary governmental approvals or could not be renewed on commercially
reasonable terms and the Company lost its rights in the fiber optic cable or
abandoned portions of its NEON system, such actions would impair the operation
of the NEON system. See "Business--Right-of-Way Agreements."
Competition
The telecommunications industry is highly competitive. The Company faces
substantial competition from ILECs, which currently dominate their local
telecommunications markets, and CLECs, most of which have greater financial and
other resources than the Company. In addition to ILECs and CLECs, potential
competitors capable of offering services similar to those offered by the
Company include IXCs, other facilities-based communications service providers,
cable television companies, electric utilities, microwave carriers, satellite
carriers, wireless telephone system operators and large end-users with private
networks. There can be no assurance that such entities will not compete with
the Company or that such competition would not have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Competition."
The Company is currently aware of communications carriers that own or
lease fiber optic networks in New England (such as AT&T, MCI, Sprint, Bell
Atlantic, SNET, WorldCom and Teleport) and of other carriers (such as IXC
Communications, Qwest Communications International, Metromedia Fiber Network,
Level 3 Communications and RCN) who are planning to own or lease additional
networks which, if constructed, could employ advanced technology comparable to
that of the NEON system.
NU and CMP each own or have an IRU in certain fibers in the cable that
includes the NEON system, which permit NU and CMP to compete directly with the
Company in the future if they are not using these fibers for their
15
<PAGE>
own corporate requirements. See "Business--Right-of-Way Agreements." In
addition the Company's ROWs are nonexclusive in that other service providers
(including the utilities themselves) could install competing networks using the
same ROWs.
In the future, the Company may be subject to more intense competition due
to the development of new technologies, an increased supply of domestic and
international transmission capacity, the consolidation in the industry among
local and long distance service providers and the effects of deregulation
resulting from the Telecommunications Act of 1996. The introduction of new
products or emergence of new technologies may reduce the cost or increase the
supply of certain services similar to those provided by the Company. The
Company cannot predict which of many possible future product and service
offerings will be crucial to maintain its competitive position or what
expenditures will be required to develop profitably and provide such products
and services.
Regulatory Risks
Regulation of the telecommunications industry is changing rapidly.
Existing and future federal, state and local governmental regulations will
greatly influence the viability of the Company. Consequently, undesirable
regulatory changes could adversely affect the Company's business, financial
conditions and results of operations. For instance, while the Company does not
believe that its fiber offerings, as proposed, are subject to common carrier
regulation by the Federal Communications Commission ("FCC") or under the common
carrier provisions of the Communications Act of 1934, as amended (the
"Communications Act"), except with respect to its provision of
telecommunications services on a common carrier basis offered through its
subsidiaries in New York and Connecticut, the Company cannot predict the future
regulatory status of its business. The FCC has recognized a class of private,
non-common carriers whose practice it is to make individualized decisions on
what terms and with whom to deal. These carriers may be subject to FCC
jurisdiction but are not currently extensively regulated. Such private carriers
include entities providing "telecommunications" for a fee as defined in the
1996 Act, which may include certain of the Company's offerings. In the event
that the Company becomes subject to the FCC's jurisdiction, it will be required
to comply with a number of regulatory requirements, including, but not limited
to rate regulation, reporting requirements, special payments, including
universal service assessments and access charges, and required service
offerings. Compliance with these regulatory requirements may impose substantial
administrative burdens on the Company. In addition, ILECs, CLECs and IXCs are
subject to various federal telecommunications laws. Accordingly, changes in
federal telecommunications law may affect the Company's business by virtue of
the inter-relationships that exist among the Company and many of these
regulated telecommunications entities. It is difficult for the Company to
forecast at this time how these changes will affect the Company in light of the
complex interrelationships that exist in the industry and the different levels
of regulation. For a more detailed discussion of the regulatory environment in
which the Company conducts its business, see "Business--Regulation."
The regulatory environment also varies substantially from state to state.
At present, the Company does not anticipate that the regulatory requirements to
which it will be subject in connection with its provision of telecommunications
services on a common carrier basis in New England and New York will have any
material adverse effect on its operations, although the Company may incur
certain costs to comply with regulatory requirements such as the filing of
tariffs, submission of periodic financial and operational reports to
regulators, and payment of regulatory fees and assessments in Connecticut and
New York. In some jurisdictions, the Company's pricing flexibility for
intrastate services may be limited because of regulation, although the
Company's direct competitors are expected to be subject to similar
restrictions.
Rapid Technological Changes
The telecommunications industry is subject to rapid and significant
changes in technology. For instance, recent technological advances permit
substantial increases in transmission capacity of both new and existing fiber,
and the introduction of new products or emergence of new technologies may
reduce the cost or increase the supply of certain services similar to those
provided by the Company. While the Company believes that, for the foreseeable
future, technological changes will neither materially affect the continued use
of fiber optic cable nor materially hinder the Company's ability to acquire
necessary technologies, the effect of technological changes on the Company's
operations cannot be predicted and could have a material adverse effect on the
Company's business, financial condition and results of operations.
16
<PAGE>
Dependence on Limited Source Suppliers
The Company is dependent upon third-party suppliers for a number of
components and parts used in the NEON system. In particular, the Company is
dependent primarily on Lucent Technologies, Inc. ("Lucent") for its supply of
fiber optic glass. The Company's arrangements with Lucent have provided it to
date with a supply of fiber optic glass at a price and on terms acceptable to
the Company. The Company believes that there are alternative suppliers or
alternative components for all of the components contained in the NEON system.
However, any delay or extended interruption in the supply of any of the key
components currently obtained from a single or limited source, changes in the
pricing arrangements with its suppliers or delay in transitioning a replacement
supplier's product into the NEON system could disrupt the Company's operations
and have a material adverse effect on the Company's business, financial
condition and results of operations.
Pricing Pressures and Industry Capacity
Although the Company believes that, in the last several years, increasing
demand for fiber optic transmission capacity has resulted in a shortage of
capacity and slowed a decline in prices, the Company anticipates that prices
for its services to carriers specifically, and interstate services in general,
will continue to decline over the next several years due primarily to (i) price
competition as various network providers continue to install networks that
compete with the NEON system, (ii) technological advances that permit
substantial increases in the transmission capacity of both new and existing
fiber and (iii) strategic alliances or similar transactions, such as long
distance capacity purchasing alliances among certain ILECs, that increase
customer purchasing power. Such price decreases, without offsetting decreases
in the Company's cost of services or increases in demand for the Company's
services, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Limited Nature of Company's Services
The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure, and does not control
whether a customer uses such bandwidth for voice, data or video signals. The
Company is not currently engaged in the transmission of voice, data or video
services and does not provide switched voice and data services. Accordingly, at
the present time, the Company, unlike some telecommunications companies,
receives no revenues from providing such services, and instead derives and
expects to continue to derive substantially all of its revenues from the
leasing of fiber optic capacity to its customers, many of whom transmit voice,
data or video information or provide switched voice and data services. The
limited nature of the Company's current services could limit potential revenues
and result in the Company having lower revenues than competitors which provide
a wider array of services. See "Business--Customers" and "--Competition."
Dependence Upon Network Infrastructure; Risk of System Failure
The Company's success in marketing its services to its customers requires
that the Company provide superior reliability, capacity and security via its
network. The Company's network and networks upon which it depends are subject
to physical damage, power loss, capacity limitations, software defects,
breaches of security and other disruptions that may cause interruptions in
service or reduced capacity for customers, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's agreements with its customers typically provide for
the payment of outage related credits or damages in the event of a disruption
in service, which credits or damages could be substantial and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Key Personnel
The Company's future performance will depend to a significant extent upon
the efforts and abilities of its senior executives. The loss of service of one
or more of these persons could have an adverse effect on the Company's
business. There can be no assurance that the Company will be able to attract
and retain qualified executives to achieve its business objectives. See
"Management."
17
<PAGE>
High Leverage; Ability to Service Indebtedness
Upon completion of the Offerings, the Company will be highly leveraged. As
of March 31, 1998, on a pro forma basis after giving effect to the Offerings,
the Company and its subsidiaries would have had outstanding $ million of
indebtedness and the Company's ratio of total debt to total capitalization
would have been %. [D]Although the Indenture will contain certain limitations
on the ability of the Company and its subsidiaries to incur additional
Indebtedness (as defined), under certain circumstances such additional
Indebtedness could be substantial and such limitations generally do not
restrict the Company and its subsidiaries from incurring liabilities that do
not constitute Indebtedness.
The Company's high degree of leverage could have adverse consequences to
the holders of the Company's securities. Such consequences may include, among
other things: (i) commencing on 2004, a substantial portion of the
Company's cash flow will be dedicated to the payment of the Company's interest
expense with respect to the Notes and such cash flow may be insufficient to
meet its payment obligations on the Notes in addition to paying other
obligations of the Company as they become due; (ii) the Company's ability to
obtain any necessary financing in the future for completion of the NEON system
or other purposes may be impaired; (iii) certain of the future borrowings by
the Company may be at variable rates of interest that could cause the Company
to be vulnerable to increases in interest rates; (iv) the Company may be more
leveraged than its competitors, which may place the Company at a competitive
disadvantage; and (v) the Company may be vulnerable to a downturn in its
business or the economy generally or to delays in or increases in the cost of
constructing the NEON system.
For the year ended December 31, 1997 and the three months ended March 31,
1998, the Company's pro forma fixed charges would have exceeded the Company's
earnings by $ and $ , respectively. The Company's ability to pay
principal and interest on the Notes and any additional indebtedness it may
incur after the Offerings will depend upon its ability to complete and operate
the NEON system and its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors, many
of which are beyond its control. There can be no assurance that the NEON system
will be completed on time or on budget or that the Company will be able to
generate sufficient cash flow to pay its indebtedness and its other obligations
as they become due. If the Company is unable to service its indebtedness, the
Company will be forced to take actions such as reducing or delaying
acquisitions or capital expenditures, selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There is no
assurance that any of these remedies could be effected on satisfactory terms,
if at all, including, whether, and on what terms, the Company could refinance
its indebtedness or raise equity capital.
The Indenture imposes and will impose significant operating and financial
restrictions on the Company and its present and future 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
certain indebtedness, pay dividends and make certain other restricted payments,
create liens, issue and sell capital stock of subsidiaries, guarantee certain
indebtedness, sell assets, or consolidate, merge or transfer all or
substantially all of their assets. 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 attractive business opportunities.
[D] Priority of Secured Debt
The Notes will be unsecured and will be effectively subordinated to any
future secured indebtedness of the Company to the extent of the value of the
assets securing such indebtedness. The Indenture will permit the Company or its
subsidiaries to incur additional secured indebtedness, including purchase money
indebtedness. See "Description of the Notes." In the event of a bankruptcy,
liquidation, dissolution, restructuring or similar proceeding with respect to
the Company, such assets will be available to satisfy obligations of any such
secured debt before any payment can be made on the Notes. In addition, to the
extent such assets would not satisfy in full any such secured indebtedness, the
holders of such indebtedness will have a claim for any shortfall that is pari
passu (or effectively senior if the indebtedness were issued by the
subsidiaries) with the Notes. Accordingly, there may only be a limited amount
of assets available to satisfy any claims of the holders of the Notes upon an
acceleration of the Notes.
18
<PAGE>
Concentration of Stock Ownership; Potential Conflicts of Interest
After consummation of the Offerings, Central Maine Power Company and
Northeast Utilities will beneficially own or control, in the aggregate, more
than 50% of the outstanding Common Stock. As a result of their stock ownership,
these stockholders acting together will be able to continue to elect the
members of the Board of Directors and decide all matters requiring stockholder
approval. See [E]"Principal and Selling Stockholders" [D]"Principal
Stockholders."
The Company has entered into various agreements with CMP and NU, including
certain existing ROW agreements for the engineering, design and construction
supervision of the NEON system. Certain conflicts may arise between the
interests of CMP and NU and other securityholders of the Company. Pursuant to
such agreements, CMP and NU may have monetary claims from time to time against
the Company. See "Business--Right-of-Way Agreements" and "Certain
Transactions."
CMP and NU have entered into an agreement dated May 28, 1998, whereby each
such party agrees that, following the completion of the Offerings, it will not
permit or cause the Company to (i) merge or consolidate, liquidate or dissolve,
change its form of organization or sell, lease, exchange or transfer all or
substantially all of its assets; or (ii) seek bankruptcy protection or certain
other protection from creditors, unless both parties agree. After the closing
of the Offerings, this agreement will remain in effect for so long as (a) NU
owns at least 10% of the outstanding Common Stock of the Company, fully diluted
and (b) the aggregate Common Stock of the Company owned by NU and CMP is at
least 331/3% of the outstanding Common Stock of the Company, fully diluted. The
Company expects that each of CMP and NU will be major creditors of the Company
under their existing ROW agreements. See "Business--Right-of-Way Agreements"
and "Description of Capital Stock--Shareholders Agreement."
[E] No Prior Public Market; Possible Volatility of Stock Price
Prior to the Equity Offering, there has been no public market for the
Common Stock. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives of the
Underwriters and may not be indicative of the market price for the Common Stock
in the future. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. There can be no
assurance that an active trading market for the Common Stock will develop or be
sustained after the Equity Offering. If a trading market develops, the market
price of the Common Stock may fluctuate widely as a result of various factors,
such as period-to-period fluctuations in the Company's operating results, sales
of Common Stock by principal stockholders, developments in the industry,
competitive factors, regulatory developments, economic and other external
factors, general market conditions and market conditions affecting stocks of
telecommunications companies in particular. The stock market in general, and
the stocks of telecommunications companies in particular, have in the past
experienced extreme volatility in trading prices and volumes that has often
been unrelated to operating performance. Such market volatility may have a
significant adverse affect on the market price and marketability of the Common
Stock. See "Underwriting."
[E] Absence of Dividends
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and expansion of its business
and has no current intention to pay cash dividends on its Common Stock. See
"Dividend Policy."
[E] Shares Eligible for Future Sale
Upon consummation of the Equity Offering, shares of Common Stock will
be outstanding ( shares if the Underwriters' over-allotment option is
exercised in full), of which shares will be freely tradeable ( shares if
the Underwriters' over-allotment option is exercised in full). Of the
remaining shares, shares are held by MaineCom and Mode 1 who, together with
the Company and its officers and directors, have entered into an agreement not
to sell, contract to sell, or otherwise dispose of, any shares of Common Stock
without the consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this Prospectus (the "Lock-Up Agreement"). Upon
expiration of such agreements, such shares will be eligible for sale in the
public markets in accordance with Rule 144 ("Rule 144") promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). At April 30, 1998,
there were
19
<PAGE>
outstanding stock options to purchase a total of shares of Common Stock,
of which options for shares will be exercisable upon consummation of the
Equity Offering. The shares issued upon exercise of these options will be
potentially eligible for public sale 90 days after the date of this Prospectus
pursuant to Rule 701 under the Securities Act. All holders of such options,
however, have signed Lock-Up Agreements. Except as limited by the Lock-Up
Agreements and by Rule 144 volume limitations applicable to affiliates, shares
issued upon the exercise of stock options generally are available for sale in
the open market. Future sales of significant amounts of Common Stock in the
public market after the Equity Offering, could adversely affect the prevailing
market price of the Common Stock. See "Shares Eligible for Future Sale."
[E] Immediate and Substantial Dilution
Investors purchasing Common Stock in the Equity Offering will experience
immediate and substantial dilution in the net tangible book value of their
shares. Assuming an initial public offering price of $ per share
(representing the midpoint of the estimated price range), dilution to new
investors would be $ per share. Additional dilution will occur upon
exercise of outstanding stock options. If the Company seeks additional capital
in the future, the issuance of shares or securities convertible into shares of
Common Stock to obtain such capital may lead to further dilution. See
"Dilution."
[E] Antitakeover Effect of Certain Charter Provisions.
The Board of Directors has the authority to issue up to 2,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. The rights of the holders of Common Stock
may be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common
Stock, which could have an adverse impact on the market price of the Common
Stock. The Company has no present plans to issue shares of Preferred Stock.
Further, certain provisions of the Company's charter documents, including
provisions eliminating the ability of stockholders to take action by written
consent and limiting the ability of stockholders to raise matters at a meeting
of stockholders without giving advance notice, may have the effect of delaying
or preventing changes in control or management of the Company, which could have
an adverse effect on the market price of the Company's Common Stock. The
Company is subject to the anti-takeover provision of Section 203 of the
Delaware General Corporation Law, which will prohibit the Company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 also could have the effect of
delaying or preventing a change of control of the Company. See "Description of
Capital Stock."
[D] Consequences of Original Issue Discount on Notes
The Notes will be issued at a substantial discount from their principal
amount. Consequently, purchasers of the Notes generally will be required to
include amounts in gross income for federal tax purposes in advance of receipt
of the cash payments to which the income is attributable, and generally no cash
payments of interest will be made until , 2004. See "Certain United States
Federal Income Tax Consequences" for a more detailed discussion of the federal
income tax consequences to purchasers of the Notes.
If a bankruptcy proceeding is commenced by or against the Company under
the United States Bankruptcy Code after the issuance of the Notes, the claim of
a holder of Notes may be limited to an amount equal to the sum of (i) the
initial offering price for the Notes and (ii) that portion of the original
issue discount that is not deemed to constitute "unmatured interest" for
purposes of the United States Bankruptcy Code. Any original issue discount that
was not amortized as of the commencement of any such bankruptcy proceeding
would constitute "unmatured interest."
20
<PAGE>
[D] Purchase of Notes Upon Change of Control
Upon a Change of Control, the Company must offer to purchase all
outstanding Notes at 101% of the Accreted Amount thereof, plus accrued and
unpaid interest to the date of purchase. The source of funds for any such
purchase would be the Company's available cash or cash generated from other
sources. However, there can be no assurance that sufficient funds would be
available at the time of any Change of Control to make any required purchases
of Notes tendered. See "Description of the Notes--Change of Control."
[D] Absence of Trading Market for the Notes
The Notes constitute a new issue of securities, have no established
trading market and may not be widely held. Although the Underwriters have
informed the Company that they currently intend to make a market in the Notes
as permitted by applicable laws and regulations, they are not obligated to do
so and may discontinue market making at any time without notice. The Company
does not intend to list the Notes on any national securities exchange or to
seek the admission thereof to trading in The Nasdaq Stock Market, Inc., and
there can be no assurance as to the development of any market or the liquidity
of any market that may develop for the Notes. If such a market does develop,
the price of the Notes may fluctuate and liquidity may be limited. If such a
market does not develop, purchasers may be unable to resell the Notes for an
extended period of time, if at all.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Notes will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on holders of the Notes.
[D] EQUITY OFFERING
Concurrently with the Debt Offering, the Company and certain selling
stockholders of the Company (the "Selling Stockholders") are offering
shares of Common Stock to the public in the Equity Offering. In addition, as
part of the Equity Offering the Company and the Selling Stockholders have
granted the underwriters thereof an option to purchase up to additional
shares of Common Stock to cover over-allotments, if any. The closing of the
Debt Offering is conditioned upon the closing of the Equity Offering, and the
closing of the Equity Offering is conditioned upon the closing of the Debt
Offering.
[E] DEBT OFFERING
Concurrently with the Equity Offering, the Company is offering its %
Senior Discount Notes Due 2008 to the public in the Debt Offering for gross
proceeds of $ million. The indenture under which the Notes will be
issued will contain certain covenants that, among other things, will limit (i)
the incurrence of additional Indebtedness by the Company and its Restricted
Subsidiaries (as defined), (ii) the payment of dividends and other restricted
payments by the Company and its Restricted Subsidiaries, (iii) the creation of
restrictions on distributions from Restricted Subsidiaries, (iv) asset sales,
(v) transactions with affiliates, (vi) sales or issuances of Restricted
Subsidiary capital stock, (vii) the incurrence of liens and the entering into
of sale/leaseback transactions and (viii) mergers and consolidations. The
closing of the Equity Offering is conditioned upon the closing of the Debt
Offering, and the closing of the Debt Offering is conditioned upon the closing
of the Equity Offering. See "Description of Certain Indebtedness."
21
<PAGE>
USE OF PROCEEDS
[E] The net proceeds to the Company from the Equity Offering are estimated
to be approximately $ million ($ million if the Underwriters'
over-allotment option is exercised in full), assuming an initial public
offering price of $ per share, the midpoint of the estimated price range,
and after deducting the estimated underwriting discount and offering expenses.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock sold by the Selling Stockholders in the Equity Offering. The net
proceeds to the Company from the Debt Offering are estimated to be
approximately $ million, after deducting the estimated underwriting
discount and offering expenses. Pending the foregoing uses, the net proceeds of
the Offerings will be invested in short-term, investment-grade securities.
[D] The net proceeds to the Company from the Debt Offering are estimated
to be approximately $ million after deducting the estimated underwriting
discount and offering expenses and the net proceeds to the Company from the
Equity Offering are estimated to be approximately $ million ($ million
if the underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $ per share and after deducting the
estimated underwriting discount and offering expenses. Pending the foregoing
uses, the net proceeds of the Offerings will be invested in short-term,
investment-grade securities.
The Company intends to use the net proceeds of the Offerings, estimated to
be $ , for capital expenditures associated with the continued
construction and expansion of the NEON system, to repay certain indebtedness
and for working capital and general corporate purposes. Such indebtedness to be
repaid includes approximately $ of principal plus accrued interest
under the Company's Construction Loan Agreement with CMP (the "CMP Loan
Agreement") and approximately $ of principal and prepayment premium plus
accrued interest under the Company's Construction Loan Agreement with Peoples
Heritage Savings Bank (the "Peoples Loan Agreement"). Indebtedness under the
CMP Loan Agreement and the Peoples Loan Agreement bears interest at an annual
rate of LIBOR plus 3% and an annual rate of 9.25%, respectively, and matures in
2002 and 2007, respectively.
[E] DIVIDEND POLICY
The Company intends to retain future earnings, if any, to finance the
development and expansion of its business and, therefore, does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future. The
payment of dividends is within the discretion of the Company's Board of
Directors and will be dependent upon, among other factors, the Company's
results of operations, financial condition and capital requirements,
restrictions imposed by the Company's financing arrangements and legal
requirements.
The terms of the Notes will restrict the Company's ability to pay cash
dividends on its Common Stock. See "Description of Certain Indebtedness."
22
<PAGE>
[E] DILUTION
At March 31, 1998, after giving effect to the Reorganization, the Company
had a net tangible book value of approximately $10,870,000 or $ per share
of Common Stock. Net tangible book value per share represents the amount of
total tangible assets less total liabilities divided by the number of shares of
Common Stock outstanding, after giving effect to the Preferred Stock Conversion
and the Stock Split. After giving effect to the sale of shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$ per share (the mid-point of the estimated price range) and after
deducting the estimated underwriting discount and offering expenses payable by
the Company, the pro forma net tangible book value of the Company as of March
31, 1998 would have been approximately $ or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to the existing stockholders and an immediate dilution of $ per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ........................... $
Net tangible book value as of March 31, 1998 ................... $
Increase attributable to net proceeds to the
Company of the Equity Offering ...............................
Pro forma net tangible book value after the Equity Offering .....
Dilution to new investors ....................................... $
==========
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1998,
the differences between existing stockholders and new investors in the Equity
Offering (at an assumed initial public offering price of $ per share) with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------- ----------------------
Average Price
Number Percent Amount Percent per Share
-------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2) ......... % $ % $
New investors(2) ....................
Total ............................. 100% $ 100%
=== ========= ===
</TABLE>
- ---------------------
(1) Excludes options outstanding as of March 31, 1998 to purchase shares
of Common Stock with an exercise price of $ per share and warrants
outstanding as of March 31, 1998 to purchase shares of Common Stock
with an exercise price of $ per share. See "Capitalization,"
"Management--1998 Stock Incentive Plan" and the Notes to Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
To the extent these options and warrants are exercised, there will be
further dilution to the new investors.
(2) Sales by the Selling Stockholders in the Equity Offering will reduce the
number of shares held by existing stockholders to , or approximately
% of the total number of shares of Common Stock outstanding after the
Equity Offering (or shares and approximately % if the Underwriters
over-allotment option is exercised in full), and will increase the number
of shares held by new investors to , or approximately % of the
total number of shares of Common Stock outstanding after the Equity
Offering (or shares and approximately % if the Underwriters
over-allotment option is exercised in full).
23
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the Company as of March 31, 1998 (i) on an actual basis, (ii)
on an as adjusted basis after giving effect to the Reorganization and (iii) on
a pro forma as adjusted basis reflecting in addition (A) the conversion of the
Company's Preferred Stock into an aggregate of shares of Common Stock
upon the closing of the Offerings, (B) a for stock split of the
Company's Common Stock and (C) the Offerings and the application of the
estimated net proceeds therefrom (assuming, in the case of the Equity Offering,
an initial public offering price of $ per share).
<TABLE>
<CAPTION>
As of March 31, 1998
------------------------------------------------
Pro Forma
Actual As Adjusted As Adjusted
--------------- --------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents .......................... $ 1,232,254 $ 1,232,254 $
============ ============ ==========
Short-term borrowings .............................. $ 1,949,936 $ 1,949,936 $
Note payable to related party ...................... 3,975,000 3,975,000
Long-term debt (less current portion) .............. 37,641 37,641
% Senior Discount Notes Due 2008 ................. -- --
------------ ------------
Total debt ..................................... 5,962,577 5,962,577
------------ ------------
Minority interest (1) .............................. 5,024,288 -- --
------------ ------------ ----------
Stockholders' equity:
Preferred stock (no shares authorized, issued or
outstanding, actual; 2,000,000 shares authorized
and no shares issued or outstanding, as adjusted
and pro forma as adjusted) ...................... -- -- --
Series A convertible preferred stock (200,000 and
277,960 shares authorized and 78,324 and
277,960 shares issued and outstanding, actual and
as adjusted, respectively) (2)(3) ............... 3,916 2,779 --
Series B convertible preferred stock (4,500,000 and
4,498,371 shares authorized and 962,734 and
4,498,371 issued and outstanding, actual and as
adjusted, respectively) (1)(2) .................. 48,137 44,984 --
Common stock (4,000,000, 30,000,000 and
30,000,000 shares authorized and 113,931,
113,931 and shares issued and
outstanding, actual, as adjusted and pro forma
as adjusted, respectively) (2)(4) ............... 5,696 1,139
Warrants (1)(5) ................................... 541,431 8,595 --
Additional paid-in capital (2)(5)(6) .............. 11,772,725 65,431,296
Accumulated deficit ............................... (2,817,999) (2,817,999)
------------ ------------
Total stockholders' equity ..................... 9,553,906 62,670,794
------------ ------------
Total capitalization ......................... $ 20,540,771 $ 68,633,371 $
============ ============ ==========
</TABLE>
- ---------------------
(See footnotes on the following page)
24
<PAGE>
(1) In connection with the Reorganization, the minority interests in the
Company's subsidiaries were exchanged for Series B convertible preferred
stock, resulting in the elimination of any minority interest and an
increase of 3,535,637 shares of Series B convertible preferred stock, of
which 144,172 shares arose from CMP's exercise of a warrant.
(2) In connection with the Reorganization, the par value of the Series A
convertible preferred stock, Series B convertible preferred stock and
common stock was reduced from $0.05 to $0.01 per share, resulting in a
reduction in stated capital of $3,133, $38,509 and $4,557 in Series A
convertible preferred stock, Series B convertible preferred stock and
common stock, respectively, and a corresponding increase in additional
paid-in capital of $46,199.
(3) In connection with the Reorganization, the conversion rate on the Series A
convertible preferred stock was reduced to a 1 : 1 ratio and 199,636
additional shares of Series A convertible preferred stock were issued to
adjust for such reduction.
(4) Excludes (i) shares of Common Stock issuable upon the exercise of stock
options outstanding as of March 31, 1998 with an exercise price of $
per share, (ii) an additional shares of Common Stock reserved for
future issuance under the Company's 1998 Stock Incentive Plan, and (iii)
shares of Common Stock issuable upon the exercise of warrants
outstanding as of March 31, 1998 with an exercise price of $ per
share.
(5) The exercise of the CMP warrant resulted in an increase in additional
paid-in capital of $531,394, which represents the difference between the
actual book value of the warrant and the new par value of Series B
convertible preferred stock arising upon exercise of the warrant.
(6) In connection with the Reorganization, the Company recorded an intangible
asset of $48,092,600 to reflect the Company's acquisition of NU's minority
interest in subsidiaries (NECOM LLC and FiveCom LLC), in accordance with
AICPA Accounting Interpretation 39 to APB Opinion No. 16, Business
Combinations (AIN-39).
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial and operating data presented below for
each of the years in the three-year period ended December 31, 1997 and as of
December 31, 1996 and 1997 have been derived from the Consolidated Financial
Statements of the Company, which have been audited by Arthur Andersen LLP,
independent public accountants. The selected consolidated financial data for
each of the years in the two-year period ended December 31, 1994 and for each
of the three-month periods ended March 31, 1997 and 1998 and as of December 31,
1993, 1994 and 1995, and March 31, 1997 and 1998 have been derived from the
unaudited consolidated financial statements of the Company, which have been
prepared on the same basis as the Consolidated Financial Statements of the
Company and, in the opinion of management, reflect all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for such periods and as of such dates. The results for
the three-months ended March 31, 1998 are not necessarily indicative of the
operating results to be expected for the entire year. The information set forth
below should be read in conjunction with the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997(1)
----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .......................................... $287,894 $ 326,581 $ 42,598 $ 13,773 $ 394,704
Operating expenses ................................ 291,551 589,250 487,159 1,185,595 2,693,037
Loss from operations .............................. (3,657) (262,669) (444,561) (1,171,822) (2,298,333)
Interest income (expense), net .................... -- 59,959 (42,401) (125,838) (2,893)
Minority interest ................................. -- -- -- 353,222 1,080,200
Provision for (benefit from) income taxes ......... -- -- -- 16,000 (261,000)
Net loss .......................................... (3,657) (202,710) (486,962) (708,762) (960,026)
Basic and diluted loss per share .................. (17.25) (6.20) (4.28) (6.22) (8.43)
Basic and diluted weighted average shares
outstanding ...................................... 212 32,698 113,831 113,894 113,931
Other Financial Data:
EBITDA(2) ......................................... $ (2,460) $ (250,032) $ (420,386) $ (794,432) $ (665,271)
Capital expenditures .............................. 1,579 26,179 4,596,901 6,711,082 5,609,459
Ratio of earnings to fixed charges(3) ............. -- -- -- -- --
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1998(1)
------------- -------------
<S> <C> <C>
Statement of Operations Data:
Revenues .......................................... $ -- $ 151,363
Operating expenses ................................ 345,620 774,521
Loss from operations .............................. (345,620) (623,158)
Interest income (expense), net .................... 56,638 (61,494)
Minority interest ................................. 137,620 314,498
Provision for (benefit from) income taxes ......... (33,000) (77,000)
Net loss .......................................... (118,362) (293,154)
Basic and diluted loss per share .................. (1.04) (2.57)
Basic and diluted weighted average shares
outstanding ...................................... 113,931 113,931
Other Financial Data:
EBITDA(2) ......................................... $ (178,121) $ (6,647)
Capital expenditures .............................. 3,978,512 3,297,062
Ratio of earnings to fixed charges(3) ............. -- --
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ............. $ (9,165) $ (29,141) $ (4,526,664) $3,209,234 $ (3,463,011)
Total assets ................ 63,612 165,081 4,774,827 16,369,663 23,461,000
Note payable to related
party ....................... 5,000 -- -- -- 2,100,000
Long-term debt, including
current maturities .......... -- 348,198 932,713 927,021 2,118,905
Total liabilities ........... 23,213 478,332 5,574,589 2,332,963 8,275,154
Minority interest ........... -- -- -- 6,312,554 5,338,786
Stockholders equity (deficit) 40,399 (313,251) (799,762) 7,724,146 9,847,060
<CAPTION>
As of December 31, As of March 31, 1998
------------------------------ ----------------------------------------------
Pro Forma Pro Forma
As As As As
Adjusted(4) Adjusted(5) Actual Adjusted(4) Adjusted(5)
---------------- ------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ............. $ (3,463,011) $ $ (5,500,383) $ (5,500,383) $
Total assets ................ 76,577,888 26,056,672 79,300,560
Note payable to related
party ....................... 2,100,000 3,975,000 3,975,000
Long-term debt, including
current maturities .......... 2,118,905 1,987,577 1,987,577
Total liabilities ........... 8,275,154 11,605,478 11,605,478
Minority interest ........... -- 5,024,288 --
Stockholders equity (deficit) 68,302,734 9,553,906 62,670,794
</TABLE>
- ---------------------
(1) If the Reorganization had occurred as of January 1, 1997, the pro forma
impact on the Company's Statement of Operations for the year ended
December 31, 1997 would reflect depreciation and amortization of
$1,603,087, a net loss of $(2,563,113) and a loss per share of $ ,
after giving effect to the Stock Split. The pro forma impact on the
Company's Statement of Operations for the quarter ended March 31, 1998
would reflect depreciation and amortization of $400,772, a net loss of
$(693,926) and a loss per share of $ , after giving effect to the
Stock Split.
(2) EBITDA is defined herein as net loss before interest income (expense), loan
commitment fees, provision for (benefit from) income taxes, depreciation
and amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare a company's operating
performance and to determine a company's ability to incur and service
debt. EBITDA should not be considered in isolation from, or as a
substitute for, net income, cash flow from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial and operating data presented below for
each of the years in the three-year period ended December 31, 1997 and as of
December 31, 1996 and 1997 have been derived from the Consolidated Financial
Statements of the Company, which have been audited by Arthur Andersen LLP,
independent public accountants. The selected consolidated financial data for
each of the years in the two-year period ended December 31, 1994 and for each
of the three-month periods ended March 31, 1997 and 1998 and as of December 31,
1993, 1994 and 1995, and March 31, 1997 and 1998 have been derived from the
unaudited consolidated financial statements of the Company, which have been
prepared on the same basis as the Consolidated Financial Statements of the
Company and, in the opinion of management, reflect all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for such periods and as of such dates. The results for
the three-months ended March 31, 1998 are not necessarily indicative of the
operating results to be expected for the entire year. The information set forth
below should be read in conjunction with the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997(1)
----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .......................................... $287,894 $ 326,581 $ 42,598 $ 13,773 $ 394,704
Operating expenses ................................ 291,551 589,250 487,159 1,185,595 2,693,037
Loss from operations .............................. (3,657) (262,669) (444,561) (1,171,822) (2,298,333)
Interest income (expense), net .................... -- 59,959 (42,401) (125,838) (2,893)
Minority interest ................................. -- -- -- 353,222 1,080,200
Provision for (benefit from) income taxes ......... -- -- -- 16,000 (261,000)
Net loss .......................................... (3,657) (202,710) (486,962) (708,762) (960,026)
Basic and diluted loss per share .................. (17.25) (6.20) (4.28) (6.22) (8.43)
Basic and diluted weighted average shares
outstanding ...................................... 212 32,698 113,831 113,894 113,931
Other Financial Data:
EBITDA(2) ......................................... $ (2,460) $ (250,032) $ (420,386) $ (794,432) $ (665,271)
Capital expenditures .............................. 1,579 26,179 4,596,901 6,711,082 5,609,459
Ratio of earnings to fixed charges(3) ............. -- -- -- -- --
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1998(1)
------------- -------------
<S> <C> <C>
Statement of Operations Data:
Revenues .......................................... $ -- $ 151,363
Operating expenses ................................ 345,620 774,521
Loss from operations .............................. (345,620) (623,158)
Interest income (expense), net .................... 56,638 (61,494)
Minority interest ................................. 137,620 314,498
Provision for (benefit from) income taxes ......... (33,000) (77,000)
Net loss .......................................... (118,362) (293,154)
Basic and diluted loss per share .................. (1.04) (2.57)
Basic and diluted weighted average shares
outstanding ...................................... 113,931 113,931
Other Financial Data:
EBITDA(2) ......................................... $ (178,121) $ (6,647)
Capital expenditures .............................. 3,978,512 3,297,062
Ratio of earnings to fixed charges(3) ............. -- --
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ............. $ (9,165) $ (29,141) $ (4,526,664) $3,209,234 $ (1,989,606)
Total assets ................ 63,612 165,081 4,774,827 16,369,663 23,461,000
Note payable to related
party ....................... 5,000 -- -- -- 2,100,000
Long-term debt, including
current maturities .......... -- 348,198 932,713 927,021 2,118,905
Total liabilities ........... 23,213 478,332 5,574,589 2,332,963 8,275,154
Minority interest ........... -- -- -- 6,312,554 5,338,786
Stockholders equity (deficit) 40,399 (313,251) (799,762) 7,724,146 9,847,060
<CAPTION>
As of December 31, As of March 31, 1998
------------------------------ ----------------------------------------------
Pro Forma Pro Forma
As As As As
Adjusted(4) Adjusted(5) Actual Adjusted(4) Adjusted(5)
---------------- ------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ............. $ (1,989,606) $ $ (3,949,848) $ (3,949,848) $
Total assets ................ 76,577,888 26,056,672 79,300,560
Note payable to related
party ....................... 2,100,000 3,975,000 3,975,000
Long-term debt, including
current maturities .......... 2,118,905 1,987,577 1,987,577
Total liabilities ........... 8,275,154 11,605,478 11,605,478
Minority interest ........... -- 5,024,288 --
Stockholders equity (deficit) 68,302,734 9,553,906 62,670,794
</TABLE>
- ---------------------
(1) If the Reorganization had occurred as of January 1, 1997, the pro forma
impact on the Company's Statement of Operations for the year ended
December 31, 1997 would reflect depreciation and amortization of
$1,603,087, a net loss of $(2,563,113) and a loss per share of $ ,
after giving effect to the Stock Split. The pro forma impact on the
Company's Statement of Operations for the quarter ended March 31, 1998
would reflect depreciation and amortization of $400,772, a net loss of
$(693,926) and a loss per share of $ , after giving effect to the
Stock Split.
(2) EBITDA is defined herein as net loss before interest income (expense), loan
commitment fees, provision for (benefit from) income taxes, depreciation
and amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare a company's operating
performance and to determine a company's ability to incur and service
debt. EBITDA should not be considered in isolation from, or as a
substitute for, net income, cash flow from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
26
<PAGE>
(3) For purposes of calculating the ratio of earnings to fixed charges: (i)
earnings consist of loss before income tax benefit, plus fixed charges,
excluding capitalized interest; and (ii) fixed charges consist of interest
expenses and capitalized interest, plus amortization of deferred financing
costs. For the years ended December 31, 1993, 1994, 1995, 1996, and 1997
and for the three months ended March 31, 1997 and 1998, the Company's
earnings were insufficient to cover fixed charges by approximately
$(3,657), $(175,439), $(431,579), $(1,206,438), $(3,123,787), $(376,612)
and $(878,731), respectively. For the year ended December 31, 1997 and for
the three months ended March 31, 1998, on a pro forma basis after giving
effect to the Debt Offering, as if it had occurred at the beginning of
these periods, the Company's earnings would have been insufficient to
cover fixed charges by approximately $ and $ , respectively.
(4) Adjusted to give effect to the Reorganization. In connection with the
Reorganization, the Company recorded an intangible asset of $48,092,600 to
reflect the Company's acquisition of NU's minority interest in
subsidiaries (NECOM LLC and FiveCom LLC), in accordance with AICPA
Accounting Interpretation 39 to APB Opinion No. 16, Business Combinations
(AIN-39).
(5) Pro forma and adjusted to give effect to (i) the Offerings and the
application of the estimated net proceeds therefrom based on an assumed
initial public offering price of $ per share and (ii) the
Reorganization. The Pro forma net loss would have been $ for 1997
and $ for the first quarter of 1998 reflecting the additional
interest expense from the issuance of the __% Senior Discount Notes Due
2008 as if such issuance had occurred at the beginning of these periods.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The discussion contains certain trend analysis
and other statements of a forward-looking nature relating to future events or
the future financial performance of the Company. Prospective investors are
cautioned that such statements are only projections and that actual results or
events may differ materially. In evaluating such statements, prospective
investors should consider the risk factors identified in this Prospectus,
particularly the matters set forth under the caption "Risk Factors", which
could cause actual results to differ materially from those indicated by such
forward-looking statements.
Overview
The Company is a facilities-based provider of technologically advanced,
high bandwidth, fiber optic transmission capacity for communications carriers
on local loop, inter-city and interstate facilities. The Company is currently
expanding its fiber optic network, the NEON system, to encompass approximately
1,000 route miles, or approximately 80,000 fiber miles, concentrated in the
northeastern United States, including New York and New England (the
"Northeast").
The Company has already completed and currently operates fiber optic
routes from Hartford, Connecticut to Springfield, Massachusetts and from
Nashua, New Hampshire to Portland, Maine, totaling approximately 212 route
miles, or approximately 13,700 fiber miles. The Company is currently
engineering or constructing additional routes in New York, Connecticut,
Massachusetts and New Hampshire to create a continuous fiber optic link between
White Plains, New York and Portland, Maine with access into and around Boston,
Massachusetts and numerous other major cities in the Northeast. These
additional routes are expected to be substantially completed in 1998 and will
add approximately 380 route miles, or approximately 30,800 fiber miles, to the
NEON system. The Company is also planning to complete further expansion routes
in 1999 connecting New York City, Providence and other metropolitan areas to
the NEON system. The completion of routes under construction and currently
planned will enable the NEON system to connect more than 540 cities and towns
in six states and pass more than 200 points-of-presence ("POPs"), tandem
switches and central offices, which the Company believes serve over 18 million
people and over 470,000 businesses.
The Company generates revenue through the leasing of capacity on its
network and through the provision of services consisting principally of design
and installation work. The Company generally receives fixed monthly payments
from its customers for the leasing of capacity on its network and recognizes
revenues ratably over the term of the applicable customer agreement. Other
service revenues are recognized as services are performed.
Prior to the Reorganization, the Company held interests in its
majority-owned or controlled subsidiaries, FiveCom LLC, FiveCom of Maine LLC
and NECOM LLC. See "Business--Reorganization." The interests of the minority
owners of these subsidiaries are reflected on the Company's balance sheet as
minority interest in consolidated subsidiaries. As a result of the
Reorganization, such minority owners became stockholders of the Company, and
the value of the stock of the Company received by them over the tangible book
value of their minority interests was reflected as goodwill.
Prior to the Offerings, the Company was included in CMP's consolidated
federal income tax return pursuant to the terms of a tax-sharing arrangement
entered into in 1996. The benefit from income taxes represents refundable
income taxes from CMP as a result of this tax sharing arrangement. The Company
has no net operating loss carryforwards as a result of this tax sharing
arrangement.
Results Of Operations
The Company did not generate significant revenues until the last half of
1997. Revenues through the second quarter of 1997 consisted primarily of
service fees from one customer. The Company began recognizing revenues under
recurring lease arrangements in the third quarter of 1997.
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
Revenues for the first quarter of 1998 were $151,363, compared to no
revenue in the first quarter of 1997. Revenues in 1998 were generated by
recurring lease services to customers, which commenced during the second half
of 1997.
28
<PAGE>
Total cost of sales for the first quarter of 1998 were $247,386, an
increase of 128% over the $108,358 recorded in the first quarter of 1997. The
increase was associated with right-of-way fees and property taxes incurred in
connection with the expansion of the NEON system.
Selling, general and administrative expenses increased to $225,122 in
first quarter of 1998 from $207,383 in the first quarter of 1997, a 9%
increase. This increase resulted primarily from higher legal fees.
Depreciation and amortization expense was $302,013 in the first quarter of
1998 as compared to $29,879 in the first quarter of 1997. The increase resulted
from higher depreciation expenses, resulting from portions of the NEON system
being placed into service at the end of the second quarter of 1997.
Interest income decreased in the first quarter of 1998 to $30,322 compared
to $56,638 in the first quarter of 1997. The decline was due primarily to a
decrease in cash balances as cash was used to fund construction of the NEON
system.
Interest expense (including the amortization of financing costs) increased
in the first quarter of 1998 to $91,816 from no interest expense in the first
quarter of 1997. The increase resulted from a reduction in the amount of
interest capitalized as the NEON system was placed into service.
Minority interest increased in the first quarter of 1998 to $314,498 from
$186,478 in the first quarter of 1997. The increase resulted in a rise in the
proportionate share of the net losses of subsidiaries.
Benefit from income taxes increased in the first quarter of 1998 to
$77,000 from $33,000 in the first quarter of 1997. The benefit related to
refundable income taxes in 1997 resulting from the Company's tax sharing
arrangement with CMP.
A net loss of $293,154 was recorded in the first quarter of 1998 versus a
net loss of $118,362 in the first quarter of 1997. The increase in net loss is
primarily attributable to the factors discussed above.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
During the years ended December 31, 1997 and 1996, the Company was
continuing in its development stage and did not generate significant revenues
until the last half of 1997, when customers began using the NEON system.
Revenues for 1997 were $394,704 as compared to 1996 revenues of $13,773.
The revenue increase was generated primarily from services to customers during
the last half of 1997 as the NEON system was placed in service and contracts
with carriers commenced.
Cost of sales for 1997 were $1,137,943 as compared to $260,619 in 1996.
The increase resulted primarily from right-of-way fees and property taxes
incurred in connection with the expansion of the NEON system.
Selling, general and administrative expenses increased to $1,002,232 in
1997 from $900,808 in 1996, an 11% increase. This increase resulted primarily
from increased professional fees and salaries and benefits caused by increased
business activities and growth within the Company.
Depreciation and amortization expense was $552,862 in 1997 as compared to
$24,168 in 1996. The increase resulted from the recognition of depreciation
expense resulting from portions of the NEON system being placed into service at
the end of the second quarter of 1997.
Interest income of $138,918 was recorded in 1997 as compared to $201,473
in 1996. The decline was due primarily to a decrease in cash balances as cash
was used to fund construction of the NEON system.
Interest expense (including the amortization of financing costs) increased
in 1997 to $141,811 from $75,635 in 1996. The increase reflects additional debt
incurred in 1997 to finance construction of the NEON system and to fund
operations of the Company.
Minority interest increased in 1997 to $1,080,200 from $353,222 in 1996.
The increase resulted from an increase in the proportionate share of net losses
of subsidiaries.
Provision (benefit) for income taxes decreased in 1997 to $(261,000) from
$16,000 in 1996. The decrease relates to the fact that the Company had
refundable income taxes in 1997 as a result of its tax sharing arrangement with
CMP.
29
<PAGE>
A net loss of $960,026 was recorded in 1997 compared to a net loss of
$708,762 in 1996. The increase in net loss is primarily attributable to the
factors discussed above.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues decreased to $13,733 for the year ended December 31, 1996 from
$42,598 for the year ended December 31, 1995. The decrease resulted from the
reduced need for services from the Company's sole customer. Revenue was
generated primarily from service fees to one customer.
Cost of sales for 1996 were $260,619, an increase of 150% versus $104,223
in 1995. The increase was associated with an increase in right-of-way fees.
Selling, general and administrative expenses increased to $900,808 in 1996
from $358,761 in 1995, a 151% increase. The increase resulted primarily from
higher professional fees, increased start-up activities within the Company and
increased staffing to accommodate the Company's anticipated growth.
Depreciation and amortization amounted to $24,168 for the year ended
December 31, 1996 compared to $24,175 for the year ended December 31, 1995.
Interest income of $201,473 was recorded in 1996 as compared to no
interest income in 1995. The interest income increased in 1996 due primarily to
an increase in cash balances as a result of the timing of cash requirements to
fund construction of the fiber optic network compared to borrowings.
Interest expense (including the amortization of financing costs) increased
to $75,635 during 1996 from $42,401 during 1995. This increase was a result of
additional debt incurred in 1996 to finance construction of the NEON system and
to fund the operations of the Company.
Minority interest increased in 1996 to $353,222 from no minority interest
in 1995. Minority interest reflects the portion of the net loss related to the
minority interest investment in the Company's subsidiaries in 1996.
A net loss of $708,762 was recorded in 1996 compared to a net loss of
$486,962 in 1995, representing an increase of $221,800. The increase in net
loss is attributable to the factors discussed above.
Liquidity and Capital Resources
The Company has funded the construction of the NEON system and operations
primarily from equity investments from CMP and NU, and borrowings under a $30
million construction loan agreement with CMP, a $1.6 million construction loan
from Peoples Heritage Savings Bank and $1.5 million of lease financing from
Applied Telecommunications Technologies, Inc.
Net cash generated from (used in) operating activities was $657,881 for
the three months ended March 31, 1998, $(553,427) for the year ended December
31, 1997, $37,460 for the year ended December 31, 1996 and $(413,196) for the
year ended December 31, 1995. Net cash generated for the three months ended
March 31, 1998 was due primarily to a payment advanced by a customer and
increased vendor payables. Net cash used in operating activities during 1997
resulted primarily from an increase in restricted cash. Net cash generated by
operating activities during 1996 was primarily from an increase in vendor
payables offset by net operating losses. Net cash used in operating activities
in 1995 resulted primarily from increases in prepayment and net operating
losses.
Cash flow from financing activities was $1,429,174 in the three months
ended March 31, 1998, $4,868,220 in the year ended December 31, 1997,
$14,926,603 in the year ended December 31, 1996 and $1,099,870 in the year
ended December 31, 1995. In the three months ended March 31, 1998, cash flow
from financing activities was generated by borrowings of $1,875,000 under
long-term construction loan agreements. In 1997, cash flow from financing
activities was generated by proceeds from long term construction loan
agreements and proceeds from equity investments, of $3,700,000 and $2,550,104,
respectively. In 1996, cash flow from financing activities was generated by the
sale of convertible preferred stock to CMP amounting to $10.0 million and the
purchase of membership interests by Northeast Utilities amounting to
$6,665,776. Cash flow from financing activities during 1995 was generated from
lease financing of $1,147,766 from Applied Telecommunications Technologies,
Inc.
Upon completion of the Offerings, the Company expects to repay all
remaining outstanding principal and interest under the $30 million construction
loan agreement with CMP and the $1.6 million construction loan from
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Peoples Heritage Savings Bank. Upon the repayment of the loan from Peoples
Heritage Savings Bank, the Company will also be required to pay approximately
$115,000 to CMP, representing accrued right-of-way fees that were deferred
while such loan was outstanding.
Cash flow used in investing activities totaled $1,953,253, $8,081,266,
$10,020,000 and $776,272 in the three month period ended March 31, 1998, and
the one year periods ended December 31, 1997, December 31, 1996 and December
31, 1995, respectively. Cash requirements in all the periods consisted
primarily of the cost of construction to build the NEON system.
The Company anticipates that it will continue to experience negative cash
flow as it expands the NEON system, constructs additional networks and markets
its services to an expanding customer base. The Company anticipates that its
capital expenditures will be approximately $65 million in 1998, relating to the
build-out of the NEON system. Cash provided by operations will not be
sufficient to fund the expansion and development of the NEON system as
currently planned and as a result the Company intends to use cash on hand and
the net proceeds of the Offerings to fund this expansion and development.
Management believes that the net proceeds of the Offerings will be sufficient
to fund the substantial completion of the NEON system as currently planned and
its other working capital needs. The expectations of required future capital
expenditures are based on the Company's current estimates. There can be no
assurance that actual expenditures will not significantly exceed current
estimates or that the Company will not accelerate its capital expenditures
program.
The Company has completed an assessment of its exposure to the "Year 2000"
computer problem. Based on this assessment, the Company believes that no
critical software systems of the Company will be impacted by this situation.
Systems currently used by the Company are already "Year 2000" compliant.
Although the Company believes that it is taking appropriate precautions against
disruption of its systems due to the "Year 2000" problem, there can be no
assurance that the Company's suppliers and customers will not be adversely
affected by the "Year 2000" problem. Nonetheless, the Company believes that the
"Year 2000" issue will not have a material impact on the Company's business
operations or financial condition.
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BUSINESS
General
The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic transmission capacity for communications carriers
on local loop, inter-city and interstate facilities. The Company is currently
expanding its fiber optic network, the NEON system, to encompass approximately
1,000 route miles, or approximately 80,000 fiber miles, concentrated in the
Northeast. The Company believes that the Northeast, which in 1996 represented a
$29.3 billion telephony services market and which has one of the highest
population densities and concentrations of businesses, universities, phone
lines, personal computers and television sets in the country, is a region
characterized by significant and growing demand for broadband communications
infrastructure. The Company is constructing the NEON system utilizing primarily
electric utility ROWs, which allow the Company to provide secure fiber optic
capacity at competitive prices with access to virtually any location where the
local utility provides electrical service. The Company is using advanced fiber
optic technology in the NEON system, including non-zero dispersion shifted
fiber, dense wave division multiplexing optronics and SONET four-fiber ring
self-healing technology, to allow the Company's carrier customers to meet the
demand for reliable, high-bandwidth voice, data and video transmission capacity
in the Northeast. For example, a pair of fiber optic strands on the NEON system
can transmit up to approximately 10 gigabits of data per second, or the
equivalent of approximately 129,000 simultaneous voice conversations.
The Company has already completed and currently operates fiber optic
routes from Hartford, Connecticut to Springfield, Massachusetts and from
Nashua, New Hampshire to Portland, Maine, totaling approximately 212 route
miles, or approximately 13,700 fiber miles. The Company is currently
engineering or constructing additional routes in New York, Connecticut,
Massachusetts and New Hampshire to create a continuous fiber optic link between
White Plains, New York and Portland, Maine with access into and around Boston,
Massachusetts and numerous other major cities in the Northeast. These
additional routes are expected to be substantially completed in 1998 and will
add approximately 380 route miles, or approximately 30,800 fiber miles, to the
NEON system. The Company is also planning to complete further expansion routes
in 1999 connecting New York City, Providence and other metropolitan areas to
the NEON system. The completion of routes under construction and currently
planned will enable the NEON system to connect more than 540 cities and towns
in six states and pass more than 200 POPs, tandem switches and central offices,
which the Company believes serve over 18 million people and over 470,000
businesses.
Commencing in September 1994, the Company entered into a series of ROW
agreements with the three principal operating subsidiaries of NU, the largest
electric utility service provider in New England, serving over 1.7 million
customers in Connecticut, Massachusetts and New Hampshire, to build fiber optic
facilities utilizing NU's transmission and distribution infrastructure,
including utility towers, poles, underground ducts and urban conduit systems.
In January 1997, the Company entered into a similar ROW agreement with CMP, the
largest electric utility service provider in Maine, serving over 500,000
customers, to build fiber optic facilities utilizing CMP's transmission and
distribution infrastructure. NU and CMP have also financed substantially all of
the construction and operations of the NEON system to date and currently
beneficially own (prior to the sale of shares in the Equity Offering) 41.37%
and 53.53%, respectively, of the Company's capital stock.
The Company has pursued a strategy of establishing relationships with
electric utilities and building the NEON system utilizing primarily electric
utility ROWs. The Company believes that the use of such ROWs provides
significant advantages, including: (i) potentially ubiquitous inter-city and
intra-city coverage in the local electric utility's service territory,
including throughout downtown areas and directly into buildings, (ii) use of
existing electric transmission infrastructures, including towers, poles, ducts
and conduits, to achieve faster, less costly installation, (iii) generally more
secure and reliable routes than other ROWs, such as railroad beds, streets and
highways, (iv) highly desirable redundant and geographically diverse fiber
optic routes for communications carriers and (v) establishment of an extensive
ROW network through negotiation with relatively few parties, rather than with
numerous parties such as municipalities, transit authorities and governmental
agencies.
The Company currently intends to target only communications carriers as
customers, rather than end-users of telecommunications services. The Company
believes that this strategy allows it to: (i) maximize the Company's
opportunities to sell its capacity regardless of the end-user's selection of a
retail provider, (ii) avoid the significant initial and ongoing investment
required in selling, marketing and providing services to end-users, (iii)
attract carrier
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customers that may be reluctant to contract with a direct competitor, (iv)
generate revenues quickly from carriers that are easily identifiable and
require large amounts of fiber optic capacity, and (v) lock in relatively
secure long-term revenue streams from customers that are generally more
creditworthy than end-users and are likely to make long-term capital
commitments in advance of the provision of services. Carrier customers
typically lease fiber optic capacity under multi-year contracts with which they
enhance or develop their own communications networks as a cost-effective
alternative to constructing their own infrastructure or purchasing measured
services from other carriers with whom they may compete. Carriers targeted by
the Company include a broad range of communications companies such as ILECs,
CLECs, IXCs, paging, cellular and PCS companies, cable television companies and
ISPs. Currently, the Company has contracts with Brooks Fiber (now owned by
WorldCom), Teleport (expected to be acquired by AT&T), MCI (expected to be
acquired by WorldCom), Sprint and Global NAPs, Inc., a regional ISP.
The Company intends to offer its carrier customers leases of both dark
fiber (fiber optic transmission lines leased without optronics equipment
installed by the Company) and lit fiber (fixed amounts of capacity, such as
DS-1, DS-3, OC-3, OC-12, OC-48 and higher, on fiber optic transmission lines
that use the Company's optronics equipment) at fixed-cost pricing and over
multi-year lease terms. The Company intends to lease approximately one-third of
the available fibers in the NEON system as dark fiber and one-third as lit
fiber. In addition, the Company plans to reserve approximately one-third of its
available fibers for future services that the Company may provide to capitalize
on future technological advances or changes that the Company expects to occur
in the communications industry. Because of the geographic flexibility and
virtual ubiquity of the electric utility ROWs used in construction of the NEON
system, the Company expects that it will be able to provide fiber optic
connectivity for its carrier customers to and from virtually any location in
the NEON service territory, including intra-city local loop facilities,
inter-city long-haul or short-haul facilities, or a combination of both.
History of the Company
The Company was incorporated in 1989 in Massachusetts under the name
"FiveCom, Inc." to develop fiber-optic networks in secondary and tertiary
markets in the Northeast. Prior to 1994, the Company was the managing general
partner of a venture which built a CAP network in Springfield, Massachusetts
and also built several small private networks in eastern Massachusetts. In
February 1994, the Company sold its interest in the Springfield network to
Brooks Fiber. Following this sale, the Company expanded its business strategy
to include intra-LATA and long distance facilities using electric utility ROWs
and changed its focus to target carrier customers rather than end users.
Commencing in September 1994, the Company entered into the NU Agreements,
pursuant to which the Company obtained ROWs in the service territories of NU
and its subsidiaries. In 1996, the Company raised approximately $16.7 million
from private placements of equity securities to MaineCom and Mode 1. In January
1997, the Company entered into the CMP Agreement, under which the Company
obtained ROWs in CMP's service territory, and raised an additional $2.6 million
from CMP and other investors in a private equity financing. In 1998 the Company
was reincorporated in Delaware under the name "NorthEast Optic Network, Inc."
See "--Reorganization."
Market Opportunity
The Company believes that there is a significant demand for high-bandwidth
communications services and a limited supply of technologically advanced dark
and lit fiber optic facilities in the Northeast to meet such demand. The
Company believes the needs of communications carriers for advanced,
high-bandwidth voice, data and video transmission capacity will increase over
the next several years due to various factors, including:
Rapid Growth of Communications Traffic. The Company believes that total
telephony service revenue in the United States grew by approximately 9%
annually from 1992 to 1996, to $222.3 billion. Data traffic service grew by 28%
from 1996 to 1997 to $16 billion and is projected to grow by 38% to $22.1
billion in 1998. Much of this growth in data traffic is attributable to
increased Internet traffic and its corresponding demands for increased data
communications bandwidth. For example, the number of Americans using the
Internet is estimated to have grown from fewer than 5 million in 1993 to as
many as 62 million by the end of 1997. The Company believes that the growth of
communications traffic in the Northeast will be enhanced by the high population
density, income and education levels, number of phone lines per household and
other favorable demographic characteristics of the region. With its advanced
fiber optic transmission capacity, the Company believes that it will be
well-positioned to capitalize on this growth.
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Capacity Required by New Entrants. Competition and deregulation are
attracting new entrants to the telecommunications market. The 1996 Act allows
the RBOCs to enter the long distance business upon meeting certain competitive
conditions and also eliminates certain barriers to entry in the local exchange
market. The 1996 Act also enables other entities, including entities affiliated
with power utilities and ventures between ILECs and cable television companies,
to provide a wider range of telecommunications products and services. The
Company believes that the deregulation of various telecommunications markets
will lead to an increase in the number of telecommunications providers needing
fiber optic transmission capacity as more parties choose to compete. The
Company believes that many carrier customers will choose to lease fiber optic
capacity from facilities providers such as the Company to enhance or develop
their own communications networks as a lower-cost alternative to constructing
their own infrastructure or purchasing measured services from other carriers.
The Company believes that the NEON system will provide a cost-effective
alternative in a number of communications industry segments for new market
entrants, including ILECs, CLECs, IXCs, wireless companies, cable companies and
ISPs.
Need for Redundant Routing and Geographic Diversity of ROWs. Carriers
require redundant paths throughout their networks to provide reliability in the
event of an equipment failure, break in one of their fiber lines or other
outage. In order to ensure the required redundancy, carriers typically build,
swap or lease capacity along fiber routes that do not share a common point of
potential failure. In the Northeast, however, there are relatively few pre-
assembled ROWs available to support new telecommunications infrastructure and
many of the carriers' routes currently run within the same ROWs. As a result,
many carriers are unable to establish secure redundant routing. In the event
such a common ROW were to be damaged or cut, the consequences would be severe
for the carriers and their customers. This lack of geographic diversity of
fiber optic routes in the Northeast has created a substantial need for network
capacity on new and alternative ROWs, such as those offered by the Company.
Expected Upgrades to Older Communications Networks. Many of the fiber
optic networks currently operated by existing carriers in the Northeast were
constructed prior to 1990, using asynchronous, non-SONET ring architecture and
using earlier generation fiber that cannot optimally deploy DWDM optronics for
high capacity transmission. The Company believes that these carriers will need
to improve or replace parts of their networks to complete the SONET ring
architecture and also add more high capacity fiber optic transmission lines to
remain competitive in the future. In addition, the Company believes that
approximately 92% of the RBOCs' networks currently are comprised of copper
cable located on antiquated infrastructure. The RBOCs will likely need to
replace or upgrade their networks to remain competitive and satisfy their
customers' increasing demand for reliable, high-bandwidth capacity in the
coming years. The Company believes that carriers with older, more limited
networks will seek cost-effective and expedient solutions when faced with the
decision to lease, buy or build fiber optic capacity which could result in
increased demand for the Company's fiber optic capacity.
Accommodation of Multimedia and Other New Applications. The Company
believes that additional transmission capacity and faster response times will
be required to accommodate the needs of multimedia (voice, data and video) and
other potential high-bandwidth applications, including the deployment of
corporate intranets and wide area networks, and the use of the
telecommunications infrastructure for providing cable television and other
entertainment services. In addition, the Company's SONET technology and
high-bandwidth fiber optic capacity support advanced communications
applications, such as Frame Relay, ATM and IP platforms. The Company believes
that these capacity-intensive requirements will create significant demand for
its high quality, high-bandwidth fiber optic capacity.
Carriers' Desire for Low-Cost Local and Regional Transport. The Company
believes that it has an opportunity to fill the needs of the predominant
interstate carriers that are building or have completed their backbone networks
to most of the Northeast's key LATAs. Generally, an IXC constructs a network
with trunk lines terminating into tandem switches in LATAs. To get from the
tandem switch to the end-user, or vice versa, IXCs typically pay to an LEC
access and egress charges, which often comprise the largest component of the
IXCs' transmission costs. For this reason, IXCs are seeking less costly,
alternative local access within LATAs. One alternative for the IXCs is to carry
their traffic deeper into the region's telecommunications base and to hand off
their traffic at an LEC host switch, which is located much closer to the
end-user than the tandem switch, or to terminate their traffic directly at the
customer's premises. Similarly, the Company believes that LECs with inter-LATA
traffic, including the RBOCs when they are permitted to provide long-distance
traffic, desire to minimize the transportation costs imposed by the IXCs and
are seeking lower cost, alternative regional transport. The NEON system, which
will connect into and around numerous cities and towns in the Northeast, will
be able to provide such local access and regional transport.
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<PAGE>
Business Strategy
The Company's objective is to become the preferred facilities-based
provider of fiber optic network capacity in the Northeast. The following are
the key elements of the Company's strategy to achieve this objective:
Leverage Electric Utility ROWs. The Company is pursuing a strategy of
building the NEON system utilizing primarily electric utility ROWs, which the
Company believes provide significant competitive advantages compared to
alternative ROWs in the Northeast such as railbeds and highways. Using electric
utility ROWs, the Company can provide fiber optic connectivity for its carrier
customers to and from virtually any location in the utilities' service
territory, including throughout downtown areas and directly into buildings. The
Company also intends to utilize existing, pre-assembled electric utility
transmission infrastructure, including towers, poles, ducts and conduits for
faster, less costly installation. In addition, since electric utility ROWs are
generally more secure than other ROWs and provide valuable geographic route
diversity for carriers, the Company can offer its customers highly reliable
primary and redundant network capacity. In addition to the Company's existing
ROW agreements with NU and CMP, the Company is currently pursuing additional
agreements with other utilities in adjoining territories to expand the
Company's network footprint and gain access to further ROWs through negotiation
with relatively few parties, rather than numerous municipalities, transit
authorities and governmental agencies.
Target Carrier Customers. The Company intends to target communications
carriers as customers, rather than end-users of telecommunications services.
This enables the Company to maximize its opportunities to sell its capacity
regardless of the end-user's selection of a retail provider and to attract
carrier customers that may be reluctant to purchase services from a direct
competitor that serves the same retail market. Carrier customers are also
easily identifiable, which allows the Company to focus its sales and marketing
and customer services efforts and avoid the significant initial and ongoing
investment required to attract and retain numerous retail customers. In
addition, the Company believes that it can generate revenues more quickly from
carrier customers, which are generally more creditworthy than end-users,
require large amounts of fiber optic capacity and are more likely to make
long-term capital commitments in advance of the provision of services. To date,
the Company has entered into contracts with five carriers, including Brooks
Fiber/WorldCom, Teleport/AT&T, MCI/WorldCom, Sprint and Global NAPs, Inc., a
regional ISP.
Reduce Construction and Operating Costs. The Company is reducing the
construction and operating costs of the NEON system in order to offer its
customers competitive prices while maximizing its operating margins and return
on investment. The Company is using primarily pre-assembled electric utility
transmission and distribution infrastructure, including towers, poles, ducts
and conduits, in the construction of the NEON system, which reduces the need to
obtain local permits, conduct surveys, cut tracks, install conduits and ducts
and erect towers and poles prior to installation. In addition, the Company's
electric utility ROWs typically provide easy and safe access to the fiber cable
for low cost maintenance and repair. The Company is also installing high fiber
count cable in the NEON system--64 to 96 fiber optic strands per cable in the
routes currently under construction and up to 144 to 432 fiber optic strands on
future installations, depending on the anticipated demand for a particular
route and the Company's ROW agreements. This high fiber count reduces the
Company's fiber cost per mile and provides reserve capacity, which will reduce
the cost of providing additional services in the future. The Company's
newly-constructed network also provides significant operating and maintenance
cost advantages because of the high quality, advanced fiber optic technology
utilized by the NEON system.
Establish a Reliable, Technologically Advanced Network. The Company
believes that the characteristics of its network will allow it to meet its
customers' demands for reliability and high capacity. The Company is
constructing the NEON system utilizing bi-directional, self-healing SONET
four-fiber ring architecture primarily on electric utility ROWs, which allow
for enhanced physical security and more geographic flexibility than other ROWs.
The Company uses both non-zero dispersion shifted Truewave[RegTM] fiber and
conventional single-mode fiber manufactured by Lucent Technologies Inc., which
the Company believes to be the highest quality fiber optic cable available. The
Company is also using Nortel's DWDM optronics and forward error correction
technology at high OC levels that enable the highest commercially available
transmission capacity (OC-192) and data integrity level (10(-15) Bit Error
Rate). The NEON system can also accommodate advanced communications applications
such as Frame Relay, ATM and IP.
Focus on High Demand Northeast Market. The Northeast is one of the most
densely-populated regions of the United States. The Company believes that the
Northeast market, which in 1996 represented a $29.3 billion telephony services
market and which has one of the highest population densities and concentrations
of businesses,
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universities, phone lines, personal computers and television sets in the
country, is a region characterized by significant and growing demand for
broadband communications infrastructure. The Northeast market is dependent in
part upon antiquated communications infrastructure currently lacking sufficient
fiber optic capacity, route diversity and redundancy. The Company's strategy is
to focus on serving the present and future needs of this market by constructing
and operating a technologically advanced network offering (i) more capacity,
(ii) enhanced capabilities, such as SONET ring architecture and route
diversity, and (iii) near-ubiquitous coverage.
Capitalize on Management Experience. The Company's management team
includes individuals with significant experience in the telecommunications and
utility industries which will be important in the build-out and management of
the NEON System. Victor Colantonio, the Company's founder and President, has 25
years of experience in the telecommunications industry having previously served
as President of International Communications Services Corp. and Murray
International Inc., providers of network services to AT&T, SNET and Sprint,
among others. The Company's Chairman and Chief Executive Officer, Richard
Crabtree, has 27 years of utility experience including serving as Chief
Financial Officer of CMP. William Fennell, the Company's Chief Financial
Officer and Treasurer, held several positions at GTE Corporation over 16 years
before becoming Chief Financial Officer of Philips Electronics Group of North
America. James Mack, the Company's head of sales, has worked in the
telecommunications industry since 1966 having held various sales positions at
Bell Atlantic and NYNEX. The Company's head of operations, Michael Musen, has
spent 18 years in telecommunications having previously worked at International
Communications Services Corp., a provider of network services.
Leverage Utility Relationships. The Company intends to leverage its
relationships with NU and CMP. The Company directly benefits from these
relationships for the following reasons: (i) the Company believes relationships
with electric utilities enhance the Company's credibility with large carrier
customers and facilitates new customer contracts with such carriers, (ii) the
Company outsources substantially all of its engineering and design, maintenance
and repair requirements to NU and CMP, thereby increasing the Company's mission
critical preparedness and the reliability of the Company's network and
enhancing the Company's ability to respond to emergency repair needs, (iii) NU
and CMP have significant resources and experience in the engineering and
construction of large transmission and distribution networks, and (iv) the
Company's experience with NU and CMP creates opportunities to establish
relationships with other electric utility companies. The Company is currently
in the process of pursuing additional agreements with other electric utilities.
The NEON System
The NEON system is a technologically-advanced, high-bandwidth, fiber optic
network that the Company is constructing primarily using electric utility ROWs
in the Northeast and that the Company intends to expand into a communications
system serving numerous cities and towns in six states. The Company has
completed and currently operates fiber optic routes from Portland, Maine to
Nashua, New Hampshire and Springfield, Massachusetts to Hartford, Connecticut
totalling approximately 212 route miles, or approximately 13,700 fiber miles.
The Company is currently engineering or constructing additional routes in New
York, Connecticut, Massachusetts and New Hampshire, to create a continuous
fiber optic link between White Plains, New York and Portland, Maine with access
into and around Boston, Massachusetts and numerous other major cities in the
Northeast. These additional routes are expected to be completed in 1998 and
will add approximately 380 route miles, or approximately 30,800 fiber miles, to
the NEON system. The Company is planning to complete further expansion routes
in 1999 connecting New York City, Providence and other metropolitan areas to
the NEON system. Upon completion of routes under construction or currently
planned, the NEON system will extend over 1,000 route miles or over 80,000
fiber miles, connect more than 540 cities and towns in six states and pass more
than 200 POPs, tandem switches and central offices, which the Company believes
serve over 18 million people and over 470,000 businesses.
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The following table lists the states through which the NEON system is
expected to pass, the estimated route miles and fiber miles of the NEON system
in each state, the estimated number of POPs, tandem switches and central
offices passed by the NEON system, the estimated population of the service
areas expected to be passed by the NEON system, the major service areas the
Company expects to connect to the NEON system and the expected dates of
completion to connect such major service areas:
<TABLE>
<CAPTION>
Estimated
Number of
POPs, Tandem Estimated
Estimated Estimated Switches and Population of
Route Fiber Central Offices Service Areas Major Expected
State Miles Miles Passed Passed Service Areas Completion
- ----------------------- ----------- ----------- ----------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Connecticut ........... 296 18,250 62 2,990,000 Hartford Completed
Stamford 1998
New London 1998
New Haven 1999
Bridgeport 1999
Maine ................. 60 4,000 15 425,000 Portland Completed
Massachusetts ......... 235 14,842 55 4,750,000 Springfield Completed
Boston 1998
Amherst 1998
Framingham 1999
New Hampshire ......... 205 12,100 34 920,000 Nashua Completed
Manchester Completed
Dover Completed
Portsmouth 1998
Keene 1998
New York .............. 144 29,481 25 8,190,000 Westchester 1998
New York City 1999
Rhode Island .......... 70 842 14 996,000 Providence 1999
--- ------ -- ---------
Total ................ 1,010 79,515 205 18,271,000
===== ====== === ==========
</TABLE>
The Company acquires its ROWs principally from electric utilities in the
territory covered by the NEON system. The Company believes that such ROWs are
superior to alternative ROWs available in the Northeast, namely, those along
railbeds and highways, because electric utility ROWs provide near-ubiquitous
coverage at lower cost and because deviations from railbed or highway ROWs
often entail significant expenditures and a lengthy and expensive community-
by-community approval process. Furthermore, installing cable in electric
utility ROWs is often safer, easier and faster, because the cable is placed in
existing underground conduits and ducts or installed on existing towers and
poles. With railroad beds and highways cable must often be buried in trenches,
a process often hampered by accommodating commuter rush hours, complying with
stringent environmental laws, crossing water, trenching and blasting bedrock.
In addition, using primarily electric utility ROWs, the NEON system has the
potential to provide communications connections to nearly every building,
business park and industrial complex in its service territory.
The Company uses three cost-effective methods for installing its fiber
optic cable and taking advantage of the pre-assembled and pre-existing electric
utility infrastructure in the Company's ROWs, including utility transmission
structures (towers) and distribution infrastructure (poles, civil works and
conduit). The first is to replace existing ordinary ground wire (which is used
to provide lightning protection atop utility structures) with optical phased
ground wire ("OPGW"), which is custom-made for the Company and contains up to
96 fiber strands currently and up to 144 fiber strands in future sheath
designs. The second method is to install new all dielectric (non-conductive)
self-support fiber optic cable ("ADSS") under the electrical conductors on
electric transmission structures. ADSS
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<PAGE>
is capable of carrying up to 288 fiber strands currently and up to 432 fiber
strands in future designs. Finally, in underground utility conduits, the
Company uses conventional optical cable made for underground conditions.
Advanced Technology
The Company uses state-of-the-art technology in the NEON system. The NEON
system consists of fiber optic communication paths, which allow for high speed,
high quality transmission of voice, data and video communications. Fiber optic
systems use laser-generated light waves to transmit voice, data and video in
digital formats through ultra-thin strands of glass. Fiber optic systems are
generally characterized by large circuit capacity, are resistant to external
signal interference and directly interface to digital switching equipment or
digital microwave systems. The Company is currently installing fiber optic
cable containing between 64 and 96 fiber optic strands and in the future may
install up to 144 or 432 fiber optic strands per cable depending on anticipated
demand for the particular route. Each of these fiber optic strands is capable
of transmitting significantly greater bandwidth than traditional analog copper
cables. Using current fiber optic transmission optronics, a single pair of
fiber optic strands used by the Company's network can transmit up to 10
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations. The Company believes that continuing
developments in compression technology and multiplexing equipment will increase
the capacity of each fiber optic strand, thereby providing more bandwidth
carrying capacity at attractive incremental costs.
The technologies employed by the Company in the construction and operation
of the NEON system include Lucent's non-zero dispersion shifted fiber and
Nortel's DWDM optronics possessing forward error correction technology at high
OC levels that enable the highest commercially available capacity transmission
(OC-192) and data integrity level (10(-15) Bit Error Rate). The Company believes
that the advanced technical operating characteristics of the NEON system will
enable it to provide highly reliable services to its customers at low costs by
permitting higher capacity transmission over longer distances between
regeneration and amplifier facilities than can be provided by less advanced
fiber systems.
The Company offers end-to-end fiber optic capacity utilizing
bi-directional SONET four-fiber ring architecture, which has the ability to
route customer traffic in two directions around a ring design thereby
minimizing service interruptions due to fiber cuts. Currently, the NEON system
is continuously monitored to maintain quality control on a 24-hour basis and to
alert the Company of any degradation of signal or loss of fiber capacity, and
to pinpoint the location of such difficulty and enable the Company to repair or
replace impaired fiber quickly.
Right-of-Way Agreements
The following is a summary of the Company's agreements that provide for
most of the ROWs currently used in the NEON system. In addition to the
agreements set forth below, the Company has a number of agreements with Bell
Atlantic to use certain ROWs along pole lines and within ducts in various areas
throughout the Northeast to supplement its primary means of procuring ROWs.
NU Agreements
In 1994 and 1995, the Company entered into a series of agreements (as
subsequently amended and restated in February 1998, the "NU Agreements") with
the three principal operating subsidiaries of NU concerning the provision of
ROWs along electric utility towers and inside urban electric utility ducts.
Pursuant to the NU Agreements, the Company acquired indefeasible rights of use
("IRUs") in fiber optic filaments placed along NU's ROWs prior to February 1998
and acquired ownership of fiber optic filaments placed along NU's ROWs
subsequent to February 1998 (collectively, the "NU System"). NU and the Company
both agreed to use their best efforts to complete installation of the NU System
by September 1999. The Company agreed to pay the cost of installing the cable
and to utilize NU's engineering staff in carrying out the installation. The
Company is allowed to treat as its own property for tax and accounting purposes
all of the NU System, including that portion of the NU System for which NU
holds title. Under the Agreements, the Company agreed to pay to NU an annual
fee beginning in 2004, and a percentage of the gross revenues of the Company
generated by the NU System upon achieving certain revenues.
A portion of the NU System, composed of 12 fibers within the cable, has
been set aside for NU's use ("NUNet"). NU may lease these fibers to third
parties, provided that prior to September 1999, NU is not permitted to assign
any fibers or resell capacity on NUNet to certain specified carriers except for
certain limited purposes. After September 2001, NU will be free to use NUNet to
compete with the Company.
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Under the NU Agreements, if the Company wishes to extend the NEON system
along certain routes, or if any proposed segment of the NEON system's route
requires material modifications or unusual expense to make it available for the
Company's fiber, or if NU withdraws any segment from the route in order to give
priority to electrical services, the Company has the right to designate
additional or alternative route segments, subject to NU's approval, which shall
not be withheld unless such additional or alternative segments would materially
adversely affect NU's ability to provide reliable electric service, cause or
create safety problems or would not be feasible for structural reasons. If NU
desires to create new route segments in order to extend the NU System, the
Company has a right of first refusal on the provision of any such segments. If
NU obtains such segments from third parties, NU has agreed to use its best
efforts to obtain for the Company the unimpeded use of not less than 12 usable
single mode fibers in such segment on terms no less favorable than those
provided to NU.
The NU Agreements have an initial term of 30 years and expire in September
2024. Thereafter they automatically renew for five-year terms, unless one of
the parties has given a one-year advance notice of termination. In the event
that NU gives such a notice and terminates the NU Agreements, it must either,
at its option, pay to the Company an amount equal to the fair market value of
the NU System less NUNet or allow the Company to retain its IRUs and receive
from the Company an annual payment equal to 10% of the Company's gross revenue
from the NU System, which payment would be in addition to the other annual
payments under the NU Agreements.
In addition to the foregoing, the NU Agreements may be terminated by NU if
the Company defaults in the performance of certain of its obligations under the
NU Agreements, including the failure to establish NUNet by September 1999, the
failure to obtain and maintain all necessary government permits, licenses,
franchises and approvals, and the failure to pay amounts due by it under the NU
Agreements, subject in most cases to cure periods of between 30 and 90 days.
CMP Agreement
In January 1997, the Company entered into an agreement with CMP (the "CMP
Agreement") in which CMP granted the Company a right of use in fiber optic
filaments within a cable along a certain route in CMP's service territory (the
"CMP System"). CMP and the Company both agreed to use their best efforts to
complete installation of the CMP System by January 1999. The Company has the
right to install additional cable in CMP's service territory, subject to the
approval of CMP, which must not be unreasonably withheld. The Company is
obligated to pay the cost of installing the cable. Title to and ownership of
the CMP System is to be held by CMP, but the Company is allowed to treat the
CMP System as its own property for tax and accounting purposes.
In exchange for the rights of use, the Company agreed to pay to CMP an
annual fee beginning, with regard to any particular route segment, in the first
calendar year following the installation date for such route segment (the
"Installation Date").
The Company's rights of use do not apply to 6 fibers that have been set
aside for CMP's use ("CMPNet"). CMP may use these fibers for its own business
purposes, but may not lease them to third parties prior to the seventh
anniversary of any given Installation Date. After such seven year period, to
the extent that CMP has excess capacity on CMPNet, CMP is required to negotiate
in good faith with the Company to provide such excess capacity to the Company
before making it available to third parties. If the Company does not enter into
an agreement with CMP with respect to such excess capacity, CMP will be able to
use such capacity to compete with the Company.
The CMP Agreement has an initial term of 30 years and expires in January
2027. Thereafter it is renewable at the option of the Company for an additional
ten-year term. In the event that the Company elects to renew the CMP Agreement,
it must pay to CMP an annual payment equal to 10% of the Company's pre-tax
gross annual revenue from the CMP System, which payment would be in addition to
the other annual payments under the CMP Agreement.
In addition to the foregoing, the CMP Agreement may be terminated by CMP
if the Company defaults in certain of its obligations under the CMP Agreement
and such default is not cured within a designated cure period.
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Services
The Company generally leases high capacity transmission services for use
by various communications carriers. The Company's customers include
facilities-based carriers that require transmission capacity where they have
geographic gaps in their facilities, need additional capacity or require
alternative or redundant routing, and non-facilities-based carriers requiring
transmission capacity to carry their customers' telecommunications traffic.
The Company currently leases dark fiber and lit fiber, as described below,
and has also reserved fibers for future uses.
Dark Fiber
The leasing of dark fiber allows a carrier to interconnect any two or more
specific points on the NEON system. This product requires the Company to
install a fiber optic patch panel ("FOPP"), which is the minimal customer
premise equipment installed by the Company. Dark fiber leases allow a carrier
to install its own optronic equipment and to use as much or as little capacity
as it desires and to customize its capacity with feature rich technology and
its network protocols that differentiate that carrier's product offerings from
others. As a result, the carrier can deploy the dark fiber for whatever purpose
it chooses while the Company remains transparent to the carrier's end-user.
Whenever possible, the carrier customer is restricted from using the dark
fibers for purposes other than supporting its own customers. To date, the
Company has placed restrictions on the transfer or assignment of the leased
fiber from one carrier to another. In addition, the lease prohibits carriers
from accessing its leased fibers at any point other than those designated in
the lease; therefore carriers cannot add additional traffic or draw off traffic
along the path.
Lit Fiber
Pursuant to fiber leases, the Company provides a specific amount of
capacity between any two or more points on the NEON system as specified by the
carrier. Lit services involve the installation of optronic terminals by the
Company, to the carrier's specifications, that "light" the fiber and
transmit/receive capacity on the network. The Company intends to provide lit
transport capacity initially at SONET OC-3, OC-12, OC-48 and higher rates. In
the future the Company intends to provide carriers with services at the lower
DS-3 and DS-1 levels.
Reserved Fiber
Part of the Company's strategy is to reserve approximately one-third of
the fibers comprising the NEON system in order to have the capacity necessary
to take advantage of changes in telecommunications technology and services and
to meet future anticipated market demand. The Company believes that continuing
improvements in telecommunications technology will alter the way in which such
services are provided as well as the level of demand for such services. These
changes include developments in compression and multiplexing technology, as
well as changes in communications protocols. These changes will likely effect a
change in the nature of services provided by the Company's customers and,
thereby, a change in the nature of the services provided by the Company. In
addition, such changes may open new opportunities for the Company, including
opportunities to serve new classes of customers. Because the exact nature and
effect of such changes are, at present, difficult to measure, the Company
believes it prudent to retain capacity that is not committed to any particular
use or technology but can be brought out of reserve when the impact of such
technological changes becomes clear. In the meantime, the Company may enter
into short-term agreements with respect to such reserved capacity for the
provision of its current services if such opportunities arise.
Sales and Marketing
The Company's sales and marketing strategy includes positioning itself as
the carriers' carrier of choice, emphasizing its capacity, reliability, rapid
deployment, customer service, potential for near-ubiquitous access in its
service territory and the cost advantages that will allow the Company to lease
its fiber optic infrastructure at competitive fixed prices. The Company intends
to price its services below what the Company believes it would cost carriers to
construct their own facilities or to obtain capacity from other sources.
The Company believes that communications carriers will be attracted to the
Company's dark fiber and lit fiber products. The contracts that the Company has
signed to date arose as a result of management's long standing relationships
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in the telecommunications industry. The Company intends to leverage these
relationships and increase customer scope and penetration through a small,
dedicated sales force.
Customers
The Company is targeting other telecommunications carriers as customers
and does not intend to offer its services directly to end-users. The NEON
system enables carriers to link geographically separated central offices and
POPs with primary or redundant connections in their networks. The Company's
facilities also enable carriers to connect their networks directly into the
premises of the carriers' end-users.
The Company currently has contracts with Brooks Fiber (now owned by
WorldCom), Teleport (expected to be acquired by AT&T), MCI (expected to be
acquired by WorldCom), Sprint and Global NAPs, Inc., a regional ISP. In
addition, the Company is currently in the process of negotiating agreements
with certain other major communications carriers. There can be no assurance
that such agreements will be consummated or will be on terms as favorable to
the Company as its existing agreements.
The Company's potential carrier customer base includes the following
classes of carriers:
[bullet] Incumbent Local Exchange Carriers & Independent Telcos, such as
Bell Atlantic, SNET, Standish Telephone Co. (ME), Wilton Telephone
Company, Inc. (NH) and Saco River Telephone Co. (ME). ILECs typically
require some interstate paths for internal communications, signal control
and operator services. ILECs also require intrastate capacity to connect
central offices to one another and to connect central offices to POPs and
customer premises.
[bullet] Facilities Based IXCs, such as AT&T, Sprint, MCI/WorldCom/LDDS,
WilTel, Frontier, Qwest, IXC Communications, Inc., Cable & Wireless PLC,
Level 3 Communications, Inc. and others. IXCs typically require (i)
regional short-haul connectivity from their national backbone facilities
to originate and terminate traffic deeper into the customer base, (ii)
redundant routing to ensure reliability in their networks, and (iii)
additional capacity for their customers as minutes-of-use and IP bandwidth
requirements increase.
[bullet] Competitive Local Exchange Carriers, such as WorldCom/Brooks
Fiber, AT&T/Teleport, WorldCom/MFS Communications Company, Inc., RCN
Corporation, MCImetro, Intermedia Communications Inc., NextLink
Communications, Inc., ICG Communications, Inc. and others. CLECs typically
require interconnection between their local networks and extensions
further into the community.
[bullet] Internet Service Providers, such as MCI, GTE Corporation/BBN, Bell
Atlantic, WorldCom/Gridnet, WorldCom/UUNet Technologies Incorporated,
Sprint, RCN Corporation, HarvardNet, MediaOne and others. ISPs typically
require distribution channels to IXC and LEC switches and interconnection
to ISP switches.
[bullet] Cable Television Companies and Video Carriers, such as MediaOne
Group, Inc. (U S West, Inc.), Time Warner Inc., Cablevision Systems
Corporation, Cox Communications, Inc., Vyvx, NECN, Public Broadcasting
Service affiliates, broadcasters and others. Cable companies typically
require fiber optic capacity to upgrade their systems to higher speed
bandwidths, which allow them to increase the number of channels available,
add interactive programming and Internet and data transfer capabilities
and to consolidate head-end facilities. Broadcasters typically require
inexpensive video paths to extend their reach to distant locations.
[bullet] Wireless Communication Companies, such as SNET Links, Bell
Atlantic Mobile, CellularOne, Sprint PCS, OmniPoint, AT&T Wireless, STV
Group, Inc., WinStar Communications, Inc., NextWave Telecom Inc.,
NorthCoast, Opcse-Galloway, Personal Communications, ACC-PCS (TCG), Devon
Mobile, Vtel Corporation and others. Wireless companies typically require
land-based back-hauling of traffic from towers to their switches and also
capacity between their switches with IXCs, POPs, and ILECs central
offices.
[bullet] Microwave Carriers, such as Eastern Microwave Inc./Intermedia
Communications Inc. Microwave carriers typically require fiber optic
capacity to replace microwave service as their primary source of
communications capacity.
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Competition
The telecommunications industry is highly competitive, and the Company
faces substantial competition. Many of the Company's existing and potential
competitors have financial, management and other resources that are
substantially greater than those of the Company, as well as other competitive
advantages, including established reputations in the communications market. See
"Risk Factors--Competition."
The Company is currently aware of communications carriers that own or
lease fiber optic networks in New England (such as AT&T, MCI, Sprint, Bell
Atlantic, SNET, WorldCom and Teleport) and of other carriers (such as IXC
Communications, Qwest Communications International, Metromedia Fiber Network,
Level 3 Communications and RCN) who are planning to own or lease additional
networks which, if constructed, could employ advanced technology comparable to
that of the NEON system.
Qwest Communications International recently announced that it had acquired
288 miles of fiber optic cable between New York and Boston, connecting such
cities as Providence and Greenhill in Rhode Island and New London, New Haven,
Bridgeport and Stamford in Connecticut. Similarly, IXC Communications recently
announced that it had acquired 280 miles of dark fiber between New York and
Boston. Another company, RCN, is engaged in the construction of fiber optic
networks in Boston and several surrounding communities and in New York City.
The Company's customers and potential customers, such as AT&T, MCI and Sprint,
also have facilities available to them in the region which could be used to
compete with the Company. Development of fiber optic networks is also
continuing on a national scale; for example, Frontier Corp. is currently in the
midst of constructing a cross-continental long distance fiber optic network
from Los Angeles to New York and Qwest Communications International is
constructing a fiber-based national backbone network which will connect 115
metropolitan areas and span approximately 16,000 miles. In addition, other
companies, including Level 3 Communications, are planning nationwide and
regional networks of their own. These networks enable their owners either to
operate dedicated facilities for themselves or to install excess fiber to lease
to other communications carriers and large corporate, government or other
customers seeking high-bandwidth capacity. Alternatively, some network owners,
typically CLECs, may choose to use their infrastructure to provide switched
voice and data services, competing directly with ILECs and IXCs. Currently, the
Company does not provide such services or plan to provide such services. See
"Risk Factors--Limited Nature of Company's Services."
In the cities connected by the NEON system, the Company also faces
significant competition from the ILECs, which currently dominate their
respective local markets. In addition, the Company faces competition from CLECs
and wireless competitors in the cities in which the Company plans to build its
networks.
Most communications carriers already own fiber optic cables as part of
their communications networks, and each of these carriers could, and some do,
compete directly with the Company in the market for leasing fiber capacity.
Some local cable television companies have extensive coaxial cable
networks in place that have been or could be further upgraded to fiber optic
cable. To the extent that local cable television companies decide to equip
their networks with fiber optic cable, they are potential direct competitors of
the Company provided that these competitors are willing to offer this capacity
to all of their customers.
The Company also faces potential competition from both NU and CMP, both of
which have rights to use fibers in certain portions of the NEON system, which
use may include competition with the Company. See "--Right-of-Way Agreements."
Properties
The NEON system and its component assets are the principal properties
currently owned by the Company or with respect to which the Company has an IRU.
The Company owns substantially all of the communications equipment required for
its business and holds certain ownership interests in the cable comprising the
NEON system. The Company's installed fiber optic cable is laid along the
various rights-of-way held by the Company. See "--Right-of-Way Agreements."
Other fixed assets are located at various leased locations in geographic areas
served by the Company.
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The Company's executive, administrative and sales offices are located at
its principal office in Waltham, Massachusetts. The Company leases this space
(approximately 4,375 square feet) under an agreement that expires in June 2000.
Reorganization
The Company was incorporated in Massachusetts in July 1989 under the name
"FiveCom, Inc." In May 1996, FiveCom LLC, an operating subsidiary
majority-owned by the Company, was organized in Massachusetts. Also in May
1996, FiveCom LLC and Mode 1 Communications, Inc. ("Mode 1"), a subsidiary of
NU, organized NECOM LLC in Massachusetts, with FiveCom LLC owning approximately
60%, and Mode 1 owning approximately 40% of the membership interests in NECOM
LLC. In December 1996, FiveCom LLC and MaineCom Services ("MaineCom"), a
wholly-owned subsidiary of CMP, organized FiveCom of Maine LLC in
Massachusetts, with MaineCom owning 66.67%, and FiveCom LLC owning 33.33%, of
the membership interests in FiveCom of Maine LLC.
In order to simplify the corporate structure and in contemplation of the
Offerings, the Company's major stockholders decided to reorganize the Company.
In April 1998, CMP exercised its warrants to purchase 5,876 shares of
membership interests in FiveCom LLC and in 1998, (i) each of the minority
members in FiveCom LLC (and each of Mode 1 and MaineCom) exchanged their
membership interests in FiveCom LLC, NECOM LLC and FiveCom of Maine LLC,
respectively, for shares of the Series B Convertible Preferred Stock of the
Company; (ii) FiveCom LLC and NECOM LLC were each merged with and into a
wholly-owned subsidiary of the Company; (iii) FiveCom of Maine LLC was merged
into FiveCom of Maine, Inc., a wholly-owned subsidiary of the Company; and (iv)
the Company was reincorporated in Delaware under the name "NorthEast Optic
Network, Inc." and the Company's Certificate of Incorporation was amended and
restated. The actions described in the preceding sentence are referred to in
this Prospectus as the "Reorganization."
Regulation
While the Company believes it is not directly subject to common carrier
regulation (except to the extent it provides telecommunications services on a
common carrier basis through its subsidiaries in Connecticut and New York), it
is part of an industry that is highly regulated by federal, state and local
governments whose regulatory actions are often subject to judicial
modification. The Company has not been subject to such regulation because it
has not offered its facilities to the general public nor indifferently for a
fee, which would subject an entity to such regulation. In light of the changes
that are occurring in the regulation of telecommunications, the Company cannot
forecast whether or not it will be subject to additional regulation in the
future. In Connecticut and New York the Company has petitioned to be recognized
as a regulated telecommunications service provider because of the nature of its
activities in, and the statutory provisions of, those two states; these
subsidiaries, as authorized telecommunications service providers, would also be
subject to certain federal law and regulation.
Federal
Federal regulation has the greatest impact on the telecommunications
industry and has undergone major changes in the last two years as the result of
the adoption by Congress of the Telecommunications Act of 1996 ("the 1996 Act")
on February 8, 1996. The 1996 Act is the most comprehensive reform of the
nation's telecommunications laws since the Communications Act was enacted. The
1996 Act imposes a number of access and interconnection requirements on
telecommunications carriers and on all local exchange providers, including
CLECs, with additional requirements imposed on ILECs. The 1996 Act provides a
detailed list of items which are subject to these interconnection requirements,
as well as a detailed set of duties for all affected carriers. All
telecommunications carriers must interconnect with the facilities of other
carriers and not install features that will interfere with the interoperability
of networks. All LECs, including CLECs, have a duty to (i) not unreasonably
limit the resale of their services, (ii) provide number portability if
technically feasible, (iii) provide dialing parity to competing providers, and
nondiscriminatory access to telephone numbers, directory assistance, operator
services and directory listings, (iv) provide access to poles, ducts, conduits
and rights-of-way and (v) establish reciprocal compensation arrangements for
the transport and termination of telecommunications. In addition to those
general duties of all LECs, ILECs have additional duties to (i) interconnect at
any technically feasible point and provide service equal in quality to that
provided to their customers or the ILEC itself, (ii) provide unbundled access
to network elements at any technically feasible point at just, reasonable and
nondiscriminatory rates, terms and
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conditions, (iii) offer retail services at wholesale prices for the use of
telecommunication carriers, (iv) provide reasonable public notice of changes in
the network or the information necessary to use the network or which affect
interoperability and (v) provide for physical collocation. "Physical
collocation" is an offering by an ILEC that enables another telecommunications
carrier to enter the ILEC's premises to install, maintain and repair its own
equipment that is necessary for interconnection or access to the ILEC's network
elements. An ILEC must allocate reasonable amounts of space to
telecommunications carriers on a first-come first-served basis. If space
limitations or practical or technical reasons prohibit physical collocation, an
ILEC must offer "virtual collocation," by which the other telecommunications
carrier may specify ILEC equipment to be dedicated to its use and
electronically monitor and control communications terminating in such
equipment.
The FCC adopted pricing and other guidelines to implement the
interconnection provisions of the 1996 Act, but the 8th Circuit Court of
Appeals vacated many of the FCC's guidelines. The Supreme Court has granted a
writ of certiorari to review the 8th Circuit's decision and is expected to
decide the case during its 1998-1999 term. The responsibility for setting
pricing and other guidelines with respect to interconnection has thus been left
up to the individual state public service commissions. It is expected that
varying pricing and guidelines will emerge from state to state and some of
these guidelines may eventually have an indirect adverse effect on the
Company's business.
Aside from the impact of the 1996 Act, the Company believes federal
regulation does not affect the Company directly because the Company is not
currently regulated as a common carrier under federal law. Federal
telecommunications law imposes special legal requirements on "common carriers"
who engage in "interstate or foreign communication by wire or radio for hire."
The Company believes that the leasing of fiber facilities does not constitute
engaging in the transmission of "communications by wire or radio" and therefore
is not subject to these legal requirements. However, this conclusion could be
affected by the FCC's review of its earlier decision, on remand from the U.S.
Court of Appeals for the District of Columbia Circuit, that local exchange
carriers offered dark fiber on a common carrier basis. In any event, the
Company does not intend to offer its fiber facilities as a common carrier.
Common carriers are those who offer telecommunications services directly to the
public for a fee. The Company does not intend to offer its fiber capacity in
this manner, but instead intends to enter into individual agreements on a
selective basis with prospective lessees of its fiber facilities. The Company
therefore does not believe that its fiber offerings are subject to the common
carrier provisions of the Communications Act. These conclusions reflect the
Company's view that there is no material difference from a regulatory
perspective between the leasing of dark and lit fiber, both of which are
offered by the Company. There is no assurance that the FCC may not take the
position that in making fiber transmission capable, in the case of lit fiber,
the leasing of such fiber is subject to regulation under the Communication Act
or that even the offering of dark fiber itself is subject to regulation.
As indicated above, the two subsidiaries of the Company which have applied
for authority to provide telecommunications services on a common carrier basis
in New York and Connecticut will be subject to regulation under the
Communications Act.
In addition to regulation of common carriers, federal telecommunications
law also imposes special legal requirements on "telecommunications carriers."
The law essentially defines "telecommunications carriers" as those offering
certain telecommunication services "directly to the public" or such classes of
users as to be effectively available directly to the public, regardless of the
facilities used. The Company therefore believes that a company has to be a
common carrier in order to be considered a telecommunications carrier. For the
reasons stated above, the Company believes that it is not a common carrier and
therefore that it is also not a telecommunications carrier with respect to its
fiber capacity leases. Nevertheless, the law is not entirely clear as to, and
the FCC has not definitively addressed whether, the term "telecommunications
carriers" is meant to encompass only common carriers, and therefore whether a
provider of fiber facilities on an individualized basis, like the Company, is a
"common carrier" or "telecommunications carrier." The FCC has been petitioned
by certain railroad, power and telecommunications associations, none of which
are affiliated with the Company, to clarify the status of fiber providers in
this respect. The FCC's pending remand, described above, could also
definitively address the application of these requirements to the Company. If
the agency decides that such companies are telecommunications carriers or
common carriers, then the Company would be subject to certain regulatory
requirements, which could have a material adverse effect on the Company.
If the Company were deemed to be a common carrier it would be required,
with respect to its telecommunications services, to (1) provide such services
indiscriminately upon any reasonable request; (2) charge rates and adopt
practices, classifications and regulations that are just and reasonable; (3)
avoid unreasonable
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discrimination in charges, practices, regulations, facilities and services; (4)
ensure that its services are accessible to and usable by persons with
disabilities; (5) pay into federal funds for Telecommunications Relay Services
and the North American Numbering Administration; (6) assure that its networks
comply with the requirements of the Communications Assistance for Law
Enforcement Act; (7) be subject to government oversight and limitations on its
transactions with affiliates; (8) limit its use of Customer Proprietory Network
Information (CPNI) to provisioning of the services in connection with which the
CPNI was obtained; (9) be subject to the complaint process at the FCC; and
comply with various reporting, regulatory fee payment and other requirements.
The Company might also be required to file tariffs setting forth the rates for
its services. These regulatory requirements could impose substantial burdens on
the Company.
If the Company's offering of fiber facilities were deemed to constitute a
"telecommunications service," or the provision of "telecommunications" for a
fee (unless deemed de minimis) then its revenues from fiber leases to end users
(but not to most other telecommunication carriers) would become subject to
assessment for the FCC's Universal Service Fund, a fund that was established by
the FCC pursuant to the 1996 Act to assist in ensuring the universal
availability of basic telecommunications services at affordable prices. The
Company may be subject to this assessment even if it is found to not be a
common carrier and only provides service on a private contractual basis or
through the leasing of excess capacity to end-users. This assessment could
create a liability equal to a percentage of the gross revenues from these
leases although the FCC has not announced what the annual assessment will be
(the Company anticipates, based on quarterly contribution factors as of May
1998 that the annual rate of assessment will be approximately 4.5% of gross
interstate end-user revenues for the year 1998, and may be higher in subsequent
years). The Company also may be liable for assessments by state commissions for
state universal service programs. The Company does not anticipate that its
aggregate liability for these universal service programs would be material. In
addition, since the revenues of the Company's competitors will be subject to
comparable assessments; this should not reduce the Company's competitiveness.
Federal telecommunications law may also affect the Company's business by
virtue of the inter-relationships that exist among the Company and ILECs and
IXCs. For example, the FCC recently issued an order requiring, among other
things, that common line access fees charged to IXCs, which previously amounted
to more than what was necessary to recover the costs of providing access, shift
from being usage driven to a fixed flat cost-based structure. While it is not
possible to predict the precise effect the access charge changes will have on
the Company's business or financial condition, the reforms will reduce access
charges paid by IXCs, likely eliminating one of the principal disincentives for
use of ILEC facilities by IXCs, which could have a material adverse effect on
the use of the Company's fiber optic telecommunications networks by IXCs.
The FCC has responsibility under the 1996 Act's interconnection provisions
to determine what elements of an ILEC's network must be provided to competitors
on an unbundled basis. The FCC has decided not to declare fiber an unbundled
network element under these provisions. This decision is currently subject to
petitions for reconsideration before the FCC. An FCC decision to alter this
decision on reconsideration could decrease the demand for fiber provided by the
Company. In addition, the FCC has announced that state commissions may decide
to add network elements to the FCC's list of elements that are required to be
unbundled by all carriers throughout the country.
State
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
person from providing any interstate or intrastate telecommunications service.
In addition, under current FCC policies, any dedicated transmission service or
facility that is used more than 10% of the time for the purpose of interstate
or foreign communication is subject to FCC jurisdiction to the exclusion of any
state regulation. Notwithstanding these prohibitions and limitations, states
regulate telecommunications services, including through certification of
providers of intrastate services, regulation of intrastate rates and service
offerings, and other regulations and retain jurisdiction under the 1996 Act to
adopt regulations necessary to preserve universal service, protect public
safety and welfare, ensure the continued quality of communications services and
safeguard the rights of consumers. Accordingly, the degree of state involvement
in local telecommunications services may be substantial.
The state regulatory environment varies substantially from state to state.
At present, the Company does not anticipate that the regulatory requirements to
which it will be subject in Connecticut, Maine, Massachusetts, New Hampshire,
New York and Rhode Island will have any material adverse effect on its
operations. In some
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jurisdictions, the Company's pricing flexibility for intrastate services may be
limited because of regulation, although the Company's direct competitors will
be subject to similar restrictions. However, there can be no assurance that
future regulatory, judicial, or legislative action will not have a material
adverse effect on the Company.
In arbitrating interconnection agreements under the 1996 Act between ILECs
and their potential competitors, some state commissions have considered whether
fiber should be an unbundled network element. The New York Public Service
Commission determined that it would not require NYNEX Corporation to provide
fiber as an unbundled network element. State commissions in Florida, Maryland,
North Carolina, and Virginia have either refused to require the ILECs to offer
fiber to competitors, or have stated that the issue would be addressed at a
later time. On the other hand, state commissions in Illinois, Massachusetts,
Arizona, Georgia, Minnesota, Ohio, Oregon and Tennessee have found fiber to be
a network element and required the ILECs to offer it on an unbundled basis to
CLECs. There can be no assurance that these requirements, and the associated
pricing methodologies, where applicable will not reduce the demand for fiber
provided by the Company.
The Company has determined that there are advantages to having certain of
its subsidiaries subject to state regulation in Connecticut and New York. As a
regulated carrier in those two jurisdictions, these subsidiaries will have
access to poles and rights of way for its fiber lines that would not be
available to it as an unregulated lessor of fiber. Two subsidiaries of the
Company have, therefore, recently filed petitions in those two states
requesting authority to provide telecommunications services. The Company
anticipates that based on past practices these petitions will be granted within
the next three or four months. As a result, these subsidiaries will incur
certain costs to comply with regulatory requirements such as the filing of
tariffs, submission of periodic financial and operational reports to
regulators, and payment of regulatory fees and assessments in Connecticut and
New York.
Local
In addition to federal and state laws, local governments exercise legal
authority that may impact the Company's business. For example, local
governments, such as the City of Boston and the City of New York, typically
retain the ability to license public rights-of-way, subject to the limitation
that local governments may not prohibit persons from providing
telecommunications services. Local authorities affect the timing and costs
associated with the Company's use of public rights-of-way. These regulations
may have an adverse effect on the Company's business.
Employees
As of April 30, 1998, the Company employed 11 people. The Company's
employees are not represented by any labor union. The Company considers its
relationship with employees to be satisfactory.
46
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and their ages as of
May 20, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------ ----- ---------------------------------------------
<S> <C> <C>
Richard A. Crabtree .......... 51 Chairman of the Board of Directors and Chief
Executive Officer
Victor Colantonio ............ 50 President and Director
William F. Fennell ........... 53 Chief Financial Officer and Treasurer
James D. Mack, Jr. ........... 53 Vice President, Sales
Michael A. Musen ............. 49 Vice President, Operations
John H. Forsgren ............. 51 Director
David Marsh .................. 50 Director
F. Michael McClain ........... 48 Director
Gary D. Simon ................ 49 Director
</TABLE>
Richard A. Crabtree has served as Chairman of the Board of Directors of
the Company since 1996 and was elected Chief Executive Officer in May 1997.
From 1971 to May 1997, Mr. Crabtree held various positions at Central Maine
Power Company, including Senior Vice President and Chief Financial Officer,
Senior Vice President, Customer Service and Vice President, Retail Operations.
Mr. Crabtree also serves as President of MaineCom, a wholly-owned subsidiary of
Central Maine Power Company.
Victor Colantonio, the Company's founder and President, has been a
director of the Company since 1989. Prior to founding the Company, from 1987 to
1991 Mr. Colantonio was president of International Communications Services
Corp., a provider of network services to New England Telephone Company, AT&T
and others. He served as President of Ireland-based Murray International from
1986 to 1987, where he sold network services to SNET, LiTel, MCI, Sprint and
others. From 1983 to 1986, Mr. Colantonio served as Director of Marketing for
Tele-Engineering Corp., an advanced WAN/LAN developer and video switch and
ad-insertion manufacturer, and in such capacity he secured contracts with,
among others, USAF Logistic Command, U.S. Navy Underwater Signal Command and
NASA.
William F. Fennell joined the Company as its Chief Financial Officer and
Treasurer in August 1996. From October 1986 to January 1996, Mr. Fennell was
Chief Financial Officer of Philips Electronics Group of North America, a
manufacturer and distributor of electronic and electrical products. From 1970
to 1986, Mr. Fennell served in various positions at GTE Corporation, including
Director of Operations for the Communications Products Group.
James D. Mack, Jr. joined the Company in March 1998 as its Vice President,
Sales. From March 1997 until joining the Company, Mr. Mack was General Manager
of US Telecenters, an independent telecommunications dealer, representing Bell
Atlantic, Nothern Telecom, GTE Corporation and Southwestern Bell. From 1966
until March 1997, Mr. Mack held various sales and marketing positions at Bell
Atlantic/NYNEX Corporation (formerly NYNEX), including Branch Manager for NYNEX
Systems Marketing.
Michael A. Musen has served as an officer of the Company since its
inception, and became Vice President, Operations in 1996. Prior to joining the
Company, Mr. Musen was Vice President of International Communications Services
Corp.
John H. Forsgren has served as a Director of the Company since May 1998.
Mr. Forsgren has served as Executive Vice President and Chief Financial Officer
of Northeast Utilities and certain of its affiliates since February 1996. From
September 1996 to the present, he has served as a director of Connecticut
Yankee Atomic Power Company. From January 1990 to July 1994, he served as
Senior Vice President-Chief Financial Officer of Euro Disney (a division of the
Walt Disney Company), and from December 1994 to January 1996, he was a Managing
Director of Chase Manhattan Bank.
47
<PAGE>
David E. Marsh has served as Director of the Company since May 1998. Since
1973, he has held various positions at Central Maine Power Company, including
Treasurer, Senior Vice President of Finance, and his current position, Chief
Financial Officer. Mr. Marsh also serves as director of Maine Yankee Atomic
Power Company and as Chairman of the Boards of CMPI, MaineCom Union Water Power
Company and Telesmart.
F. Michael McClain has served as a Director of the Company since May 1998.
Mr. McClain has served as Vice President, Corporate Development of Central
Maine Power Company since February 1998. From 1979 to December 1996 he was
Group Vice President-Petroleum for Dead River Company, a petroleum and real
estate company.
Gary D. Simon has served as a Director of the Company since May 1998. Mr.
Simon has served as Senior Vice President-Strategy and Development for the
Northeast Utilities System since April 1998. From 1989 to April 1998, he was
Senior Director, Electric Power of Cambridge Energy Research Associates. From
1984 to 1989, Mr. Simon was Director of California Affairs and then Vice
President of Marketing for El Paso Natural Gas Company. From 1981 to 1984, he
served as President of Sigma Group, an economics consulting and project
development company which he founded in 1981.
There are no family relationships among any of the directors and executive
officers of the Company.
Committees of the Board of Directors
Upon the completion of the Offerings, the Board of Directors will
establish a Compensation Committee and an Audit Committee. The Compensation
Committee will make recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company and will
administer the Company's incentive plans. The Audit Committee will review the
results and scope of the audit and other services provided by the Company's
independent public accountants.
Compensation of Directors
The Company has no present plans to pay cash compensation to directors.
The Company intends to reimburse directors for certain out-of-pocket expenses
incurred in connection with attendance at meetings of the Board of Directors or
Committees thereof. In addition, the Company may issue options to the directors
under the 1998 Stock Incentive Plan, which options would vest and become
exercisable over time.
Executive Compensation
The following table sets forth compensation paid to the Chief Executive
Officer and each of the two other most highly compensated individuals who
served as executive officers on December 31, 1997 and who received over
$100,000 in compensation for services rendered to the Company in all capacities
during the year ended December 31, 1997 (the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
1997 Annual Compensation Awards
-------------------------------------------- --------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Position Salary($) Bonus($) Compensation($) Options (#) Compensation($)
- ----------------------------- ----------- ---------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Richard A. Crabtree ......... -- -- -- -- --
Chairman of the Board and
Chief Executive Officer (1)
Victor Colantonio ........... 150,000 2,885 -- -- --
President and Director(2)
Michael A. Musen ............ 112,000 2,154 -- -- --
Vice President, Operations
</TABLE>
- ------------
(1) During 1997, while serving as Chairman and Chief Executive Officer of the
Company, Mr. Crabtree was President of MaineCom, a wholly-owned subsidiary
of CMP, which paid his salary and benefits. Therefore,
48
<PAGE>
the Company did not pay any compensation to Mr. Crabtree for his services in
1997; however, the Company reimbursed MaineCom $ for Mr. Crabtree's
services in 1997. Effective upon the closing of the Offerings, Mr. Crabtree
is expected to become a full-time employee of the Company with an annual
base salary of $200,000. In May 1998 the Board of Directors of the Company
granted to him an option to purchase up to shares of the Company's
Common Stock, which becomes exercisable in four equal annual installments,
beginning one year after the closing of the Offerings. The exercise price
per share is the price to the public of a share of Common Stock in the
Equity Offering. In addition, Mr. Crabtree is eligible to receive an annual
bonus of up to 35% of his salary. Upon the closing of the Offerings, the
Company will pay a cash bonus of $500,000 to MaineCom in recognition of Mr.
Crabtree's efforts on behalf of the Company while he was employed by
MaineCom.
(2) In May 1998, the Board of Directors of the Company increased Mr.
Colantonio's annual base salary to $200,000 in connection with the
Offerings and granted to him an option to purchase up to shares of
the Company's Common Stock, which becomes exercisable in four equal annual
installments, with the first such installment becoming exercisable upon
the closing of the Offerings. The exercise price per share is the price to
the public of a share of Common Stock in the Equity Offering. In addition,
Mr. Colantonio is also eligible to receive an annual bonus of up to 35% of
his salary. Upon the closing of the Offerings, Mr. Colantonio will be
entitled to a cash bonus of $500,000. Pursuant to the terms of Mr.
Colantonio's employment agreement with the Company, MaineCom transferred
shares of Common Stock of the Company to Mr. Colantonio as of April
17, 1998. Mr. Colantonio may forfeit such shares if he voluntarily
terminates employment with the Company prior to October 14, 2000. See
"--Employment Agreements."
Employment Agreements
The Company has entered into an Employment Agreement with Victor
Colantonio, dated October 15, 1997, as amended. This Agreement has an initial
term of three years and automatically extends for one-year terms thereafter
unless either party gives written notice of its desire to terminate the
agreement no later than the immediately preceding April 1. The Agreement
provides for an annual base salary of not less than $150,000. If Mr.
Colantonio's employment is terminated without cause after the occurrence of a
"Change of Control" (as defined in the Agreement) of the Company, Mr.
Colantonio will be entitled to receive a lump sum payment in an amount equal to
2.99 times his then-current base salary. In connection with the Offerings, Mr.
Colantonio's annual base salary will be increased to $200,000.
The Company has also entered into employment agreements with James Mack,
the Company's Vice President, Sales, and Michael Musen, the Company's Vice
President, Operations, dated May 4, 1998 and September 29, 1994, respectively.
The Company's agreement with Mr. Mack has a term of three years and provides
that Mr. Mack will receive a base salary of at least $150,000 per year and
bonus, awards, cash incentives and stock option incentives having a value of at
least an additional $150,000 per year provided certain performance targets are
met. Pursuant to the terms of this agreement, Mr. Mack was granted an option to
purchase up to shares of the Company's Common Stock, which become
exercisable in four equal annual installments beginning one year after the
closing of the Offerings. The exercise price per share is the price to the
public of a share of Common Stock in the Equity Offering. The Company's
agreement with Mr. Musen has a term of three years and renews automatically on
an annual basis unless terminated by either party on at least 180 days' notice.
The Agreement provides for an annual base salary of $112,000.
Option Grants
The Company did not grant any options to the Named Executive Officers in
1997.
Option Exercises and Options Outstanding
None of the Named Executive Officers held any options as of December 31,
1997.
1998 Stock Incentive Plan
The Company's 1998 Stock Incentive Plan (the "1998 Plan") was adopted by
the Board of Directors on May 18, 1998 and approved by the Company's
stockholders on May 26, 1998. The 1998 Plan provides for the grant of incentive
stock options intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), nonstatutory stock options, restricted
stock awards and other stock-based awards, including the grant
49
<PAGE>
of shares based upon certain conditions, the grant of securities convertible
into Common Stock and the grant of stock appreciation rights (collectively
"Awards"). Options may be granted at an exercise price which may be less than,
equal to or greater than the fair market value of the Common Stock on the date
of grant. Under present law, however, incentive stock options and options
intended to qualify as performance-based compensation under Section 162(m) of
the Code may not be granted at an exercise price less than the fair market
value of the Common Stock on the date of grant (or less than 110% of the fair
market value in the case of incentive stock options granted to optionees
holding more than 10% of the voting power of the Company). Options granted
under the 1998 Plan typically will vest over time, subject to acceleration upon
a Change in Control of the Company (as defined therein). Restricted stock
awards entitle recipients to acquire shares of Common Stock, subject to the
right of the Company to repurchase all or part of such shares from the
recipient in the event that the conditions specified in the applicable Award
are not satisfied prior to the end of the applicable restriction period
established for such Award. Under the 1998 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights. Officers, employees, directors, consultants and
advisors of the Company and its subsidiaries are eligible to be granted Awards
under the 1998 Plan.
The 1998 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1998 Plan and to interpret the provisions of the 1998
Plan. The Board has authorized the Compensation Committee to administer certain
aspects of the 1998 Plan, including the granting of options to executive
officers.
As of May 20, 1998, a total of shares were reserved for issuance
under the 1998 Plan, of which shares were subject to options having a
weighted average exercise price per share of $ .
Compensation Committee Interlocks and Insider Participation
During 1997, the Company had no compensation committee, and no officers,
other than Messrs. Crabtree and Colantonio, who were also members of the Board
of Directors, participated in deliberations of the Board of Directors
concerning executive officer compensation. No interlocking relationship exists
between any member of the Company's anticipated Compensation Committee and any
member of any other company's board of directors or compensation committee.
50
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into certain agreements with NU and CMP,
affiliates of which are major stockholders of the Company, relating to fiber
optic facilities and services upon which the NEON system depends. See
"Business--Right-of-Way Agreements." The Company believes that these agreements
are on terms at least as favorable to the Company as could have been obtained
from unaffiliated third parties. NU has waived right-of-way fees otherwise
payable by the Company through 2004 in return for the Company's agreement to
build the NEON system to certain NU facilities and to allow NU to use 12 fibers
on designated route segments in the NU service territory.
In , 1998, the Company entered into a Restructuring and Contribution
Agreement with, inter alia, CMP, MaineCom (an affiliate of CMP) and Mode 1 (an
affiliate of NU) relating to the restructuring of the Company. Pursuant to this
Agreement, each of MaineCom and Mode 1 exchanged membership interests in
subsidiaries of the Company for shares of the Series B Convertible Preferred
Stock of the Company. In addition, pursuant to the Restructuring and
Contribution Agreement, Mr. Colantonio, the Company's President, and Mr. Musen,
the Company's Vice President, Operations, exchanged their membership interests
in FiveCom LLC, a subsidiary of the Company, for shares of the Series B
Convertible Preferred Stock of the Company. See "Business --Reorganization."
During the years ended December 31, 1996 and 1997, the Company reimbursed
CMP and/or MaineCom for personnel and construction costs related to activities
of the Company. The amount paid to CMP totaled $________ and $________ for the
years ended December 31, 1996 and 1997, respectively. Approximately $0 and
$29,779 was included in accounts payable at December 31, 1996 and 1997,
respectively.
CMP and the Company are parties to a Tax Sharing Agreement pursuant to
which CMP has included the Company in its consolidated federal income tax
return since 1996. At December 31, 1996 and 1997, the amounts due under the Tax
Sharing Agreement to the Company from CMP amounted to approximately $0 and
$368,734, respectively, for current and deferred income tax benefits related to
CMP's utilization of the Company's loss carryforwards. As a result of this
arrangement, the Company has no loss carryforwards.
The Company paid NU $________ in 1996 and $________ in 1997 for materials,
labor and other contractor charges related to the construction of the NEON
system. Approximately $357,100 and $494,500 was included in accounts payable at
December 31, 1996 and 1997, respectively.
CMP agreed to allow right-of-way payments otherwise payable by the Company
to accrue so long as amounts borrowed by the Company from Peoples Heritage
Savings Bank under a $1.6 million construction loan agreement were outstanding.
The Company expects to repay the Peoples Heritage Savings Bank loan with the
proceeds of the Offerings. The amount of right-of-way payments accrued through
March 31, 1998 was approximately $115,000.
For a description of certain employment agreements and other arrangements
between the Company and its executive officers, see "Management--Executive
Compensation."
Upon the closing of the Offerings, the Company has agreed to pay a bonus
of $500,000 to each of Mr. Colantonio and MaineCom. The payment to MaineCom is
in recognition of the services provided by Mr. Crabtree, as an employee of
MaineCom, to the Company.
In October 1997, the Company entered into a Construction Loan Agreement
with CMP, as amended in February 1998 and June 1998 (as amended, the "CMP Loan
Agreement"). Pursuant to the terms of the CMP Loan Agreement, the Company may
borrow up to $30 million to pay approved expenses related to the construction
of the NEON system. Amounts borrowed by the Company bear interest at an annual
interest rate equal to LIBOR plus 3%, and are secured by a first priority
security interest in all of the Company's assets, including the Company's
rights in the NEON system, except that part of the NEON system which is located
in CMP's service territory, as to which CMP's security interest is subordinated
to that of another lender. As of April 30, 1998, the Company had outstanding
principal of approximately $ million under the CMP Loan Agreement. Amounts
due under the CMP Loan Agreement are being paid in full with the proceeds of
the Offerings. See "Use of Proceeds."
Concurrently with the CMP Loan Agreement, CMP was issued warrants to
purchase 5,876 shares of membership interest in FiveCom LLC with an exercise
price of $.01 per share.
MaineCom has certain rights with respect to the registration of its shares
of the capital stock of the Company. See "Description of Capital
Stock--Registration Rights."
51
<PAGE>
[E] PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's voting securities as of April 30, 1998, assuming
exercise of options exercisable within 60 days of April 30, 1998, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each Selling Stockholder, (ii) each person who, to the knowledge of the
Company, beneficially owns more than 5% of any class of the Company's voting
securities; (iii) each director of the Company; (iv) each Named Executive
Officer of the Company; and (v) all directors and officers of the Company as a
group.
<TABLE>
<CAPTION>
Shares of Common
Shares of Common Stock Beneficially
Stock Beneficially Owned
Owned Prior to the Number of After the Equity
Equity Offering(2) Shares of Offering(2)(3)
---------------------- Common Stock ----------------------
Name(1) Number Percent Being Offered Number Percent
- ------------------------------------ -------- ----------- --------------- -------- --------
<S> <C> <C> <C> <C> <C>
5% Stockholders
Central Maine Power Company(4)
83 Edison Drive
Augusta, ME 04336 ................. 53.53%
Mode 1 Communications, Inc.(5)
c/o Northeast Utilities Services
Company
107 Selden Street
Berlin, CT 06037 .................. 41.37%
Executive Officers and Directors
Richard A. Crabtree(4)(6) .......... -- --
Victor Colantonio(7) ............... 1.08%
William F. Fennell(8) .............. -- --
James D. Mack, Jr.(9) .............. -- --
Michael A. Musen ................... -- *
John H. Forsgren(5) ................ -- --
David E. Marsh(4) .................. -- --
F. Michael McClain(4) .............. -- --
Gary D. Simon(5) ................... -- --
All executive officers and directors
as a group (9 persons) ............
</TABLE>
- ------------
* Represents less than one percent of the outstanding Common Stock
(1) The address of each person in the table other than Central Maine Power
Company and Mode 1 Communications, Inc. is 391 Totten Pond Road, Suite
401, Waltham, Massachusetts 02154.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire
within 60 days after April 30, 1998. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Consists of shares held by CMP and shares held by MaineCom, a
wholly-owned subsidiary of CMP. Mr. Crabtree, the Chief Executive Officer
and Chairman of the Board of Directors of the Company, is the President of
MaineCom. Mr. Marsh, a director of the Company, is the Chief Financial
Officer of CMP. Mr. McClain, a director of the Company, is the Vice
President, Corporate Development of CMP. Each of Messrs. Crabtree, Marsh
and McClain disclaims beneficial ownership of the shares held by MaineCom
and CMP except to the extent of his pecuniary interest therein.
52
<PAGE>
(5) Mr. Forsgren, a director of the Company, is an Executive Vice President and
the Chief Financial Officer of Northeast Utilities Service Company
("NUSC"), the parent of Mode 1 Communications, Inc. ("Mode 1"). Mr. Simon,
a director of the Company, is the Senior Vice President-Strategy and
Development for NUSC. Each of Messrs. Forsgren and Simon disclaims
beneficial ownership of the shares held by Mode 1 except to the extent of
his pecuniary interest therein.
(6) Does not include shares subject to options granted to Mr. Crabtree in
May 1998. See "Management--Executive Compensation."
(7) Does not include shares subject to options granted to Mr. Colantonio
in May 1998. See "Management--Executive Compensation."
(8) Does not include shares subject to options granted to Mr. Fennell in
May 1998.
(9) Does not include shares subject to options granted to Mr. Mack in May
1998.
53
<PAGE>
[D] PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's voting securities as of April 30, 1998, assuming
exercise of options exercisable within 60 days of April 30, 1998, and as
adjusted to reflect the sale of shares of Common Stock offered in the Equity
Offering, by (i) each person who, to the knowledge of the Company, beneficially
owns more than 5% of any class of the Company's voting securities; (ii) each
director of the Company; (iii) each Named Executive Officer of the Company, and
(iv) all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Number of of Common Stock
Shares of Beneficially Owned
Common Stock ------------------------------------
Beneficially Prior to the After the
Name(1) Owned(1) Offerings Offerings(2)(3)
- ----------------------------------------- -------------- -------------- ----------------
<S> <C> <C> <C>
5% Stockholders
Central Maine Power Company(4)
83 Edison Drive
Augusta, ME 04336 ...................... 53.53%
Mode 1 Communications, Inc.(5)
c/o Northeast Utilities Services Company
107 Selden Street
Berlin, CT 06037 ....................... 41.37%
Executive Officers and Directors
Richard A. Crabtree(4)(6) ...............
Victor Colantonio(7) .................... 1.08%
William F. Fennell(8) ...................
James D. Mack, Jr.(9) ...................
Michael A. Musen ........................ *
John H. Forsgren(5) .....................
David E. Marsh(4) .......................
F. Michael McClain(4) ...................
Gary D. Simon(5) ........................
All executive officers and directors as a
group (9 persons) ......................
</TABLE>
- ------------
* Represents less than one percent of the outstanding Common Stock
(1) The address of each person in the table other than Central Maine Power
Company and Mode 1 Communications, Inc. is 391 Totten Pond Road, Suite
401, Waltham, Massachusetts 02154.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire
within 60 days after April 30, 1998. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity.
(3) Assumes no exercise of the Underwriters' over-allotment option in the
Equity Offering. Reflects the sale by each of the Company, MaineCom
Services and Mode 1 of , and shares of Common Stock,
respectively, in the Equity Offering.
(4) Consists of shares held by CMP and shares held by MaineCom
Services, a wholly-owned subsidiary of CMP. Mr. Crabtree, the Chief
Executive Officer and Chairman of the Board of Directors of the Company,
is the President of MaineCom. Mr. Marsh, a director of the Company, is the
Chief Financial Officer of CMP. Mr. McClain, a director of the Company, is
the Vice President, Corporate Development of CMP. Each of Messrs.
54
<PAGE>
Crabtree, Marsh and McClain disclaims beneficial ownership of the shares
held by MaineCom and CMP except to the extent of his pecuniary interest
therein.
(5) Mr. Forsgren, a director of the Company, is an Executive Vice President and
the Chief Financial Officer of Northeast Utilities Service Company
("NUSC"), the parent of Mode 1 Communications, Inc. ("Mode 1"). Mr. Simon,
a director of the Company, is the Senior Vice President-Strategy and
Development for NUSC. Each of Messrs. Forsgren and Simon disclaims
beneficial ownership of the shares held by Mode 1 except to the extent of
his pecuniary interest therein.
(6) Does not include shares subject to options granted to Mr. Crabtree in
May 1998. See "Management--Executive Compensation."
(7) Does not include shares subject to options granted to Mr. Colantonio
in May 1998. See "Management--Executive Compensation."
(8) Does not include shares subject to options granted to Mr. Fennell in
May 1998.
(9) Does not include shares subject to options granted to Mr. Mack in May
1998.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of April 30, 1998 (after giving effect to the Reorganization and the
Preferred Stock Conversion), there were outstanding an aggregate of
shares of Common Stock held of record by 22 stockholders.
Common Stock
The Company's Restated Certificate of Incorporation authorizes the
issuance of up to 30,000,000 shares of Common Stock, $.01 par value per share.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Equity Offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.
Preferred Stock
The Restated Certificate of Incorporation authorizes the issuance of up to
2,000,000 shares of Preferred Stock, $.01 par value per share. Under the terms
of the Restated Certificate of Incorporation, the Board of Directors is
authorized, subject to any limitations prescribed by law, without stockholder
approval, to issue such shares of Preferred Stock in one or more series. Each
such series of Preferred Stock shall have such rights, preferences, privileges
and restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by
the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
a majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
Delaware Law and Certain Charter and Bylaw Provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
Under the Restated Certificate of Incorporation, any vacancy on the Board
of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may only be filled by vote of a majority of the
directors then in office. The Restated Certificate of Incorporation also
provides that any action required or permitted to be taken by the stockholders
of the Company at an annual meeting or special meeting of stockholders may only
be taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The Restated Certificate of Incorporation
further provides that special meetings of the stockholders may only be called
by a Chairman of the Board of Directors or by the Board of Directors. Under the
Company's Bylaws, in order for any matter to be considered "properly brought"
before a meeting, a stockholder must comply with certain requirements regarding
advance notice to the Company. The foregoing provisions could have the effect
of delaying until the next stockholders' meeting stockholder actions which are
favored by the holders of a majority of the
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outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders' meeting, and not by written
consent.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the Restated Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
BankBoston, N.A.
Registration Rights
In November 1995, the Company and MaineCom entered into a Stock
Subscription Agreement, pursuant to which MaineCom purchased shares of the
Company's Series B Convertible Preferred Stock. Pursuant to the terms of the
Agreement, MaineCom has the right to have the shares of Common Stock issuable
upon conversion of its shares of Series B Convertible Preferred Stock
("Registrable Securities") included in any registration statement filed by the
Company relating to any public offering of the Company's Common Stock, except
to the extent the number of such shares may be limited by the managing
underwriter of any such offering. In addition, MaineCom may request that the
Company register all or part of the Registrable Securities at any time at least
180 days after the effective date of a registered underwritten offering of the
Company's Common Stock, provided that the anticipated aggregate net offering
price for such securities is at least $10,000,000.
In May 1996, the Company issued a warrant to Oppenheimer & Co., Inc. (now
CIBC Oppenheimer Corp.) ("Oppenheimer"), relating to the right to purchase
shares of the Company's Series B Convertible Preferred Stock (the "Oppenheimer
Warrant"). Pursuant to the terms of the Oppenheimer Warrant, upon Oppenheimer's
request, the Company is required to include any securities issuable with
respect to the Oppenheimer Warrant ("Oppenheimer Registrable Securities") in
any registration statement filed by the Company (other than a Registration
Statement on Form S-8) relating to any public offering of the Company's Common
Stock. In addition, if requested by the holders of 50% of the Oppenheimer
Registrable Securities, the Company is required to register such securities on
a Registration Statement on Form S-3 when the Company becomes eligible to use
such form. However, in lieu of either of the above-referenced registrations,
the Company may purchase the Oppenheimer Registrable Securities for an amount
in cash equal to 95% of the difference between (a) the last sale price of such
securities on the day the request for registration in made and (b) the exercise
price in effect for the Oppenheimer Warrant on such day.
Shareholders Agreement
CMP and NU have entered into an agreement dated May , 1998, whereby each
such party agrees that, following the completion of the Offerings, it will not
permit or cause the Company to (i) merge or consolidate, liquidate or dissolve,
change its form of organization or sell, lease, exchange or transfer all or
substantially all of its assets; or (ii) seek bankruptcy protection or certain
other protection from creditors, without the consent of both parties. In
addition, each of NU and CMP has rights of first offer in connection with the
proposed sale of Common Stock of the Company held by the other party and the
option to purchase the shares of Common Stock of the Company held by the other
party if such other party seeks bankruptcy protection or similar relief. After
the closing of the Offerings, this agreement will remain in effect for so long
as (a) NU owns at least 10% of the outstanding Common Stock of the Company,
fully diluted and (b) the aggregate Common Stock of the Company owned by NU and
CMP is at least 331/3% of the outstanding Common Stock of the Company, fully
diluted.
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[E] DESCRIPTION OF CERTAIN INDEBTEDNESS
Concurrently with the Equity Offering, the Company is offering its %
Senior Discount Notes due 2008 pursuant to the Debt Offering for gross proceeds
of $ million. The following is a summary of certain terms of the Notes and
is qualified in its entirety by reference to the Indenture (the "Indenture")
relating to the Notes. A copy of the proposed form of Indenture has been filed
with the Registration Statement of which this Prospectus forms a part.
The Notes will be unsecured senior obligations of the Company, and will
mature on , 2008. No cash interest will accrue on the Notes prior to
, 2003. Commencing on , 2003, cash interest will accrue on the Notes
at the rate of % per annum, and will be paid semiannually on and
of each year, commencing , 2004.
Except as described below, the Notes will not be redeemable prior to
, 2003. Thereafter, the Notes will be redeemable at the option of the
Company, in whole or in part, at any time or from time to time. In the event
the Company consummates certain public equity offerings prior to , 2001,
the Company may, at its option, use proceeds from such offerings to redeem up
to 35% of the original principal amount of the Notes.
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Notes will have the right to require the Company to purchase all
or a portion of such holder's Notes at a price equal to 101% of the accreted
value thereof, together with accrued and unpaid interest to the date of
purchase.
The Indenture will contain certain covenants, including covenants that
limit (i) indebtedness, (ii) restricted payments, (iii) restrictions on
distributions from certain subsidiaries, (iv) transactions with affiliates, (v)
sales of assets and subsidiary stock (including sale and leaseback
transactions), (iv) sale or issuance of capital stock of certain subsidiaries,
(vii) liens, and (viii) mergers or consolidations.
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[D] DESCRIPTION OF THE NOTES
General
The Notes are to be issued under an Indenture, to be dated as of ,
1998 (the "Indenture"), between the Company and , as Trustee (the
"Trustee"). A copy of the form of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. For purposes of this summary, the term "Company" refers only to
NorthEast Optic Network, Inc., and not to any of its subsidiaries.
The Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. No service
charge shall be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection therewith.
Terms of the Notes
The Notes will be unsecured senior obligations of the Company, limited to
$ million aggregate principal amount at maturity, and will mature on ,
2008. No cash interest will accrue on the Notes prior to , 2003, although
for U.S. Federal income tax purposes a significant amount of OID will be
recognized by a Holder as such discount accrues. See "Certain United States
Federal Income Tax Consequences" for a discussion regarding the taxation of
such OID. Cash interest will accrue on the Notes at the rate per annum shown on
the cover page hereof from , 2003, or from the most recent date to which
interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the or immediately preceding the
interest payment date on and of each year, commencing , 2004. The
Company will pay interest on overdue principal at 1% per annum in excess of
such rate, and it will pay interest on overdue installments of interest at such
higher rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Optional Redemption
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to , 2003. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of Accreted Value), plus
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------------------------------------ -----------
<S> <C>
2003 ........................ %
2004 ........................
2005 ........................
2006 and thereafter ......... 100
</TABLE>
In addition, at any time and from time to time prior to , 2001, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings, at a
redemption price (expressed as a percentage of Accreted Value) of % plus
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that (i) at least $
aggregate principal amount of the Notes must remain outstanding and be held,
directly or indirectly, by Persons other than the Company and its Affiliates,
after each such redemption and (ii) any such redemption shall occur within 60
days of the applicable Public Equity Offering.
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In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
Ranking
The indebtedness evidenced by the Notes will be senior unsecured
obligations of the Company, will rank pari passu in right of payment with all
existing and future senior unsecured indebtedness of the Company and will be
senior in right of payments to all future subordinated indebtedness of the
Company. As of March 31, 1998, after giving effect to the issuance of the Notes
and the application of the proceeds therefrom, the Company's senior
indebtedness outstanding would have been approximately $ million, including
the Notes.
A portion of the operations of the Company are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes. The Notes, therefore, will be effectively
subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of subsidiaries of the Company. At March 31, 1998 on a
pro forma basis after giving effect to the Offering and the application of the
net proceeds therefrom, the total liabilities of the Company's subsidiaries
were approximately $ million, including trade payables. Although the
Indenture limits the incurrence of Indebtedness and preferred stock of certain
of the Company's subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Indebtedness or Preferred Stock under the Indenture. See "--Certain
Covenants--Limitation on Indebtedness."
Book-Entry, Delivery and Form
The Notes sold will be issued in the form of a Global Note. The Global
Note will be deposited with, or on behalf of, the Depository and registered in
the name of the Depository or its nominee. Except as set forth below, the
Global Note may be transferred, in whole and not in part, only to the
Depository or another nominee of the Depository. Investors may hold their
beneficial interests in the Global Note directly through the Depository if they
have an account with the Depository or indirectly through organizations which
have accounts with the Depository.
Upon the transfer of a Note in definitive form, such Note will, unless the
Global Note has previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Note representing the principal amount
of Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("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. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository'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,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. Ownership of
beneficial interests in the Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to
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participants' interest) and such participants (with respect to the owners of
beneficial interests in the Global Note other than participants). The laws of
some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in the Global
Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or
be entitled to receive physical delivery of certificated Notes in definitive
form and will not be considered to be the owners or holders of any Notes under
the Global Note. The Company understands that under existing industry practice,
in the event an owner of a beneficial interest in the Global Note desires to
take any action that the Depository, as the holder of the Global Note, is
entitled to take, the Depository would authorize the participants to take such
action, and that the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will
be made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of
any payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants.
The Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between the Depository and its
participants or the relationship between such participants and the owners of
beneficial interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes
The Notes represented by the Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of U.S.
$1,000 and integral multiples thereof if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for the Global
Note or if at any time the Depository 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 in its discretion at any time
determines not to have all of the Notes represented by the Global Note or (iii)
an Event of Default has occurred and is continuing. Any Note that is
exchangeable pursuant to the preceding sentence is exchangeable for
certificated Notes issuable in authorized denominations and registered in such
names as the Depository shall direct. Subject to the foregoing, the Global Note
is not exchangeable, except for a Global Note of the same aggregate
denomination to be registered in the name of the Depository or its nominee.
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Same-Day Payment
The Indenture will require that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
Accreted Value thereof on the date of purchase, plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 3d-5 under the Exchange
Act, except that for purposes of this clause (i) such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of the Company; provided,
however, that the Permitted Holders beneficially own (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock
of the Company than such other person and do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors (for the purposes of this clause (i),
such other person shall be deemed to beneficially own any Voting Stock of a
specified corporation held by another Person (a "parent corporation") if
such other person is the beneficial owner (as described in this clause
(i)), directly or indirectly, of more than 35% of the voting power of the
Voting Stock of such parent corporation and the Permitted Holders
beneficially own (as described in this clause (i)), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent corporation and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation);
(ii) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company was
approved by a vote of 662/3% of the directors of the Company then still in
office who were either directors on the Issue Date or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office;
(iii) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(iv) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control
Offer") stating: (1) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder's Notes at a
purchase price in cash equal to 101% of the Accreted Value thereof on the date
of purchase, plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant record date to
receive interest on the relevant interest payment date); (2) the circumstances
and relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control); (3) the repurchase date (which shall
be no earlier than 30 days nor later than 60 days from
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the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.
If a Holder's Notes are redeemed by the Company pursuant to its option to
redeem Notes as described under "--Optional Redemption" prior to the date on
which the Company would be obligated to pay for such Notes tendered pursuant to
a Change of Control Offer, such Holder will be entitled to receive only the
redemption price. The Company will not be required to make a Change of Control
Offer following a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that
the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "--Certain Covenants--Limitation on Indebtedness",
"--Limitation on Liens" and "--Limitation on Sale/Leaseback Transactions." Such
restrictions can only be waived with the consent of the holders of a majority
in principal amount of the Notes then outstanding. Except for the limitations
contained in such covenants, however, the Indenture will not contain any
covenants or provisions that may afford holders of the Notes protection in the
event of a highly leveraged transaction.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness; provided, however, that the Company may Incur Indebtedness if, on
the date of such Incurrence and after giving effect thereto, the Consolidated
Leverage Ratio would be less than 5.5 to 1.0 if such Indebtedness is Incurred
on or prior to December 31, 2000 or 5.0 to 1.0 if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to Credit Agreements; provided, however,
that, after giving effect to any such Incurrence, the aggregate
principal amount of such Indebtedness then outstanding does not exceed
$25 million less the sum of all principal payments with respect to such
Indebtedness pursuant to paragraph (a)(ii)(A) of the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock";
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(2) Indebtedness owed to and held by the Company or a Restricted Subsidiary;
provided, however, that (i) any subsequent issuance or transfer of any
Capital Stock of a Restricted Subsidiary which results in any such
Indebtedness being owned or held by a Person that is no longer a
Restricted Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Company or a Restricted Subsidiary) shall be deemed,
in each case, to constitute the Incurrence of such Indebtedness by the
obligor thereon and (ii) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
(3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (3) or (4) above, this clause (5) or
clauses (7), (8) or (10) below; provided, however, that to the extent
such Refinancing Indebtedness directly or indirectly Refinances
Indebtedness of a Restricted Subsidiary described in clause (10), such
Refinancing Indebtedness shall be Incurred only by such Restricted
Subsidiary;
(6) Hedging Obligations directly related to Indebtedness permitted to be
Incurred by the Company or any Restricted Subsidiary pursuant to
paragraphs (a) or (b) hereof;
(7) Indebtedness (including Indebtedness of a Restricted Subsidiary Incurred
and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company or another Restricted Subsidiary) Incurred to
finance the cost (including the cost of design, development,
acquisition, construction, installation, improvement, transportation and
integration) of acquiring property, plant and equipment or inventory to
be used in connection with a Telecommunications Business (including
acquisitions by way of capital lease and acquisitions of the Capital
Stock of a Person that becomes a Restricted Subsidiary to the extent of
the fair market value of the property, plant and equipment or inventory
so acquired) by the Company or Restricted Subsidiary after the Issue
Date;
(8) Indebtedness of the Company in an amount which, when taken together with
the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by
the Company after the Issue Date as a capital contribution from, or from
the issuance and sale of its Capital Stock (other than Disqualified
Stock) to, a Person that is not a Subsidiary of the Company, to the
extent such Net Cash Proceeds have not been used pursuant to paragraph
(a)(3)(B) or paragraph (b)(i) of the covenant described under
"--Limitation on Restricted Payments" to make a Restricted Payment;
provided, however, that such Indebtedness does not mature prior to the
Stated Maturity of the Notes and has an Average Life longer than the
Average Life of the Notes;
(9) Guarantees by any Restricted Subsidiary of the Notes, Indebtedness
Incurred pursuant to paragraph (a) above and any Indebtedness that
Refinances the Notes or any Indebtedness Incurred pursuant to paragraph
(a) above;
(10) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company
(other than Indebtedness Incurred in connection with, or to provide all
or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company);
provided, however, that on the date of such acquisition and after giving
effect thereto, the Company would have been able to Incur at least $1.00
of additional Indebtedness pursuant to paragraph (a) hereof; and
(11) Indebtedness Incurred in an aggregate amount which, when taken together
with the aggregate amount of all other Indebtedness of the Company and
its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clause (1) through (10) above or
paragraph (a)) does not exceed $5 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations
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unless such Indebtedness shall be subordinated to the Notes to at least the
same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above. For the purposes of determining
the amount of Indebtedness outstanding at any time, Guarantees with respect to
Indebtedness otherwise included in the determination of such amount shall not
be included.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default shall have occurred and be
continuing (or would result therefrom); (2) the Company is not able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "--Limitation on Indebtedness"; or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of (without duplication):
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal
quarter of the Company beginning after the Issue Date and ending on the
last day of the most recent fiscal quarter for which financial
statements have been made publicly available but in no event ending more
than 135 days prior to the date of such determination minus (y) the
product of 1.5 times cumulative Consolidated Interest Expense during
such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed by the
Company upon such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans
or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made (and treated as a
Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment (other than a Restricted Payment described in
clause (i) of the definition of "Restricted Payment") made out of the Net
Cash Proceeds of the substantially concurrent sale of, or made by exchange
for, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or to a trust established by the Company or
any of its Subsidiaries for the benefit of their employees); provided,
however, that (A) such Restricted Payment shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale used to make such Restricted Payment shall be
excluded from the calculation of amounts under clause (3)(B) of paragraph
(a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to the covenant described under "--Limitation on Indebtedness"; provided,
however, that such purchase, repurchase, redemption, defeasance
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or other acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend,
no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments; or
(iv) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount
of such repurchases and other acquisitions shall not exceed $500,000 in any
calendar year; provided further, however, that such repurchases and other
acquisitions shall be excluded in the calculation of the amount of
Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) make any loans or advances to the Company or (c) transfer any
of its property or assets to the Company (the limitations described in (a), (b)
and (c) being called the "Subsidiary Distributions"), except:
(i) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (i) or (ii) of this covenant or this clause (iii) or contained in
any amendment to an agreement referred to in clause (i) or (ii) of this
covenant or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the
Noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(iv) any customary encumbrance or restriction applicable to a Restricted
Subsidiary that is contained in an agreement or instrument governing or
relating to Indebtedness Incurred pursuant to clause (b)(1) of the covenant
described under "Limitation on Indebtedness"; provided, however, that such
encumbrances and restrictions permit the distribution of funds to the
Company in an amount sufficient for the Company to make the timely payment
of interest, premium (if any) and principal (whether at stated maturity, by
way of a sinking fund applicable thereto, by way of any mandatory
redemption, defeasance, retirement or repurchase thereof, including upon
the occurrence of designated events or circumstances or by virtue of
acceleration upon an event of default, or by way of redemption or
retirement at the option of the holder of the Indebtedness, including
pursuant to offers to purchase) according to the terms of the Indenture and
the Notes and other Indebtedness that is solely an obligation of the
Company; provided further, however, that such agreement or instrument may
nevertheless contain (A) customary net worth, leverage, invested capital
and other financial covenants, customary covenants regarding the merger of
or sale of all or any substantial part of the assets of the Company or any
Restricted Subsidiary, customary restrictions on transactions with
affiliates and customary subordination provisions governing Indebtedness
owed to the Company or any Restricted Subsidiary and (B) a customary
provision prohibiting such Restricted Subsidiary from making any Subsidiary
Distributions upon the occurrence and during the continuance of any payment
default under any such agreement or instrument (for purposes of this clause
(iv), any determination as to what is customary shall be conclusively
determined in
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good faith by the Chief Financial Officer of the Company as certified to
the Trustee at the time such agreement or instrument is entered into);
(v) any such encumbrance or restriction consisting of customary non
assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder;
(vi) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages; and
(vii) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at
least equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Indebtedness), to prepay,
repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company controlled
directly or indirectly by the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash; (B)
second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects, to
acquire Additional Assets within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; and (C) third, to
the extent of the balance of such Net Available Cash after application in
accordance with clauses (A) and (B), to make an offer to the holders of the
Notes pursuant to and subject to the conditions contained in the Indenture;
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or
such Restricted Subsidiary shall permanently retire such Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this paragraph, the Company and the
Restricted Subsidiaries shall not be required to apply any Net Available Cash
in accordance with this paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this paragraph exceeds $5.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Permitted Investments or used to reduce outstanding borrowings under revolving
credit facilities.
For the purposes of clause (a)(i) above, the following are deemed to be
cash or cash equivalents: (x) the assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such
Asset Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes pursuant to clause (a)(ii)(C) above, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes at a
purchase price of 100% of their Accreted Value plus accrued but unpaid interest
in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. The Company shall not be required
to make such an offer to purchase Notes pursuant to this covenant if the Net
Available Cash available therefor is less than $5 million (which lesser amount
shall be carried forward for purposes of determining whether such an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the
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Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this clause by
virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $1.0 million, (i) are set forth in
writing and (ii) have been approved by a majority of the members of the Board
of Directors having no personal stake in such Affiliate Transaction and (3) if
such Affiliate Transaction involves as amount in excess of $5.0 million, have
been determined by nationally recognized investment banking firm to be fair,
from a financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments", (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees
in the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $1.0
million in the aggregate outstanding at any one time, (v) the payment of
reasonable fees to directors of the Company and its Restricted Subsidiaries who
are not employees of the Company or its Restricted Subsidiaries, (vi) any
Affiliate Transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries and (vii) the issuance or sale of any Capital
Stock (other than Disqualified Stock) of the Company.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary, (ii) directors' qualifying shares, (iii) if, immediately after
giving effect to such issuance, sale or other disposition, neither the Company
nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary
or (iv) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
thereto would have been permitted to be made under the covenant described under
"--Limitation on Restricted Payments" if made on the date of such issuance,
sale or other disposition.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured equally and ratably with (or prior to) the obligations
so secured for so long as such obligations are so secured.
Limitation on Sale/Leaseback Transactions. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to
the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant
to the covenant described under "--Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under
"--Limitation on Liens", (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) the Company applies the proceeds of such transaction in
compliance with the covenant described under "--Limitation on Sale of Assets
and Subsidiary Stock."
Future Guarantors. The Company shall cause each Restricted Subsidiary that
Guarantees any Indebtedness of the Company (other than the Notes) pursuant to
clause (b)(9) of the covenant described under "--Limitation on Indebtedness" to
guarantee the Notes on substantially the same terms and conditions as such
Guarantee.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the
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resulting, surviving or transferee Person (the "Successor Company") shall be a
Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company's Consolidated Leverage Ratio
is not greater than the Company's Consolidated Leverage Ratio immediately prior
to such transaction; and (iv) the Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and Noteholders with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections.
Defaults
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, (iii) the failure by the Company to comply with its obligations
under "--Certain Covenants--Merger and Consolidation" above, (iv) the failure
by the Company to comply for 30 days after notice with any of its obligations
in the covenants described above under "--Change of Control" (other than a
failure to purchase Notes) or under "--Certain Covenants" under "--Limitation
on Indebtedness", "--Limitation on Restricted Payments", "--Limitation on
Restrictions on Distributions from Restricted Subsidiaries", "--Limitation on
Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes),
"--Limitation on Affiliate Transactions", "--Limitation on the Sale or Issuance
of Capital Stock of Restricted Subsidiaries", "--Limitation on Liens",
"--Limitation on Sale/Leaseback Transactions", "--Future Guarantors" or "--SEC
Reports", (v) the failure by the Company to comply for 60 days after notice
with its other agreements contained in the Indenture, (vi) Indebtedness of the
Company or any Significant Subsidiary not being paid within any applicable
grace period after final maturity or being accelerated by the holders thereof
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $5 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions") or (viii) any judgment or
decree for the payment of money in excess of $5 million is entered against the
Company or a Significant Subsidiary, remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed within 10
days after notice (the "judgment default provision"). However, a default under
clauses (iv), (v) and (viii) will not constitute an Event of Default until the
Trustee or the holders of 25% in principal amount of the outstanding Notes
notify the Company of the default and the Company does not cure such default
within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes may
declare the Accreted Value of and accrued but unpaid interest on all the Notes
to be due and payable (collectively, the "Default Amount"). Upon such a
declaration, the Default Amount shall be due and payable immediately. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the Default Amount on
all the Notes will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders of the
Notes. Under certain circumstances, the holders of a majority in principal
amount of outstanding Notes may rescind any such acceleration with respect to
the Notes and its consequences.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a
Note may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder of a Note or that would involve the Trustee in
personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its trust officers determines
that withholding notice is not opposed to the interest of the holders of the
Notes. In addition, the Company is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether
the signers thereof know of any Default that occurred during the previous year.
The Company also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or
proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest
on any Note, (iii) reduce the principal or Accreted Value of or extend the
Stated Maturity of any Note, (iv) reduce the amount payable upon the redemption
of any Note or change the time at which any Note may be redeemed as described
under "--Optional Redemption", (v) make any Note payable in money other than
that stated in the Note, (vi) impair the right of any holder of the Notes to
receive payment of principal of and interest on such holder's Notes on or after
the due dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's Notes or (vii) make any change in the
amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of any holder of the Notes, the Company and Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to secure the Notes, to add to the covenants of the Company for
the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder of the Notes or to comply with any requirement of the
SEC in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
Transfer
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clauses (iii) and (iv)
under "--Certain Covenants--Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "--Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
Concerning the Trustee
is to be the Trustee under the Indenture and has been appointed by
the Company as Registrar and Paying Agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; provided, however, if it acquires any conflicting interest
it must either eliminate such conflict within 90 days, apply to the SEC for
permission to continue or resign.
The Holders of a majority in principal amount 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. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
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Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount of Notes:
(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
Semi-Annual Accreted
Accrual Date Value
- --------------------- -------------
<S> <C>
Issue Date ..........
, 1999 .........
, 1999 .........
, 2000 .........
, 2000 .........
, 2001 .........
, 2001 .........
, 2002 .........
, 2002 .........
, 2003 .........
, 2003 ......... 1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal to the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b)
an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days elapsed from the
immediately preceding Semi-Annual Accrual Date to the Specified Date, using
a 360-day year of 12 30-day months, and the denominator of which is 180
(or, if the Semi-Annual Accrual Date immediately preceding the Specified
Date is the Issue Date, the denominator is the number of days from and
including the Issue Date to and excluding the Specified Date; or
(iii) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments", "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
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"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any
division or line of business of the Company or any Restricted Subsidiary or
(iii) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
(other than, in the case of (i), (ii) and (iii) above, (x) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (y) for purposes of the covenant
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" or a Permitted
Investment and (z) disposition of assets with a fair market value of less than
$250,000); provided, however, that transfers of fiber capacity in exchange for
indefeasible rights of use and long-term leases of fiber capacity shall be
treated as made in the ordinary course of business.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as
at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication,
(i) interest expense attributable to capital leases and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by Persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by (or secured by
the assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust.
"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries as of such date of determination to (ii) EBITDA
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for the four most recent consecutive fiscal quarters ending at least 45 days
prior to such date of determination (such four fiscal quarters being herein
called the "Reference Period"); provided, however, that
(1) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount
of such Indebtedness shall be calculated after giving effect on a pro
forma basis to such Indebtedness and to the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness;
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness that was outstanding
as of the end of such fiscal quarter or if any Indebtedness that was
outstanding as of the end of such fiscal quarter is to be repaid,
repurchased, defeased or otherwise discharged on the date of the
transaction giving rise to the need to calculate the Consolidated
Leverage Ratio (other than, in each case, Indebtedness Incurred under
any revolving credit agreement), the aggregate amount of Indebtedness
shall be calculated on a pro forma basis and EBITDA shall be calculated
as if the Company or such Restricted Subsidiary had not earned the
interest income, if any, actually earned during the Reference Period in
respect of cash or Temporary Cash Investments used to repay, repurchase,
defease or otherwise discharge such Indebtedness;
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA
for the Reference Period shall be reduced by an amount equal to the
EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for the Reference Period or increased
by an amount equal to the EBITDA (if negative) directly attributable
thereto for the Reference Period;
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets which constitutes all
or substantially all of an operating unit of a business, EBITDA for the
Reference Period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of the Reference
Period; and
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
Reference Period) shall have made any Asset Disposition, any Investment
or acquisition of assets that would have required an adjustment pursuant
to clause (3) or (4) above if made by the Company or a Restricted
Subsidiary during the Reference Period, EBITDA for the Reference Period
shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day
of the Reference Period.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to another Restricted Subsidiary, to
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the limitation contained in this clause applicable to such other Restricted
Subsidiary) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(iv) any gain (but not loss) realized upon the sale or other disposition
of any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
any gain (but not loss) realized upon the sale or other disposition of any
Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "--Certain Covenants--Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (a)(3)(D) thereof.
"Credit Agreements" means each agreement entered into by the Company or
any of its Restricted Subsidiaries providing for loans to the Company or any
such Restricted Subsidiary, as amended, extended, renewed, restated,
supplemented or otherwise modified (in whole or in part, and without limitation
as to amount, terms, conditions, covenants and other provisions) from time to
time, and any agreement (and related document) governing Indebtedness incurred
to Refinance, in whole or in part, the borrowings and commitments then
outstanding or permitted to be outstanding under such agreement whether by the
same or any other lender or group of lenders.
"Currency Agreement"means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to
protect such Person against fluctuations in currency values.
"Default"means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock"means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder) or
upon the happening of any event (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable at the option of the holder for Indebtedness or Disqualified Stock
or (iii) is redeemable or must be purchased, upon the occurrence of certain
events or otherwise, at the option of the holder thereof, in whole or in part,
in each case under clause (i), (ii) or (iii) on or prior to a date that is six
months following the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to purchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Notes shall not constitute Disqualified Stock if (x) the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the terms applicable to the
Notes and described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" and "--Certain Covenants--Change of Control" and (y) any
such requirement only becomes operative after compliance with such terms
applicable to the Notes, including the purchase of any Notes tendered pursuant
thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company and its consolidated Restricted Subsidiaries, (b) depreciation expense
of the Company and its consolidated Restricted Subsidiaries, (c) amortization
expense of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (d) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the depreciation
and amortization and non-cash charges of, a Restricted Subsidiary shall be
added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted
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Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit);
(v) the amount of all mandatory payment obligations of such Person with
respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person,
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the liquidation preference with respect to, any Preferred Stock of such
Subsidiary (but excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
and proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid out of the proceeds from
such Asset Disposition, (iii) all distributions and other payments required to
be made to minority interest holders in Restricted Subsidiaries as a result of
such Asset Disposition and (iv) the deduction of appropriate amounts provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the property or other assets disposed in such Asset Disposition
and retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
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"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Permitted Holders" means (i) Central Maine Power Company, a Maine
corporation, and its Affiliates and (ii) Northeast Utilities, a Massachusetts
business trust and its Affiliates.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company, a Restricted Subsidiary or a Person
that will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys
all or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary trade
terms as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or
any Restricted Subsidiary or in satisfaction of judgments; (viii) any Person to
the extent such Investment represents either the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" and (ix) any Person principally engaged in a Related
Business if (a) the Company or Restricted Subsidiary, after giving effect to
such Investment, will own at least 20% of the Voting Stock of such Person and
(b) the amount of such Investment, when taken together with the aggregate
amount of all Investments made pursuant to this clause (ix) and then
outstanding, does not exceed $10 million.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection
with bids, tenders, contracts (other than for the payment of Indebtedness) or
leases to which such Person is a party, or deposits to secure public or
statutory obligations of such Person or deposits of cash or United States
government bonds to secure surety or appeal bonds to which such Person is a
party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business; (b)
Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens,
in each case for sums not yet due or being contested in good faith by
appropriate proceedings or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be proceeding
with an appeal or other proceedings for review; (c) Liens for property taxes
not yet subject to penalties for non-payment or which are being contested in
good faith and by appropriate proceedings; (d) Liens in favor of issuers of
surety bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Indebtedness; (e) minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (f) Liens securing Indebtedness
Incurred to finance the cost (including the cost of design, development,
acquisition, construction, installation, improvement, transportation and
integration) of any property, plant and equipment, inventory or other property
acquired by such Person (including acquisitions by way of capital lease and
acquisitions of Capital Stock of a Person that becomes a Restricted
Subsidiary); provided, however, that the Lien may not extend to any other
property owned by such Person or any of its Subsidiaries at the time the Lien
is Incurred, and the Indebtedness (other than any interest thereon) secured by
the Lien may not be Incurred more than 180 days after the later of the
acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien; (g) Liens
to secure Indebtedness permitted under the provisions described in clause
(b)(1) under "--Certain Covenants--Limitation on Indebtedness"; (h) Liens
existing on the Issue Date; (i) Liens
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on property or shares of Capital Stock of another Person at the time such other
Person becomes a Subsidiary of such Person; provided, however, that such Liens
are not created, incurred or assumed in connection with, or in contemplation
of, such other Person becoming such a Subsidiary; provided further, however,
that such Lien may not extend to any other property owned by such Person or any
of its Subsidiaries; (j) Liens on property at the time such Person or any of
its Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such Person
and including Liens created by other Persons affecting any easement,
indefeasible right to use or other property right granted to the Company or any
Restricted Subsidiary; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend to any
other property owned by such Person or any of its Subsidiaries; (k) Liens
securing Indebtedness or other obligations of a Subsidiary of such Person owing
to such Person or a wholly owned Subsidiary of such Person; (l) Liens securing
Hedging Obligations so long as such Hedging Obligations relate to Indebtedness
that is, and is permitted to be under the Indenture, secured by a Lien on the
same property securing such Hedging Obligations; (m) Liens for taxes,
assessments, government charges or claims that are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted,
if a reserve or other appropriate provision, if any, as is required in
conformity with GAAP has been made therefor; and (n) Liens arising by reason of
any judgment, decree or order of any court so long as such Lien is adequately
bonded and any appropriate legal proceeding that may have been duly initiated
for the review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated shall
not have expired; and (o) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien
referred to in the foregoing clauses (f), (h), (i) and (j); provided, however,
that (x) such new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements to or on such property) and
(y) the Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (A) the outstanding principal amount or, if
greater, committed amount of the Indebtedness described under clauses (f), (h),
(i) or (j) at the time the original Lien became a Permitted Lien and (B) an
amount necessary to pay any fees and expenses, including premiums, related to
such refinancing, refunding, extension, renewal or replacement. Notwithstanding
the foregoing, "Permitted Liens" will not include any Lien described in clauses
(f), (i) or (j) above to the extent such Lien applies to any Additional Assets
acquired directly or indirectly from Net Available Cash pursuant to the
covenant described under "--Certain Covenants--Limitation on Sale of Assets and
Subsidiary Stock." For purposes of this definition, the term "Indebtedness"
shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than
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the aggregate principal amount (or if Incurred with original issue discount,
the aggregate accreted value) then outstanding or committed (plus fees and
expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness
shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness
of the Company (except to the extent such Refinanced Indebtedness was
guaranteed by such Subsidiary) or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Issue
Date.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect
of its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of
any Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred, and (ii) accrued and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of
which the Company is responsible or liable unless, in the case of (i) and (ii),
in the instrument creating or evidencing the same or pursuant to which the same
is outstanding, it is provided that such obligations are subordinate in right
of payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, local or other taxes owed or owing by the Company, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of the Company or (5) that portion
of any Indebtedness which at the time of Incurrence is Incurred in violation of
the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
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).
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"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) 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 (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Telecommunications Business" means the business of (i) transmitting or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) constructing, creating,
developing or marketing communications related network equipment, software and
other devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (i) or (ii) above.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group, 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 or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) if such Subsidiary had any
Indebtedness outstanding at the time of such designation, the Company could
Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant
described under "--Certain Covenants--Limitation on Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee
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a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
Company or one or more Wholly Owned Subsidiaries.
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[E] SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Equity Offering, there has been no market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after the Equity Offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of the Equity Offering (based on shares outstanding at
April 30, 1998), the Company will have outstanding an aggregate of
shares of Common Stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the
shares sold in the Equity Offering will be freely tradeable without
restrictions or further registration under the Securities Act, unless such
shares are purchased by an existing "affiliate" of the Company as that term is
defined in Rule 144 under the Securities Act (an "Affiliate"). The remaining
shares of Common Stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. As a result of the contractual restrictions described below
and the provisions of Rule 144, 144(k) and 701, shares will be eligible
for sale upon expiration of the lock-up agreements on , 180 days after
the date of this Prospectus and shares will be eligible for sale upon
expiration of their respective one-year holding periods.
All officers, directors and principal stockholders of the Company have
agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer, lend or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock for a period
of 180 days after the date of this Prospectus, without the prior written
consent of Credit Suisse First Boston Corporation, subject to certain limited
exceptions. Credit Suisse First Boston Corporation currently has no plans to
release any portion of the securities subject to lock-up agreements. When
determining whether or not to release shares from the lock-up agreements,
Credit Suisse First Boston Corporation will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for
which the release is being requested and market conditions at the time.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after the
Equity Offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an Affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner except an Affiliate), is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Accordingly, unless otherwise
restricted, "144(k) shares" may therefore be sold immediately upon the
completion of the Equity Offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisors prior to the date the
issuer becomes subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such
persons. In addition, the SEC has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of the Equity Offering).
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the
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contractual restrictions described above, beginning 90 days after the date of
this Prospectus, may be sold (i) by persons other than Affiliates, subject only
to the manner of sale provisions of Rule 144 and (ii) by Affiliates, under Rule
144 without compliance with its one-year minimum holding period requirements.
The Company has agreed not to offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer, lend or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
enter into any swap or similar agreement that transfers, in whole or in part,
the economic risk of ownership of the Common Stock, for a period of 180 days
after the date of this Prospectus, without the prior written consent of Credit
Suisse First Boston Corporation, subject to certain limited exceptions.
Following the Equity Offering, the Company intends to file registration
statements under the Securities Act covering approximately shares of
Common Stock issued and outstanding, subject to outstanding options or reserved
for issuance under the Company's 1998 Plan. See "Management -- 1998 Stock
Incentive Plan." Accordingly, shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to
Affiliates, be available for sale in the open market, except to the extent that
such shares are subject to vesting restrictions with the Company or the
contractual restrictions described above.
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[E] CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES FOR
NON-UNITED STATES HOLDERS
The following is a summary of certain material United States federal
income tax considerations relating to the ownership and disposition of Common
Stock applicable to Non-United States Holders, but does not purport to be a
complete analysis of all the potential tax considerations relating thereto.
This summary is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the applicable Treasury Regulations promulgated or
proposed thereunder ("Treasury Regulations"), judicial authority and current
administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis. This summary does not address tax
considerations that may be relevant to a particular investor in light of such
investor's personal investment circumstances, nor does it address any tax
consequences arising out of the laws of any state, local or foreign taxing
jurisdiction.
A "Non-United States Holder" is any beneficial owner of Common Stock that,
for United States federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership or an estate or trust
not subject to United States federal income tax on a net income basis in
respect of income or gain with respect to Common Stock. An individual may be
deemed to be a resident alien (as opposed to a non-resident alien) by virtue of
being present in the United States on at least 31 days during the calendar year
and for an aggregate of 183 days during the calendar year and the two preceding
calendar years (counting, for such purposes, all the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year). In addition to
the "substantial presence test" described in the immediately preceding
sentence, an individual may be treated as a resident alien if he or she (i)
meets a lawful permanent residence test (a so-called "green card" test) or (ii)
elects to be treated as a U.S. resident and meets the "substantial presence
test" in the immediately following year.
Each prospective non-United States Holder is advised to consult its own
tax advisor with respect to the tax consequences of owning and disposing of
Common Stock.
Sale or Exchange of Common Stock
A Non-United States Holder of Common Stock will generally not be subject
to United States federal income tax or withholding tax on any gain realized on
the sale or exchange of the Common Stock unless (1) the gain is effectively
connected with a United States trade or business of the Non-United States
Holder, (2) in the case of a Non-United States Holder who is an individual and
holds Common Stock as a capital asset, such Holder is present in the United
States for a period or periods aggregating 183 days or more during the taxable
year of the disposition and certain other conditions are met, (3) the Holder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates, or (4) subject to the exceptions discussed below,
the Company is or has been a "United States real property holding corporation"
for federal income tax purposes at any time within the shorter of the five-year
period preceding such disposition or such Holder's holding period and certain
other conditions are met.
United States Real Property Holding Corporations
Under present law, a company is a United States real property holding
corporation if (a) the fair market value of its United States real property
interests is equal to or more than (b) 50% of the sum of the fair market value
of its United States real property interests, its interests in real property
located outside the United States, and its other assets which are used or held
in a trade or business. Because of its investment in the communication network,
the Company may be a United States real property holding corporation. If the
Company is a "United States real property holding corporation," gain recognized
on a disposition of the Common Stock by a Non-United States Holder would be
subject to United States federal income tax unless (i) the Common Stock is
"regularly traded on an established securities market" within the meaning of
the Code and (ii) the Non-United States Holder disposing of Common Stock did
not own, actually or constructively, at any time during the five-year period
preceding the disposition, more than 5% of the Common Stock. It is anticipated
that the Common Stock will be regularly traded on an established securities
market.
Dividends
Subject to the discussion below, any dividend paid to a Non-United States
Holder generally will be subject to United States withholding tax either at a
rate of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable income tax treaty. For purposes of determining
whether tax is to be withheld
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at a 30% rate or at a reduced rate as specified by an income tax treaty, the
Company ordinarily will presume that dividends paid to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted. Under recently issued Treasury Regulations,
however, Non-United States Holders of Common Stock who wish to claim the
benefit of an applicable treaty rate would be required to satisfy certain
certification requirements. The new Treasury Regulations are effective for
payments made after December 31, 1999. Dividends paid to a holder with an
address within the United States generally will not be subject to withholding
tax, unless the Company has actual knowledge that the holder is a Non-United
States Holder.
Dividends received by a Non-United States Holder that are effectively
connected with a United States trade or business conducted by such Non-United
States Holder are exempt from withholding tax. However, such effectively
connected dividends are subject to regular United States income tax in the same
manner as if the Non-United States Holder were a United States resident. A
Non-United States Holder may claim exemption from withholding under the
effectively connected income exception by filing Form 4224 (Statement Claiming
Exemption from Withholding of Tax on Income Effectively Connected With the
Conduct of a Trade or Business in the United States) each year with the Company
or its paying agent prior to the payment of the dividends for such year.
Effectively connected dividends received by a corporate Non-United States
Holder may be subject to an additional "branch profits tax" at a rate of 30%
(or such lower rate as may be specified by an applicable tax treaty) of such
corporate Non-United States Holder's effectively connected earnings and
profits, subject to certain adjustments.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
United States Internal Revenue Service (the "IRS").
Backup Withholding and Information Reporting
Generally, the Company must report to the IRS the amount of dividends
paid, the name and address of the recipient, and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to tax treaties or
other agreements, the IRS may make its reports available to tax authorities in
the recipient's country of residence.
Unless the Company has actual knowledge that a holder is a non-United
States person, dividends paid to a holder at an address within the United
States may be subject to backup withholding at a rate of 31% if the holder is
not an exempt recipient as defined in Treasury Regulation Section
1.6049-4(c)(1)(ii) (which includes corporations) and fails to provide a correct
taxpayer identification number and other information to the Company. If paid to
an address outside the United States, dividends on Common Stock held by a
Non-United States Holder will generally not be subject to the information
reporting and backup withholding requirements. However, under recently issued
Treasury Regulations, dividend payments will be subject to information
reporting and backup withholding unless applicable certification requirements
are satisfied. The new Treasury Regulations apply to dividend payments made
after December 31, 1999.
If the proceeds of the disposition of Common Stock by a Non-United States
Holder are paid over, by or through a United States office of a broker, the
payment is subject to information reporting and to backup withholding at a rate
of 31% unless the disposing holder certifies as to its name, address and status
as a Non-United States Holder under penalties of perjury or otherwise
establishes an exemption. Generally, United States information reporting and
backup withholding will not apply to a payment of disposition proceeds if the
payment is made outside the United States through a non-United States office of
a non-United States broker. However, United States information reporting
requirements (but not backup withholding) will apply to a payment of
disposition proceeds outside the United States if (a) the payment is made
through an office outside the United States of a broker that is either (i) a
United States person for United States federal income tax purposes, (ii) a
"controlled foreign corporation" for United States federal income tax purposes,
or (iii) a foreign person which derives 50% or more of its gross income for
certain periods from the conduct of a United States trade or business, and (b)
the broker fails to maintain documentary evidence in its files that the holder
is a Non-United States Holder and that certain conditions are met or that the
holder otherwise is entitled to an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to 31% backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
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[D] CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States federal
income tax considerations relating to the purchase, ownership and disposition
of the Notes, but does not purport to be a complete analysis of all the
potential tax considerations relating thereto. This summary is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
applicable Treasury Regulations promulgated or proposed thereunder ("Treasury
Regulations"), judicial authority and current administrative rulings and
practice, all of which are subject to change, possibly on a retroactive basis.
This summary deals only with holders that will hold the Notes as "capital
assets" (within the meaning of Section 1221) and does not address tax
considerations that may be relevant to a particular investor in light of such
investor's personal investment circumstances, nor does the discussion address
special rules applicable to certain types of investors subject to special
treatment under the Code (including, without limitation, financial
institutions, broker-dealers, regulated investment companies, life insurance
companies, tax-exempt organizations, foreign corporations, non-resident aliens,
dealers in securities or currencies, persons that will hold Notes as a position
in a hedging transaction, "straddle" or "conversion transaction" for tax
purposes, or persons that have a "functional currency" other than the U.S.
dollar.) This summary discusses the tax considerations applicable to the
initial purchasers of the Notes who purchase the Notes at their "original issue
price" as defined in Section 1273 of the Code and does not discuss the tax
considerations applicable to subsequent purchasers of the Notes. The Company
has not sought any ruling from the Internal Revenue Service ("IRS") with
respect to the statements made and the conclusions reached in the following
summary, and there can been no assurance that the IRS will agree with such
statements and their conclusions. No consideration of any aspects of state,
local or foreign taxation is included herein. INVESTORS CONSIDERING THE
PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means the beneficial owner
of a Note that for United States federal income tax purposes is (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 United States 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.
persons have the authority to control all substantial decisions of the trust.
Stated Interest
The receipt of cash in respect of the stated interest on the Notes will
not be taxable to the United States Holders but, rather, such stated interest
will be included in income as original issue discount ("OID") on a daily
economic accrual basis as described below.
Original Issue Discount
Because the Notes are being issued with more than a de minimis amount of
discount from their stated redemption price at maturity and no interest will be
paid on the Notes prior to , 2003, the Notes will be considered to have
been issued with OID for federal income tax purposes. The OID on a Note will be
the excess of its "stated redemption price at maturity" (as defined below) over
its "issue price." The stated redemption price at maturity of a Note will be
equal to the stated principal amount of the Note, plus the amount of all stated
interest due and payable on such Note. The issue price of the Notes will be the
first price to the public (excluding bond houses and brokers) at which a
substantial amount of the Notes were sold.
A United States Holder will be required to include OID in gross income on
a daily economic accrual basis over the term of a Note, regardless of such
United States Holder's method of tax accounting and in advance of the receipt
of the cash attributable to such interest income. In general, a United States
Holder must include in income the sum of the daily portions of OID with respect
to a Note for each day during the taxable year on which the United States
Holder holds the Note, including the purchase date and excluding the
disposition date. The daily portion of OID is determined by allocating to each
day of any accrual period (which may be of any length and may vary
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over the term of a Note, at the option of the holder, provided that each
accrual period is not longer than one year and each scheduled payment of
principal or interest on the Note occurs on the first or last day of an accrual
period) within a taxable year a pro rata portion of an amount equal to the
adjusted issue price of a Note at the beginning of the accrual period
multiplied by the yield to maturity of such Note. For purposes of computing
OID, the Company will use six-month accrual periods that end on the days in the
calendar year corresponding to the maturity date of the Notes and the date six
months prior to such maturity date, with the exception of an initial short
accrual period. The adjusted issue price of a Note at the beginning of any
accrual period is the issue price of the Note increased by the accrued OID for
all prior accrual periods (less any cash payments received on such Notes). The
yield to maturity of a Note is the discount rate that, when used in computing
the present value of all principal and interest payments to be made under a
Note, produces an amount equal to the issue price of the Note.
Under these rules, United States Holders will have to include in gross
income increasingly greater amounts of OID in each successive accrual period.
Each payment made under a Note will be treated first as a payment of OID which
was previously includible in gross income (to the extent of OID that has
accrued as of the date of payment and has not been allocated to prior payments)
and second as a payment of principal (which generally is not includible in
income).
Optional Redemption.
The Company's option to redeem the Notes, in whole or in part, at any time
on or after , 2003, at certain redemption prices based on a percentage of
Accreted Value, plus accrued interest will be treated as a call option. See
"Description of the Notes -- Optional Redemption." Because any exercise by the
Company of this option would not decrease the yield on the Notes, the Company
will not be presumed to exercise the option for purposes of the OID rules.
In addition to the optional redemption described above, the Company will
have the right to redeem up to 35% in aggregate face amount of the outstanding
Notes out of the net cash proceeds of one or more Public Equity Offerings on or
prior to , 2000. See "Description of the Notes -- Optional
Redemption." Furthermore, a United States Holder will have the right to tender
Notes to the Company for redemption should the Company experience a Change of
Control. See "Description of the Notes -- Change of Control." Such additional
redemption rights should not affect, and will not be treated by the Company as
affecting, the determination of the yield or maturity of the Notes.
The tax treatment of a redemption of the Notes generally should be
governed by the rules for dispositions thereof as described below.
If a United States Holder tenders Notes for redemption as a result of a
Change of Control, the United States Holder may be required to include as
ordinary income any amount the Holder is entitled to receive in excess of the
Accreted Value of a Note on the date of the redemption. Holders should consult
their own tax advisors regarding the treatment of payments received upon any
optional redemptions.
Disposition of the Notes
Generally, upon the sale or exchange or redemption for a Note, a United
States Holder will realize taxable gain or loss equal to the difference between
the amount of cash or other property received by the United States Holder in
exchange for such Note (except to the extent such amount realized is
attributable to accrued but unpaid interest that such holder has not included
in gross income previously) and such holder's adjusted tax basis in such Note.
A United States holder's adjusted tax basis in a Note will initially equal the
cost of the Note to such holder and will be increased by any accrued OID
includible in such holder's gross income and decreased by the amount of any
payments received by such holder in respect of such Note regardless of whether
such payments are denominated as principal or interest. Any gain or loss upon a
sale or other disposition of a Note will generally be capital gain or loss. At
the time of sale or redemption, any such gain will be taxed to a United States
Holder who is a natural person at a maximum rate of 20 percent (10 percent, if
such holder is in a 15 percent bracket) if the Note is held for more than 18
months at a maximum rate of 28 percent (15 percent if such holder is in a 15
percent bracket) if the Note is held for more than 12 months but not more than
18 months.
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Information Reporting and Backup Withholding
A United States Holder may be subject, under certain circumstances, to
backup withholding at a 31 percent rate with respect to payments received with
respect to the Notes. This withholding generally applies only if the U.S.
Holder (i) fails to furnish his social security or taxpayer identification
number ("TIN"), (ii) furnishes an incorrect TIN, (iii) is notified by the
Internal Revenue Service that he has failed to report properly payments of
interest and dividends and the service has notified the Company that he is
subject to withholding or (iv) fails under certain circumstances to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
his correct number and that he is not subject to backup withholding. Any amount
withheld from a payment to a United States Holder under the backup withholding
rules is allowable as a credit against such holder's federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service. Certain holders (including, among others, corporations and
foreign individuals who comply with certain certification requirements
described below under "Non-United States Holders") are not subject to backup
withholding. United States Holders should consult their tax advisors as to
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
The Company will furnish to the IRS and to record holders of the Notes (to
whom it is required to furnish such information) information relating to the
amount of interest and OID, as applicable.
THE COMPANY AND U.S. CORPORATE HOLDERS
The Notes will constitute "applicable high yield discount obligations"
("AHYDOs") if the yield to maturity of the Notes will be equal to or greater
than the sum of the relevant applicable federal rate ("AFR") in effect for debt
instruments issued in 1998 ( % compounded semi-annually), plus 5
percentage points. If the Notes constitute AHYDOs, the Company will not be
entitled to deduct any interest on the Notes until it pays such interest in
cash or other property (other than stock or debt instruments of the Company or
related party). In addition, if the yield to maturity of the Notes exceeds the
sum of the relevant AFR plus six percentage points (the "Excess Yield"), the
"disqualified portion" of the OID accruing on the Notes will not be deductible
by the Company and to the extent of the Company's current and accumulated
earnings and profits will be treated as a dividend distribution solely for
purposes of the dividends received deduction of Sections 243, 246 and 246A of
the Code with respect to holders that are U.S. corporations. In general, the
"disqualified portion" of OID for any accrual period will be equal to that
portion of the OID attributable to the yield on the Note in excess of the AFR
plus six percentage points.
Subject to otherwise applicable limitations, holders that are U.S.
corporations will be entitled to a dividends received deduction (generally at a
70% rate) with respect to the disqualified portion of the accrued OID if the
Company has sufficient current or accumulated "earnings and profits." The
excess will continue to be taxed as ordinary OID income in accordance with the
rules described above in "-- United States Holders -- Original Issue Discount."
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any beneficial
owner of a Note or Common Stock that is not a United States Holder.
The following discussion is a summary of certain U.S. federal income tax
consequences to a Non-United States Holder of a Note.
Stated Interest and OID on Notes
Generally any interest or OID paid to a Non-United States Holder of a Note
will not be subject to U.S. federal income or withholding tax, provided that
(i) the holder is not (A) a direct or indirect owner of 10% or more of the
total voting power of all voting stock of the Company or (B) a controlled
foreign corporation related to the Company through stock ownership, (ii) such
interest payments are not effectively connected with the conduct by the
Non-United States Holder of a trade or business within the United States and
(iii) the Company (or its paying agent) receives certain information from the
holder certifying under penalties of perjury that such holder is a Non-United
States Holder.
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If these conditions are not satisfied a Non-United States Holder generally
would be subject to U.S. withholding tax at a flat rate of 30% (or lower
applicable treaty rate) on interest payments and payments (including redemption
proceeds) attributable to OID on the Notes.
Sale, Exchange or Redemption of the Notes
Except as provided below and subject to the discussion concerning backup
withholding, a Non-United States Holder of a Note will generally not be subject
to United States federal income tax or withholding tax on any gain realized on
the sale, exchange or redemption of the Note unless (1) the gain is effectively
connected with a United States trade or business of the Non-United States
Holder, (2) in the case of a Non-United States Holder who is an individual,
such Holder is present in the United States for a period or periods aggregating
183 days or more during the taxable year of the disposition and certain other
conditions are met or (3) the Holder is subject to tax pursuant to the
provisions of the Code applicable to certain United States expatriates.
Information and Backup Withholding
The Treasury regulations provide that backup withholding and information
reporting will not apply to payments of principal, premium, if any, and
interest on the Notes by the Company to a Non-United States Holder, if the
holder certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption (provided that neither the Company nor their
paying agents has actual knowledge that the holder is a United States person or
that the conditions of any other exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of the Notes to or
through the United States office of any broker, U.S. or foreign, will be
subject to information reporting and possibly backup withholding unless the
owner certifies as to its non-U.S. status under penalty of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the proceeds from the
disposition of a Note to or through a non-U.S. office of a non-U.S. broker that
is not a U.S. related person will not be subject to information reporting or
backup withholding. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation" for U.S. federal income tax purposes or (ii) a
foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business.
In the case of the payment of proceeds from the disposition of Notes to or
through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
Non-United States Holder and the broker has no knowledge to the contrary.
Backup withholding will not apply to payments made through foreign offices of a
broker that is not a U.S. person or a U.S. related person (absent actual
knowledge that the payee is a U.S. person).
The United States Department of the Treasury recently promulgated final
regulations regarding the information reporting and backup reporting rules
discussed above. In general, the final regulations do not significantly alter
the substantive information reporting and backup withholding requirements but
rather unify current certification procedures and forms and clarify reliance
standards. In addition, the final regulations permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The final regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules.
Prospective purchasers of the Notes should consult their own tax advisors
concerning the effect of such regulations on their particular situations.
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[E] UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement dated , 1998 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation and SBC Warburg Dillon Read Inc are acting as
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- --------------------------------------------------- ----------
<S> <C>
Credit Suisse First Boston Corporation .........
SBC Warburg Dillon Read Inc ....................
Total ........................................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of the Common
Stock offered hereby (other than those shares covered by the over-allotment
option described below) if any are purchased. The Underwriting Agreement
provides that, in the event of a default by an Underwriter, in certain
circumstances the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company and the Selling Stockholders have granted to the Underwriters
an option expiring on the 30th day after the date of this Prospectus, to
purchase up to additional shares from the Company and an aggregate of
additional shares from the Selling Stockholders at the initial public
offering price, less the underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. Such option may be exercised only
to cover over-allotments in the sale of the shares of Common Stock. To the
extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of Common Stock as it was obligated to purchase pursuant
to the Underwriting Agreement.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public initially at the price set forth on the cover page of this
Prospectus, and through the Representatives, to certain dealers (who may
include the Underwriters) at such price less a concession of $ per share
and the Underwriters and such dealers may allow a discount of $ per share
on sales to certain other dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the Representatives.
Each of the Company and its officers, directors and principal stockholders
have agreed, subject to certain exceptions, that it will not offer, sell,
contract to sell, announce its intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Securities and Exchange Commission
a registration statement under the Securities Act of 1933 (the "Securities
Act") relating to, any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, without the prior written consent
of Credit Suisse First Boston Corporation for a period of 180 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."
The Underwriters have reserved for sale at the initial public offering
price up to shares of the Common Stock for employees, directors and
certain other persons associated with the Company who have expressed an
interest in purchasing such shares of Common Stock in the offering. The number
of shares available for sale to the general public in the offering will be
reduced to the extent these individuals purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters to the
general public on the same terms as the other shares offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
Application has been made to list the shares of Common Stock on the Nasdaq
National Market.
Prior to the Equity Offering, there has been no public market for the
Common Stock of the Company. The initial public offering price will be
determined through negotiations between the Company and the Representatives.
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Among the factors considered in determining the initial public offering price
will be prevailing market conditions for initial public offerings, certain
financial information of the Company, the history of, and the prospects for,
the Company and the industry in which it competes, and assessment of the
Company's management, its past and present operations, the prospects for, and
timing of, future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids. Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the underlying security so long as the stabilizing bids do not
involve purchases of the securities in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty bids
permit the Representatives to reclaim a selling concession from a syndicate
member when the securities originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The Underwriters have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the number of shares of
the Common Stock offered hereby.
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[D] UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement dated [bullet] , 1998 (the "Underwriting Agreement"),
the underwriters named below (the "Underwriters") have severally but not
jointly agreed to purchase from the Company the following respective principal
amounts of the Notes:
<TABLE>
<CAPTION>
Principal
Underwriter Amount
- --------------------------------------------------- ----------
<S> <C>
Credit Suisse First Boston Corporation ......... $
SBC Warburg Dillon Read Inc ....................
Total ........................................ $
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the securities offered hereby
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Notes to the public initially at the price set forth on
the cover page of this Prospectus, and to certain dealers (who may include the
Underwriters) at such price less a concession of % of the principal amount,
and the Underwriters and such dealers may allow a discount of % of the
principal amount on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Underwriters.
The Underwriters have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the principal amount
being offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments which the Underwriters may be required to make in respect thereof.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Notes in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the Notes originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Notes to be higher
than it would otherwise be in the absence of such transactions.
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[D] NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws, which will vary
depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the Notes.
Representations of Purchasers
Each purchaser of the Notes in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Notes without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes
acquired by such purchaser pursuant to this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from the Company. Only one such report
must be filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of Notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Notes in
their particular circumstances and with respect to the eligibility of the Notes
for investment by the purchaser under relevant Canadian Legislation.
94
<PAGE>
[E] NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws, which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.
Representations of Purchasers
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the Selling Shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
Legislation.
95
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Hale and Dorr LLP, Boston, Massachusetts. H&D Investments II, a
partnership comprised of partners of Hale and Dorr LLP, owns shares of
Common Stock of the Company. The Underwriters have been represented by Cravath,
Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 included in this Prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the securities being offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits
thereto, copies of which may be obtained upon payment of the fees prescribed by
the Commission or examined without charge at (i) the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and (ii) the Commission's regional offices located at
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661 and 75 Park Plaza,
14th Floor, New York, New York 10007. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete, and in each instance where such contract or other document is an
exhibit to the Registration Statement, reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each statement being qualified in all respects by such reference. The
Commission maintains a World Wide Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
96
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Public Accountants .............................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
March 31, 1998 (unaudited) ........................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 and for the three month periods
ended March 31, 1997 and 1998 (unaudited) ............................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1995, 1996 and 1997 and for the three month period
ended March 31, 1998 (unaudited) ..................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and for the three month periods ended
March 31, 1997 and 1998 (unaudited) .................................. F-6
Notes to Consolidated Financial Statements ............................ F-8
</TABLE>
F-1
<PAGE>
After the reorganization transaction discussed in Note 14 to NorthEast Optic
Network, Inc.'s consolidated financial statements is effected, we expect to be
in position to render the following audit report.
ARTHUR ANDERSEN LLP
May 22, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NorthEast Optic Network, Inc.:
We have audited the accompanying consolidated balance sheets of NorthEast Optic
Network, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1997, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period 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 NorthEast Optic
Network, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
F-2
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1997 March 31, 1998
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ........................................ $ 4,864,925 $ 1,098,452 $ 1,232,254
Accounts receivable .............................................. 125,540 1,034,391 168,740
Refundable taxes from related party (Note 2) ..................... -- 368,734 495,375
Prepaid expenses and other current assets ........................ 4,853 13,572 109,893
------------ ------------ ------------
Total current assets .......................................... 4,995,318 2,515,149 2,006,262
------------ ------------ ------------
Property and Equipment, at cost:
Communications network ........................................... -- 15,583,770 16,355,922
Machinery and equipment .......................................... 51,390 54,927 72,118
Motor vehicles ................................................... 29,426 29,426 29,426
Furniture and fixtures ........................................... 8,057 11,918 17,319
Communications network construction in progress (Note 3) ......... 11,274,200 1,292,492 3,794,811
------------ ------------ ------------
11,363,073 16,972,533 20,269,596
Less--Accumulated depreciation ................................... 33,578 437,830 640,173
------------ ------------ ------------
11,329,495 16,534,703 19,629,423
------------ ------------ ------------
Restricted Cash (Note 5) .......................................... -- 819,923 839,662
Intangible Assets, net (Note 4) ................................... 44,850 3,591,225 3,708,325
------------ ------------ ------------
$ 16,369,663 $ 23,461,000 $ 26,183,672
============ ============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term obligations (Note 5) ............. $ 380,142 $ 1,982,911 $ 1,949,936
Accounts payable ................................................. 315,977 294,758 290,636
Accounts payable construction in progress ........................ 482,308 1,199,293 2,786,515
Accrued expenses (Note 13) ....................................... 382,657 1,357,028 1,349,983
Deferred revenue ................................................. 225,000 1,144,170 1,129,575
------------ ------------ ------------
Total current liabilities ..................................... 1,786,084 5,978,160 7,506,645
------------ ------------ ------------
Deferred Tax Liability ............................................ -- 61,000 86,192
------------ ------------ ------------
Note Payable to Related Party (Note 5) ............................ -- 2,100,000 3,975,000
------------ ------------ ------------
Long-Term Obligations, less current maturities (Note 5) ........... 546,879 135,994 37,641
------------ ------------ ------------
Minority Interest in Consolidated Subsidiaries .................... 6,312,554 5,338,786 5,024,288
Commitments and Contingencies (Notes 5, 9 and 10)
Stockholders' Equity:
Series A convertible preferred stock, $.05 par value--
Authorized--200,000 shares; 21,180, 78,324 and 78,324 shares
issued and outstanding at December 31, 1996 and 1997 and
March 31, 1998, respectively ................................... 1,059 3,916 3,916
Series B convertible preferred stock, $.05 par value--
Authorized--2,025,120 shares; 962,734 shares issued and
outstanding .................................................... 48,137 48,137 48,137
Common stock, $.05 par value--
Authorized--4,000,000 shares; 113,931 shares issued and
outstanding .................................................... 5,696 5,696 5,696
Warrants ......................................................... 8,595 541,431 541,431
Additional paid-in capital ....................................... 9,225,478 11,772,725 11,772,725
Accumulated deficit .............................................. (1,564,819) (2,524,845) (2,817,999)
------------ ------------ ------------
Total stockholders' equity .................................... 7,724,146 9,847,060 9,553,906
------------ ------------ ------------
$ 16,369,663 $ 23,461,000 $ 26,183,672
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
1995 1996 1997 1997 1998
------------- --------------- --------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Network service ............................. $ -- $ -- $ 347,718 $ -- $ 146,257
Other service ............................... 42,598 13,733 46,986 -- 5,106
---------- ------------ ------------ ---------- ----------
Total revenues ............................. 42,598 13,773 394,704 -- 151,363
---------- ------------ ------------ ---------- ----------
Expenses:
Cost of sales ............................... 104,223 260,619 1,137,943 108,358 247,386
Selling, general and administrative ......... 358,761 900,808 1,002,232 207,383 225,122
Depreciation and amortization ............... 24,175 24,168 552,862 29,879 302,013
---------- ------------ ------------ ---------- ----------
Total expenses ............................. 487,159 1,185,595 2,693,037 345,620 774,521
---------- ------------ ------------ ---------- ----------
Loss from operations ....................... (444,561) (1,171,822) (2,298,333) (345,620) (623,158)
---------- ------------ ------------ ---------- ----------
Interest Income (Expense):
Interest income ............................. -- 201,473 138,918 56,638 30,322
Interest expense ............................ (42,401) (75,635) (141,811) -- (91,816)
---------- ------------ ------------ ---------- ----------
Total interest income (expense) ............ (42,401) 125,838 (2,893) 56,638 (61,494)
---------- ------------ ------------ ---------- ----------
Loss before minority interest in
subsidiaries' earnings and
provision for (benefit from)
income taxes .............................. (486,962) (1,045,984) (2,301,226) (288,982) (684,652)
Minority Interest ............................ -- 353,222 1,080,200 137,620 314,498
Provision for (Benefit From)
Income Taxes ................................ -- 16,000 (261,000) (33,000) (77,000)
---------- ------------ ------------ ---------- ----------
Net Loss ..................................... $ (486,962) $ (708,762) $ (960,026) $ (118,362) $ (293,154)
========== ============ ============ ========== ==========
Basic and Diluted Loss per Share ............. $ (4.28) $ (6.22) $ (8.43) $ (1.04) $ (2.57)
========== ============ ============ ========== ==========
Basic and Diluted Weighted Average
Shares Outstanding .......................... 113,831 113,894 113,931 113,931 113,931
========== ============ ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Series B
Convertible Preferred Convertible Preferred
Stock Stock Common Stock
---------------------- ---------------------- ----------------------
Number of $.05 Par Number of $.05 Par Number of $.05 Par
Shares Value Shares Value Shares Value
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ......... 21,180 $1,059 -- $ -- 113,831 $5,691
Issuance of common stock
warrant .......................... -- -- -- -- -- --
Net loss .......................... -- -- -- -- -- --
------ ------ -- ------- ------- ------
Balance, December 31, 1995 ......... 21,180 1,059 -- -- 113,831 5,691
Issuance of Series B
convertible preferred stock,
net of issuance cost of
$775,950 ......................... -- -- 405,024 20,251 -- --
Exercise of common stock
options .......................... -- -- -- -- 100 5
Issuance of common stock
warrant .......................... -- -- -- -- -- --
Issuance of Series B
convertible preferred stock -- -- 557,710 27,886 -- --
Net loss .......................... -- -- -- -- -- --
------ ------ ------- ------- ------- ------
Balance, December 31, 1996 ......... 21,180 1,059 962,734 48,137 113,931 5,696
Issuance of ownership
interest ......................... -- -- -- -- -- --
Issuance of common stock
warrants ......................... -- -- -- -- -- --
Issuance of Series A
convertible preferred stock 57,144 2,857 -- -- -- --
Net loss .......................... -- -- -- -- -- --
------ ------ ------- ------- ------- ------
Balance, December 31, 1997 ......... 78,324 3,916 962,734 48,137 113,931 5,696
Net loss (unaudited) .............. -- -- -- -- -- --
------ ------ ------- ------- ------- ------
Balance, March 31, 1998
(unaudited) ....................... 78,324 $3,916 962,734 $48,137 113,931 $5,696
====== ====== ======= ======= ======= ======
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Warrants Capital Deficit Equity (Deficit)
---------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 ......... $ -- $ 49,094 $ (369,095) $ (313,251)
Issuance of common stock
warrant .......................... -- 451 -- 451
Net loss .......................... -- -- (486,962) (486,962)
-------- ----------- ----------- ----------
Balance, December 31, 1995 ......... -- 49,545 (856,057) (799,762)
Issuance of Series B
convertible preferred stock,
net of issuance cost of
$775,950 ......................... -- 9,203,799 -- 9,224,050
Exercise of common stock
options .......................... -- 20 -- 25
Issuance of common stock
warrant .......................... 8,595 -- -- 8,595
Issuance of Series B
convertible preferred stock -- (27,886) -- --
Net loss .......................... -- -- (708,762) (708,762)
-------- ----------- ----------- ----------
Balance, December 31, 1996 ......... 8,595 9,225,478 (1,564,819) 7,724,146
Issuance of ownership
interest ......................... -- 1,750,088 -- 1,750,088
Issuance of common stock
warrants ......................... 532,836 -- -- 532,836
Issuance of Series A
convertible preferred stock -- 797,159 -- 800,016
Net loss .......................... -- -- (960,026) (960,026)
-------- ----------- ----------- ----------
Balance, December 31, 1997 ......... 541,431 11,772,725 (2,524,845) 9,847,060
Net loss (unaudited) .............. -- -- (293,154) (293,154)
-------- ----------- ----------- ----------
Balance, March 31, 1998
(unaudited) ....................... $541,431 $11,772,725 $(2,817,999) $9,553,906
======== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
1995 1996 1997 1997 1998
-------------- ----------------- ---------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss .......................... $ (486,962) $ (708,762) $ (960,026) $ (118,362) $ (293,154)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities--
Accretion of long-term
obligations .................... -- -- 26,642 -- 26,642
Warrants issued in connection
with long-term obligations 451 -- -- -- --
Depreciation and amortization 24,175 24,168 552,862 29,879 302,013
Changes in assets and
liabilities--
Accounts receivable ............. (4,912) (120,628) (908,851) 2,783 865,651
Refundable taxes from
related party ................ -- -- (368,734) -- (126,641)
Prepaid expenses and other
current assets ............... (98,905) 104,565 (8,719) 1,124 (96,321)
Restricted cash ................ -- -- (819,923) (800,000) (19,739)
Accounts payable ............... (32,560) 315,977 (21,219) (213,565) (4,122)
Accrued expenses ............... 185,517 197,140 974,371 67,968 (7,045)
Deferred revenue ............... -- 225,000 919,170 -- (14,595)
Deferred tax liability ......... -- -- 61,000 -- 25,192
------------ ------------- ------------ ------------ ------------
Net cash provided by
(used in) operating
activities .................. (413,196) 37,460 (553,427) (1,030,173) 657,881
------------ ------------- ------------ ------------ ------------
Cash Flows from Investing
Activities:
Purchases of property and
equipment ....................... (16,303) (17,480) (7,397) 3,108 (22,591)
Purchases of communications
network ......................... (4,580,598) (6,693,602) (5,602,062) (3,981,620) (3,274,471)
Increase in construction
accounts payable ................ 3,843,430 (3,361,122) 716,985 229,294 1,587,222
Increase in intangible assets ..... (22,801) (27,816) (3,188,792) (55,567) (243,413)
------------ ------------- ------------ ------------ ------------
Net cash used in investing
activities ..................... $ (776,272) $ (10,100,020) $ (8,081,266) $ (3,804,785) $ (1,953,253)
------------ ------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
1995 1996 1997 1997 1998
------------- ------------- --------------- --------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from issuance of
long-term obligations ............. $1,147,766 $ -- $ 1,600,000 $ 1,000,000 $ --
Proceeds from note payable to
related party ..................... -- -- 2,100,000 -- 1,875,000
Payments on long-term
obligations ....................... (47,896) (618,621) (408,116) (90,772) (131,328)
Proceeds from issuance of
ownership interest ................ -- -- 1,750,088 1,750,088 --
Proceeds from exercise of stock
options ........................... -- 25 -- -- --
Minority interest in subsidiary ..... --- 6,312,554 (973,768) (31,189) (314,498)
Proceeds from sale of preferred
stock, net ........................ -- 9,232,645 800,016 800,035 --
---------- ----------- ------------ ------------ ----------
Net cash provided by
financing activities ............. 1,099,870 14,926,603 4,868,220 3,428,162 1,429,174
---------- ----------- ------------ ------------ ----------
Net Increase (Decrease) in Cash
and Cash Equivalents ................ (89,598) 4,864,043 (3,766,473) (1,406,796) 133,802
Cash and Cash Equivalents,
beginning of period ................. 90,480 882 4,864,925 4,864,925 1,098,452
---------- ----------- ------------ ------------ ----------
Cash and Cash Equivalents,
end of period ....................... $ 882 $ 4,864,925 $ 1,098,452 $ 3,458,129 $1,232,254
========== =========== ============ ============ ==========
Supplemental Disclosure of Cash
Flow information:
Cash paid during the year for--
Interest ........................... $ 27,896 $ 331,505 $ 165,446 $ 35,672 $ 161,555
========== =========== ============ ============ ==========
Taxes .............................. $ -- $ -- $ 45,261 $ 27,550 $ 28,440
========== =========== ============ ============ ==========
Supplemental Disclosure of
Noncash Investing and
Financing Activities:
Issuance of warrants in
connection with sale of
preferred stock and note
payable to related party .......... $ -- $ 8,595 $ 532,836 $ -- $ --
========== =========== ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NorthEast Optic Network, Inc. (the Company) (formerly FiveCom, Inc.) and
its subsidiaries are engaged in the ownership, management, operation and
construction of fiber optic telecommunication networks in the Northeast,
consisting of New England and New York.
The Company was incorporated in Massachusetts in July 1989. In May 1996,
FiveCom LLC, an operating subsidiary majority-owned by the Company, was
organized in Massachusetts. Also in May 1996, FiveCom LLC and Mode 1
Communications, Inc. (Mode 1), an affiliate of Northeast Utilities Services
Company (NU), organized NECOM LLC in Massachusetts, with FiveCom LLC owning
60%, and Mode 1 owning 40% of the membership interest in NECOM LLC. In December
1996, FiveCom LLC and Central Maine Power Company (CMP), organized FiveCom of
Maine LLC in Massachusetts, with CMP owning 66.67% and FiveCom LLC owning
33.33% of the membership interests in FiveCom of Maine LLC. The Company has
accounted for its ownership interest in these entities as consolidated entities
with minority interest due to its ownership/control in each of the
subsidiaries.
To date, the Company has recorded limited revenues, principally from
contract and other services, and has incurred cumulative operating losses. The
Company is dependent on the funds received from CMP (Note 5) to fund
construction of the communications networks and working capital. The Company is
also dependent upon a single or limited source of suppliers for a number of
components and parts. Shortages resulting from a change in arrangements with
these suppliers and manufacturers could cause significant delays in the
expansion of the NEON systems and could have a material adverse effect on the
Company.
The market for fiber optic telecommunications networks in which the
Company operates can be characterized as rapidly changing due to technological
advancements, the introduction of new products and services and the increasing
demands placed on equipment in worldwide telecommunications networks.
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described below and elsewhere in these notes
to consolidated financial statements.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of NorthEast
Optic Network, Inc. and its majority owned or controlled subsidiaries, FiveCom
LLC, FiveCom of Maine LLC and NECOM LLC. All significant intercompany
transactions and balances have been eliminated in consolidation.
(b) Minority Interest in Consolidated Subsidiaries
Minority interest in the Company at December 31, 1996 and 1997 consists of
other members' interests in the LLCs identified above. Changes in minority
interest reflect other members' capital adjusted by their portion of the net
loss.
(c) Interim Financial Statements (Unaudited)
The accompanying consolidated financial statements as of March 31, 1998
and for the three-month periods ended March 31, 1997 and 1998 are unaudited,
but in the opinion of management, include all adjustments consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted with respect to the quarters, although
the Company believes that the disclosures included are adequate to make the
information presented not misleading. Results for the three months ended March
31, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998.
(d) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
F-8
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Revenue Recognition
Revenues on telecommunications network services are recognized ratably
over the term of the applicable agreements with customers. Other service
revenue, which consists of design and installation work, is recognized as
services are performed.
(f) Income Taxes
The Company has been majority-owned by CMP and under a tax-sharing
arrangement has been included in the consolidated federal tax return of CMP
since 1996 (see Note 2).
(g) Cash and Cash Equivalents
The Company accounts for investments under Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Under SFAS No. 115, investments for which the Company
has the positive intent and ability to hold to maturity, consisting of cash
equivalents, are reported at amortized cost, which approximates fair market
value. Cash equivalents are highly liquid investments with original maturities
of three months or less. To date, the Company has not recorded any realized
gains or losses. Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
December 31,
March 31,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents--
Cash ..................................... $ 270,316 $ 194,735 $ 232,984
Money markets ............................ -- 903,717 999,270
U.S. Treasury money markets .............. 4,594,609 -- --
---------- ---------- ----------
Total cash and cash equivalents ......... $4,864,925 $1,098,452 $1,232,254
========== ========== ==========
</TABLE>
(h) Deferred Revenue
Deferred revenue represents prepayments received from customers for future
use of the Company's fiber optic network, as well as prepayment for
installation services that have not yet been provided. During 1997 and the
first quarter of 1998, the Company derived revenue from leasing dark fiber
optic cable. Lease payments are structured as either prepayments or monthly
recurring charges. Prepayments are accounted for as deferred revenue and
recognized over the term of the respective customer fiber optic lease
agreement. At December 31, 1996 and 1997, the Company had prepaid lease
payments totaling $225,000 and $1,144,170, respectively.
(i) Depreciation
The Company provides for depreciation using the straight-line method to
allocate the cost of property and equipment over their estimated useful lives
as follows:
<TABLE>
<S> <C>
Communications network .......... 20 years
Machinery and equipment ......... 5-7 years
Motor vehicles .................. 3-5 years
Furniture and fixtures .......... 7 years
</TABLE>
(j) Long-Lived Assets
The Company follows SFAS No. 121, Accounting for Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of. SFAS No. 121, which requires that
long-lived assets be reviewed for impairment by comparing the fair value of the
assets with their carrying amount. Any write-downs are to be treated as
permanent reductions in the carrying amount of the assets. Accordingly, the
Company evaluates the possible impairment of long-lived assets at each
reporting period based on the undiscounted projected cash flows of the related
asset. Should there be an
F-9
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
impairment, the cash flow estimates that will be used will contain management's
best estimates, using appropriate and customary assumption and projections at
the time. To date the Company does not believe that an impairment exists.
(k) Concentrations of Credit Risk
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company's cash equivalents are invested in
financial instruments with high credit ratings. Concentration of credit risk
with respect to accounts receivable is limited to customers to whom the Company
makes significant sales. One customer accounted for approximately 90%, 90%, and
88% of accounts receivable at December 31, 1996 and 1997 and March 31, 1998,
respectively (see Note 12). To control credit risk, the Company performs
regular credit evaluations of its customers' financial condition and maintains
allowances, when required, for potential credit losses.
(l) Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to the short-term
nature of these instruments. The carrying amounts of debt issued pursuant to
agreements with banks approximate fair value as the interest rates on these
instruments fluctuate with market interest rates.
(m) Earnings per Share
The Company has adopted SFAS No. 128, Earnings per Share, effective
December 15, 1997. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. The Company has applied the provisions of SFAS
No. 128, retroactively to all periods presented. In accordance with SEC Staff
Accounting Bulletin (SAB) No. 98, the Company has determined that there were no
nominal issuances of common stock or potential common stock in the period prior
to the Company's planned initial public offering. The dilutive effect of
potential common shares in 1998, consisting of outstanding stock options and
convertible preferred stock, is determined using the treasury method and the
if-converted method, respectively, in accordance with SFAS No. 128. Diluted
weighted average shares outstanding for 1995, 1996 and 1997 exclude the
potential common shares from warrants, stock options and convertible preferred
stock outstanding because to do so would have been antidilutive for the years
presented. The potential common shares excluded in 1995, 1996 and 1997 related
to outstanding warrants and stock options were 0, 0 and 4,493 shares,
respectively. The potential common shares excluded in 1995, 1996 and 1997
related to convertible preferred stock were 21,180, 391,332 and 1,096,953
shares, respectively. In addition, the warrants to purchase membership interest
in a subsidiary (see Note 7(d)) have been excluded from diluted weighted
average shares.
(n) New Accounting Standards
AICPA Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up
Activities was issued in April 1998. SOP 98-5 requires that all
non-governmental entities expense the costs of start-up activities, including
organizational costs, as those costs are incurred. The Company has recorded
such costs as expense, in the period incurred.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires disclosure of all components of comprehensive
income on an annual and interim basis. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. This new standard is not
anticipated to have a significant impact on the Company's financial statements
based on the current structure and operations.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual
F-10
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
and interim basis for each reportable segment of an enterprise. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Unless
impracticable, companies would be required to restate prior period information
upon adoption. The Company implemented this standard in the first quarter of
1998. The Company intends to analyze segment reporting based on dark fiber and
lit fiber facilities. To date, the Company has recorded revenues and costs
related to dark fiber facilities only.
(o) Litigation
Certain claims arising in the ordinary course of business are pending
against the Company. In the opinion of management, these claims are without
merit and there is no potential liability.
(2) RELATED PARTY TRANSACTIONS
Applied Telecommunication Technologies, Inc. (ATTI) has provided the
Company with $1,594,433 of lease financing to date as reflected in Note 5. The
principal balance of the obligations is $912,837 and $533,740 as of December
31, 1996 and 1997, respectively. ATTI owns 12,409 shares of the Company's
outstanding common stock at December 31, 1997. One of ATTI's investment funds
owns 21,180 shares of the Company's Series A convertible preferred stock.
During the years ended December 31, 1996 and 1997, the Company reimbursed
CMP and/or its subsidiary MaineCom Services primarily for personnel costs
related to the activities of the Company. The amount paid to CMP totaled
approximately $310,591 and $725,000 for the years ended December 31, 1996 and
1997, respectively. Approximately $0 and $29,779 was included in accounts
payable at December 31, 1996 and 1997, respectively.
In addition, CMP includes the Company in its consolidated federal income
tax return. At December 31, 1996 and 1997, the amounts due under the
tax-sharing arrangement to the Company from CMP are included in refundable
taxes from related party and amounted to approximately $0 and $368,734,
respectively, for current and deferred income tax benefits related to CMP's
utilization of the Company's loss carryforwards (see Note 8).
The Company is also affiliated with NU (see Note 1). The Company paid NU
approximately $3,719,404 in 1996 and $945,667 in 1997 for materials, labor and
other contractor charges. Approximately $357,100 and $494,500 was included in
accounts payable at December 31, 1996 and 1997, respectively.
In 1994, the Company entered into an agreement with NU whereby NU waived
right-of-way fees for 10 years in return for the Company's guarantee to build
the fiber optic network to certain NU facilities and allow NU the use of 12
fibers on designated route segments in the NU service territory.
The Company has employment contracts with three of its officers, two of
whom are also common and preferred stockholders of the Company. The contracts
are for three-year terms expiring at varying dates through April 2001 with an
annual compensation commitment of $412,000 in the aggregate. In addition, the
Company will record a one-time expense for a payment to one individual totaling
$500,000 upon the successful completion of an initial public offering in the
period incurred.
Upon the successful completion of an initial public offering the Company
will record a one-time expense for a payment of $500,000 to MaineCom Services.
(3) COMMUNICATIONS NETWORK CONSTRUCTION
The Company is constructing a communications network in the northeast.
Costs directly related to the construction of the network are being capitalized
and will be depreciated over the 20-year estimated useful life of the fiber
optic transmission plant as individual segments of the system are placed in
service. During 1996 and 1997,
F-11
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(3) COMMUNICATIONS NETWORK CONSTRUCTION (Continued)
approximately 0 and 160 miles, respectively, were placed in service.
Approximately $114,000, $181,000 and $142,000 of interest has been capitalized
to communications network construction in progress in each of the three years
in the period ended December 31, 1997.
(4) INTANGIBLE ASSETS
Intangible assets subject to amortization have been capitalized and are
amortized on a straight-line basis as follows:
<TABLE>
<S> <C>
Deferred right-of-way fees ......... 10 years (term of the agreement)
Financing costs .................... 3-5 years (term of the debt)
Trademarks ......................... 10 years
</TABLE>
Intangible assets consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
--------- -------------
<S> <C> <C>
Deferred right-of-way fees .............. $ -- $2,471,743
Financing costs ......................... 68,404 1,291,616
Trademarks .............................. 2,098 2,098
------- ----------
70,502 3,765,457
Less--Accumulated amortization .......... 25,652 174,232
------- ----------
$44,850 $3,591,225
======= ==========
</TABLE>
(5) LONG-TERM OBLIGATIONS AND NOTE PAYABLE TO RELATED PARTY
<TABLE>
<CAPTION>
1996 1997
---------- -------------
<S> <C> <C>
Note payable to related party ................................... $ -- $ 2,100,000
======== ===========
Construction loan payable ....................................... $ -- $ 1,575,772
ATTI notes payable (related party) .............................. 912,837 533,740
Capital lease payable to a bank in monthly principal and interest
installments of $482 with interest at 8.25% through August
1999, collateralized by a motor vehicle ........................ 14,184 9,393
-------- -----------
927,021 2,118,905
Less--Current portion ........................................... 380,142 509,506
-------- -----------
$546,879 $ 1,609,399
======== ===========
</TABLE>
(a) Note Payable to Related Party
On October 7, 1997 the Company entered into a $30,000,000 construction
loan agreement with CMP. The Company paid CMP a commitment fee of $150,000. The
note bears interest at the LIBOR rate (5.72% at December 31, 1997) plus three
hundred basis points. Interest is payable quarterly in arrears commencing
January 1, 1998 through the conversion date (first day of the first month after
the completion of certain portions of the network (see Note 9)). Beginning on
the first day of the first month after the conversion date, the loan is payable
in equal monthly payments of principal plus interest accrued thereon. On
October 1, 2002, all amounts are due and payable in full. If required by the
Maine Public Utilities Commission (PUC), CMP has the option of demanding
payment in full on April 1, 1999 of any amounts of the loan outstanding on
April 1, 1999 that are necessary to cause CMP to be in compliance with the
PUC's requirements concerning CMP's capitalization. The loan is secured by a
perfected mortgage lien on the security interest in substantially all assets of
the Company.
F-12
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(5) LONG-TERM OBLIGATIONS AND NOTE PAYABLE TO RELATED PARTY (Continued)
As of December 31, 1997, $2,100,000 has been advanced under the loan
agreement. Additional advances will be made upon the completion of certain
conditions contained in the loan document, as defined. Subsequent to year-end
the Company was advanced an additional $8,100,000. In conjunction with the
note, the Company issued a warrant to purchase membership interest in FiveCom
LLC (see Note 7(d)). The fair market value of the warrant, $532,836, included
in deferred financing costs in the accompanying balance sheet, is being
amortized as interest expense over the term of the note. Upon successful
completion of an initial public offering and retirement of the note, the
Company will record a charge in the statement of operations for the remaining
balance of the deferred financing costs in the period extinguished.
(b) Construction Loan Payable
In March 1997, the Company entered into a $1,600,000 construction loan
agreement with a bank. The Company is required to maintain $800,000 in a
reserve account, which is included in the accompanying consolidated balance
sheets as of December 31, 1997 and March 31, 1998 as restricted cash. All
interest earned on the deposit becomes part of the reserve account. The reserve
account agreement remains in effect until the note is paid in full; however,
the bank may release the reserve account in the absence of any material default
under the loan agreement and a debt service coverage ratio greater than 1.5 to
1.0, as defined. As of December 31, 1997, the bank has not released any funds
in the reserve account. Under the agreement, the Company is required to
maintain certain covenants, as defined, including tangible net worth. As of
March 31, 1998, the Company was not in compliance with this covenant. The
Company received a waiver from the bank related to compliance with this
covenant through March 31, 1998. The Company has classified this debt as current
in the accompanying financial statements, due to noncompliance with this
covenant subsequent to March 31, 1998.
(c) ATTI Notes Payable
Through August 1994 and October 1995, the Company entered into five notes
payable with ATTI. The notes bear interest at 13% and are payable in monthly
principal and interest installments ranging from $1,194 to $13,270 through
August 1999. In addition, the Company issued common stock warrants in
conjunction with the notes (see Notes 2 and 7(d)).
(d) Future Maturities
Future maturities of long-term obligations as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Year ending December 31,
1998 ............................... $1,982,911
1999 ............................... 135,994
----------
2,118,905
Less--Current portion ............... 1,982,911
----------
Total long-term obligations ......... $ 135,994
==========
</TABLE>
F-13
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(6) STOCKHOLDERS' EQUITY
(a) Reverse Stock Split
On April 30, 1996, the Company declared a five-for-one reverse split of
each class of its capital stock. All share and per share amounts for all
periods presented have been adjusted to reflect this split.
(b) Preferred Stock
The Company's Board of Directors authorized up to 3,000,000 shares of $.05
par value preferred stock, of which 200,000 shares are designated as Series A
convertible preferred stock (Series A preferred) and 2,025,120 are designated
as Series B convertible preferred stock (Series B preferred).
Pursuant to a stock subscription agreement dated November 22, 1995, CMP
invested $10,000,000 for 75% of the fully diluted equity of the Company. As of
December 31, 1996 and 1997, CMP owned 962,734 (subject to antidilution
adjustment) shares of Series B preferred.
On May 5, 1998 the Board of Directors voted to increase the authorized
shares of Series B Convertible preferred stock to 4,500,000.
Dividends
The holders of Series A and B preferred are entitled to receive dividends,
as defined, if and when declared by the Company's Board of Directors. To date
no dividends have been declared.
Voting
Each holder of outstanding shares of Series A and B preferred is entitled
to a number of votes equal to the number of whole shares of common stock into
which such share of Series A and B preferred held is then convertible. All
outstanding holders of Series A and Series B preferred shall vote together with
the holders of common stock as a single class, except holders of Series A
preferred shall vote as a separate class upon matters adversely affecting the
Series A preferred stock and holders of Series B preferred shall vote as a
separate class upon matters adversely affecting the Series B preferred stock.
Liquidation
After payment in full to any class or series of stock ranking senior to
Series A and B preferred and before payment to any class or series of stock
ranking junior to Series A and B preferred, Series A and B preferred
stockholders are entitled to receive, in the event of any voluntary or
involuntary liquidation or dissolution of the Company, (i) $23.6 and $24.7 per
share, respectively (subject to certain adjustments, as defined) plus any
dividends declared or accrued but unpaid or (ii) such amount per share as would
have been payable had each such share been converted into common stock.
Conversion
Each share of Series A and B preferred is convertible, at the option of
the holder, at any time after the date of issuance and without any additional
payment into such number of shares of Common Stock as is determined by dividing
$23.6 and $24.7, respectively, by the Conversion Price, as defined ($7.37 and
$24.7 as of December 31, 1997, respectively). Series A and Series B preferred
will automatically convert into common stock upon the closing of an
underwritten public offering, as defined.
F-14
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(6) STOCKHOLDERS' EQUITY (Continued)
(c) Common Stock
In November 1995, the Company's Board of Directors authorized the issuance
of up to 4,000,000 shares of common stock. At December 31, 1997, there were
1,500 shares reserved for issuance under the Company's stock option plan and
1,213,541 shares reserved for issuance upon conversion of Series A and B
preferred stock. On May 13, 1998 the Board of Directors voted to increase the
authorized shares to 30,000,000.
(7) STOCK-BASED COMPENSATION
(a) 1994 Stock Option Plan
On December 2, 1994, the Company's Board of Directors adopted the 1994
Stock Option Plan (the 1994 Plan). Under the terms of the 1994 Plan, incentive
and nonstatutory options may be granted to employees, officers, directors,
consultants and advisers to purchase an aggregate of 1,600 shares of common
stock. The exercise price of the incentive options will be 100% of the fair
market value of the common stock or 110% of the fair market value in the case
of options granted to a greater than 10% stockholder. Options generally vest
quarterly over a two-year period and are exercisable within five years of the
original date of grant.
Stock option activity for the three years in the period ended December 31,
1997 and for the three-month period ended March 31, 1998 (unaudited) is as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
----------- ---------
<S> <C> <C>
Outstanding, December 31, 1995 .................. -- $ --
Granted ........................................ 1,600 .25
Exercised ...................................... (100) .25
----- -----
Outstanding, December 31, 1996 .................. 1,500 .25
Canceled ....................................... (1,500) .25
------ -----
Outstanding, December 31, 1997 .................. -- $ .25
====== =====
Outstanding, March 31, 1998 (unaudited) ......... -- $ --
====== =====
</TABLE>
(b) 1998 Stock Incentive Plan
The Company's 1998 Stock Incentive Plan (the 1998 Plan) was adopted by the
Board of Directors on May 18, 1998 and approved by the Company's stockholders
on May 26, 1998. The 1998 Plan provides for the grant of incentive stock
options, nonstatutory stock options, restricted stock awards and other
stock-based awards, including the grant of shares based on certain conditions,
the grant of securities convertible into common stock and the grant of stock
appreciation rights (collectively the Awards). Options may be granted at an
exercise price that may be less than, equal to or greater than the fair market
value of the common stock on the date of grant. Incentive stock options and
options intended to qualify as performance-based compensation may not be granted
at an exercise price less than the fair market value of the common stock on the
date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). Options granted under the 1998 Plan typically will vest
over time, subject to acceleration upon change in control. Restricted stock
awards entitle recipients to acquire shares of common stock, subject to the
right of the Company to repurchase all or part of such shares from the recipient
in the event that the conditions specified in the applicable Award are not
satisfied prior to the end of the applicable restriction period established for
such Award. Under the 1998 Plan, the Board of Directors has the right to grant
other Awards based on the common stock having such terms and conditions as the
Board of Directors may determine, including the
F-15
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(7) STOCK-BASED COMPENSATION (Continued)
grant of shares based on certain conditions, the grant of securities
convertible into common stock and the grant of stock appreciation rights.
Officers, employees, directors, consultant and advisers of the Company and its
subsidiaries are eligible to be granted Awards under the 1998 Plan.
As of May 20, 1998, a total of 864,050 shares were reserved for issuance
under the 1998 Plan, of which the Company's Board of Directors approved the
grant of options equivalent to issuance of 10% of the issued and outstanding
stock of the Company as of the planned initial public offering having an
exercise price per share equal to the initial public offering price.
(c) Fair Value of Stock Options
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statements of income or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for grants during the applicable period: dividend yield of 0% for all
periods; volatility of 0% for all periods; risk-free interest rate of 7.67% for
options granted during 1995 and a weighted average expected option term of two
years for all periods. The weighted average fair value per share of options
granted during 1995 was $0. No options were granted during 1996 and 1997.
(d) Warrants
From August 1994 to October 1995, the Company issued warrants to ATTI (see
Note 2) for the purchase of 4,580 shares of the Company's common stock at an
exercise price of $.15 per share. The warrants expire five years from the date
of grant. At the time of issuance, the Company recorded a charge of $178,
representing the fair market value of the warrants, as determined by the Board
of Directors.
During July 1996, the Company issued a warrant to one of its advisers for
the purchase of 2,656 shares of membership interest in FiveCom LLC at an
exercise price of $125.80 per share. The warrant expires on April 30, 2001. At
the time of issuance, the Company recorded a charge of $8,595, representing the
fair market value of the warrant, as calculated using the Black-Scholes option
pricing model.
During October 1997 and in connection with the CMP construction loan
agreement (see Note 5), the Company issued a warrant to purchase 5,876 shares
of membership interest in FiveCom LLC to the lender at an exercise price of
$.01 per share. The warrant expires on October 7, 2002. At the time of
issuance, the warrant was recorded as a discount on the agreement and as a
component of stockholders' equity in the accompanying consolidated balance
sheet at $532,836, the fair market value of the warrant, as calculated using
the Black-Scholes option pricing model. The discount is being amortized as
interest expense over the term of the debt. The warrant contains put and call
options and a right of first refusal. At the earlier of three years from the
date of the agreement or upon any reorganization, as defined, or an initial
public offering, the lender shall have the right to require the Company to
repurchase the warrant at fair market value, as defined. In addition, the
Company has the option to purchase the warrant prior to the warrant exercise at
the fair market value, as defined.
Subsequent to year end, CMP exercised the warrant (see Note 14).
F-16
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(8) INCOME TAXES
As discussed in Note 2, the Company is included in CMP's consolidated
federal income tax return. The Company accounts for income taxes under SFAS No.
109, Accounting for Income Taxes, the objective of which is to recognize the
amount of current and deferred income taxes payable or refundable at the date
of the financial statements as a result of all events that have been recognized
in the accompanying consolidated financial statements, as measured by enacted
tax laws.
The income tax provision (benefit) for the years ended December 31, 1995,
1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------ --------------
<S> <C> <C> <C>
Current--
Federal ......................... $ -- $ 14,000 $ (291,000)
State ........................... -- 2,000 (31,000)
---------- --------- ----------
-- 16,000 (322,000)
Deferred--
Federal ......................... (150,000) (58,000) 47,000
State ........................... (16,000) (6,000) 14,000
---------- --------- ----------
(166,000) (64,000) 61,000
Less valuation allowance ......... 166,000 64,000 --
---------- --------- ----------
Total .......................... $ -- $ 16,000 $ (261,000)
========== ========= ==========
</TABLE>
The provision for income taxes for the year ended December 31, 1996
consists of alternative minimum and net worth taxes. The benefit from income
taxes for the year ended December 31, 1997 represents refundable income taxes
from CMP as a result of its tax-sharing agreement with CMP.
The Company has recorded a deferred tax liability of $61,000 at December
31, 1997 related to the temporary differences associated with accelerated
depreciation.
(9) NETWORK CONSTRUCTION AND NU AND CMP CONTRACTS
In 1994 the Company contracted for the rights to use NU property over an
initial 30-year term for the purpose of owning and operating the fiber optic
network facilities. At the end of the initial 30-year term, NU will have the
option to purchase the network on NU rights-of-way from the Company at the
appraised value, or to extend the agreement for an additional 30-year term with
an added payment incentive of 10% of revenues generated from the network built
on NU rights-of-way. Contractually, the Company is required to build 310 fiber
route miles in NU's service territory by September 27, 1999.
In 1996, the Company contracted for the rights to use CMP's property over
an initial 30-year term for the purpose of owning and operating fiber optic
network facilities. At the end of the initial 30-year term, CMP will have the
option to purchase the network on CMP rights-of-way from the Company at the
appraised value, or to extend the agreement for an additional 10-year term with
an added payment incentive of 10% of revenues generated from the network built
on CMP rights-of-way.
(10) COMMITMENTS
The Company leases certain motor vehicles, equipment and office facilities
under noncancelable operating leases which expire at various dates through
December 1999. Future minimum lease payments required under these leases at
December 31, 1997 are approximately as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998 .................. $14,000
1999 .................. 4,000
-------
$18,000
=======
</TABLE>
F-17
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(11) EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) retirement savings plan (the 401(k)
Plan) covering all employees. Under this plan, participants may elect to defer
a portion of their compensation, subject to certain limitations. In addition,
the Company, at the discretion of the Board of Directors, may make profit
sharing contributions into the plan. During 1995, 1996 and 1997, no
contributions were made to the 401(k) Plan by the Company.
(12) SIGNIFICANT CUSTOMERS
Sales to significant customers as a percentage of the Company's total
revenues were as follows:
<TABLE>
<CAPTION>
Three-Months
Ended
December 31, March 31,
1995 1996 1997 1997 1998
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Customer A ......... 100% 98% 10% --% --%
Customer B ......... -- -- 69 -- 76
Customer C ......... -- -- -- -- 10
</TABLE>
(13) ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1997, and March 31, 1998 consist
of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
----------- ------------- -------------
<S> <C> <C> <C>
Accrued lease fees ....................... $350,414 $ 785,535 $ 940,848
Accrued property taxes ................... -- 315,036 293,034
Accrued interest ......................... -- 92,180 --
Accrued professional fees ................ 12,016 50,000 15,387
Accrued payable to related party ......... -- 61,793 61,793
Accrued payroll and benefits ............. 20,227 22,992 --
Accrued other ............................ -- 29,492 38,921
-------- ---------- ----------
$382,657 $1,357,028 $1,349,983
======== ========== ==========
</TABLE>
(14) SUBSEQUENT EVENT
In June 1998, (i) each of the minority members in FiveCom LLC (including
NU), Mode 1 and CMP exchanged their membership interests in NECOM LLC and
FiveCom of Maine LLC, respectively, for shares of Series B convertible
preferred stock of the Company, (ii) FiveCom LLC, FiveCom of Maine LLC and
NECOM LLC were each merged with and into a wholly-owned subsidiary of the
Company, (iii) CMP exercised its warrants to purchase 5,876 shares of
membership interests in FiveCom LLC, and (iv) the Company was reincorporated in
Delaware under the name NorthEast Optic Network, Inc.
In connection with the Reorganization, the Company will record an
intangible asset of $48,092,600 to reflect the Company's acquisition of NU's
minority interest in subsidiaries (NECOM LLC and FiveCom LLC), in accordance
with AICPA Accounting Interpretation 39 to APB Opinion No. 16, Business
Combinations (AIN-39). The intangible will be amortized over 30 years,
reflecting assignment of value to goodwill and to the rights-of-ways, which
have 30-year terms.
The Restated Certificate of Incorporation authorizes the issuance of up to
2,000,000 shares of preferred stock, $.01 par value per share. Under the terms
of the Certificate of Incorporation, the Board of Directors is authorized,
subject to any limitations prescribed by law, without stockholder approval, to
issue such shares of preferred stock in one or more series. Each series of
preferred stock shall have rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors.
F-18
<PAGE>
NORTHEAST OPTIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
(14) SUBSEQUENT EVENT (Continued)
On June __, 1998 the Board of Directors voted to increase the authorized
common shares to 30,000,000.
In July 1998, the Company's Board of Directors voted to effect a to
stock split. All share and per share amounts have been retroactively
restated to reflect the stock split.
(15) SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table sets forth certain unaudited quarterly results of
operations for each of the four quarters ended December 31, 1997 and the
quarter ended March 31, 1998. In management's opinion, this unaudited
information has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the financial statements and
notes thereto included elsewhere in this document. The operating results for
any quarter are not necessarily indicative of results for any subsequent
quarter.
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1997 1997 1997 1997 1998
------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Network service ............................. $ -- $ 106,369 $ 114,784 $ 126,565 $ 146,257
Other service ............................... -- 5,036 18,221 23,729 5,106
---------- ---------- ---------- ---------- ----------
Total revenues ............................. -- 111,405 133,005 150,294 151,363
---------- ---------- ---------- ---------- ----------
Expenses:
Cost of sales ............................... $ 108,358 $ 405,038 $ 289,777 $ 334,770 $ 247,386
Selling, general and administrative ......... 207,383 445,930 172,554 176,365 225,122
Depreciation and amortization ............... 29,879 135,204 137,936 249,843 302,013
---------- ---------- ---------- ---------- ----------
Total expenses ............................. 345,620 986,172 600,267 760,978 774,521
---------- ---------- ---------- ---------- ----------
Loss from operations ....................... (345,620) (874,767) (467,262) (610,684) (623,158)
---------- ---------- ---------- ---------- ----------
Other Income (Expense):
Interest income and other, net .............. 56,638 28,118 38,603 15,559 30,322
Interest expense ............................ -- (481) (37,297) (104,033) (91,816)
---------- ---------- ---------- ---------- ----------
Total other income (expense) ............... 56,638 27,637 1,306 (88,474) (61,494)
---------- ---------- ---------- ---------- ----------
Loss before minority interest in
subsidiaries' earnings and
provision for income taxes ................ (288,982) (847,130) (465,956) (699,158) (684,652)
Minority Interest ............................ 137,620 397,644 218,721 326,215 314,498
Benefit From Income Taxes .................... (33,000) (96,000) (53,000) (79,000) (77,000)
---------- ---------- ---------- ---------- ----------
Net Loss ..................................... $ (118,362) $ (353,486) $ (194,235) $ (293,943) $ (293,154)
========== ========== ========== ========== ==========
Basic and Diluted Loss per Share ............. $ (1.04) $ (3.10) $ (1.71) $ (2.58) $ (2.57)
</TABLE>
F-19
<PAGE>
GLOSSARY
Set forth below are definitions of certain terms used herein.
<TABLE>
<S> <C>
Access charges .............. The fees paid by long distance carriers to LECs for originating and
terminating long distance calls on the LECs' local networks.
Analog Transmission ......... A way of sending voice, video and data signals electronically in which the
transmitted signal is analogous to the original signal.
ATM (Asynchronous
Transfer Mode) .............. An information transfer standard that is one of a general class of packet
technologies that relay traffic by way of an address contained within the first
five bytes of a standard fifty-three-byte-long packet or cell. The ATM format
can be used by many different information systems, including local area
networks, to deliver traffic at varying rates, permitting a mix of voice, data
and video.
Backbone .................... The through-portions of a transmission network, as opposed to spurs that
branch off the through-portions.
Band ........................ A range of frequencies between two defined limits.
Bandwidth ................... The relative range of analog frequencies or digital signals that can be passed
through a transmission medium, such as glass fibers, without distortion. The
greater the bandwidth, the greater the information carrying capacity.
Bandwidth is measured in Hertz, or "Hz" (analog), or Bits Per Second or
"bps" (digital).
Bit ......................... A contraction of the term Binary Digit, it is the basic unit in data
communications. Bits are typically represented by ones or zeros.
Bit Error Rate .............. A measure of transmission quality stated as the expected probability of error
per bit transmitted.
CAP ......................... Competitive Access Provider.
Capacity .................... The information carrying ability of a telecommunications facility.
Carrier ..................... A provider of communications transmission services by fiber, wire or radio.
Carrier's Carrier ........... A wholesale private telecommunications carrier offering services primarily to
other carriers and not to the general public.
Central Office .............. A telephone company facility where subscribers' lines are joined to switching
equipment for connecting with other subscribers, both locally and for long
distance.
CLEC (Competitive Local
Exchange Carrier) ........... A company that competes with LECs in the local services market.
CMP ......................... Central Maine Power Company
Collocation ................. The physical locating of a telecommunication carrier's switch in another
carrier's premises that facilitates the interconnection of their respective
switching equipment.
Common Carrier .............. A government defined group of private companies offering
telecommunications services or facilities to the general public on a non-
discriminatory basis.
Conduit ..................... A pipe, usually made of metal, ceramic or plastic, that protects buried cables.
</TABLE>
G-1
<PAGE>
<TABLE>
<S> <C>
Dark Fiber ........................ Fiber optic cable without any of the electronic or optronic equipment
necessary to use the fiber for transmission.
Dense Wave Division
Multiplexing ...................... A technique for transmitting 8 or more different light wave frequencies on a
single fiber to increase the information carrying capacity.
Digital ........................... Describes a method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission/switching technologies employ a sequence
of discrete, distinct pulses to represent information, as opposed to the
continuously variable analog signal.
DS-0, DS-1, DS-3 .................. Standard telecommunications industry digital signal formats, which are
distinguishable by bit rate (the number of binary digits (0 and 1) transmitted
per second). DS-0 service has a bit rate of 64 kilobits per second and
typically transmits only the equivalent of one voice conversation at a time.
DS-1 service has a bit rate of 1.544 megabits per second and typically
transmits the equivalent of 24 simultaneous voice conversations. DS-3 service
has a bit rate of 45 megabits per second and typically transmits the equivalent
of 672 simultaneous voice conversations.
Equal Access ...................... The basis upon which customers of interexchange carriers are able to obtain
access to their Primary Interexchange Carriers' (PIC) long distance telephone
network by dialing "1", thus eliminating the need to dial additional digits and
an authorization code to obtain such access.
Facilities-Based Carriers ......... Facilities-based carriers that own and operate their own network and
equipment.
FCC (Federal
Communications
Commission) ....................... Regulatory body established pursuant to the Communications Act of 1934; it
has the authority to regulate all interstate communications originating in the
United States.
Fiber Miles ....................... The number of strands of fiber in a length of fiber optic cable multiplied by
the length of the cable in miles.
Fiber Optics ...................... A technology in which light is used to transport information from one point to
another. Fiber optic cables are thin filaments of glass through which light
beams are transmitted over long distances carrying large amounts of data.
Modulating light on thin strands of glass produces major benefits in high-
bandwidth, relatively low cost, low power consumption, small space needs,
total insensitivity to electromagnetic interference and great resistance to
bugging.
Frame Relay ....................... A high-speed, data-packet switching service used to transmit data between
computers. Frame Relay supports data units of variable lengths at access
speeds ranging from 56 kilobits per second to 1.5 megabits per second. This
service is well-suited for connecting local area networks, but is not presently
well-suited for voice and video applications due to the variable delays which
can occur. Frame Relay was designed to operate at high speeds on modern
fiber optic networks.
Gbps .............................. Gigabits per second, which is a measurement of speed for digital signal
transmission expressed in billions of bits per second.
</TABLE>
G-2
<PAGE>
<TABLE>
<S> <C>
ILEC ............................ Incumbent Local Exchange Carrier, an historic provider of local telephone
services.
Interconnect .................... Connection of a telecommunications device or service to the public switched
telephone network ("PSTN").
IXC (Interexchange carrier) ..... A company providing inter-LATA or long distance services between LATAs
on an intrastate or interstate basis.
Kbps ............................ Kilobits per second, which is a measurement of speed for digital signal
transmission expressed in thousands of bits per second.
LATAs (Local Access
Transport Areas) ................ The approximately 200 geographic areas that define the areas between which
the RBOCs currently are prohibited from providing long distance services.
LEC (Local Exchange Carrier) .... A company providing local telephone services.
Lit Fiber ....................... Fiber activated or equipped with the requisite electronic and optronic
equipment necessary to use the fiber for transmission.
Local loop ...................... A circuit that connects an end-user to the LEC central office within a LATA.
Long-haul circuit ............... A dedicated telecommunications circuit generally between locations in
different LATAs.
Mbps ............................ Megabits per second, which is a measurement of speed for digital signal
transmission expressed in millions of bits per second.
Multiplexing .................... An electronic or optical process that combines a large number of lower speed
transmission lines into one high speed line by splitting the total available
bandwidth into narrower bands (frequency division), or by allotting a common
channel to several different transmitting devices, one at a time in sequence
(time division).
NEON ............................ NorthEast Optic Network, the Company's fiber optic network in the Northeast.
Non-Zero Dispersion Fiber ....... This fiber was designed and introduced in the early 1990's for communication
systems operating in the 1550 nm transmission window. The refractive index
profile has been selected to provide non-zero dispersion over the Erbium-
doped fiber amplifier passband region. This non-zero dispersion feature is
important for system performance in high bit rate Dense Wavelength Division
Multiplexing (DWDM) applications.
Northeast ....................... Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island
and Vermont.
NU .............................. Northeast Utilities.
OC-3, OC-12, OC-48 and
OC-192 .......................... OC is a measure of SONET transmission optical carrier level, which is equal
to a corresponding number of DS-3s (e.g., OC-3 is equal to 3 DS-3s and
OC-48 is equal to 48 DS-3s).
POP (Point of Presence) ......... The place where an IXC terminates an end-user's long distance lines just
before those lines are connected to the end-user's local phone company's lines
or the end-user's own direct link.
</TABLE>
G-3
<PAGE>
<TABLE>
<S> <C>
PCS (Personal
Communications Services) .......... Services planned for a new digital Radio Frequency (RF) equipment
conveying both voice and data over wireless networks.
RBOCs (Regional Bell
Operating Companies) .............. The seven local telephone companies (formerly part of AT&T) established as
a result of the AT&T Divestiture Decree.
Regeneration/amplifier ............ Devices which automatically re-transmit or boost signals on an out-bound
circuit.
Reseller .......................... A carrier that does not own transmission facilities, but obtains
communications services from another carrier for resale to the public.
Route Miles ....................... The number of miles spanned by fiber optic cable calculated without including
physically overlapping segments of cable.
ROWs .............................. Rights-of-way.
Single Mode Fiber ................. A fiber having a small core diameter and in which only one mode (the
fundamental mode which may consist of two polarizations) will propagate at
the wavelengths of interest.
SONET (Synchronous
Optical Network
Technology) ....................... An electronics and network architecture for variable-bandwidth products
which enables transmission of voice, data and video (multimedia) at very high
speeds.
SONET ring ........................ A network architecture which provides for instantaneous restoration of service
in the event of a fiber cut by automatically rerouting traffic along an
alternating path. This occurs so rapidly (in 50 milliseconds) that it is virtually
undetectable to the user.
Switch ............................ A device that selects the paths or circuits to be used for transmission of
information and establishes a connection. Switching is the process of
interconnecting circuits to form a transmission path between users and it also
captures information for billing purposes.
Switched service carriers ......... A carrier that sells switched long distance service and generally refers to a
carrier that owns its switch.
Switchless resellers .............. A carrier that does not own facilities or switches, but purchases minutes in
high volumes from other carriers and resells those minutes.
Tandem Switch ..................... An electronic communications switch located between the LEC switch and the
IXC switch that passes along routing, signaling and billing information.
Terabits .......................... A trillion bits of transmission capacity.
Telecommunications ................ 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 or received.
Telecommunications Service ........ The offering of telecommunications for a fee to the public, or to such classes
of users as to be effectively available directly to the public, regardless of the
facilities used.
Unbundled ......................... Services, programs, software and/or training sold separately from the hardware.
Video Services .................... The provision of video over a channel.
Wireless .......................... A communications system that operates without wires, such as cellular services.
</TABLE>
G-4
<PAGE>
- --------------------------------------------------------------------------------
[E] No dealer, salesperson or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, any Selling
Stockholder or any Underwriter. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information herein is correct as of any time subsequent to the date hereof
or that there has been no change in the affairs of the Company since such date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary ............................ 3
Risk Factors .................................. 13
Debt Offering ................................. 21
Use of Proceeds ............................... 22
Dividend Policy ............................... 22
Dilution ...................................... 23
Capitalization ................................ 24
Selected Consolidated Financial and
Operating Data ............................. 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 28
Business ...................................... 32
Management .................................... 47
Certain Transactions .......................... 51
Principal and Selling Stockholders ............ 52
Description of Capital Stock .................. 56
Description of Certain Indebtedness ........... 58
Shares Eligible for Future Sale ............... 82
Certain United States Federal Tax
Consequences for Non-U.S. Holders .......... 84
Underwriting .................................. 90
Notice to Canadian Residents .................. 94
Legal Matters ................................. 95
Experts ....................................... 95
Additional Information ........................ 95
Index to Financial Statements ................. F-1
Glossary ...................................... G-1
</TABLE>
------------------------
Until , 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
NORTHEAST OPTIC NETWORK, INC.
Shares
Common Stock
P R O S P E C T U S
Credit Suisse First Boston
SBC Warburg Dillon Read Inc
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[D] No dealer, salesperson or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date hereof or that there has been no change in
the affairs of the Company since such date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary ..................... 3
Risk Factors ........................... 13
Equity Offering ........................ 21
Use of Proceeds ........................ 22
Capitalization ......................... 24
Selected Consolidated Financial and
Operating Data ...................... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .......................... 28
Business ............................... 32
Management ............................. 47
Certain Transactions ................... 51
Principal Stockholders ................. 54
Description of the Notes ............... 59
Certain United States Federal Income Tax
Consequences ........................ 86
Underwriting ........................... 92
Notice to Canadian Residents ........... 93
Legal Matters .......................... 95
Experts ................................ 95
Additional Information ................. 95
Index to Financial Statements .......... F-1
Glossary ............................... G-1
</TABLE>
------------------------
Until , 1998 (90 days after the date of this Prospectus), all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
NORTHEAST OPTIC NETWORK, INC.
$
(Gross Proceeds)
% Senior Discount Notes
Due 2008
P R O S P E C T U S
Credit Suisse First Boston
SBC Warburg Dillon Read Inc
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to Be
Paid
-------------
<S> <C>
SEC registration fee ............................. $2,950
NASD filing fee .................................. $1,500
Nasdaq National Market Listing Fee ............... $ *
Blue Sky fees and expenses ....................... $ *
Printing, mailing and engraving expenses ......... $ *
Legal fees and expenses .......................... $ *
Accounting fees and expenses ..................... $ *
Transfer agent and registrar fees ................ $ *
Miscellaneous expenses ........................... $ *
------
Total ........................................... $ *
======
</TABLE>
- ---------------------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
The Delaware General Corporation Law and the Registrant's Certificate of
Incorporation and By-Laws provide for indemnification of the Registrant's
directors and officers for liabilities and expenses that they may incur in such
capacities. In general, directors and officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Registrant, and with respect to any
criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. Reference is made to the Registrant's Form of
Amended and Restated Certificate of Incorporation and Form of Amended and
Restated By-Laws to be filed as Exhibits hereto.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement to be filed as an Exhibit hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of Common
Stock and Preferred Stock issued, shares of Membership Interest and Sharing
Ratios issued, warrants issued and options granted by the Company since January
1, 1995 (without giving effect to the Company's -for- reverse stock split
to be effected prior to the closing of this offering). Further included is the
consideration, if any, received by the Company for such shares, Sharing Ratios,
warrants and options and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed.
1. On April 30, 1996, the Company sold a total of 405,024 shares of Series
B Convertible Preferred Stock to MaineCom for an aggregate purchase price of
$10,000,000 pursuant to the terms of a Stock Subscription Agreement dated
November 22, 1995, as amended, among the Company and MaineCom (the "Series B
Stock Subscription Agreement").
II-1
<PAGE>
2. On May 23, 1996, the Company issued 40 Sharing Ratios representing a
40% interest in a subsidiary of the Company to Mode 1 for an aggregate capital
contribution of $5,333,000. These Sharing Ratios were subsequently cancelled in
exchange for shares of the Company's Series B Convertible Preferred Stock.
3. On May 23, 1996, the Company issued 1,000 shares of Membership Interest
in a subsidiary of the Company to MaineCom for an aggregate capital
contribution of $1.00. These shares were subsequently cancelled.
4. On May 23, 1996, the Company issued a warrant expiring on April 30,
2001 to purchase 2,656 shares of Membership Interest in a subsidiary of the
Company at an exercise price of $125.84 per share to Oppenheimer & Co., Inc.
("Oppenheimer") in connection with its engagement as the Company's placement
agent. This Warrant was subsequently cancelled in exchange for warrants to
purchase shares of the Company's Series B Convertible Preferred Stock.
5. On May 23, 1996, the Company issued 5,153 shares of Membership Interest
in a subsidiary of the Company to Northeast Utilities for an aggregate capital
contribution of $653,333. These shares were subsequently cancelled in exchange
for shares of the Company's Series B Convertible Preferred Stock.
6. On May 23, 1996, the Company issued 162,060 shares of Series B
Convertible Preferred Stock to MaineCom in accordance with the anti-dilution
provisions of the Series B Stock Subscription Agreement. Accordingly, the
Company did not receive any consideration, over and above the $10,000,000
previously paid on April 30, 1996, for such shares.
7. On July 11, 1996, the Company issued 5,835 shares of Membership
Interest in a subsidiary of the Company to Mode 1 for an aggregate capital
contribution of $666,667. These shares were subsequently cancelled in exchange
for shares of the Company's Series B Convertible Preferred Stock.
8. On July 11, 1996, the Company issued 203,131 shares of Series B
Convertible Preferred Stock to MaineCom in accordance with the anti-dilution
provisions of the Series B Stock Subscription Agreement. Accordingly, the
Company did not receive any consideration, over and above the $10,000,000
previously paid on April 30, 1996, for such shares.
9. On October 28, 1996, the Company issued 1,318 shares of Membership
Interest in a subsidiary of the Company to two employees, as compensation,
pursuant to the provisions of their employment agreements. These shares were
subsequently cancelled in exchange for shares of the Company's Series B
Convertible Preferred Stock.
10. On October 28, 1996, the Company issued 192,519 shares of Series B
Convertible Preferred Stock to MaineCom in accordance with the anti-dilution
provisions of the Series B Stock Subscription Agreement. Accordingly, the
Company did not receive any consideration, over and above the $10,000,000
previously paid on April 30, 1996, for such shares.
11. On January 17, 1997, the Company issued 66.67 Sharing Ratios in a
subsidiary of the Company representing a 66.67% interest in the Company to
MaineCom for an aggregate capital contribution of $1,750,088. These Sharing
Ratios were subsequently cancelled in exchange for shares of the Company's
Series B Convertible Preferred Stock.
12. On March 6, 1997, the Company sold a total of 57,144 shares of Series
A Convertible Preferred Stock to an employee and two institutional investors
for an aggregate purchase price of $800,016.
13. On June 30, 1997, the Company issued a warrant expiring August 9, 2000
to purchase 206 shares of Common Stock at an exercise price of $0.15 per share
to ATTI in connection with the execution of an equipment lease.
14. On June 30, 1997, the Company issued a warrant expiring October 11,
2000 to purchase 132 shares of Common Stock at an exercise price of $0.15 per
share to ATTI in connection with the execution of an equipment lease.
15. On October 7, 1997, the Company issued a five-year warrant to CMP to
purchase 5,876 shares of Membership Interest in a subsidiary of the Company, at
an exercise price of $0.01 per share, in connection with the execution of a
Construction Loan Agreement dated October 7, 1997 between the Company and
Central Maine Power Company. This Warrant has been exercised, and the
Membership Interests exchanged for shares of the Company's Series B Convertible
Preferred Stock.
II-2
<PAGE>
16. On April 17, 1998, the Company issued 5,876 shares of Membership
Interest in a subsidiary of the Company to Central Maine Power Company in
connection with the exercise of warrants for the purchase of such shares for an
aggregate consideration of $58.76. These shares were subsequently cancelled in
exchange for shares of the Company's Series B Convertible Preferred Stock.
17. On April 17, 1998, the Company issued 645 shares of Membership
Interest in a subsidiary of the Company to Mode 1 Communications, Inc. pursuant
to the anti-dilution provisions of a Letter Agreement dated February 23, 1996,
as amended, between the Company and such investor. Accordingly, the Company did
not receive any consideration for such shares. These shares were subsequently
cancelled in exchange for shares of the Company's Series B Convertible
Preferred Stock.
18. On April 17, 1998, the Company issued 785,268 shares of Series B
Convertible Preferred Stock to MaineCom in accordance with the anti-dilution
provisions of the Series B Stock Subscription Agreement. Accordingly, the
Company did not receive any consideration, over and above the $10,000,000
previously paid on April 30, 1996, for such shares.
19. On June , 1998, the Company issued a warrant expiring on April 30,
2001 to purchase 65,167 shares of Series B Convertible Preferred Stock at an
exercise price of $5.13 per share to Oppenheimer in exchange for its warrants
to purchase shares of Membership Interest in a subsidiary of the Company.
20. On June , 1998, the Company issued 2,455,441 shares of Series B
Convertible Preferred Stock to two employees and three institutional investors
in exchange for 118,665 shares of Membership Interest in a subsidiary of the
Company and 106.67 Sharing Ratios in a subsidiary of the Company.
21. On June , 1998, the Company issued 229,761 shares of Series B
Convertible Preferred Stock to MaineCom in accordance with the anti-dilution
provisions of the Series B Stock Subscription Agreement. Accordingly, the
Company did not receive any consideration, over and above the $10,000,000
previously paid on April 30, 1996, for such shares.
Certain of the transactions described above involved promoters, directors,
officers and 5% Stockholders of the Company. See "Certain Transactions."
The Company's 1994 Stock Option Plan was adopted by the Board of Directors
and approved by the stockholders of the Company as of December 2, 1994. As of
June 30, 1998, options to purchase 1,540 shares of Common Stock had been
exercised for an aggregate consideration of $385.00 and no options to purchase
shares of Common Stock were outstanding under such plan.
The Company's 1998 Stock Incentive Plan was adopted by the Board of
Directors on May 18, 1998 and approved by the stockholders of the Company on
May 26, 1998. As of June 30, 1998, no options to purchase shares of Common
Stock had been exercised and options to purchase shares of Common Stock were
outstanding under such plan. Please see 1998 Stock Incentive Plan, attached as
an Exhibit hereto.
The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from Securities Act registration
set forth in Sections 3(b) and 4(2) of the Securities Act, or any regulations
promulgated thereunder, relating to sales by an issuer not involving any public
offering, or (ii) in the case of certain options to purchase shares of Common
Stock and shares of Common Stock issued upon the exercise of such options, such
offers and sales were made in reliance upon an exemption from registration
under Rule 701 of the Securities Act. No underwriters were involved in the
foregoing sales of securities.
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<S> <C>
(a) Exhibits
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of Registrant as currently in effect.
*3.2 Form of Restated Certificate of Incorporation of Registrant to be filed on or immediately
subsequent to the date of the closing of the Offering contemplated by this Registration
Statement.
3.3 Bylaws of Registrant, as amended to date.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
*3.4 Form of Bylaws of Registrant to be effective on or immediately subsequent to the date of the
closing of the Offering contemplated by this Registration Statement.
*4.1 Specimen certificate for the Registrant's Common Stock.
*4.2 Form of Indenture Agreement.
*4.3 Form of % Senior Discount Notes Due 2008
*5.1 Opinion of Hale and Dorr LLP
10.1 1998 Stock Incentive Plan.
*10.2 1998 Director Stock Option Plan
10.3 Stock Subscription Agreement dated November 22, 1995, as amended on April 30, 1996, between
the Registrant and MaineCom Services.
*+10.4 Form of Restructuring and Contribution Agreement dated June , 1998.
10.5 Common Stock Warrant dated May 23, 1996 issued to Oppenheimer & Co., Inc.
10.6 Common Stock Purchase Warrant dated August 19, 1994 issued to Applied Telecommunications
Technologies, Inc. ("ATTI") and assigned to Applied Telecommunications Technologies IV N.V.
("ATT IV").
10.7 Common Stock Purchase Warrant dated February 15, 1995 issued to ATTI and assigned to ATT IV.
10.8 Common Stock Purchase Warrant dated April 3, 1995 issued to ATTI and assigned to ATT IV.
10.9 Common Stock Purchase Warrant dated June 30, 1997 issued to ATT IV.
10.10 Common Stock Purchase Warrant dated June 30, 1997 issued to ATT IV.
10.11 Warrant dated October 7, 1997 issued to Central Maine Power Company.
10.12 Equipment Lease dated August 19, 1994 between the Registrant and Applied Telecommunications
Technologies, Inc. ("ATTI").
10.13 Equipment Lease dated February 15, 1995 between the Registrant and ATTI.
10.14 Equipment Lease dated April 3, 1995 between the Registrant and ATTI.
+10.15 Master Services Agreement dated January 1, 1994 between the Registrant and MCI
Telecommunications Corporation ("MCI").
+10.16 Fiber Optic Use Agreement dated January 2, 1997 between the Registrant and MCI.
+10.17 Letter Agreement dated March 1, 1996 between the Registrant and Brooks Fiber Communications
of Massachusetts, Inc.
+10.18 Fiber Optic Lease Agreement dated March 31, 1998 between the Registrant and Sprint
Communications Company L.P.
+10.19 Aerial License Agreement dated October 28, 1996 between the Registrant and New England
Telephone and Telegraph Company and Western Massachusetts Electric Company.
+10.20 Fiber Optic Use Agreement dated September 10, 1997 between the Registrant and New England
Fiber Communications LLC.
+10.21 Fiber Optic Use Agreement dated November 18, 1997 between the Registrant and Teleport
Communications Boston.
*10.22 Network Products Purchase Agreement dated March 18, 1998 between the Registrant and Northern
Telecom Inc.
*10.23 Support Services Agreement dated as of April 30, 1996 between the Registrant and MaineCom
Services.
+10.24 Amended and Restated Agreement for the Provision of Fiber Optic Facilities and Services dated as
of February 27, 1998 and effective as of September 27, 1994 among the Registrant and the
Northeast Utilities Services Company ("NUSC"), The Connecticut Light and Power Company
("CLPC"), Western Massachusetts Electric Company ("WMEC") and Public Service Company
of New Hampshire ("PSCNH") (Phase One).
10.25 Short Form Agreement for the Provision of Fiber Optic Facilities and Services entered into on
February 27, 1998 among the Registrant and NUSC, CLPC, WMEC and PSCNH (Phase One).
+10.26 Amended and Restated Agreement for the Provision of Fiber Optic Facilities and Services dated as
of February 27, 1998 among the Registrant and NUSC, CLPC, WMEC and PSCNH (Phase Two).
10.27 Short Form Agreement for the Provision of Fiber Optic Facilities and Services entered into on
February 27, 1998 among the Registrant and NUSC, CLPC, WMEC and PSCNH (Phase Two).
10.28 Standard Form of Duct Agreement.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
*10.29 Construction Contract dated August 14, 1996 between the Registrant and Seaward Corporation.
*10.30 Employment Agreement dated October 15, 1997, as amended on May 20, 1998, between the
Registrant and Victor Colantonio.
10.31 Employment Agreement dated September 29, 1994 between the Registrant and Michael A. Musen.
*10.32 Employment Agreement dated , 1998 between the Registrant and James D. Mack, Jr.
10.33 Loan Agreement dated November 22, 1995 between the Registrant and Central Maine Power
Company.
10.34 Construction Loan Agreement dated October 7, 1997 between the Registrant and Central Maine
Power Company.
10.35 Construction Loan Agreement dated March 11, 1997 between FiveCom of Maine, Inc. and Peoples
Heritage Savings Bank.
*+10.36 Agreement dated January 17, 1997 between Registrant and E/Pro Engineering and Environmental
Consulting for the ADSS Cable Project.
*+10.37 Agreement for the Provision of Fiber Optic Facilities and Services dated January 7, 1997 between
Central Maine Power Company and the Registrant.
*21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1).
**24.1 Power of Attorney (see page II-6).
**27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment to be requested.
(b) Financial Statement Schedules
12.1 Schedule of Earnings to Fixed Charges
All financial schedules, other than that listed above, have been omitted
because the information required to be set forth therein is not applicable or
is shown in the Financial Statements or Notes thereto.
Item 17. Undertakings.
The Registrant will provide to the Underwriters at the closing specified
in the Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the 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 indemnification against such liabilities
(other than the payment by the Registration of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of a
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein and the Offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NorthEast Optic Network, Inc., a corporation organized and existing
under the laws of the State of Delaware, has duly caused this amendment to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on this 3rd day of June, 1998.
NORTHEAST OPTIC NETWORK, INC.
By /s/ Richard A. Crabtree
-------------------------
Richard A. Crabtree
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following person in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- ---------------------------------------------- -------------
<S> <C> <C>
/s/ Richard A. Crabtree Chairman of the Board
------------------------------- and Chief Executive Officer
Richard A. Crabtree (Principal Executive Officer) June 3, 1998
*
------------------------------- President and Director
Victor Colantonio June 3, 1998
* Chief Financial Officer
------------------------------- and Treasurer
William F. Fennell (Principal Financial and Accounting Officer) June 3, 1998
*
-------------------------------
John D. Forsgren Director June 3, 1998
*
-------------------------------
David Marsh Director June 3, 1998
-------------------------------
F. Michael McClain Director June 3, 1998
*
-------------------------------
Gary D. Simon Director June 3, 1998
*By: /s/ Richard A. Crabtree
-------------------------------
Richard A. Crabtree
Attorney-in-Fact
</TABLE>
II-6
Exhibit 3.3
BY-LAWS
OF
NORTHEAST OPTIC NETWORK, INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 - Stockholders................................................................................1
1.1 Place of Meetings......................................................................1
1.2 Annual Meeting.........................................................................1
1.3 Special Meetings.......................................................................1
1.4 Notice of Meetings.....................................................................1
1.5 Voting List............................................................................2
1.6 Quorum.................................................................................2
1.7 Adjournments...........................................................................2
1.8 Voting and Proxies.....................................................................2
1.9 Action at Meeting......................................................................2
1.10 Action without Meeting.................................................................3
ARTICLE 2 - Directors..................................................................................3
2.1 General Powers.........................................................................3
2.2 Number; Election and Qualification.....................................................3
2.3 Enlargement of the Board...............................................................3
2.4 Tenure.................................................................................3
2.5 Vacancies..............................................................................4
2.6 Resignation............................................................................4
2.7 Regular Meetings.......................................................................4
2.8 Special Meetings.......................................................................4
2.9 Notice of Special Meetings.............................................................4
2.10 Meetings by Telephone Conference Calls.................................................4
2.11 Quorum.................................................................................5
2.12 Action at Meeting......................................................................5
2.13 Action by Consent......................................................................5
2.14 Removal................................................................................5
2.15 Committees.............................................................................5
2.16 Compensation of Directors..............................................................6
ARTICLE 3 - Officers....................................................................................6
3.1 Enumeration............................................................................6
3.2 Election...............................................................................6
3.3 Qualification..........................................................................6
3.4 Tenure.................................................................................6
3.5 Resignation and Removal................................................................6
3.6 Vacancies..............................................................................7
3.7 Chairman of the Board and Vice-Chairman of the Board...................................7
3.8 President..............................................................................7
3.9 Vice Presidents........................................................................7
<PAGE>
3.10 Secretary and Assistant Secretaries....................................................8
3.11 Treasurer and Assistant Treasurers.....................................................8
3.12 Salaries...............................................................................8
ARTICLE 4 - Capital Stock...............................................................................9
4.1 Issuance of Stock......................................................................9
4.2 Certificates of Stock..................................................................9
4.3 Transfers..............................................................................9
4.4 Lost, Stolen or Destroyed Certificates................................................10
4.5 Record Date...........................................................................10
ARTICLE 5 - General Provisions.........................................................................11
5.1 Fiscal Year...........................................................................11
5.2 Corporate Seal........................................................................11
5.3 Waiver of Notice......................................................................11
5.4 Voting of Securities..................................................................11
5.5 Evidence of Authority.................................................................11
5.6 Certificate of Incorporation..........................................................11
5.7 Transactions with Interested Parties..................................................11
5.8 Severability..........................................................................12
5.9 Pronouns..............................................................................12
ARTICLE 6 - Amendments.................................................................................12
6.1 By the Board of Directors.............................................................12
6.2 By the Stockholders...................................................................12
</TABLE>
-ii-
<PAGE>
BY-LAWS
OF
NORTHEAST OPTIC NETWORK, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
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<PAGE>
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city 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 of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a
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<PAGE>
majority of the votes cast on a matter) shall decide any matter to be voted upon
by the stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws.
When a quorum is present at any meeting, any election by stockholders shall be
determined by a plurality of the votes cast on the election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election.
Directors need not be stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
-3-
<PAGE>
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
-4-
<PAGE>
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation
-5-
<PAGE>
to be affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-laws for the Board of
Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
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<PAGE>
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
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<PAGE>
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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<PAGE>
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or
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<PAGE>
accompanied by a written assignment or power of attorney properly executed, and
with such proof of authority or the authenticity of signature as the corporation
or its transfer agent may reasonably require. Except as may be otherwise
required by law, by the Certificate of Incorporation or by these By-laws, the
corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to such stock, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these By-laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is properly delivered to the corporation. The record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
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.
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<PAGE>
ARTICLE 5 - General Provisions
5.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
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(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.9 Pronouns. All pronouns used in these By-laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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FiveCom, Inc.
1998 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1998 Stock Incentive Plan (the "Plan") of FiveCom,
Inc., a Massachusetts corporation (the "Company"), is to advance the interests
of the Company's shareholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's shareholders. Except where
the context otherwise requires, the term "Company" shall include any present or
future subsidiary corporations of FiveCom, Inc., as defined in Section 424(f) of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. No member of the Board shall be liable for any action
or determination relating to the Plan. All decisions by the Board shall be made
in the Board's sole discretion and shall be final and binding on all persons
having or claiming any interest in the Plan or in any Award. No director or
person acting pursuant to the authority delegated by the Board shall be liable
for any action or determination under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the
<PAGE>
power to make Awards and exercise such other powers under the Plan as the Board
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $.05 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean a
Committee or the Board or the executive officer referred to in Section 3(b) to
the extent that the Board's powers or authority under the Plan have been
delegated to such Committee or executive officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 864,050 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c),
for Awards granted after the Common Stock is registered under the Exchange Act,
the maximum number of shares with respect to which an Award may be granted to
any participant under the Plan shall be 100,000 per calendar year. The
per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (iii) the repurchase price per
security subject to each outstanding Restricted
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Stock Award, and (iv) the terms of each other outstanding stock-based Award
shall be appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 4(c) applies and Section 8(e)(1) also applies to any event, Section
8(e)(1) shall be applicable to such event, and this Section 4(c) shall not be
applicable.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option,
delivery of an irrevocable and unconditional undertaking by a credit worthy
broker to deliver
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<PAGE>
promptly to the Company sufficient funds to pay the exercise price, or delivery
by the Participant to the Company of a copy of irrevocable and unconditional
instructions to a credit worthy broker to deliver promptly to the Company cash
or a check sufficient to pay the exercise price;
(3) (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery, (ii) by delivery of a promissory note
of the Participant to the Company on terms determined by the Board, or (iii) by
payment of such other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
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8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
type of Award may be made alone in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board need
not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Extraordinary Corporate Transactions.
(1) Change in Control. A "Change of Control of the Company"
(as defined in Section 9) shall have the effects set forth in Section 9.
(2) Assumption of Options Upon Certain Events. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax
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<PAGE>
obligations in whole or in part in shares of Common Stock, including shares
retained from the Award creating the tax obligation, valued at their Fair Market
Value. The Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to a Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. Change in Control
(a) Acceleration. Notwithstanding any other provision of the Plan and
except as otherwise provided in the relevant option agreement, in the event of a
"Change in Control of the Company" (as defined below), the exercise dates of all
Options (or the vesting of all Restricted Stock Awards or other stock based
Awards, as the case may be) granted to such Participant then outstanding shall
be accelerated in full and any restrictions on exercising outstanding options or
other Awards issued to such Participant pursuant to the Plan shall terminate.
For purposes of the Plan, the term "Change in Control of the Company" shall have
the following meaning: A "Change in Control of the Company" shall occur or be
deemed to have occurred only if (i) any "person", as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned directly or
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<PAGE>
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two consecutive years ending during the term of the Plan (not
including any period prior to the adoption of the Plan), individuals who at the
beginning of such period constitute the Board of Directors of the Company, and
any new director (other than a director designated by a person who has entered
into an agreement with the Company to effect any transaction described in clause
(i), (iii) or (iv) of this Section 9) whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who were either
directors at the beginning of the period or whose election or whose nomination
for election was previously so approved (collectively, the "Disinterested
Directors"), cease for any reason to constitute a majority of the Board of
Directors; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities or (C) a merger or
consolidation which has been approved by a majority of the Disinterested
Directors; or (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets which, in either
case, has not previously been approved by a majority of the Disinterested
Directors.
(b) Consequences of Change in Control of the Company. Upon the
occurrence of a Change in Control of the Company, or the execution by the
Company of any agreement which results in a Change in Control of the Company,
the Board shall take any one or more of the following actions with respect to
then outstanding Awards: (i) provide that outstanding Options shall be assumed,
or equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall satisfy, in the determination of
the Board, the requirements of Section 424(a) of the Code; (ii) in the event of
a transaction resulting in a Change in Control of the Company under the terms of
which holders of Common Stock will receive upon consummation thereof a cash
payment for each share of Common Stock surrendered pursuant to such transaction
(the "Acquisition Price"), provide that all outstanding Options shall terminate
upon consummation of such transaction and that
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Participants shall receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (A) the Acquisition Price multiplied by the number of
shares of Common Stock subject to such outstanding Options (whether or not then
exercisable), exceeds (B) the aggregate exercise price of such Options; and
(iii) provide that any other stock-based Awards outstanding shall be assumed, or
equivalent Awards shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof).
10. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's shareholders, but Awards previously granted may extend beyond
that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if such approval is necessary to comply with
any applicable tax or regulatory requirements. Amendments requiring stockholder
approval shall become effective when adopted by the Board, but no Award granted
to a Participant designated as subject to Section 162(m) by the Board shall
become exercisable, realizable or vested (to the extent that such amendment to
the Plan was required to grant such Award to a particular Participant) unless
and until such amendment shall have been approved by the Company's shareholders.
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the Commonwealth of Massachusetts, without regard to any applicable conflicts of
law.
8
<PAGE>
(f) Stockholder Approval. For purposes of the Plan, stockholder
approval shall mean approval by a vote of Stockholders in accordance with
Section 162(m) of the Code.
Adopted by the Board of Directors on May 18, 1998
Approved by the Stockholders on May 26, 1998
9
Exhibit 10.3
STOCK SUBSCRIPTION AGREEMENT
between
MAINECOM SERVICES
and
FIVECOM, INC.
dated as of November 22, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
SALE AND PURCHASE PRICE................................................... 2
SECTION 1.1 Sale of Shares.......................................... 2
SECTION 1.2 Purchase Price.......................................... 2
SECTION 1.3 Stock Certificate....................................... 2
SECTION 1.4 Use of Proceeds......................................... 3
ARTICLE II
DEFINITIONS............................................................... 3
SECTION 2.1 Certain Defined Terms................................... 3
SECTION 2.2 Other Definitional Provisions........................... 5
ARTICLE III
COVENANTS AND OTHER AGREEMENTS BETWEEN THE PARTIES....................... 5
SECTION 3.1 Operation of the Issuer's Business
Pending Closing........................................ 5
SECTION 3.2 Compliance with Laws................................... 6
SECTION 3.3 Access................................................. 7
SECTION 3.4 Debt Financing......................................... 7
SECTION 3.5 No Effect on Maine Agreement........................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ISSUER................................. 9
SECTION 4.1 Financial Statements; Absence of Undisclosed
Liabilities............................................ 9
SECTION 4.2 Absence of Material Adverse Changes.................... 10
SECTION 4.3 Corporate Existence; Compliance with Law;
Charter and By-Laws; No Affiliates;
Dividends; Capitalization.............................. 10
SECTION 4.4 Corporate Power; Authorization; Enforceable
Obligations............................................ 12
SECTION 4.5 No Legal Bar........................................... 12
SECTION 4.6 No Litigation; Legislation............................. 12
SECTION 4.7 Leases and Other Contracts............................. 12
SECTION 4.8 No Default............................................. 13
SECTION 4.9 Real and Personal Property........ .................... 13
(a) Real Property.......................................... 13
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(b) Equipment and Other Tangible Personal
Property............................................... 13
SECTION 4.10 Tax Matters............................................ 13
SECTION 4.11 Engineering Reports.................................... 14
SECTION 4.12 Pension Plan........................................... 14
SECTION 4.13 Insurance Policies..................................... 14
SECTION 4.14 Permits................................................ 14
SECTION 4.15 No Section 341(f) Consents, or 338 Elections........... 15
SECTION 4.16 Consents and Permits................................... 15
SECTION 4.17 Environmental Matters.................................. 15
SECTION 4.18 Accuracy and Completeness of Information;
Full Disclosure of Material Facts...................... 16
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER.................................. 17
SECTION 5.1 Organization, Existence and Authority.................. 17
SECTION 5.2 Authorization.......................................... 17
SECTION 5.3 Enforceability......................................... 17
SECTION 5.4 Investment Representations............................. 17
ARTICLE VI
BUYER'S CONDITIONS PRECEDENT TO CLOSING.................................. 18
SECTION 6.1 Continued Truth of Representations and
Warranties............................................. 18
SECTION 6.2 Compliance with All Conditions......................... 18
SECTION 6.3 Closing Certificate.................................... 19
SECTION 6.4 Good Standing Certificate; Certified Charter........... 19
SECTION 6.5 Resolutions of Issuer's Directors
and Shareholders; Incumbency Certificate............... 19
SECTION 6.6 Resignations........................................... 19
SECTION 6.7 Stock Certificate...................................... 19
SECTION 6.8 Loan Closing........................................... 19
SECTION 6.9 Governmental Filings................................... 19
SECTION 6.10 Actions or Proceedings................................. 20
SECTION 6.11 Condition of the Issuer................................ 20
SECTION 6.12 Opinion of Counsel..................................... 20
SECTION 6.13 Approvals.............................................. 21
SECTION 6.14 Due Diligence.......................................... 21
SECTION 6.15 Delivery of Documents.................................. 21
SECTION 6.16 Employment Contracts and Key Man Insurance............. 21
SECTION 6.17 Exercise of Warrants and Options....................... 21
SECTION 6.18 Shareholder Waiver..................................... 21
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SECTION 6.19 Increase in Board Size................................. 21
SECTION 6.20 Northeast Utilities Equity Purchase.................... 22
ARTICLE VII
ISSUER'S CONDITIONS PRECEDENT TO CLOSING................................. 22
SECTION 7.1 Continued Truth of Representations
and Warranties......................................... 22
SECTION 7.2 Compliance with All Conditions......................... 22
SECTION 7.3 Closing Certificate.................................... 22
SECTION 7.4 Good Standing Certificate: Certified Charter........... 22
SECTION 7.5 Resolutions of Buyer's Directors
and Shareholders: Incumbency Certificate............... 22
SECTION 7.6 Purchase Price......................................... 23
SECTION 7.7 Governmental Filings................................... 23
SECTION 7.8 Actions or Proceedings................................. 23
SECTION 7.9 Consents............................................... 23
SECTION 7.10 Opinion of Counsel..................................... 23
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION............................................. 24
SECTION 8.1 Reliance............................................... 24
SECTION 8.2 Survival of Representations and Warranties............. 24
SECTION 8.3 Issuer's Indemnity..................................... 24
SECTION 8.4 Buyer's Indemnity...................................... 24
ARTICLE IX
COVENANTS REGARDING THE SERIES B PREFERRED STOCK......................... 25
SECTION 9.1 Preemptive Right....................................... 25
SECTION 9.2 Registration Rights.................................... 26
SECTION 9.3 Information Rights..................................... 31
SECTION 9.4 Inspection Rights...................................... 31
SECTION 9.5 Restrictive Covenants.................................. 32
SECTION 9.6 Key Man Insurance...................................... 32
SECTION 9.7 Right of First Refusal................................. 32
ARTICLE X
GENERAL MATTERS.......................................................... 32
SECTION 10.1 Amendments and Supplements............................. 32
SECTION 10.2 Extensions and Waivers................................. 33
SECTION 10.3 Governing Law; Consent to Jurisdiction;
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Interpretation........................................ 33
SECTION 10.4 Notice................................................ 33
SECTION 10.5 Expenses.............................................. 34
SECTION 10.6 Break-up Fee.......................................... 34
SECTION 10.7 No Brokers............................................ 35
SECTION 10.8 Benefit and Binding Effect............................ 35
SECTION 10.9 Further Assurances.................................... 35
SECTION 10.10 Section Headings...................................... 35
SECTION 10.11 Assignability......................................... 35
SECTION 10.12 Counterparts.......................................... 35
SECTION 10.13 Integration........................................... 36
</TABLE>
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<PAGE>
LIST OF EXHIBITS
----------------
<TABLE>
<S> <C>
Exhibit 1.1 Articles of Amendment
Exhibit 1.3 Stock certificate
Exhibit 6.18 Shareholder Waiver Agreement
LIST OF SCHEDULES
-----------------
Schedule 3.1(k) Budget
Schedule 3.4(c) Term sheet for third-party loan
Schedule 4.1(b) Matters not shown on most recent balance sheet
Schedule 4.2 Material adverse changes
Schedule 4.3(a) States where foreign qualification might be required
Schedule 4.3(i) Ownership of stock, options and warrants
Schedule 4.4 Required consents
Schedule 4.7 Contracts; exceptions
Schedule 4.8 Defaults
Schedule 4.9(a) Additional real estate interests needed; liens
Schedule 4.9(b) List of equipment, Operational issues and liens on equipment
Schedule 4.13 Insurance policies
Schedule 4.16 Exceptions on consents and permits
Schedule 4.17 Environmental matters
Schedule 6.6 Resigning Directors and Officers
</TABLE>
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<PAGE>
STOCK SUBSCRIPTION AGREEMENT
THIS AGREEMENT, made and entered into as of this 22 day of November, 1995,
by and between MaineCom Services, Maine corporation with a principal place of
business in Augusta, Maine ("Buyer"), and Fivecom, Inc., a Massachusetts
corporation with a principal place of business in Waltham, Massachusetts
("Issuer")
W I T N E S S E T H:
WHEREAS, the Issuer is in the business of designing, financing,
constructing, operating, maintaining, managing and marketing a fiber optic
transmission system in New England, to be known as the New England Optical
Network ("NEON"), all as more particularly described in the Leases (as defined
below); and
WHEREAS, the Issuer has entered into the following agreements
(collectively, the "Leases"), among others, in order to obtain rights of way for
the initial phase of NEON - - Agreement for the Provision of Fiber Optic
Facilities and Services among Northeast Utilities Service Company, The
Connecticut Light and Power Company, Western Massachusetts Electric Company,
Public Service Company of New Hampshire and FiveCom, Inc. dated September 27,
1994 and a Duct Agreement with The Connecticut Light and Power Company dated as
of February 3, 1995;
WHEREAS, the Issuer is seeking a binding commitment from a financial
institution for a loan of at least $25,000,000 (the "Loan"), which amount the
Buyer and the Issuer have determined, based on the Issuer's most recent
estimates, should be sufficient, when combined with the proceeds of the
transaction agreed to in this Agreement, to complete the construction of a
high-capacity fiber optic line running from Greenwich, Connecticut to Eliot,
Maine (such line running a distance of about 410 miles) which shall be the
initial stage of NEON;
WHEREAS, as set forth in Section 3.4, the terms of the Loan shall be
subject to Buyer's written approval as a condition of this Agreement;
WHEREAS, the Issuer wishes to issue and sell, and Buyer wishes to purchase,
on the terms and Subject to the conditions described below, the Series B
Convertible Preferred Stock of Issuer;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
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ARTICLE I
SALE AND PURCHASE PRICE
-----------------------
SECTION 1.1 Sale of Shares. Subject to the other terms and conditions of
this Agreement, Buyer hereby agrees to purchase from Issuer and Issuer hereby
agrees to create, issue, sell and deliver to Buyer at the Closing (as defined in
Section 2.1), 2,025,120 shares (or such other number as is determined as
provided in Section 3.4(e)) (the "Shares") of its Series B Convertible Preferred
Stock (the "Series B Preferred Stock"). The Series B Preferred Stock shall have
the voting powers, designations, preferences, rights and qualifications,
limitations and restrictions set forth in the Articles of Amendment to Issuer's
Articles of Organization in the form attached hereto as Exhibit 1.1 (the
"Articles of Amendment").
SECTION 1.2 Purchase Price. The total price to be paid to Issuer by Buyer
for all of such Shares is Ten Million Dollars ($10,000,000.00).
SECTION 1.3 Stock Certificate. The Issuer will deliver to the Buyer at the
Closing a stock certificate evidencing the Shares, issued in the Buyer's name or
in the name of a nominee, in the form attached hereto as Exhibit 1.3. It is
understood and agreed that such certificate shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED EXCEPT (i) UPON EFFECTIVE REGISTRATION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE UNDER SUCH ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR (ii) UPON ACCEPTANCE BY THE ISSUER
OF AN OPINION OF COUNSEL IN SUCH FORM AND BY SUCH COUNSEL, OR OTHER
DOCUMENTATION, AS SATISFACTORY TO COUNSEL TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED. SUCH SECURITIES ARE FURTHER SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN THE ISSUER'S ARTICLES OF
ORGANIZATION, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE UPON A
WRITTEN REQUEST DIRECTED TO THE ISSUER'S CLERK."
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SECTION 1.4 Use of Proceeds. The proceeds received by the Issuer from the
sale of the Shares shall be used, together with the proceeds from the Loan, to
fund the design and construction of a high-capacity fiber optic line running
from Greenwich, Connecticut to Eliot, Maine (a distance of about 410 miles) in
conformity with the requirements of the Leases, which shall be the initial stage
of NEON ("Stage I"), and for working capital purposes which, in the case of
pre-Closing commitments for expenditures to be funded from such proceeds, shall
be approved in advance by Buyer.
ARTICLE II
DEFINITIONS
-----------
SECTION 2.1 Certain Defined Terms. For purposes of this Agreement and the
schedules hereto, except as explicitly provided otherwise, the following terms
shall have the meanings set forth below:
"Act" shall be as defined in Section 5.4(a).
"Articles of Amendment" shall be as defined in Section 1.1.
"Buyer" shall be as defined in the first paragraph of this Agreement, or
its assignee permitted under Section 9.10.
"CERCLA" shall be as defined in Section 4.17(c).
"CERCLIS" shall be as defined in Section 4.17(c).
"Closing" shall mean the closing of the sale of stock described in Article
I hereof, which shall take place at the offices of Curtis Thaxter Stevens Broder
& Micoleau Limited Liability Company, P.A., One Canal Plaza, Portland, Maine, on
January 31, 1996 or at such other time and place as mutually agreed upon by the
parties.
"CMP" shall be as defined in Section 7.2.
"Code" shall be as defined in Section 4.15.
"Commission" shall be as defined in Section 9.2(b)(i).
"Contracts" shall be as defined in Section 4.7.
"Curtis Thaxter" shall be as defined in Section 10.5(b).
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<PAGE>
"Demand Registration" shall be as defined in Section 9.2(b)(i).
"Hazardous Substance" shall be as defined in Section 4.20(a).
"Holdback Period" shall be as defined in Section 9.2(c)(i).
"Issuance" shall be as defined in Section 9.1.
"Issuer" shall be as defined in the first paragraph of this Agreement.
"Leases" shall be as defined in the second "Whereas" clause.
"Lender" shall be as defined in Section 3.4(a).
"Loan" shall be as defined in the third "Whereas" clause.
"NEON" shall be as defined in the first "Whereas" clause.
"Notice" shall be as defined in Section 9.2(b)(i).
"Oppenheimer" shall be defined as in Section 3.4.
"Participating Holders" shall be as defined in Section 9.2(e).
"Permits" shall be as defined in Section 4.14.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Piggyback Registration" shall be as defined in Section 9.2(a)(i).
"Proposed Registration" shall be as defined in Section 9.2(a)(i).
"Right" shall be as defined in Section 9.1.
"Registrable Securities" shall be as defined in Section 9.2(a)(i)
"RegSec Holders" shall be as defined in Section 9.2(a)(i).
"Release" shall be as defined in Section 4.17(a).
"Requirement of Law" as to any Person, shall mean the certificate or
articles of incorporation and by-laws or other Organizations or governing
documents of such
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<PAGE>
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Series B Holders" shall be as defined in Section 9.1.
"Series B Preferred Stock" shall be as defined in Section 1.1.
"Shares" shall be as defined in Section 1.1.
"Stage I" shall be defined as in Section 1.4.
SECTION 2.2 Other Definitional Provisions.
(a) As used herein and in any certificate or other document made
or delivered pursuant hereto, accounting terms shall have the
respective meanings given to them under generally accepted accounting
principles in the United States of America in effect from time to time
("GAAP"). To the extent that the definitions of accounting terms herein
are inconsistent with the meanings of such terms under GAAP, the
definitions contained herein shall control.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified. All exhibits, schedules
and attachments are incorporated herein as if fully set forth in the
body hereof.
(c) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms. The use of
terms in any gender shall apply to any other gender as applicable.
ARTICLE III
COVENANTS AND OTHER AGREEMENTS BETWEEN THE PARTIES
--------------------------------------------------
SECTION 3.1 Operation of the Issuer's Business Pending Closing Except as
contemplated by this Agreement and except with the advance written consent of
Buyer, which consent shall not unreasonably be withheld, from the date of this
Agreement to the Closing, the Issuer covenants that it shall:
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<PAGE>
(a) Carry on its business diligently and in substantially the same
manner as heretofore and not make or institute any material changes in
its business;
(b) Not grant any increase in salary or pay any bonus to any
employee;
(c) Not enter into any contract or amend any contract to which it
is now a party, or waive any rights or release any claims, except in
the normal and ordinary course of business;
(d) Make no commitment for any capital expenditure or sell or
voluntarily dispose of any asset, other than in the normal and ordinary
course of business;
(e) Incur no indebtedness for borrowed money or voluntarily
subject any assets to any lien, other than the lien for real estate
taxes not yet due and payable;
(f) Keep in effect and undiminished the insurance now in effect on
its properties and operations;
(g) Not amend its articles of organization or by-laws;
(h) Neither merge, consolidate, liquidate or dissolve, nor declare
or pay any dividend, nor redeem any of its capital stock nor make any
other direct or indirect payment or other distribution to any
shareholder;
(i) Use reasonable efforts to preserve its business organization
intact and unchanged, and to keep its employees and preserve its
relationships with its customers;
(j) Not issue any additional shares of its capital stock or make
any change in its authorized or issued shares (the foregoing is not
intended to prohibit transfers of issued and outstanding stock); and
(k) Cause its operations to deviate in any material manner from
what was contemplated in producing the budget, a copy of which is
attached as Schedule 3.1(k).
SECTION 3.2 Compliance with Laws. As soon as practicable, each of the
parties at its own expense will make any and all filings with any and all
governmental agencies which such party is required to make in connection with
this Agreement and the transactions contemplated hereby. Each of the parties
will also
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<PAGE>
furnish one another such necessary information and reasonable assistance as the
other may request in connection with its preparation of necessary filings or
submissions to any governmental agency. Each of the parties will supply one
another with copies of all correspondence, filings and communications with any
governmental agency or members of such agency's staff with respect to this
Agreement or the transactions contemplated hereby.
SECTION 3.3 Access. From the date hereof and until the Closing,
representatives of Buyer shall have the right, in a reasonable manner and at all
reasonable times as approved by the authorized representative of Issuer in
advance, to visit the premises of the Issuer, and have the right to inspect and
otherwise evaluate any design work, equipment, purchase orders, equipment
agreements or other document or items relating to NEON, and to inspect, examine
and make copies from the Issuer's books, accounts and records and to request and
receive from the Issuer information concerning the Issuer's operations and
financial condition.
SECTION 3.4 Debt Financing
(a) Condition. The Issuer and the Buyer agree that in order to have
sufficient funds available to the Issuer to carry out the design,
construction and marketing of Stage I, in addition to obtaining the equity
capital through the transaction contemplated in this Agreement the Issuer
will be required to arrange for debt financing in the amount of at least
$25,000,000 (the "Loan") on terms and conditions, and from a lender (the
"Lender") acceptable in all respects to Buyer in its sole and absolute
discretion.
(b) Solicitation and Negotiation. Issuer agrees that it will use its
best efforts to obtain the Loan on reasonable and competitive terms. Issuer
shall consult with Buyer from time to time as appropriate regarding the
terms offered by potential Lenders. All expenses incurred by Issuer in
connection with the solicitation and negotiation of the Loan, including,
without limitation, fees charged by its investment banking advisor,
Oppenheimer & Co. ("Oppenheimer"), shall be borne by Issuer, it being
intended that such fees be covered under existing agreements for services
from Oppenheimer.
(c) Approval by Buyer. Issuer shall promptly forward to Buyer, and
Buyer shall promptly review and consult with Issuer regarding all term
sheets, draft commitment letters and draft financing documents regarding
the Loan. So long as any such document is (i) from a Lender which is not a
party to any of the Contracts or any future contract pursuant to which
Issuer obtains the use of rights of way for optical fiber, and (ii) is on
terms which are either substantially the some or more favorable to Issuer
than those in the term sheet attached as Schedule 3.4(c), Issuer may
execute a non-binding commitment letter without Buyer's consent, so long as
it forwards a copy to Buyer
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<PAGE>
immediately after execution. Any deviation from either (i) or (ii)
above shall require Buyer's prior written consent, which Buyer may
withhold in its sole and absolute discretion.
(d) Lender Equity Interest. In the event that Issuer is required to
provide an equity interest in Issuer, in the form of stock warrants or
otherwise, to the Lender in order to secure the Loan, it is agreed that (i)
the issuance of such equity interest shall be Satisfied from holdings other
than the holdings of Buyer, and (ii) any such issuance shall not operate to
dilute the 75% interest in Issuer being acquired by Buyer in this
transaction.
(e) Reservation of Equity Interest. By executing this Agreement, Issuer
represents and warrants that, except as stated below, it has secured all
shareholder and director approvals necessary to make available five percent
5% of the equity of the Issuer after Closing, on a fully-diluted basis,
while still issuing 75% of the fully-diluted equity to Buyer hereunder.
Such 5% shall be allocated (i) for issuance to the Lender as needed to
obtain the Loan, whether such issuance is at the Loan closing or later,
pursuant to exercise of warrants or options; and (ii) that should the
equity interest necessary to obtain the Loan be less than such five percent
(5%), the balance of such holdings shall be available to the Issuer solely
for transfer or issuance to the Issuer's management at the discretion of
Issuer's Board after Closing as part of a management incentive plan. Such
equity shall be made available by some combination of the following: (a)
from existing shareholders, in an amount not to exceed twenty percent (20%)
of their existing holdings, and (b) from newly-issued stock. While the
directors' and shareholders' votes for issuance of shares in addition to
those set forth in Exhibit 1.1 have not been held, such votes are
consistent with prior directors' and shareholders' votes and Issuer
covenants that it will use its best efforts to obtain such votes if
necessary. To the extent new stock is issued, the number of shares of
Series B Preferred Stock issued to Buyer hereunder shall be increased,
without increasing the total purchase price, with the result that such
shares represent 75% of Issuer's equity on a fully-diluted basis
immediately after the Closing. Any transferring shareholders shall receive
any cash proceeds paid by the Lender and/or Issuer's managers for such
equity, including those resulting from exercise of any warrants and
options. Stock certificates representing all of such holdings referenced in
(a) above shall be endorsed in blank and delivered by any transferring
shareholders to the Issuer at Closing. To the extent that the Lender's
rights to equity are pursuant to warrants or options, the shareholders
shall retain all rights connected with those shares of stock held to permit
exercise of such equity rights, except for (i) rights accruing to the
Lender under the terms of such warrants or options and (ii) the right to
transfer or encumber such shares.
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SECTION 3.5 No Effect on Maine Agreement. The Issuer and the Buyer executed
a letter dated March 15, 1995 agreeing to continue discussions, along the lines
contained in a term sheet attached thereto, on entering into a separate
agreement on extending NEON further into Maine, and do not intend to affect such
agreement, except as specifically provided herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ISSUER
----------------------------------------
The Issuer hereby represents and warrants to the Buyer, as of the date
hereof and of the Closing that:
SECTION 4.1 Financial Statements; Absence of Undisclosed Liabilities.
(a) Issuer has previously furnished to Buyer (i) true and complete
copies of the audited balance sheet of the Issuer as of December 31, 1994,
and the audited statements of operations, stockholders' deficit, and cash
flows for the year then ended of the Issuer and related notes for the
fiscal year ended December 31, 1994, and (ii) the unaudited balance sheet
as of September 30, 1995, , and statements of operations and accumulated
deficit for the nine-month period then ending compiled by its independent
auditors. Issuer will, as soon as possible after they are available, but in
any event not more than 45 days after the end of such three-month period,
furnish to Buyer the unaudited quarterly balance sheets as of the end of
any subsequent quarter ending more than 45 days before the Closing, and
statements of operation and accumulated deficit of the Issuer for the
three-month periods then ended certified by its treasurer. All audited
financial statements required under this Section have been or shall have
been prepared in accordance with GAAP, consistently applied throughout the
periods indicated and present fairly the financial condition of the Issuer
as of the respective dates indicated and the results of their operations
for the periods indicated, subject, with respect to interim financial
statements, to normal year-end adjustments. The audited statements include
the reports with respect thereto by Konevich, Sullivan & Ryan, certified
public accountants. Should the Closing take place after January 31, 1996,
the Buyer has the right to require audited financial statements for the
year ended December 31, 1995 to be provided at Closing in the form
described above. The Issuer will also maintain its books, accounts, general
ledgers, detailed trial balances, account analyses and other financial
records on a timely basis up until the date of the Closing to the best of
Issuer's ability.
(b) Except as shown on Schedule 4.1(b) the Issuer has no debt,
liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not
reflected or reserved
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against in the most recent balance sheet of the Issuer referenced in (a)
above, except for those (i) that may have been incurred after the date of
such balance sheet and (ii) that are not required by GAAP to be included in
a balance sheet. All debts, liabilities and obligations incurred after the
date of the last balance sheet were incurred in the ordinary course of
business, and are usual and normal in amount both individually and in the
aggregate.
SECTION 4.2 Absence of Material Adverse Changes. Except as described in
Schedule 4.2, or in any document referenced therein, since the date of the most
recent balance sheet referenced in Section 4.1, the Issuer has not:
(a) Undergone any changes in its financial condition, business or
operations, other than changes in the ordinary course of business which
have not been in any case, materially adverse to its present or future
financial condition; or
(b) Other than this Agreement, entered into any transaction material to
it other than in the ordinary course of business.
SECTION 4.3 Corporate Existence; Compliance with Law; Charter and By-Laws;
No Affiliates; Dividends; Capitalization.
(a) The Issuer (i) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) has
the corporate power and authority to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it
is currently engaged, and (iii) except as shown in Schedule 4.3(a), is duly
qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification.
(b) Except as set forth in Section 4.14 hereof, and subject to the
qualifications included therein, the Issuer is in full compliance with all
applicable Requirements of Law material to its business.
(c) True and complete copies of the articles of organization, by-laws
and minutes of all meetings of shareholders and the directors of the Issuer
are contained in its minute books, and copies thereof have been delivered
to Buyer.
(d) The Issuer has no subsidiaries and no affiliates except through its
shareholders, and is not a participant in any partnership, limited
liability company or joint venture.
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(e) No dividend or other distribution of capital, surplus or profits
has been declared or paid by the Issuer since its organization
(f) The total authorized stock of the Issuer as of the date hereof
consists of (i) 1,800,000 shares of common stock, $.01 par value per share,
of which 569,140 shares are validly issued and outstanding, fully paid and
non-assessable and are not owned or held in violation of any preemptive
rights, and (ii) 200,060 shares of Series A Convertible Preferred Stock,
$.01 par value per share, of which 105,900 shares are validly issued and
outstanding, fully paid and non-assessable and are not owned or held in
violation of any preemptive rights. In addition, there are warrants to
purchase up to 22,887 shares of Common Stock and employee stock options to
purchase up to 8,000 shares of Common Stock outstanding; of these, warrants
to purchase up to 22,887 shares and employee stock options to purchase up
to 8,000 shares will be satisfied or exercised out of the holdings of
current holders of Common Stock or in such other manner as is satisfactory
to Buyer at or before Closing. If satisfied out of the holdings of current
holders, such holders shall receive any proceeds resulting from exercise of
such warrants and options. Except as set forth in Schedule 4.3(i), there
are no other outstanding options, warrants, calls, commitments,
arrangements, rights or agreements of any character to purchase or
otherwise acquire from the Issuer, at any time or upon the happening of any
stated event any shares of the capital stock of the Issuer. No shares of
the stock of the Issuer are held as treasury shares. Issuer has the right
to issue the Shares to Buyer, free and clear of all claims, liabilities,
pledges, liens, charges and encumbrances of any kind.
(g) The Shares, when issued and delivered by the Issuer and paid for by
the Buyer pursuant to the terms of this Agreement, will be duly authorized
and validly issued to the Buyer with no personal liability attaching to the
ownership thereof, will be fully paid and non-assessable, will not have
been issued in violation of any preemptive rights, will be free and clear
of all liens, encumbrances and claims, and will have the rights set forth
in the Articles of Amendment.
(h) Immediately after the Closing, the Shares will constitute 75% of
the issued and outstanding capital stock of the Issuer, on a fully diluted
basis, assuming the exercise of all options and warrants and the conversion
of all Series A Convertible Preferred Stock.
(i) The capital stock, options and warrants of the Issuer on the date
hereof are owned by the Persons in the numbers listed on Schedule 4.3(i)
hereto.
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SECTION 4.4 Corporate Power; Authorization; Enforceable Obligations Except
as set forth in Section 3.4(e), upon approval by its shareholders as required by
law, the Issuer shall have the corporate power and authority to make, deliver
and perform this Agreement and all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and the other transactions
contemplated herein has been taken. Except as provided on-Schedule 4.4, no
consent or authorization of, or filing with or other act by or in respect of any
party (including, without limitation, any governmental authority), is required
in connection with (1) the execution, delivery or performance by the Issuer of
this Agreement or the other transactions contemplated herein, (2) the validity
or enforceability against the Issuer of this Agreement or (3) the financing,
construction, operation and maintenance of NEON. This Agreement constitutes a
legal, valid and binding obligation of the Issuer enforceable against the Issuer
in accordance with its terms, except in each case as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
SECTION 4.5 No Legal Bar. Except as referenced in Section 4.16 below and
Schedule 4.16 and as disclosed in Section 3.4(e), the execution, delivery and
performance of this Agreement and the other transactions contemplated herein by
the Issuer and the consummation of the transactions contemplated herein will
neither violate any Requirement of Law or any contractual obligation of the
Issuer nor result in the creation of a lien, security interest, claim or
encumbrance upon any property or asset of the Issuer.
SECTION 4.6 No Litigation; Legislation.
(a) No litigation, investigation or proceeding of or before any
arbitrator or any court or other governmental authority is pending or,
except as referenced on Schedule 4.2, threatened against Issuer, or against
its properties or revenues which, if adversely determined, and
(b) To the best of Issuer's knowledge, no legislation or regulation has
been proposed which, if enacted or promulgated,
would have a material adverse effect on (i) the ability of the Buyer or the
Issuer to consummate the transaction contemplated herein or (ii) on the
business, operations, financial or other condition or prospects of the Issuer.
The Issuer is not in violation of, or in default with respect to, any judgment,
order, writ, injunction, decree or rule of any court, arbitrator, administrative
agency or governmental authority.
SECTION 4.7 Leases and Other Contracts. The Issuer is not bound by any
contract or agreement except the agreements listed on Schedule 4.7 (the
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"Contracts"). The Issuer has heretofore provided Buyer with current copies of
the Contracts (including all exhibits, schedules and disclosure letters referred
to in any such documents, or delivered pursuant to any such documents, if any)
and all amendments to any such documents, waivers relating to any such documents
and other side letters or agreements affecting the terms of any such documents.
Assuming the due execution by the other parties thereto, such documents have
been duly executed and delivered by the parties thereto and will be in full
force and effect as of Closing. Except as set forth on Schedule 4.7, the
following representations and warranties will each be true and correct in all
material respects as of Closing except that representations and warranties made
as of a specific date will be true and correct in all material respects as of
such date: (a) those of the Issuer in the Leases, and (b) to the best of
Issuer's knowledge, (i) those of the other parties thereto in the Leases and
(ii) those of the Issuer and the other parties thereto in the other Contracts.
SECTION 4.8 No Default. Except as set forth on Schedule 4.8, the Issuer is
not in default under or with respect to any contractual obligation owed to any
party.
SECTION 4.9 Real and Personal Property.
(a) Real Property. Except as described in Schedule 4.9(a), the real
property made available under the Leases constitutes all land necessary for
construction, operation and maintenance of Stage I as currently
contemplated and includes all necessary related rights, including, without
limitation, easements of access and rights to connect branch lines, and all
easements and other rights necessary for the construction, operation and
maintenance of Stage I. Except as set forth in Schedule 4.9(a) the
interests of the Issuer under the Leases are free and clear of any
liabilities, liens, claims or encumbrances, subject to such liens or
encumbrances as may be granted to secure the Loan.
(b) Equipment and Other Tangible Personal Property. Schedule 4.9(b) to
this Agreement is a complete and accurate list describing and specifying
all the principal items of machinery, equipment, and all other tangible
personal property owned by, in the possession of, or used by the Issuer.
All such property has been properly maintained in good repair, and the
Issuer knows of no material defects or extraordinary operating expense
requirements therein, except as described in Schedule 4.9(b), and all items
of machinery or equipment are operational and will be in good operating
condition at the Closing date. Except as described in Schedule 4.9(b), none
of the property listed on Schedule 4.9(b) is subject to any lien, claim or
other encumbrance.
SECTION 4.10 Tax Matters. Issuer has timely filed all federal, state and
local tax returns which it is required to file and any returns not filed as of
the date
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hereof shall be filed before the Closing. Issuer has paid all taxes, interest,
penalties and assessments which have become due as shown on such returns or
which have been claimed due. Such returns and the income reported therein have
been properly and accurately compiled and completed in accordance with
applicable law and generally accepted accounting methods and principles, and
present fairly the income, deduction, credit, and other information required to
be reported thereby. There are no present disputes as to taxes of any nature
payable by the Issuer relating to its tax returns, no tax lien has been filed,
and no notices of deficiency or other claims by any taxing authority have been
received by the Issuer as to taxes of any nature payable by the Issuer relating
to the tax returns of the Issuer, except as to matters which have been
heretofore resolved.
SECTION 4.11 Engineering Reports. True and complete copies of each of the
following have been provided to Buyer - - (a) all engineering reports and other
reports prepared by consultants relating to NEON prepared by or on behalf of the
Issuer and (b) all such reports of which Issuer has knowledge and which were
prepared by others, including but not limited to Northeast Utilities.
SECTION 4.12 Pension Plan. The Issuer has not had in the past and currently
has no pension or profit-sharing plan for any of its employees.
SECTION 4.13 Insurance Policies. Schedule 4.13 to this Agreement is a
description of all insurance policies held by the Issuer concerning its business
and property, showing the respective principal amounts of each policy. All
premiums due on such policies have been paid and the Issuer has received no
notice of cancellation or non-renewal relating to any of such policies. The
Issuer is in full compliance with the insurance requirements of the Lease from
Northeast Utilities. The Issuer has, since October 21, 1994 maintained and now
maintains (a) insurance on all of its assets and business of a type customarily
insured in its industry, covering property damage and loss of income, and (b)
commercially acceptable levels of insurance protection against all liabilities,
claims, and risks against which it is customary to insure in its industry.
SECTION 4.14 Permits. Except as set forth on Schedule 4.14, the Issuer has
obtained all governmental approvals, permits and licenses or exemptions from
licensing required and applicable to its business and Stage I whether from the
federal or any state or local government or governmental agency (the "Permits"),
to the extent that such Permits are issuable at the present stage of Stage I
development. None of the Permits has expired. No amendment or modification to
any of the Permits is presently required. Except for the property rights set
forth in Schedule 4.9(a), Northeast Utilities has acquired all property rights
necessary for operation of Stage I under each Permit and effectively transferred
such rights to the Issuer via the Leases. Except as set forth in Schedule 4.14,
the Issuer is in full compliance with the Permits, has satisfied or completed
all conditions and orders contained in or related
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to the Permits, and is in full compliance with all laws and regulations,
judgments, orders, writs, injunctions, decrees or rules of any court,
administrative agency or governmental authority which apply to the conduct of
the Issuer's business. Issuer has received no notice, formal or informal, of any
additional requirements which may be added to the Permits in the future, and
Issuer has no reason to believe, based on facts existing on the date hereof,
that any such requirements will be imposed in the future. Except as set forth on
Schedule 4.14, neither the execution by Issuer of this Agreement, nor the
consummation of the transactions contemplated hereby including, without
limitation, entering into the Loan, will affect the validity of any of the
Permits, and no consent of any governmental authority is required in connection
with the transactions contemplated hereby.
SECTION 4.15 No Section 341(f) Consents, or 338 Elections. The Issuer has
not at any time consented to have the provisions of Section 341(f) (collapsible
corporations) of the Internal Revenue Code of 1986 (the "Code") applied to it,
nor has it made an election under Section 338 (step-up in basis) of the Code.
SECTION 4.16 Consents and Permits. Except as set forth on Schedule 4.16,
the Issuer has determined, after due inquiry, (a) that all consents described in
Sections 3.2 and 6.13 or otherwise necessary for Closing may be obtained before
the Closing and that no steps to be taken pursuant to this Agreement before such
consents are received shall cause a default under any of the applicable
documents or Permits, and (b) that all permits referenced on Schedule 4.14 and
not yet obtained will be obtained in due course.
SECTION 4.17 Environmental Matters.
(a) Except as disclosed on Schedule 4.17, no notice, notification,
demand, request for information, citation, summons or order has been
issued, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending, or to the knowledge of the Issuer,
after due inquiry, threatened by any governmental authority or other third
party with respect to any generation, treatment, storage, recycling,
transportation or disposal or release, all as defined in 42 USC ss.
9601(22) ("Release"), of any toxic, caustic or otherwise hazardous
substance, including without limitation, petroleum, its derivatives,
by-products and other hydrocarbons, solid waste, contaminants,
polychlorinated biphenyls, paint containing lead, urea formaldehyde, foam
insulation and discharge of sewage or effluent, whether or not regulated
under Federal, state or local environmental statutes, ordinances, rules,
regulations or orders ("Hazardous Substance") generated by the Issuer's
operations or business, or located at any property, of the Issuer.
(b) Except as disclosed on Schedule 4.17, (i) neither the Issuer nor,
to the best of its knowledge, any third party have placed, held, located or
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disposed of any Hazardous Substance on, under or at any property now or
previously owned or leased by the Issuer, and none of such properties has
been used (whether by the Issuer or, to the best of its knowledge, by any
third party) as a dump site or storage (whether permanent or temporary)
site for any Hazardous Substance; (ii) no polychlorinated biphenyls or urea
formaldehyde is or has been present at any property now or previously owned
or leased by the Issuer; (iii) no asbestos is or has been present at any
property now or previously owned or leased by the Issuer; (iv) there are no
underground storage tanks which have been used to store or have contained
any Hazardous Substance, active or abandoned, at any property now or
previously owned or leased by the Issuer; (v) no Hazardous Substance has
been Released at, on or under any property previously owned or leased by
the Issuer; and (vi) no Hazardous Substance has been Released or is
present, in a reportable or threshold planning quantity, where such a
quantity has been established by statute, ordinance, rule, regulation or
order, at, on or under any property now or previously owned by the Issuer.
(c) The Issuer has not transported or arranged for the transportation
(directly or indirectly) of any Hazardous Substance to any location which
is listed or proposed for listing under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Liability
System ("CERCLIS") or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations.
(d) No oral or written notification of a Release of a Hazardous
Substance has been filed by or on behalf of the Issuer; no property now or
previously owned or leased by the Issuer is listed or, to the knowledge of
the Issuer, proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA, on CERCLIS or any similar state list of
sites requiring investigation or clean-up.
(e) There are no environmental liens on property owned or leased by the
Issuer, and no actions by any governmental authority have been taken or are
in process which could subject any of such properties to such liens.
SECTION 4.18 Accuracy and Completeness of Information; Full Disclosure of
Material Facts. All information, reports and other papers and data with respect
to the Issuer (other than projections) furnished to Buyer by the Issuer, or on
behalf of the Issuer, were, at the time the same were so furnished, complete and
correct in all material respects, or have been subsequently supplemented by
other information, reports or other papers or data, to the extent necessary to
give Buyer a true and accurate knowledge of the subject matter. All projections
with respect to the Issuer furnished by the Issuer, as supplemented, were
prepared and presented in good faith on a reasonable basis by the Issuer, it
being recognized by Buyer that such
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projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results. No document furnished or statement made in writing
or otherwise to Buyer by the Issuer in connection with the negotiation,
preparation or execution of this Agreement contains any untrue statement of a
material fact, or omits to state any such material fact necessary in order to
make the statements contained therein not misleading, in either case which has
not been corrected, supplemented or remedied by subsequent documents furnished
or statements made in writing to Buyer. Issuer has made a full disclosure to
Buyer of all material facts relating to the condition of the Issuer, taking into
account the information in the Schedules to this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Issuer as follows:
SECTION 5.1 Organization, Existence and Authority. Buyer is standing under
the laws of the State of Maine. Buyer is a wholly-owned subsidiary of Central
Maine Power Company. Buyer has the corporate power and authority to own its
properties and carry out its business as now being conducted.
SECTION 5.2 Authorization. This Agreement and the agreements entered into
or undertaken in connection with the transactions contemplated hereby have been
July authorized by all necessary corporate action.
SECTION 5.3 Enforceability. This Agreement and all other agreements entered
into or undertaken in connection with the transactions contemplated by this
Agreement constitute the valid and legally binding obligations of Buyer
enforceable against Buyer in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditor's rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
SECTION 5.4 Investment Representations.
(a) The Buyer has been informed and understands that it must bear the
economic risk of the investment in the Shares for an indefinite period
because the Shares have not been registered under the Securities Act of
1933, as amended (the "Act"), or the securities laws of any state, and
cannot be resold unless they are so registered or an exemption from
registration is available under both state and federal law. The Buyer
acknowledges that it is able to bear the economic risk of such investment
and it does not presently
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have reason to anticipate any occasion or event which would cause any
adverse change in its circumstances necessitating that it sell or
distribute all or any part of the Shares.
(b) The Shares will be acquired by the Buyer for its own account for
investment and not with a view to or for sale in connection with any
distribution thereof or with any present intention of selling or
distributing all or any part of the Shares; the Buyer is not acting as an
underwriter or conduit for sale to the public of unregistered securities,
directly or indirectly, on behalf of the Issuer with respect to the Shares.
(c) The Buyer is an "accredited investor" within the meaning of Rule
501(a) under the Act, and understands that the Issuer has relied upon the
Buyer being an accredited investor in deciding to proceed with the
transactions contemplated herein.
(d) The Buyer has reviewed the representations concerning the Issuer
contained in this Agreement, and has made such inquiry as Buyer has desired
concerning the Issuer, its business, assets, liabilities, prospects, risks
and personnel. The Buyer's payment of the purchase price for the Shares
will constitute acknowledgment that officers of the Issuer have made
available to the Buyer any and all written information which the Buyer has
requested and have answered inquiries made by the Buyer.
ARTICLE VI
BUYER'S CONDITIONS PRECEDENT TO CLOSING
---------------------------------------
The obligations of Buyer under this Agreement are subject to the
fulfillment of each of the following conditions precedent, each of which may be
waived in writing at the discretion of Buyer. In the event of nonfulfillment of
any of the following conditions precedent, Buyer may either waive fulfillment in
writing, postpone the Closing until the condition is satisfied, elect to seek
specific performance by Issuer, or cancel this Agreement and seek appropriate
damages.
SECTION 6.1 Continued Truth of Representations and Warranties. The
representations and warranties of the Issuer in this Agreement shall be true at
and as of the Closing as though such representations and warranties were made on
and as of such date, except for changes permitted by the terms of this
Agreement, and Issuer shall deliver a certificate so stating.
SECTION 6.2 Compliance with All Conditions. Issuer shall have complied with
all covenants and conditions required by this Agreement and by the Loan
Agreement between Central Maine Power Company and Issuer of even date
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herewith, and shall have delivered to Buyer all documents, reports, or
statements required to be delivered hereunder.
SECTION 6.3 Closing Certificate. The Issuer shall have executed and
delivered to Buyer a certificate of its president, dated the date of Closing,
certifying that the conditions contemplated by Sections 6.1 and 6.2 have been
satisfied.
SECTION 6.4 Good Standing Certificate; Certified Charter. The Issuer shall
deliver (a) a certificate of its legal existence and good standing issued by,
and (b) a copy of its articles of organization and all amendments thereto
certified by, the Secretary of the Commonwealth of Massachusetts.
SECTION 6.5 Resolutions of Issuer's Directors and Shareholders; Incumbency
Certificate. Issuer shall deliver copies of resolutions of the Board of
Directors and shareholders of the Issuer authorizing and approving the execution
of this Agreement and the consummation of the transactions contemplated hereby,
including the reservation of a sufficient number of the authorized but unissued
shares of Common Stock of the Issuer to permit conversion of the Shares,
certified by its clerk or assistant clerk, who shall also certify the incumbency
and signatures of the Issuer's officers who sign any documents in this
transaction.
SECTION 6.6 Resignations. The Issuer shall deliver resignations of the
directors and officers listed on Schedule 6.6, effective as of the date of the
Closing.
SECTION 6.7 Stock Certificate. The Issuer shall deliver a stock certificate
evidencing ownership of the Shares as provided in Section 1.3 hereof.
SECTION 6.8 Loan Closing. The Issuer shall close on the Loan, as
contemplated in Section 3.4; such closing may take place simultaneously with the
Closing. This condition shall be deemed satisfied when (a) there is an initial
draw-down on the Loan to the extent of funds previously expended by or then due
from the Issuer, and (b) the only conditions remaining to receiving full funding
thereunder shall be the normal requirements for periodic construction loan
disbursements; i.e. there shall be no remaining conditions to closing.
SECTION 6.9 Governmental Filings. The following shall have occurred:
(a) The Articles Amendment shall have been accepted for filing by the
Massachusetts Secretary of State, and
(b) Any filing required to exempt the transactions described herein
from the registration requirements of the Maine "blue sky" laws shall have
been made at least ten (10) days before the Closing, and no adverse
comments shall have been received from the Maine Securities Administrator.
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SECTION 6.10 Actions or Proceedings. No action or proceeding by or before
any court or other governmental body shall have been instituted or threatened
against the Issuer, or any of the other parties to this Agreement, with respect
to this Agreement or any transactions provided for herein which may have an
adverse effect on the business, assets or prospects of the Issuer or any
affiliate, taken as a whole, or on the transactions provided for herein, as
determined in the sole and absolute judgment of Buyer.
SECTION 6.11 Condition of the Issuer. Neither the business nor assets of
the Issuer shall have been adversely affected or changed, as determined in the
sole and absolute judgment of Buyer.
SECTION 6.12 Opinion of Counsel. Buyer shall have received an opinion from
Hale and Dorr, counsel for Issuer, in form and substance satisfactory to Buyer's
counsel and to the effect that:
(a) The Issuer is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts and has
all requisite corporate power and corporate authority to own or lease its
properties, carry on its business as now being conducted, enter into this
Agreement, and carry out the other transactions contemplated hereby.
(b) The Shares have been duly authorized and validly issued to the
Buyer with no personal liability attaching to the ownership thereof, are
fully paid and non-assessable, have not been issued in violation of any
preemptive rights, and are free and clear of all liens, encumbrances and
claims other than those resulting from any action by the Buyer with respect
or relating to the Shares.
(c) This Agreement has been duly executed and delivered by Issuer and
all corporate action required in order to effect the transactions
contemplated hereby has been taken, And this Agreement constitutes a valid
and binding obligation of Issuer enforceable in accordance with its terms
except as enforceability may be limited by (i) bankruptcy, insolvency, or
other similar laws affecting creditors' rights or the relief of debtors
generally, and (ii) the application of general principles of equity and the
availability of specific performance in any instance.
(d) The execution, delivery and performance by the Issuer of this
Agreement and the consummation of the transactions hereunder does not
require the approval or consent of any governmental authority (other than
those required as a condition to Closing) and will not result in any
violation of the articles of organization or by-laws of the Issuer or any
applicable statute,
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law, regulation, or to such counsel's knowledge, any order or decree of
any court or any governmental agency or conflict with or result in a breach
or termination of or constitute a default under any agreement or other
instrument to which the Issuer is a party.
(e) Each Lease was validly entered into by the Issuer and, to such
counsel's knowledge, is in full force and effect.
SECTION 6.13 Approvals. All consents of third parties and all governmental
approvals necessary for the transactions described herein shall have been
received, on terms acceptable to the Buyer, in its sole and absolute discretion.
SECTION 6.14 Due Diligence. 'The Buyer shall have completed to its sole and
absolute satisfaction its due diligence investigation and review of the Issuer
and its assets and business.
SECTION 6.15 Delivery of Documents. All documents required under Sections
4.1(a) (financial statements), 4.3(c) (copies of corporate books), 4.7
(Contracts), and 4.10 (tax returns) shall have been delivered to Buyer.
SECTION 6.16 Employment Contracts and Key Man Insurance. The Issuer shall
have entered into new employment contracts, on terms satisfactory to Buyer, in
its sole and absolute discretion, with Victor Colantonio and Michael A. Musen.
The Issuer shall have obtained and shall thereafter maintain, at least
$1,000,000 in "key man" life insurance on the lives of Victor Colantonio and
Michael A. Musen on terms and from carriers satisfactory to Buyer, in its sole
and absolute discretion.
SECTION 6.17 Exercise of Warrants and Options. The exercise of warrants and
options referenced in Section 4.3(f) shall have been completed, or arrangements
reasonably satisfactory to Buyer shall have been made such that for each share
of capital stock covered by any of such warrants or options which remain
outstanding, the Issuer holds certificates for a share of capital stock owned as
of the date hereof by an existing shareholder.
SECTION 6.18 Shareholder Waiver. Buyer shall have received a waiver
agreement, in the form of Exhibit 6.18 hereto, executed by each shareholder of
the Issuer.
SECTION 6.19 Increase in Board Size. The Issuer shall have taken all steps
required under Massachusetts law and the Issuer's organizational documents to
increase the size of its board of directors and otherwise to allow Buyer,
immediately after the Closing, to elect up to 75% of the directors.
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SECTION 6.20 Northeast Utilities Equity Purchase and Oppenheimer Warrants.
Issuer and its existing shareholders shall have taken such steps as are
reasonably necessary so that the acquisition by Northeast Utilities of up to
9.9% of Issuer's fully diluted post-Closing equity and warrants issued to
Oppenheimer shall' not reduce below 75% Buyer's equity interest (on a fully
diluted basis) in Issuer as represented by the Shares.
ARTICLE VII
ISSUER'S CONDITIONS PRECEDENT TO CLOSING
----------------------------------------
The obligations of Issuer under this Agreement are subject, at the Closing,
to the fulfillment of the following conditions precedent, each of which may be
waived in writing at the discretion of Issuer.
SECTION 7.1 Continued Truth of Representations and Warranties. The
representations and warranties of Buyer in this Agreement shall be true at and
as of the Closing as though such representations and warranties were made on and
as of such date.
SECTION 7.2 Compliance with All Conditions. Buyer shall have complied with
all covenants and conditions required by this Agreement and Central Maine Power
Company ("CMP") shall have complied with all covenants and conditions required
by the Loan Agreement between CMP and Issuer of even date herewith, and shall
have delivered to Issuer all documents, reports, or statements required to be
delivered hereunder.
SECTION 7.3 Closing Certificate. The Buyer shall have executed and
delivered to Issuer a certificate of its president, dated the date of Closing,
certifying that the conditions contemplated of Buyer by Sections 7.1 and 7.2
have been satisfied.
SECTION 7.4 Good Standing Certificate: Certified Charter. The Buyer shall
deliver (a) a certificate of its legal existence and good standing issued by,
and (b) a copy of its articles of incorporation and all amendments thereto
certified by, the Secretary of the State of Maine.
SECTION 7.5 Resolutions of Buyer's Directors and Shareholders: Incumbency
Certificate. Buyer shall deliver copies of resolutions of the Board of Directors
of the Buyer authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated hereby, certified by its clerk or
assistant clerk, who shall also certify the incumbency and signatures of the
Buyer's officers who sign any documents in this transaction.
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SECTION 7.6 Purchase Price. At the Closing Buyer shall deliver to Issuer
the purchase price called for by Article I of this Agreement.
SECTION 7.7 Governmental Filings. The following shall have occurred:
(a) The Articles Amendment shall have been accepted for filing by the
Massachusetts Secretary of State, and
(b) Any filing required to exempt the transactions described herein
from the registration requirements of the Maine "blue sky" laws shall have
been made at least ten (10) days before the Closing, and no adverse
comments shall have been received from the Maine Securities Administrator.
SECTION 7.8 Actions or Proceedings. No action or proceeding by or before
any court or other governmental body shall have been instituted or threatened
against the Issuer, or any of the other parties to this Agreement, with respect
to this Agreement or any transactions provided for herein which may have an
adverse effect on the business, assets or prospects of the Issuer or any
affiliate, taken as a whole, or on the transactions provided for herein.
SECTION 7.9 Consents. All requisite consents and approvals of third parties
shall have been received.
SECTION 7.10 Opinion of Counsel. Issuer shall have received an opinion from
Curtis Thaxter Stevens Broder & Micoleau Limited Liability Company, P.A.,
counsel for Buyer, in form and substance satisfactory to Issuer's counsel, and
to the effect that:
(a) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maine and has all requisite power
and authority to own its properties, carry on its business as now being
conducted and enter into this Agreement and carry out the transactions
contemplated hereby;
(b) This Agreement has been duly authorized, executed and delivered by
Buyer, all corporate action by Buyer required in order to effect the
transactions contemplated hereby has been taken and this Agreement
constitutes the valid and binding obligation of Buyer enforceable in
accordance with its terms except as enforceability may be limited by (i)
bankruptcy, insolvency, or other similar laws affecting creditors' rights
or the relief of debtors generally, and (ii) the application of general
principles of equity and the availability of specific performance in any
instance; and
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(c) The execution, delivery and performance by Buyer of this Agreement
and the consummation of the transactions hereunder will not result in any
violation of the Articles of Incorporation or By-Laws of Buyer, or any
applicable statute, law, regulation, order or, to such counsel's knowledge,
any decree of any court or any governmental agency (other than the
Securities Act of 1933, as amended, or the securities or blue sky laws of
any state other than the State of Maine, as to which no opinion is
expressed) or conflict with or result in a breach or termination of or
constitute a default under any agreement or other instrument to which Buyer
is a party.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
----------------------------
SECTION 8.1 Reliance. The parties hereto mutually agree that,
notwithstanding any right of any party or parties to this Agreement to
investigate the affairs of any other party or parties to this Agreement, the
party or parties having such right to investigate shall have the right to rely
fully upon the representations and warranties of the other party or parties
contained in this Agreement and on the accuracy of any schedule or other
document attached hereto or referred to herein or delivered by such other party
of parties or pursuant to this Agreement.
SECTION 8.2 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements of the parties hereto made
in this Agreement or in any other agreement, certificate or instrument provided
for or contemplated hereby shall survive the execution and delivery hereof and
any investigations made by or on behalf of the parties and shall remain in full
force and effect after the Closing. The representations made in Sections 4.1
through 4.8, 4.11, 4.12, 4.13, 4.15, 4.16 and 4.18 shall terminate 12 months
after Buyer shall have received the first annual audit report from Issuer's
independent certified public accountants after the Closing.
SECTION 8.3 Issuer's Indemnity. Issuer hereby agrees to indemnify and hold
harmless Buyer, against and in respect to any losses, damages, claims and
expenses (including, without limitation, reasonable attorneys' fees) resulting
from any misrepresentation, breach of warranty or nonfulfillment of any covenant
or agreement on the part of Issuer under this Agreement or from any
misrepresentation in or omission from any Schedule, certificate or other
document or instrument furnished by the Issuer pursuant to this Agreement. The
obligations of the Issuer under this Section 8.3 shall survive redemption,
repurchase, transfer or exchange of the Shares.
SECTION 8.4 Buyer's Indemnity. Buyer hereby agrees to indemnify and hold
harmless Issuer, against and in respect to any losses, damages, claims and
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expenses (including, without limitation, reasonable attorneys' fees) resulting
from any misrepresentation, breach of warranty or nonfulfillment of any covenant
or agreement on the part of Buyer under this Agreement or from any
misrepresentation in or omission from any Schedule, certificate or other
document or instrument furnished by the Buyer pursuant to this Agreement. The
obligations of the Buyer under this Section 8.4 shall survive redemption,
repurchase, transfer or exchange of the Shares.
ARTICLE IX
COVENANTS REGARDING THE SERIES B PREFERRED STOCK
------------------------------------------------
The following covenants shall inure to the benefit of all holders of the
Series B Preferred Stock, including but not limited to the Buyer, for so long as
any shares of Series B Preferred Stock remain outstanding, notwithstanding any
other provision of this Agreement.
SECTION 9.1 Preemptive Right. The Issuer shall not issue additional shares
of common or preferred equity of the Issuer or securities of the Issuer
convertible into or exchangeable for common or preferred equity or sell any such
securities held by the Issuer (collectively an "Issuance") unless, within 30
days following such Issuance, the Issuer notifies the holders of all outstanding
shares of Series B Preferred Stock (the "Series B Holders") in writing of the
Issuance and grants to the Series B Holders the right (the "Right"), subject to
the limitations set forth below, to subscribe for and purchase additional shares
of common or preferred equity, at the same price and on the same terms as
reflected in the Issuance, such that upon exercise of that Right the Series B
Holders will own the same voting and economic interest in the Issuer as held by
them before the Issuance. The Issuer shall prior to any Issuance, reserve a
sufficient number of authorized but unissued or treasury shares of common or
preferred equity, for issuance pursuant to the Right. The Right shall be
exercisable by the Series B Holders or their assignee or assignees for a period
of 30 business days after receipt of written notice from the Issuer of the
Issuance, and the closing of the purchase and sale pursuant to the exercise of
the Right shall occur within 14 days after receipt of said notice. The Right
shall not apply to any shares issued (i) to employees, officers or directors
pursuant to plans approved by the Board; (ii) in connection with mergers and
acquisitions; (iii) in amounts less than $500,000 in any single transaction
where the purchase price is not less than the applicable Conversion Price per
share, provided that the aggregate amount of all such transactions shall not
exceed $1,000,000; or (iv) pursuant to a public offering. This right shall
terminate as to each share of Series B Preferred Stock upon its conversion into
Common Stock.
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SECTION 9.2 Registration Rights.
(a) Piggyback Registration Rights.
------------------------------
(i) Right to Piggyback. Whenever the Issuer proposes to register
any shares of Common Stock (or securities convertible into or
exchangeable or exercisable for Common Stock) under the
Securities Act of 1933, as amended (the "Act") for its own
account or the account of others (a "Proposed Registration"),
the Issuer will give prompt written notice to the holders (the
"RegSec Holders") of all shares of Common Stock issued or
issuable upon conversion of shares of Series B Preferred Stock
("Registrable Securities") of its intention to effect such a
registration, which notice will specify among other things the
proposed offering price, the kind and number of securities
proposed to be registered, the distribution arrangements and
such other information that at the time would be appropriate
to include in such notice, and will, subject to Section 9.2(a)
(ii) below, include in such Proposed Registration (as a
"Piggyback Registration"), all Registrable Securities with
respect to which the Issuer has received written requests for
inclusion therein within 30 business days after receipt of the
Issuer's notice. Except as may otherwise be provided in this
Agreement, Registrable Securities with respect to which such
request for registration has been received will be registered
by the Issuer and offered to the public pursuant to this
Section 9.2 on the same terms and subject to the same
conditions applicable to the registration in a Proposed
Registration of such shares of Common Stock (or securities
convertible into or exchangeable or exercisable for Common
Stock) to be sold by the Issuer or by the person selling under
such Proposed Registration.
(ii) Priority on Piggyback Registrations. If the managing
underwriter or underwriters advise the RegSec Holders in
writing that in its or their opinion, the number or kind of
securities proposed to be sold in such registration (including
Registrable Securities to be included in Section 9.2(a) (i)
above) will affect the success of such offering in a
materially adverse manner, the Issuer will include in such
registration the number of Registrable Securities, if any,
which, in the opinion of such
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underwriter or underwriters, can be sold as follows: (i)
first, the shares of Common Stock (or securities convertible
into or exchangeable or exercisable for Common Stock) which
the Issuer proposes to sell, and (ii) second, on a pro rata
basis, the Registrable Securities requested to be included in
such registration by the RegSec Holders.
(iii) Selection of Underwriters. The Issuer will select a managing
underwriter or underwriters to administer the offering, which
managing underwriter or underwriters will be of nationally
recognized standing and which will be reasonably acceptable
to RegSec Holders holding a majority of the Registrable
Securities to be registered in such Piggyback Registration.
(b) Demand Registration Rights.
(i) Right to Demand by RegSec Holders. After the earlier of (A)
the fourth (4th) anniversary of the Closing or (B) such time
as at least 180 days have elapsed following the effective
date of a registered underwritten offering of the Issuer's
Common Stock, RegSec Holders holding at least 50% of
Registrable Securities may make a written request to the
Issuer for registration with the U.S. Securities and Exchange
Commission (the "Commission") under and in accordance with
the provisions of the Act of all or part of its Registrable
Securities (a "Demand Registration"), so long as the
anticipated aggregate net offering price is at least
$10,000,000. Within 10 days after receipt of such a request,
the Issuer will serve written notice (the "Notice") of such
registration request to all other RegSec Holders and the
Issuer will include in such registration Registrable
Securities of such other RegSec Holders with respect to which
the Issuer has received written request for inclusion therein
within 30 business days after the date of sending of the
Notice. All requests made pursuant to this Subsection 9.2(b)
(i) will specify the aggregate number of Registrable
Securities to be registered and will also specify the
intended methods of disposition thereof.
(ii) Reduction of Shares in Demand Registration. If the managing
underwriter or underwriters advise the RegSec Holders in
writing that in its or their opinion, the number or kind of
securities proposed to be sold in such Demand
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Registration will affect the success of such offering in a
materially adverse manner, the Issuer will include in such
registration the number of Registrable Securities, if any,
which, in the opinion of such underwriter or underwriters can
be sold. The number of Registrable Securities to be included
in such registration for each requesting RegSec Holder shall
then be reduced pro rata to such number.
(iii) Number of Demand Registrations. The RegSec Holders shall be
entitled to one Demand Registration; provided that if the
underwriters shall have reduced the number of shares that are
requested to be registered by 25% or more in the first Demand
Registration, and if such registration is the initial public
offering of the Issuer's securities, the RegSec Holders will
thereafter be entitled to one more Demand Registration.
(iv) Selection of Underwriters. The person initiating such Demand
Registration will select a managing underwriter or
underwriters of recognized national standing to administer
the offering, who shall be reasonably satisfactory to the
Issuer, and the Issuer shall have the option to select a
co-managing underwriter, who shall be reasonably satisfactory
to the person initiating such registration, and counsel to
the underwriters, who shall be reasonably satisfactory to
both the managing underwriters and the person initiating such
registration.
(c) Restrictions on Public Sale.
----------------------------
(i) Public Sale by Holders of Registrable Securities. Each RegSec
Holder, if requested by the managing underwriter or
underwriters for any underwritten Piggyback Registration or
Demand Registration in which such RegSec Holder is not
participating, agrees not to effect any public sale or
distribution of Registrable Securities, including a sale
pursuant to Rule 144 (or any similar provision then in force)
under the Act, during a period (the "Holdback Period") of the
five business days before, and the 90-day period (or such
shorter time as may be agreed to) beginning on, the effective
date of such actual or attempted Piggyback Registration or
Demand Registration (except as part of such actual or
attempted Piggyback Registration or Demand Registration) or
such earlier time as all the shares
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of Common Stock included in such registration statement have
been disposed of pursuant thereto; provided that there shall
not be more than one Holdback Period in any 6-month period.
(ii) Public Sale by the Issuer and Others. If requested by the
managing underwriter or underwriters for any underwritten
Piggyback Registration or Demand Registration, the Issuer
will (A) not effect any public sale or distribution of its
Common Stock for its own account (or securities convertible
into or exchangeable or exercisable for Common Stock) during
the 10 business days prior to, and during the 90-day period
beginning on, the effective date of such Piggyback
Registration or Demand Registration (except as part of such
registration or pursuant to registrations on Forms S-4, S-8,
or any successor form to such forms) and with respect to any
Demand Registration the Issuer will not effect any such sale
or distribution during the period commencing on the date of
filing such Demand Registration and ending on the sixtieth
day following the effective date of such Demand Registration,
and (B) use reasonable efforts to cause each other holder of
Common Stock (or securities convertible into or exchangeable
or exercisable for Common Stock) purchased from the Issuer at
any time after the Closing (other than in a registered public
offering) to agree not to effect any public sale or
distribution of any such securities during such period
(except as part of such Piggyback Registration or Demand
Registration, if otherwise permitted).
(d) Registration Expenses. All of the costs and expenses of each
Registration hereunder will be borne by the Issuer, including the fees and
expenses of the counsel and accountants for the Issuer (including the
expenses of any "cold comfort" letters required by or incident to such
performance), the fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to Section 3 of Schedule E to the By-laws of the National
Association of Securities Dealers, Inc. and all other costs and expenses of
the Issuer incident to the preparation, printing and filing under the Act
of the Registration Statement (and all amendments and supplements thereto)
and furnishing copies thereof and of any preliminary prospectus and the
prospectus included therein, and the costs and expenses incurred by the
Issuer in connection with the qualification of the Registrable Securities
under the state securities or "blue sky" laws of various jurisdictions;
provided that the Issuer shall not bear costs and expenses of any
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RegSec Holders comprising underwriters' commissions, brokerage fees,
transfer taxes, or the fees and expenses of any counsel (including counsel
for the underwriters), accountants or other representatives retained by any
RegSec Holder; and, provided further, that the Issuer shall not be required
to purchase insurance in lieu of indemnification.
(e) Indemnification.
(i) In the event of any such registration pursuant to this
Section 9.2, to the extent permitted by law, the Issuer
will indemnify the RegSec Holders who participate in any
such registration (the "Participating Holders"), each
person, if any, who controls a Participating Holder
within the meaning of the Act, each underwriter and each
person, if any, who controls any such underwriter,
within the meaning of the Act, against all losses,
claims, damages, liabilities and expenses (under the
Act, at common law or otherwise) resulting from any
untrue statement or alleged untrue statement of a
material fact contained in any registration statement or
prospectus or resulting from any omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses result from any
untrue statement or omission or alleged untrue statement
or alleged omission contained in information furnished
in writing to the Issuer by the Participating Holders or
such underwriter expressly for the use therein.
(ii) The Participating Holders will furnish to the Issuer in
writing such information as shall be reasonably
requested by the Issuer or its underwriters for use in
any such registration statement or prospectus and, to
the extent permitted by law, will indemnify the Issuer,
its directors, each officer signing such registration
statement, each person, if any, who controls the Issuer
within the meaning of the Act, and each person, if any,
who controls any such underwriter, within the meaning of
the Act, against all losses, claims, damages,
liabilities and expenses resulting solely from any
untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a
material fact required to be stated in the registration
statement or prospectus and necessary to make the
statements therein not misleading, but only to the
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extent that such untrue statement or omission or alleged
untrue statement or alleged omission is contained or
omitted in information so furnished in writing by the
Participating Holders expressly for use therein.
(f) Overall Limitations. Notwithstanding any of the foregoing
provisions of this Section 9.2:
(i) The Issuer shall not be required to register any Common
Stock under the Act if in the opinion of a counsel for
the Issuer, which counsel is acceptable to the
Participating Holders, such registration is not
necessary in the circumstances. In rendering such
opinion, such counsel may rely on a "no-action" letter
from the Commission; and
(ii) In the case of any registration of Common Stock pursuant
to this Section 9.2, the Issuer may delay the
preparation and filing of any registration statement,
amendment or supplement thereto during any period until
the financial statements required for inclusion therein
have been prepared in the ordinary course of business
and, if deemed necessary or desirable by the Issuer,
examined by independent public accountants.
SECTION 9.3 Information Rights. All Series B Holders shall be furnished by
the Issuer with (a) a quarterly management letter discussing the revenue and
operations of the Issuer and summary quarterly financial information within 45
days after the end of each quarter; (b) an officer's certificate of compliance
accompanying quarterly financial statements; (c) audited annual financial
statements within 120 days of year end; (d) all management letters addressed to
the Board of Directors from the Issuer's independent auditors; (e) an annual
budget for the current fiscal year within 30 days of the prior year's end; (f)
notification of defaults under material agreements; (g) notification of material
litigation; (h) copies of all filings made with the Commission; and (i) any
information that any Series B Holder may reasonably request. The information
rights listed above terminate upon the initial public offering of the Issuer's
securities.
SECTION 9.4 Inspection Rights. The Series B Holders shall have the right,
within reason and without disrupting the operations of the Issuer, to (a) visit
the Issuer's facilities; (b) examine corporate and financial records; and (c)
speak with key employees at the Issuer. The inspection rights listed above shall
terminate upon the initial public offering of the Issuer's securities.
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SECTION 9.5 Restrictive Covenants. The Issuer may not, without the consent
of holders of at least a majority of the outstanding Series B Preferred Stock
(voting together as one class); (a) issue any class or series of equity security
senior to the Series B Preferred Stock as to payment of dividends of senior to
or on a parity with the Series B Preferred Stock as to payments on liquidation,
etc. of the Issuer; (b) redeem or repurchase any outstanding stock; (c) enter
into any agreement that would restrict the Issuer's right to perform under this
Agreement; (d) merge or consolidate; (e) liquidate or dissolve; or (f) amend the
Articles of Organization or by-laws in any manner which would impair or reduce
the rights of the Series B Preferred Stock.
Without the affirmative vote of at least 66 2/3% of the members of the
Board of Directors of the Issuer, the Issuer may not, without the consent of
holders of at least a majority of the outstanding Series B Preferred Stock
(voting together as one class); (i) sell or lease more than 25% of the Issuer's
assets, or (ii) enter into any other business other than businesses
substantially similar or related to the existing business.
SECTION 9.6 Key Man Insurance. Unless waived by the vote or written consent
of the holders of a majority of the outstanding shares of Series B Preferred
Stock, voting as a class, the Issuer shall maintain at least $1,000,000 in "key
man" life insurance on the lives of Victor Colantonio and Michael A. Musen on
terms and from carriers satisfactory to such holders.
SECTION 9.7 Right of First Refusal. In the event that the Issuer exercises
its rights of first refusal under Article V of its Articles of Organization, the
Series B Holders shall have the right, within 30 days after such exercise, to
purchase from the Issuer any shares of capital stock so acquired by the Issuer,
at the same price. In the event that there is more than one Series B Holder,
such right shall be pro rata in accordance with the percentage of Series B
Preferred Stock held by each holder. If one or more of them do not fully
exercise their rights hereunder, the remaining Series B Holders may divide the
unexercised rights among them pro rata and exercise such rights, so long as they
do so before the end of the 30-day period.
ARTICLE X
GENERAL MATTERS
---------------
SECTION 10.1 Amendments and Supplements. This Agreement may be amended or
supplemented in whole or in part at any time, but only by a written instrument
executed in the same manner as this Agreement, and in addition, if executed
after the Closing and such amendment or supplement relates to Article IX hereof,
by the holders of a majority of the outstanding shares of Series B Preferred
Stock.
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SECTION 10.2 Extensions and Waivers. At any time before the Closing, the
parties hereto may (i) extend the time set for Closing in Section 2.1 hereof or
for the performance of any other of the obligations or other acts of another
party hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf on such
party.
SECTION 10.3 Governing Law; Consent to Jurisdiction; Interpretation. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Maine without regard to principles of conflicts of laws. Each of the
parties hereby agrees to submit to the jurisdiction of the courts of the State
of Maine, and the U.S. District Court for the District of Maine, in any action
or proceeding arising out of or relating to this Agreement. Both parties were
represented by counsel in the drafting of this Agreement, and waive, to the
extent permitted by law, any presumption of interpreting ambiguities against the
drafter.
SECTION 10.4 Notice. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered by hand or by courier
(including Federal Express and similar companies), mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses, or telecopied to the parties at the listed fax numbers and shall be
deemed given on the date on which so delivered or telecopied, or on the third
business day following the date on which so mailed:
If to Issuer:
FiveCom, Inc.
391 Totten Pond Road
Suite 401
Waltham, Massachusetts 02154
Attn: Victor Colantonio
Fax: (617) 890-8404
With a copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attn: Alexander A. Bernhard, P.C.
Fax: (617) 367-5071
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If to Buyer:
MaineCom Services
41 Anthony Avenue
Augusta, Maine 04330
Attn: Mark E. Curtis, President
Fax: (207) 626-9633
With a copy to:
Curtis Thaxter Stevens Broder & Micoleau Limited
Liability Company, P.A.
One Canal Plaza
Portland, Maine 04112
Attn: Kimball L. Kenway, Esq.
Fax: (207) 775-0612
Any party may from time to time change the address or fax numbers notices
are to be sent to by giving notice as provided above.
SECTION 10.5 Expenses.
(a) Issuer shall pay all expenses incurred by it in connection with the
negotiation, execution and performance of this Agreement, whether or not
the transactions contemplated hereunder are consummated, including the fees
and expenses of their counsel and accountants and any professional
consultants retained by the Issuer in connection with this Agreement.
(b) Except as provided in subsection (c) and Section 10.6 below, the
Buyer shall pay all expenses incurred by it in connection with the
negotiation, execution and performance of this Agreement, whether or not
the transactions contemplated hereunder are consummated, including the fees
and expenses of its counsel, Curtis Thaxter Stevens Broder & Micoleau
Limited Liability Company, P.A. ("Curtis Thaxter") and professional
consultants incurred in connection with this Agreement.
(c) At Closing, the Issuer will pay out of proceeds or reimburse Buyer
the reasonable fees and expenses of Curtis Thaxter, the portion of such
fees and expenses to be paid by Issuer not to exceed $50,000.
SECTION 10.6 Break-up Fee. In the event that the Closing does not occur as
a direct or indirect result of any foreclosure on Issuer's indebtedness, sale or
liquidation of Issuer's business, or sale or liquidation of any of Issuer's
significant assets, or any similar event resulting from the termination of
Issuer's business or the
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sale or transfer or all or substantially all of Issuer's assets, Issuer shall
pay to Buyer, from the proceeds to it from such foreclosure, sale, liquidation
or similar event, a break-up fee of Two Hundred Thousand Dollars ($200,000), in
addition to any amounts due to Buyer as a lender, such break-up fee being
intended to compensate Buyer for the time spent by its personnel and of its
affiliates, for the opportunity costs of such time, and for its out-of-pocket
expenses in connection with this transaction.
SECTION 10.7 No Brokers. Except as discussed below, all negotiations
relating to this Agreement and the transactions contemplated hereby have been
carried on by Issuer and Buyer without the intervention of any person in such a
manner as to give rise to any valid claim against any of the parties hereto for
a brokerage commission, finders fee, or other like payment and (a) Buyer agrees
to indemnify and hold Issuer harmless and (b) Issuer agrees to indemnify and
hold Buyer harmless, in either case from any loss, cost or expense (including
without limitation, reasonable attorneys fees) incurred by the indemnified party
arising from a claim for such a commission, fee or other payment as a result of
acts by the indemnifying party which gave rise to such claim. Issuer has
retained Oppenheimer to act as its investment banker and broker in this
transaction. Any brokerage fee or commission payable by Issuer to Oppenheimer
shall be paid by Issuer on or before Closing.
SECTION 10.8 Benefit and Binding Effect. This Agreement shall be binding
upon or inure to the benefit of the parties hereto and their respective
successors and assigns permitted hereunder. If any provision of this Agreement
is deemed to be in violation of law, such provision shall not be deemed to
impair the validity of any other provision hereof.
SECTION 10.9 Further Assurances. Issuer, Buyer and their respective
officers and directors will take such further action and execute such further
documents after the Closing as may be reasonably requested by any other party to
this Agreement in order to carry out the purposes of this Agreement.
SECTION 10.10 Section Headings. The Section and other headings contained in
this Agreement are for convenience or reference only and shall not affect the
meaning or interpretation of any part of this Agreement.
SECTION 10.11 Assignability. This Agreement shall not be assignable by any
party hereto, except by Buyer to an affiliate having the same beneficial
ownership as Buyer, without the written consent of all parties hereto.
SECTION 10.12 Counterparts. This Agreement may be executed by one or more
parties on any number of separate counterparts, and all of said counterparts,
taken together shall be deemed to constitute one and the same instrument.
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SECTION 10.13 Integration. The terms and provisions contained in this
Agreement constitute the entire agreement between the Issuer and the Buyer and
shall supersede all previous communications, representations or agreements,
either oral or written, between Issuer and Buyer with respect to the subject
matter of this Agreement including, without limitation, the October 18, 1995
Term Sheet.
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Executed under seal as of the date first above written.
WITNESS: MAINECOM SERVICES
/s/ Kathleen Rahbany By:/s/ Mark E. Curtis
- -------------------- ------------------------
Mark E. Curtis, President
FIVECOM, INC.
/s/ Kathleen Rahbany By:/s/ Victor Colantonio
- -------------------- ------------------------
Victor Colantonio,
President
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AMENDMENTS TO
STOCK SUBSCRIPTION AGREEMENT
AMENDMENTS dated as of April 30, 1996 to the Stock Subscription Agreement
dated as of November 22, 1995 (the "Stock Subscription Agreement"; capitalized
terms used herein and not otherwise defined herein are used herein as defined in
the Stock Subscription Agreement), by and between MaineCom Services, a Maine
corporation with a principal place of business in Augusta, Maine ("Buyer"), and
FiveCom, Inc., a Massachusetts corporation with a principal place of business in
Waltham, Massachusetts ("Issuer"), as such Stock Subscription Agreement was
modified by an Extension Agreement dated as of January 31, 1996.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. The following shall be added at the end of Section 3.4 of the Stock
Subscription Agreement:
If the transactions described in the Reorganization Memorandum (as
defined below) are consummated in substantial part, and the
Lender/management is issued an equity interest of up to 5% in FiveCom LLC
(as defined below) instead of stock or warrants in Issuer, then Issuer
shall issue to Buyer, without increasing the total purchase price
hereunder, that number of additional shares of Series B Preferred Stock or
Common Stock (at Buyer's option), as shall maintain Buyer's fully diluted
economic interest in FiveCom LLC at 75%, when such additional shares are
added to the other shares of capital stock of Issuer acquired by Buyer
pursuant hereto. For the purposes hereof, the "Reorganization Memorandum"
is a memorandum dated March 5, 1996 from Issuer's Board of Directors to its
shareholders, a copy of which is attached as Exhibit 3.4 hereto, describing
a reorganization proposed by the Buyer, and "FiveCom LLC" is an entity
corresponding to that labeled FiveCom LLC in the Reorganization Memorandum.
2. The following is hereby added as Section 3.6 of the Stock Subscription
Agreement:
SECTION 3.6 Protection from Dilution from Issuance of Shares to
Management. The issuance of the Shares triggers the right in the employment
contracts of Victor Colantonio and Michael Musen ("Management") to have
additional shares of common stock issued to them. The number of Shares
issued to Buyer hereunder shall represent 75% of the fully diluted equity
of Issuer, after taking account of such issuances to Management. If the
transactions described in the Reorganization Memorandum (as defined below)
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<PAGE>
are consummated in substantial part, and Management is issued equity
interests in FiveCom LLC instead of stock or warrants in Issuer, then
Issuer shall issue to Buyer, without increasing the total purchase price
hereunder, that number of additional shares of Series B Preferred Stock or
Common Stock (at Buyer's option), as shall maintain Buyer's fully diluted
economic interest in FiveCom LLC at 75%, when such additional shares are
added to the other shares of capital stock of Issuer acquired by Buyer
pursuant hereto.
3. Section 6.8 of the Stock Subscription Agreement ("Loan Closing") is
hereby deleted in its entirety (the section number being reserved to prevent the
need to renumber).
4. Section 6.20 of the Stock Subscription Agreement is hereby deleted in
its entirety and the following is hereby substituted:
SECTION 6.20 Northeast Utilities Equity Purchase and Oppenheimer
Warrants. Issuer and its existing shareholders shall have taken such steps
as are reasonably necessary so that (a) the acquisition by Northeast
Utilities, or its affiliate ("NU") of up to 9.9% of the fully diluted
post-Closing equity in either Issuer or FiveCom LLC and (b) the issuance of
warrants to Oppenheimer in either Issuer or FiveCom LLC, shall not reduce
below 75% Buyer's economic interest in each of Issuer, and if FiveCom LLC
exists and has more than nominal assets, in FiveCom LLC. For example, if
the reorganization described in the Reorganization Memorandum is fully
implemented, Buyer will be entitled to 83.24% of the issued and outstanding
capital stock of Issuer if the only source of dilution is issuance of
FiveCom LLC equity to NU, and a higher percentage if equity is issued to
any of Oppenheimer, the Lender (as referenced in Section 3.4), or
Management (as referenced in Section 3.6) or any combination of the above.
5. The following shall be added after the first sentence of Section 8.2 of
the Stock Subscription Agreement:
If the conditions contained in Sections 6.17 and 6.20 hereof are not
satisfied as of the Closing, Sections 6.17 and 6.20 shall survive the
Closing as covenants. Neither (a) the failure of Issuer to make true as of
Closing any representation or warranty assuring the issuance to Buyer of
75% of the fully-diluted capital stock of Issuer, nor (b) the failure of
Issuer to comply at or before Closing with any covenant or agreement to the
same effect, shall affect in any way the survival of any such
representation, warranty, covenant or agreement after Closing.
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<PAGE>
6. The Schedules to the Stock Subscription Agreement are hereby
supplemented by the Schedules attached hereto. To the extent that there is any
inconsistency with the original Schedules, those attached hereto shall prevail.
7. These Amendments shall be governed by and construed in accordance with
the laws of the State of Maine without regard to principles of conflicts of
laws.
8. These Amendments shall be binding upon or inure to the benefit of the
parties hereto and their respective successors and assigns permitted under the
Stock Subscription Agreement.
9. These Amendments may be executed by one or more parties on any number of
separate counterparts, and all of said counterparts, taken together shall be
deemed to constitute one and the same instrument.ss
10. Except as expressly amended hereby and by the Extension Agreement dated
as of January 31, 1996, the Stock Subscription Agreement shall continue in full
force and effect in accordance with the provisions thereof on the date hereof.
Executed under seal as of the date first above written.
WITNESS: MAINECOM SERVICES
/s/ Michael B. Persmer [sic] By:/s/ Mark E. Curtis
- ---------------------------- ----------------------------
Mark E. Curtis, President
FIVECOM, INC.
/s/ Michael E. Musen By:/s/ Victor S. Colantonio
Victor Colantonio,
President
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON APRIL 30,2001 OR IF NOT A BUSINESS DAY,
AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT FOLLOWING BUSINESS
DAY.
WARRANT TO PURCHASE
1,500 SHARES OF MEMBERSHIP INTEREST
NO. 1
WARRANT TO PURCHASE
SHARES OF MEMBERSHIP INTEREST(S)
OF
FIVECOM LLC
TRANSFER RESTRICTED -- SEE SECTION 5.02
This certifies that, for good and valuable consideration, Oppenheimer &
Co., Inc., and its registered, permitted assigns (collectively, the
"Warrantholder"), is entitled to purchase from FiveCom, LLC, a Massachusetts
limited liability company (the "Company"), subject to the terms and conditions
hereof, at any time on or after 9:00 A.M., New York time, on April 30, 1997, and
before 5:00 P.M., New York time, on April 30, 2001 (or, if such day is not a
Business Day, at or before 5:00 P.M., New York time, on the next following
Business Day), the number of fully paid and non-assessable shares of Membership
Interest stated above at the Exercise Price. The Exercise Price and the number
of shares purchasable hereunder are subject to adjustment from time to time as
provided in Article III hereof. The Shares issued upon exercise of this Warrant
shall be subject to the provisions of the Company's Operating Agreement, a copy
of which will be furnished to the holder hereof upon written request and without
charge.
ARTICLE I
Section 1.01: Definition of Terms: As used in this Warrant, the
following capitalized terms shall have the following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other
day on which banks in the State of New York are authorized by law to remain
closed.
<PAGE>
(b) Membership Interest: an interest as a member in the
Company; Membership Interests are measured in Shares.
(c) Membership Interest Equivalents: Securities that are
convertible into or exercisable for shares of Common Stock.
(d) Exchange Act: The Securities Exchange Act of 1934, as
amended.
(e) Exercise Price: $133.33 per Warrant Share, as such price
may be adjusted from time to time pursuant to Article III hereof.
(f) Expiration Date. 5:00 P.M., New York time, on April 30,
2001 or if such day is not a Business Day, the next succeeding day which is a
Business Day.
(g) Form S-3 Registration: See Section 6.02.
(h) 50% Holders: At any time as to which a Demand Registration
is requested, the Holder and/or the holders of any other Warrants and/or the
holders of Warrant Shares who have the right to acquire or hold, as the case may
be, not less than 50% of the combined total of Warrant Shares issuable and
Warrant Shares outstanding at the time such Demand Registration is requested.
(i) Holder: A Holder of Registrable Securities.
(j) NASD: National Association of Securities Dealers, Inc.,
and NASDAQ: NASD Automatic Quotation System.
(k) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof.
(l) Piggyback Registration: See Section 6.01.
(m) Prospectus: Any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
(n) Public Offerings: A public offering of any of the
Company's equity or debt securities pursuant to a registration statement under
the Securities Act.
(o) Registration Expenses: Any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article VI, including, without limitation, (i)
all SEC, national securities
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<PAGE>
exchange and NASD registration and filing fees; all listing fees and all
transfer agent fees; (ii) all fees and expenses of complying with state
securities or blue sky laws (including the fees and disbursements of counsel for
the underwriters in connection with blue sky qualifications of the Registrable
Securities; (iii) all printing, mailing, messenger and delivery expenses and
(iv) all fees and disbursements of counsel for the Company and of its
accountants, including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance, but
excluding underwriting discounts and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants retained by the holders of
Registrable Securities to advise them in their capacity as Holders of
Registrable Securities.
(p) Registrable Securities: Any Warrant Shares issued to
Oppenheimer & Co., Inc. and/or its designees or transferees as permitted under
Section 5.02 and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article III hereof.
(q) Registration Statement: Any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including all
amendments (including post-effective amendments) and supplements thereto, all
exhibits thereto and all material incorporated therein by reference.
(r) SEC: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the Exchange Act.
(s) Securities Act: The Securities Act of 1933, as amended.
(t) Transfer: See Section 5.02.
(u) Warrants: This Warrant, all other warrants issued on the
date hereof and all other warrants that may be issued in its or their place
(together evidencing the right to purchase an aggregate of 1,500 shares of
Common Stock), originally issued as set forth in the definition of Registrable
Securities.
(v) Warrantholder: The person(s) or entity(ies) to whom this
Warrant is originally issued, or any successor in interest thereto, or any
assignee or transferee thereof, in whose name this Warrant is registered upon
the books to be maintained by the Company for that purpose.
(w) Warrant Shares: Membership Interest, Membership Interest
Equivalents and other securities purchased or purchasable upon exercise of the
Warrants.
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<PAGE>
ARTICLE II
Duration and Exercise of Warrant
Section 2.01: Duration and Exercise of Warrant. Subject to the
limitations specified in Section 2.02.(a)(ii) regarding a Cashless Exercise, the
Warrantholder may exercise this Warrant at any time and from time to time after
9:00 A.M., New York time, on April 30, 1997, and before 5:00 P.M., New York
time, on the Expiration Date. If this Warrant is not exercised on or prior to
the Expiration Date, it shall become void, and all rights hereunder shall
thereupon cease.
Section 2.02: Exercise of Warrant.
(a) The Warrantholder may exercise this Warrant, in whole or
in part, as follows:
(i) By presentation and surrender of this Warrant to
the Company at its principal executive offices or at the
office of its stock transfer agent, if any, with the
Subscription Form annexed hereto duly executed and accompanied
by payment of the full Exercise Price for each Warrant Share
to be purchased; or
(ii) By presentation and surrender of this Warrant to
the Company at its principal executive offices with a Cashless
Exercise Form annexed hereto duly executed (a "Cashless
Exercise"). In the event of a Cashless Exercise, the
Warrantholder shall exchange its warrant for that number of
shares of Membership Interest determined by multiplying the
number of Warrant Shares by a fraction, the numerator of which
shall be the amount by which the then current market price per
share of Membership Interest exceeds the Exercise Price, and
the denominator of which shall be the then current market
price per share of Membership Interest. For purposes of any
computation under this Section 2.02(a)(ii), the then current
market price per share of Membership Interest at any date
shall be deemed to be the last sale price of the Membership
Interest on the business day prior to the date of the Cashless
Exercise or, in case no such reported sales take place on such
day, the average of the last reported bid and asked prices of
the Membership Interest on such day, in either case on the
principal national securities exchange on which the Membership
Interest is admitted to trading or listed, or if not listed or
admitted to trading on any such exchange, the representative
closing bid price of the Membership Interest as reported by
NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not
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<PAGE>
so available, the fair market price of the Membership Interest
as determined by the Members of the Company.
(b) Upon receipt of this Warrant, in the case of Section
2.02(a) (i), with the Subscription Form duly executed and accompanied by payment
of the aggregate Exercise Price for the Warrant Shares for which this Warrant is
then being exercised, or, in the case of Section 2.02 (a) (ii), with the
Cashless Exercise Form duly executed, the Company shall cause to be issued
certificates for the total number of whole shares of Membership Interest for
which this Warrant is being exercised (adjusted to reflect the effect of the
anti-dilution provisions contained in Article III hereof, if any, and as
provided in Section 2.04 hereof) in such denominations as are requested for
delivery to the Warrantholder, and the Company shall thereupon deliver such
certificates to the Warrantholder. The Warrantholder shall be deemed to be the
holder of record of the shares of Membership Interest issuable upon such
exercise, notwithstanding that the transfer books of the Company shall then be
closed or that certificates representing such shares of Membership Interest
shall not then be actually delivered to the Warrantholder. If at the time this
Warrant is exercised, a Registration Statement is not in effect to register
under the Securities Act the Warrant Shares issuable upon exercise of this
Warrant, the Company may require the Warrantholder to make such representations,
and may place such legends on certificates representing the Warrant Shares, as
may be reasonably required in the opinion of counsel to the Company to permit
the Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company shall execute a new warrant in the form of this Warrant for
the balance of such Warrant Shares and deliver such new warrant to the
Warrantholder.
(d) The Company shall pay any and all transfer and similar
taxes which may be payable in respect of the issue of this Warrant or in respect
of the issue of any Warrant Shares.
Section 2.03: Reservation of Shares. The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Membership Interest or other equity
interest of the Company from time to time issuable upon exercise of this
Warrant. All such shares shall be duly authorized, and when issued upon such
exercise, shall be validly issued, fully paid and nonassessable, free and clear
of all liens, security interests, charges and other encumbrances or restrictions
on sale and free and clear of all preemptive rights (except the restrictions
imposed by the legend appearing at the top of Page 1 of this Warrant).
Section 2.04: Fractional Shares. The Company shall not be required to
issue any fraction of a share of its equity interest in connection with the
exercise of this Warrant, and in any case where the Warrantholder would, except
for the provisions of this Section
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<PAGE>
2.04, be entitled under the terms of this Warrant to receive a fraction of a
share upon the exercise of this Warrant, the Company shall, upon the exercise of
this Warrant and tender of the Exercise Price (as adjusted to cover the balance
of the share), issue the larger number of whole shares purchasable upon exercise
of this Warrant. The Company shall not be required to make any cash or other
adjustment in respect of such fraction of a share to which the Warrantholder
would otherwise be entitled.
Section 2.05: Listing. Prior to the issuance of any shares of
Membership Interest upon exercise of this Warrant, the Company shall secure the
listing of such shares of Membership Interest upon each national securities
exchange or automated quotation system, if any, upon which shares of Membership
Interest are then listed (subject to official notice of issuance upon exercise
of this Warrant) and shall maintain, so long as any other shares of Membership
Interest shall so be listed, such listing of all shares of Membership Interest
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, and shall maintain such listing of, any other shares of equity interest
of the Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed on such national securities exchange or
automated quotation system.
ARTICLE III
Adjustment of Shares of Common Stock
Purchasable and of Exercise Price
The Exercise Price and the number and kind of Warrant Shares
shall be subject to adjustment from time to time upon the happening of certain
events as provided in this Article III.
Section 3.01: Mechanical Adjustments.
(a) If at any time prior to the exercise of this Warrant in
full, the Company shall (i) declare a dividend or make a distribution on the
Membership Interest payable in shares of its equity interest (whether shares of
Membership Interest or of equity interest of any other class); (ii) subdivide,
reclassify or recapitalize outstanding Membership Interest into a greater number
of shares; (iii) combine, reclassify or recapitalize its outstanding Membership
Interest into a smaller number of shares; or (iv) issue any shares of its equity
interest by reclassification of its Membership Interest (including any such
reclassification in connection with a consolidation or a merger in which the
Company is the continuing entity), the Exercise Price in effect at the time of
the record date of such dividend, distribution, subdivision, combination,
reclassification or recapitalization shall be adjusted so that the Warrantholder
shall be entitled to receive the aggregate number and kind of shares which, if
this Warrant had been exercised in full immediately prior to such event, he
would have owned upon such exercise and been
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<PAGE>
entitled to receive by virtue of such dividend, distribution, subdivision,
combination, reclassification or recapitalization. Any adjustment required by
this paragraph 3.01(a) shall be made successively immediately after the record
date, in the case of a dividend or distribution, or the effective date, in the
case of a subdivision, combination, reclassification or recapitalization to
allow the purchase of such aggregate number and kind of shares. If the entity
resulting from any such transaction is a corporation whose income is taxable
under Chapter 1C of Subtitle A of the Internal Revenue Code of 1986, as amended,
or whose income is comparably taxed (a "C corporation"), or if the company
incorporates and the resulting entity is a C corporation, the number of Shares
issuable upon exercise of this Warrant and any other percentage equity interest
issuable as a result of any of the other provisions hereof shall be multiplied
by a factor of 1.67 (resulting in this Warrant being for 2500 Shares if there
have been no intervening adjustments after the date of issuance).
(b) If at any time after April 30, 1996 and prior to the
exercise of this Warrant in full, the Company shall (i) issue or sell any
Membership Interest or Membership Interest Equivalents without consideration or
for consideration per share (in cash, property or other assets) less than the
current market price per share on the date of such issuance or sale as defined
in Section 3.01 (f) (except for the issuance of any Membership Interest or
Membership Interest Equivalents pursuant to stock awards or options granted to
employees of the Company on its Manager to purchase up to an aggregate 10% or
(ii) fix a record date for the issuance of subscription rights, options or
warrants to all holders of Membership Interest entitling them to subscribe for
or purchase Membership Interest (or Membership Interest Equivalents) at a price
(or having an exercise or conversion price per share) less than the current
market price of the Membership Interest (as determined pursuant to Section 3.01
(f)) on the record date described below, the Exercise Price shall be adjusted so
that the Exercise Price shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such sale or issuance
(which date in the event of distribution to shareholders shall be deemed to be
the record date set by the Company to determine shareholders entitled to
participate in such distribution) by a fraction, the numerator of which shall be
(i) the number of shares of Membership Interest outstanding on the date of such
sale or issuance, plus (ii) the number of additional shares of Membership
Interest which the aggregate consideration received by the Company upon such
issuance or sale (plus the aggregate of any additional amount to be received by
the Company upon the exercise of such subscription rights, options or warrants)
would purchase at such current market price per share of the Membership
Interest; and the denominator of which shall be (i) the number of shares of
Membership Interest outstanding on the date of such issuance or sale, plus (ii)
the number of additional shares of Membership Interest offered for subscription
or purchase (or into which the Membership Interest Equivalents so offered are
exercisable or convertible). Any adjustments required by this paragraph 3.01(b)
shall be made immediately after such issuance or sale or record date, as the
case may be. Such adjustments shall be made successively whenever such event
shall occur. To the extent that shares of Membership Interest (or Membership
Interest Equivalents)
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<PAGE>
are not delivered in connection with such subscription rights, options or
warrants, the Exercise Price shall be readjusted to the Exercise Price which
would then be in effect had the adjustments made upon the issuance of such
rights, options or warrants been made upon the basis of delivery of only the
number of shares of Membership Interest (or Membership Interest Equivalents)
actually delivered.
(c) If at any time prior to the exercise of this Warrant in
full, the Company shall fix a record date for the issuance or making a
distribution to all holders of Membership Interest (including any such
distribution to be made in connection with a consolidation or merger in which
the Company is to be the continuing corporation) of evidences of its
indebtedness, any other securities of the Company or any cash, property or other
assets (excluding a combination, reclassification or recapitalization referred
to in Section 3.01(a), regular cash distributions paid out of net profits
legally available therefor and in the ordinary course of business and
subscription rights, options or warrants for Membership Interest or Membership
Interest Equivalents (excluding those referred to in Section 3.01(b)) (any such
nonexcluded event being herein called a "Special Dividend"), (i) the Exercise
Price shall be decreased immediately after the record date for such Special
Dividend to a price determined by multiplying the Exercise Price then in effect
by a fraction, the numerator of which shall be the then current market price of
the Membership Interest (as defined in Section 3.01 (f)) on such record date
less the fair market value (as determined by the Company's Members) of the
evidences of indebtedness, securities or property, or other assets issued or
distributed in such Special Dividend applicable to one share of Membership
Interest or of such subscription rights, options or warrants applicable to one
share of Membership Interest and the denominator of which shall be such then
current market price per share of Membership Interest (as so determined) and
(ii) the number of shares of Membership Interest subject to purchase upon
exercise of this Warrant shall be increased to a number determined by
multiplying the number of shares of Membership Interest subject to purchase
immediately before such Special Dividend by a fraction, the numerator of which
shall be the exercise price in effect immediately before such special dividend
and the denominator of which shall be the Exercise Price in effect immediately
after such Special Dividend. Any adjustment required by this paragraph 3.01(c)
shall be made successively whenever such a record date is fixed and in the event
that such distribution is not made, the Exercise Price shall again be adjusted
to be the Exercise Price that was in effect immediately prior to such record
date.
(d) If at any time prior to the exercise of this Warrant in
full, the Company shall make a distribution to all holders of the Membership
Interest of equity in a subsidiary or securities convertible into or exercisable
for such equity, then in lieu of an adjustment in the Exercise Price or the
number of Warrant Shares purchasable upon the exercise of this warrant, each
Warrantholder, upon the exercise hereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary or both, as the
shall determine, the equity or other securities to which such Warrantholder
would have been entitled if such Warrantholder had exercised this
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Warrant immediately prior thereto, all subject to further adjustment as provided
in this Article III, and the Company shall reserve, for the life of the Warrant,
such securities of such subsidiary or other corporation; provided, however, that
no adjustment in respect of dividends or interest on such equity or other
securities shall be made during the term of this Warrant or upon its exercise.
(e) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to one or more of paragraphs (a), (b) and (c) of
this Section 3.01, the Warrant Shares shall simultaneously be adjusted by
multiplying the number of Warrant Shares initially issuable upon exercise of
each Warrant by the Exercise Price in effect on the date of such adjustment and
dividing the product so obtained by the Exercise Price, as adjusted.
(f) For the purpose of any computation under this Section
3.01, the current market price per share of Membership Interest at any date
shall be deemed to be the average of the daily closing prices for 20 consecutive
trading days commencing 30 trading days before such date. The closing price for
each day shall be the last sale price regular way or, in case no such reported
sales take place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Membership Interest is admitted to trading or listed, or if not
listed or admitted to trading on any such exchange, the representative closing
bid price as reported by NASDAQ, or other similar organization if NASDAQ is no
longer reporting such information, or if not so available, the fair market price
as determined by the Members of the Company.
(g) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least ten
cents ($. 10) in such price; provided, however, that any adjustments which by
reason of this paragraph (g) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 3.01 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Notwithstanding anything in this
Section 3.01 to the contrary, the Exercise Price shall not be reduced to less
than the then existing par value of the Membership Interest as a result of any
adjustment made hereunder.
(h) In the event that at any time, as a result of any
adjustment made pursuant to Section 3.01(a), the Warrantholder thereafter shall
become entitled to receive any equity interest of the Company other than
Membership Interest, thereafter the number of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Membership Interest contained in Section 3.01(a).
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<PAGE>
(i) In the case of an issue of additional Membership Interest
or Membership Interest Equivalents for cash, the consideration received by the
Company therefor, after deducting therefrom any discount or commission or other
expenses paid by the Company for any underwriting of, or otherwise in connection
with, the issuance thereof, shall be deemed to be the amount received by the
Company therefor. The term "issue" shall include the sale or other disposition
of shares held by or on account of the Company or in the treasury of the Company
but until so sold or otherwise disposed of such shares shall not be deemed
outstanding.
Section 3.02: Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price is adjusted as herein provided the Company shall
prepare and deliver forthwith to the Warrantholder a certificate signed by its
Authorized Agent, setting for the adjusted number of shares purchasable upon the
exercise of this Warrant and the Exercise Price of such shares after such
adjustment, a brief statement of the facts requiring such adjustment and the
computation by which adjustment was made.
Section 3.03: No Adjustment for Dividends. Except as provided in
Section 3.01 of this Agreement, no adjustment in respect of any cash
distributions paid by the Company shall be made during the term of this Warrant
or upon the exercise of this Warrant.
Section 3.04: Preservation of Purchase Rights in Certain Transactions.
In case of any reclassification, capital reorganization or other change of
outstanding shares of Membership Interest (other than a subdivision or a
combination of the outstanding Membership Interest and other than a change in
the par value of the Membership Interest or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a subsidiary in which the Company is the continuing entity and said merger does
not result in any reclassification, capital reorganization or other change of
outstanding shares of Membership Interest of the class issuable upon exercise of
this Warrant)) or in case of any sale, lease, transfer or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall, as a condition precedent to
such transaction, cause such successor or purchasing corporation, as the case
may be, to execute with the Warrantholder an agreement granting the
Warrantholder the right thereafter, upon payment of the Exercise Price in effect
immediately prior to such action, to receive upon exercise of this Warrant the
kind and amount of shares and other securities and property which he would have
owned or have been entitled to receive after the happening of such
reclassification, change, consolidation, merger, sale or conveyance had this
Warrant been exercised immediately prior to such action. Such agreement shall
provide for adjustments in respect of such shares of stock and other securities
and property, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article III. In the event that in connection
with any such reclassification, capital reorganization, change, consolidation,
merger, sale or conveyance, additional shares of Membership Interest shall be
issued in exchange,
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conversion, substitution or payment, in whole or in part, for, or of, a security
of the Company other than Membership Interest, any such issue shall be treated
as an issue of Membership Interest covered by the provisions of Article III. If
the entity resulting from any such transaction is a corporation whose income is
taxable under Chapter 1C of Subtitle A of the Internal Revenue Code of 1986, as
amended, or whose income is comparably taxed (a "C corporation") or if the
Company incorporates and the resulting entity is a C corporation, the number of
Shares issuable upon exercise of this Warrant and any other percentage equity
interest issuable as a result of any of the other provisions hereof shall be
multiplied by a factor of 1.67 (resulting in this Warrant being for 2500 Shares
if there have been on intervening adjustments after the date of issuance). The
provisions of this Section 3.04 shall similarly apply to successive
reclassification, capital reorganizations, consolidations, mergers, sales or
conveyances.
Section 3.05: Form of Warrant After Adjustments. The form of this
Warrant need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant, as initially issued.
Section 3.06: Treatment of Warrantholder. Prior to due presentment for
registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
Other Provisions Relating
to Rights of Warrantholder
Section 4.01: No Rights as Members: Notice to Warrantholders. Nothing
contained in this Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to vote or to receive cash
distributions or to consent to or receive notice as members in respect of any
meeting of members for cash distributions any other matter, or any other rights
whatsoever as members of the Company. The Company shall give notice to the
Warrantholder by registered mail if at any time prior to the expiration or
exercise in full of the Warrants, any of the following events shall occur:
(a) the Company shall authorize the payment of any
distribution upon shares of Membership Interest payable in any securities or
authorize the making of any distribution (other than a cash distribution subject
to the parenthetical set forth in Section 3.01(c)) to all holders of Membership
Interest;
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(b) the Company shall authorize the issuance to all holders of
Membership Interest of any additional shares of Membership Interest or
Membership Interest Equivalents or of rights, options or warrants to subscribe
for or purchase Membership Interest or Membership Interest Equivalents or of any
other subscription rights, options or warrants;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, or sale or conveyance of
the property of the Company as an entirety or substantially as an entirety); or
(d) a capital reorganization or reclassification of the
Membership Interest (other than a subdivision or combination of the outstanding
Membership Interest) or any consolidation or merger of the Company with or into
another entity (other than a consolidation or merger in which the Company is the
continuing entity and that does not result in any reclassification or change of
Membership Interest outstanding) or in the case of any sale or conveyance to
another entity of the property of the Company as an entirety or substantially as
an entirety.
Such giving of notice shall be initiated (i) at least 10 Business Days prior to
the date fixed as a record date or effective date or the date of closing of the
Company's transfer books for the determination of the members entitled to such
distribution or subscription rights, or for the determination of the members
entitled to vote on such proposed merger, consolidation, sale, conveyance,
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
provide such notice shall not affect the validity of any action taken in
connection with such distribution or subscription rights, or proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up.
Section 4.02: Lost. Stolen Mutilated or Destroyed Warrants. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnify or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as and in substitution for this Warrant.
ARTICLE V
Split-Up, Combination
Exchange and Transfer of Warrants
Section 5.01: Split-Up Combination, Exchange and Transfer of Warrants.
Subject to the provisions of Section 5.02 hereof, this Warrant may be split up,
combined or exchanged for another Warrant or Warrants containing the same terms
to purchase a like aggregate number of Warrant Shares. If the Warrantholder
desires to split up, combine or exchange Warrants, he or it shall make such
request in writing delivered to the
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Company and shall surrender to the Company any Warrants to be so split up,
combined or exchanged. Upon any such surrender for a split up, combination or
exchange, the Company shall execute and deliver to the person entitled thereto a
Warrant or Warrants, as the case may be, as so requested. The Company shall not
be required to effect any split up, combination or exchange which will result in
the issuance of a Warrant entitling the Warrantholder to purchase upon exercise
a fraction of a share of Membership Interest or a fractional Warrant. The
Company may require such Warrantholder to pay a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any split up,
combination or exchange of Warrants.
Section 5.02: Restrictions on Transfer. Neither this Warrant nor the
Warrant Shares may be disposed of or encumbered (any such action, a "Transfer"),
except (i) to Oppenheimer & Co., Inc., any successor to the business of such
company, or (ii) to any underwriter in connection with a Public Offering of the
Membership Interests, provided (as to (ii)) that this Warrant is exercised upon
such Transfer and the shares of Membership Interests issued upon such exercise
are sold by such underwriter as part of such Public Offering and, as to both (i)
and (ii), only in accordance with and subject to the provisions of the
Securities Act and the rules and regulations promulgated thereunder. If at the
time of a Transfer, a Registration Statement is not in effect to register this
Warrant or the Warrant Shares, the Company may require the Warrantholder to make
such representations, and may place such legends on certificates representing
this Warrant, as may be reasonably required in the opinion of counsel to the
Company to permit a Transfer without such registration.
ARTICLE VI
Registration Under the Securities Act of 1933
Section 6.01: Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time or
from time to time after the date hereof and prior to the Expiration Date, the
Company proposes to register any of its securities under the Securities Act on
any form for the registration of securities under such Act, whether or not for
its own account (other than by a registration statement on Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities or would not be
available for the Registrable Securities) (a "Piggyback Registration"), it shall
as expeditiously as possible give written notice to all Holders of its intention
to do so and of such Holders' rights under this Section 6.01. Such rights are
referred to hereinafter as "Piggyback Registration Rights." Upon the written
request of any such Holder made within 20 days after receipt of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder), the Company shall include in the Registration Statement the
Registrable Securities which the Company has been so requested to register by
the Holders thereof and the Company
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shall keep such registration statement in effect and maintain compliance with
each Federal and state law or regulation for the period necessary for such
Holder to effect the proposed sale or other disposition (but in no event for a
period greater than 120 days).
(b) Withdrawal of Piggyback Registration by Company. If, at
any time after giving written notice of its intention to register any securities
in a Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give written notice of such
determination to each Holder and, thereupon, shall be relieved of its obligation
to register any Registrable Securities in connection with such Piggyback
Registration. All best efforts obligations of the Company pursuant to Section
6.04 shall cease if the Company determines to terminate prior to such effective
date any registration where Registrable Securities are being registered pursuant
to this Section 6.01.
(c) Piggyback Registration of Underwritten Public Offerings.
If a Piggyback Registration involves an offering by or through underwriters,
then, (i) all Holders requesting to have their Registrable Securities included
in the Company's Registration Statement must sell their Registrable Securities
to the underwriters selected by the Company on the same terms and conditions as
apply to other selling shareholders and (ii) any Holder requesting to have his
or its Registrable Securities included in such Registration Statement may elect
in writing, not later than three Business Days prior to the effectiveness of the
Registration Statement filed in connection with such registration, not to have
his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback
Registration. The Company shall pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to a Piggyback
Registration Right contained in this Section 6.01.
(e) Priority in Piggyback Registration. If a Piggyback
Registration involves an offering by or through underwriters, the Company shall
not be required to include Registrable Shares therein if and to the extent the
underwriter managing the offering reasonably believes in good faith and advises
each Holder requesting to have Registrable Securities included in the Company's
Registration Statement that such inclusion would materially adversely affect
such offering; provided that (i) if other selling shareholders who are
employees, officers, directors or other affiliates of the Company (other than
the investors referred to in clause (ii) below) have requested registration of
securities in the proposed offering, the Company will reduce or eliminate such
other selling shareholders' securities before any reduction or elimination of
Registrable Securities; (ii) any such reduction or elimination (after taking
into account the effect of clause (i)) shall be pro rata to all other holders of
the securities of the Company exercising "piggyback registration rights" similar
to those set forth herein in
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proportion to the respective number of shares they have requested to be
registered, and (iii) in such event, such Holders may delay any offering by them
of all Registrable Shares requested to be included (or that portion of such
Registrable Shares eliminated for such period, not to exceed 60 days, as the
managing underwriter shall request) and the Company shall file such supplements
and post-effective amendments and take such other action necessary under Federal
and state law or regulation as may be necessary to permit such Holders to make
their proposed offering for a period of 90 days following such period of delay.
Section 6.02: Request For Registration
If the Company shall receive from any 50% Holders a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to Warrant Shares and/or Registrable Securities owned
by such 50% Holders, the Company will:
(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to
all other holders of the Warrant Shares and/or registrable
securities , and
(ii) as soon as practicable, effect such registration
and/or registrable securities including, without limitation,
the execution of an undertaking to file post-effective
amendments, appropriate qualifications under applicable blue
sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act
and any other government requirements or regulations) as may
be requested and as would permit or facilitate the sale and
distribution of all or such portion of such Warrant Shares
and/or Registrable Securities as are specified in such
request, together with all or such portion of the Warrant
Shares and/or Registrable Securities of any Holder and/or
Warrantholder joining in such request as are specified in a
written notice from the Company, provided that the Company
shall not be obligated to effect any such registration,
qualification or compliance pursuant to the Section~A)~ more
than once, or if the Company is not entitled to use Form S-3
Subject to the foregoing, the Company shall file a
registration statement covering the Warrant Shares and/or
Registrable Securities so requested to be registered as soon
as practicable after receipt of the request of the Holder
and/or Warrantholder.
Section 6.03: Buy-outs of Registration Demand. In lieu of carrying out
its obligations to effect a Piggyback Registration or Form S-3 Registration of
any Registrable Securities pursuant to this Article VI, the Company may carry
out such obligation by offering to purchase and purchasing such Registrable
Securities requested to be registered at an amount in cash equal to 95 % of the
difference between (a) the last sale
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price of Membership Interests on the day the request for registration is made
and (b) the Exercise Price in effect on such day.
Section 6.04: Registration Procedures. If and whenever the Company is
required to use its best efforts to take action pursuant to any Federal or state
law or regulation to permit the sale or other disposition of any Warrant Shares
that are then held or that may be acquired upon exercise of the Warrants, in
order to effect or cause the registration of any Registrable Securities under
the Securities Act as provided in this Article VI, the Company shall, as
expeditiously as practicable:
(a) furnish to each selling Warrantholder and/or Holder of
Warrant Shares and/or Registrable Securities and the underwriters, if any,
without charge, as many copies of the Registration Statement, the Prospectus or
the Prospectuses (including each preliminary prospectus) and any amendment or
supplement thereto as they may reasonably request;
(b) enter into such agreements (including an underwriting
agreement) and take all such other actions reasonably required in connection
therewith in order to expedite or facilitate the disposition of such Warrant
Shares and/or Registrable Securities and in such connection, if the registration
is in connection with an underwritten offering (i) make such representations and
warranties to the underwriters in such form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested; (ii) 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 underwriters) addressed to the
underwriters and the Warrantholders and/or Holders covering the matters
customarily covered in opinions requested in underwritten offerings and such
Warrantholders and/or other matters as may be reasonably requested by such
underwriters; (iii) obtain "cold comfort" letters and updates thereof from the
Company's accountants addressed to the underwriters such letters to be in
customary form and to cover matters of the type customarily covered in "cold
comfort" letters to underwriters and the Warrantholders and/or Holders in
connection with underwritten offerings; (iv) set forth in full, in any
underwriting agreement entered into, the indemnification provisions and
procedures of Section 6.05 hereof with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such documents and certificates as may
be reasonably requested by the underwriters to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; the above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required thereunder;
(c) make available for inspection by one or more
representatives of the Warrantholders and/or Holders of Warrant shares and/or
Registrable Securities being sold, any underwriter participating in any
disposition pursuant to such registration, and any attorney or accountant
retained by such Warrantholders and/or Holders or
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underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representatives in connection with such;
(d) otherwise use its best efforts to comply with all
applicable Federal and state regulations; and take such other action as may be
reasonably necessary or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction, in which any such Warrantholder and/or Holder or underwriter shall
have requested that the Warrant Shares and/or Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have sole
control in connection with the preparation, filing, withdrawal, amendment or
supplementing of each Registration Statement, the selection of underwriters, and
the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders;
Each seller of Warrant Shares and/or Registrable Securities as
to which any registration is being effected shall furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement.
Section 6.05: Indemnification.
(a) Indemnification by Company. In connection with each
Registration Statement relating to disposition of Registrable Securities, the
Company shall indemnify and hold harmless each Holder and each underwriter of
Registrable Securities and each Person, if any, who controls such Holder or
underwriter (within the meeting of Section 15 of the Securities Act or Section
20 of the Exchange Act) against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation, legal and
other expenses incurred in connection with, and any amount paid in settlement of
any action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
Federal or state law or regulation, at common law or otherwise, except insofar
as such losses, claims, damages or liabilities arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall not inure to the benefit of any
Holder or underwriter (or any Person controlling such Holder or underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) on account of any
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losses, claims, damages or liabilities arising from the sale of Registrable
Securities if such untrue statement or omission or alleged untrue statement or
omission was made in such Registration Statement, Prospectus or preliminary
prospectus, or such amendment or supplement, in reliance upon and in conformity
with information furnished in writing to the Company by the Holder or
underwriter specifically for use therein. The Company shall also indemnify
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities, if
requested. This indemnity agreement shall be in addition to any liability which
the Company may otherwise have.
(b) Indemnification by Holder. In connection with each
Registration Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6.05(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that
proposes to assert the right to be indemnified hereunder will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of all papers
served. No indemnification provided for in Section 6.05(a) or 6.05(b) shall be
available to any party who shall fail to give notice as provided in this Section
6.05(c) if the party to whom notice was not given was unaware of the proceeding
to which such notice would have related and was prejudiced by the failure to
give such notice, but the omission so to notify such indemnifying party of any
such action, suit or proceeding shall not relieve it from any liability that it
may have to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit
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or proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and the approval by the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified party
in the conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on behalf
of the indemnified party) or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable time
alter notice of the commencement thereof, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
(d) Contribution. In connection with each Registration
Statement relating to the disposition of Registrable Securities, if the
indemnification provided for in subsection (a) hereof is unavailable to an
indemnified party thereunder in respect of any losses, claims, damages or
liabilities referred to therein, then the Company shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities.
The amount to be contributed by the Company hereunder shall be an amount which
is in the same proportionate relationship to the total amount of such losses,
claims, damages or liabilities as the total net proceeds from the offering
(before deducting expenses) of the Registrable Securities bears to the total
price to the public (including underwriters' discounts) for the offering of the
Registrable Securities covered by such registration.
(e) Specific Performance. The Company and the Holder
acknowledge that remedies at law for the enforcement of this Section 6.05 may be
inadequate and intend that this Section 6.05 shall be specifically enforceable.
Section 6.06: Overall Limitations: Notwithstanding any of the foregoing
provisions of this Article VI:
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(a) The Company shall not required to register any shares of
Membership Interest under the Securities Act if in the opinion of a counsel for
the Company, such registration is not necessary in the circumstances. In
rendering such opinion, such counsel may rely on a "no-action" letter from the
Securities and Exchange Commission;
(b) In the case of any registration of shares of Membership
Interest pursuant to Article VI hereof the Company may delay the preparation and
filing of any registration statement, amendment or supplement thereto during any
period until the financial statements required for inclusion therein have been
prepared in the ordinary course of business and, if deem necessary or desirable
by the Company, examined by independent public accountants; and
(c) The Company shall not be required to register any shares
of Membership Interest or any other securities unless the Company and its
counsel obtain reasonable assurances that such registration or any resulting
offering will not jeopardize the treatment of the Company as a partnership under
the Internal Revenue Code. If an IRS ruling would be reasonably required (as it
would be on the date hereof), the Holder or Holders demanding registration shall
pay all reasonable expenses for obtaining such ruling, including but not limited
to the reasonable fees and expenses of tax counsel to the Company. The Company
shall not be required to take any unreasonable steps in order to qualify for
such a ruling, it being agreed the limiting the free transferable of shares of
Membership Interest to 79% of the Company's outstanding shares of Membership
Interest (including the shares of Membership Interest issued upon exercise
hereof in such 79 %) shall not be considered unreasonable.
ARTICLE VII
Other Matters
Section 7.01: Amendments and Waivers. The provisions of this Warrant,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waiver or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least a majority of the outstanding Registrable Securities. Holders shall
be bound by any consent authorized by this Section whether or not certificates
representing such Registrable Securities have been marked to indicate such
consent.
Section 7.02: Counterparts. This Warrant may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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Section 7.03: Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
Section 7.04: 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, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
Section 7.05: Attorneys' Fees. In any action or proceeding brought to
enforce any provisions of this Warrant, or where any provisions hereof or
thereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees and disbursements in addition to its costs
and expenses and any other available remedy.
Section 7.06: Computations of Consent. Whenever the consent or approval
of Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or Its affiliates (other
than the Warrantholder or subsequent Holders if they are deemed to be such
affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
Section 7.07: Notice. Any notices or certificates by the Company to the
Holder and by the Holder to the Company shall be deemed delivered if in writing
and delivered in person or by registered mail (return receipt requested) to the
Holder addressed to him in care of Oppenheimer & Co., Inc., Oppenheimer Tower,
World Financial Center, New York, New York 10281 or, if the Holder has
designated, by notice in writing to the Company, any other address, to such
other address, and if to the Company, addressed to it at 391 Totten Pond Road,
Suite 401, Waltham, MA 02154. The Company may change its address by written
notice to the Holder and the Holder may change his or its address by written
notice to the Company.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the 23rd day of May 1996.
FiveCom, LLC
391 Totten Pond Road
Suite 401
Waltham, MA 02154
By: /s/ Victor Colantonio
---------------------------------
Name: Victor Colantonio
Title: President, FiveCom, Inc.
Authorized Agent for FiveCom LLC
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ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, ________________ hereby sells, assigns and
transfers unto ______________ the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _________________ attorney, to transfer said Warrant Certificate on the
books of the within-named Company with respect to the number of Warrants set
forth below, with full power of substitution in the premises:
Name (s) of
Assignees(s) Address No. of Warrants
------------ ------- ---------------
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants represented by said
Warrant Certificate
Dated: ___________, 19___
_________________________________________________
Note: The above signature should correspond
exactly with the name on the face of this Warrant
Certificate.
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SUBSCRIPTION FORM
(To be executed upon exercise of Warrant
pursuant to Section 2.02(a)(I))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder ________ shares of Membership Interest, as provided for therein, and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $________ .
Please issue a certificate or certificates for such Common Stock in the
name of:
Name________________________________(Please Print
Name, Address and Social Security Number)
Signature _______________________________________
NOTE: The above signature should respond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
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<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 2.02(a)(ii))
The undersigned hereby irrevocably elects to Exchange its Warrant for
such shares of Common Stock pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section 2.02 (a) (ii) of such
Warrant Certificate.
Please issue a certificate or certificates for such Membership Interest
in the name of:
Name________________________________(Please Print
Name, Address and Social Security Number)
Signature _______________________________________
NOTE: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant Certificate, a new Warrant Certificate
is to be issued in the name of the undersigned for the balance remaining of the
shares purchasable rounded up to the next higher number of shares.
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Exhibit 10.6
THIS WARRANT (AND THE UNDERLYING SECURITIES) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FIVECOM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 1 Right to Purchase 5,077 Shares of
Common Stock of FiveCom, Inc.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
August 19, 1994
FiveCom, Inc., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Applied Telecommunications Technologies,
Inc., a Delaware corporation ("ATTI") or assigns, is entitled, subject to the
terms set forth below, to purchase from the Company at any time or from time to
time before 5:00 p.m., Boston time, on five years from date of issuance hereof,
up to 5,077 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $0.01 par value per share, of the Company, at a purchase price of
$0.03 per share (such purchase price per share as adjusted from time to time as
herein provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FiveCom, Inc. and any
corporation which shall succeed or assume the obligations of FiveCom, Inc.
hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $0.01 par value per share, as authorized on the date of issuance
(b) any other securities into which or for which any of the securities
hereof, and described in (a) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
<PAGE>
(c) The term "Expiration Date" shall mean five years from the
date of issuance hereof.
(d) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Warrant at any time shall
be entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement
of Common Stock or Other Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, 5,077 shares of Common Stock of the
Company, subject to adjustment pursuant to Section 5.
1.2. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 12), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise the Company at its expense will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in the
name of the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
1.4. Net Issue Exercise. In lieu of exercising this
Warrant pursuant to Sections 1.2 or 1.3 hereof, the holder may elect to receive
shares equal to the value of this Warrant (or of any portion thereof) by
surrender of this Warrant at the principal
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<PAGE>
office of the Company or at the office of its Warrant agent (as provided in
Section 12) together with notice of such election in which event the Company
shall issue to such holder the number of shares of the Company's Common Stock
computed using the following formula:
X = Y(A-B)/A
where X = the number of shares of Common Stock to be issued to the holder
Y = the number of shares of Common Stock then purchasable under this
Warrant
A = the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B = Purchase Price (as adjusted to the date of such calculation).
"Fair Market Value" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the closing or last sale
price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for
the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (e) below, if the Company's
Common Stock is not publicly traded, then as determined in good faith
by the Company's Board of Directors upon a review of relevant factors.
(d) If the Determination Date is the date on which the
Company's Common Stock is first sold to the public by the Company in a
firm commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial public offering price
(before deducting commissions, discounts or expenses) at which the
Common Stock is sold in such offering.
(e) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's Articles of
Organization, then all
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<PAGE>
amounts to be payable per share to holders of the Common Stock pursuant
to the Articles of Organization in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the Articles
of Organization, assuming for the purposes of this clause (e) that all
of the shares of Common Stock then issuable upon exercise of all of
this Warrant are outstanding at the Determination Date.
1.5. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of this
Warrant pursuant to Subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Dividends in Other Stock, Property etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
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<PAGE>
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date hereof such holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 3)
receivable by such holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of this Warrant after the
effective date of such dissolution pursuant to this Section 4 to a bank or trust
company having its principal office in Boston, Massachusetts, as trustee for the
holder or holders of this Warrant.
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<PAGE>
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (or any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Other Adjustments.
5.1. General. If following the date of issuance hereof the
Company shall at any time or from time to time, issue or sell any additional
shares of Common Stock without consideration or for a net consideration per
share less than the Purchase Price in effect immediately prior to such issuance
(other than (i) to employees or directors of, or consultants to, the Company
pursuant to a plan approved by the Company's Board of Directors or (ii) upon
conversion of shares of Series A Convertible Preferred Stock of the Company
outstanding on the date of issuance hereof), then, and in each such case: (a)
the Purchase Price shall be lowered to an amount determined by multiplying such
Purchase Price then in effect by a fraction:
(1) the numerator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (y) the number of shares of
Common Stock which the net aggregate consideration, if any, received by
the Company for the total number of such additional shares of Common
Stock so issued would purchase at the Purchase Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (y) the number of such
additional shares of Common Stock so issued;
and (b) the number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.1) be issuable on such exercise by a fraction of which (i) the
numerator is the Purchase
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<PAGE>
Price that would otherwise (but for the provisions of this Subsection 5.1) be in
effect, and (ii) the denominator is the Purchase Price in effect on the date of
such exercise.
5.2. Definitions, etc. For purposes of this Section 5 and of
Section 7:
The issuance of (i) any warrants, options or other
subscription or purchase rights with respect to shares of Common Stock
(collectively, "Options"), (ii) any securities convertible into or
exchangeable for shares of Common Stock or (iii) any warrants, options
or any rights with respect to such convertible or exchangeable
securities (the instruments or rights described in clauses (i) through
(iii) above shall be referred to hereinafter collectively as "Common
Stock Equivalents") shall be deemed an issuance at such time of the
number of shares of Common Stock issuable upon the exercise of such
Common Stock Equivalents if the Net Consideration Per Share that may be
received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Purchase Price at the time of such
issuance and, except as hereinafter provided, an adjustment in the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be made upon each such issuance of
Common Stock Equivalents in the manner provided in Subsection 5.1. Any
obligation, agreement or undertaking to issue Options at any time in
the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No further
adjustment of the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made under
Subsection 5.1 upon the actual issuance of any shares of Common Stock
that are issued pursuant to the exercise of any Options or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if the adjustment required by the preceding sentence shall
previously have been made upon the issuance of any such Options or upon
the issuance of any convertible securities (or upon the issuance of any
warrants, options or any rights therefor). Any adjustment of the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to this Subsection 5.2 that
relates to Options with respect to shares of Common Stock shall be
disregarded if, as, and when all of such Options expire or are canceled
without being exercised, so that the Purchase Price effective
immediately upon such cancellation or expiration shall be equal to the
Purchase Price in effect at the time of the issuance of the expired or
canceled Options, with such additional adjustments as would have been
made to that Purchase Price had the expired or canceled Options not
been issued. For purposes of this Subsection 5.2, the "Net
Consideration Per Share" that may be received by the Company shall be
determined as follows:
The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company
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<PAGE>
for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such Common Stock Equivalents were exercised,
exchanged or converted. In the event that the consideration,
if any, payable upon the conversion or exchange of such Common
Stock Equivalents or the rate at which any such Common Stock
Equivalents are convertible into or exchangeable for Common
Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Purchase
Price in effect at the time of such event shall forthwith be
readjusted to the Purchase Price which would have been in
effect at such time had such Common Stock Equivalents still
outstanding at such time been initially granted, issued or
sold and the Purchase Price initially adjusted as provided in
Section 5.1 above, except that the minimum amount of
additional consideration payable and the total maximum number
of shares issuable shall be determined after giving effect to
such event (and any prior event or events).
For purposes of this Section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of
the Common Stock or the issuance of any Common Stock Equivalents
consists of property other than cash, such consideration shall be
deemed to have the same value as shall be determined in good faith by
the Board of Directors of the Company. The number of shares of Common
Stock outstanding at any given time shall not include issued shares
owned or held by or for the account of the Company, and the disposition
of any such shares so owned or held shall be considered an issue or
sale of Common Stock for the purposes of this Section 5.
5.3. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
Section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
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<PAGE>
5.4. Extraordinary Events Regarding Common Stock. In the event
that the Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock, (b)subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into fewer shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Subsection 5.4. The
number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Subsection 5.4) be in effect, and (b) the denominator is the Purchase Price
in effect on the date of such exercise.
6. No Dilution or Impairment. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant from time to time
outstanding, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of this Warrant.
7. Chief Financial Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such
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<PAGE>
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder of this Warrant and any Warrant agent of the Company
(appointed pursuant to Section 12 hereof), and the Company will, on the written
request at the time of any holder of this Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
8. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property of the
Company, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and the
date on which the holders of Common Stock will be entitled thereto, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
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<PAGE>
9. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
10. Assignment; Exchange of Warrant.
10.1. General. Subject to Subsection 10.2, this Warrant, and
the rights evidenced hereby, may be transferred by any registered holder hereof
(a "Transferor") with respect to any or all of the shares of Common Stock
issuable upon exercise of this Warrant. On surrender for exchange of this
Warrant, with the Transferor's endorsement in the Form of Exhibit B attached
hereto (the "Transferor Endorsement Form"), to the Company, the Company at its
expense (but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of this Warrant
so surrendered by the Transferor. The Company hereby covenants expeditiously to
register the Transferor and/or any such Transferees on its books as the
registered holder(s) of this Warrant or the portion hereof transferred as
specified in such Transferor Endorsement Form.
10.2. Requirements for Transfer.
(a) This Warrant and the shares of Common Stock
issuable upon exercise of this Warrant shall not be sold or transferred unless
they first shall have been registered under the Securities Act of 1933, as
either (i) amended (the "Act"), or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
holder of this Warrant which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner, if the transferee agrees
in writing to be subject to the terms of this Section 10, or (ii) a transfer
made in accordance with Rule 144 under the Act.
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<PAGE>
(c) Each certificate representing shares of
Common Stock issued upon exercise of this Warrant shall bear a legend
substantially in the following form:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until
such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing any
shares of Common Stock issued upon exercise of this Warrant, at the request of
the holder thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
11. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if the original holder of this Warrant is the registered
holder and this Warrant is lost, stolen or destroyed, the affidavit of the
President, Chief Financial Officer, Treasurer or any Assistant Treasurer of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
12. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 10,
and replacing this Warrant pursuant to Section 11, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by
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<PAGE>
a decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant or a portion hereof may be
transferred by endorsement (by the Transferor executing the Transferor
Endorsement Form) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery;
(b) any person in possession (which possession may be joint)
of this Warrant with an executed Transferor Endorsement Form naming
such person as a Transferee under the heading "Transferees" is
authorized to represent himself as absolute owner of the portion of
this Warrant stated in such Transferor Endorsement Form opposite the
name of such person under the heading "Number Transferred" and is
empowered to transfer absolute title to such portion of this Warrant by
endorsement and delivery thereof to a bona fide purchaser thereof for
value, notwithstanding the requirements of Section 10 hereof; each
prior taker or owner waives and renounces all of his equities or rights
in this Warrant in favor of each such bona fide purchaser, and each
such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
15. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
-13-
<PAGE>
17. No Rights as Stockholder. Until the exercise of this Warrant,
the holder of this Warrant shall not have or exercise any rights by virtue
hereof as a stockholder of the Company.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FIVECOM, INC.
By: /s/ Victor Colantonio
----------------------------
Victor Colantonio, President
Agreed to and accepted:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
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<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To FiveCom, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _______ shares
of Common Stock of FiveCom, Inc. and herewith makes payment of $_________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ____________, whose address is _____________________.
Dated: __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
------------------------------------------
(Address)
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of FiveCom, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints counsel to
FiveCom, Inc. as Attorney to transfer its respective right on the books of
FiveCom, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
Percentage Number
Transferees Transferred Transferred
<S> <C>
Dated: ________ ___, 199_ __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
Signed in the presence of:
- ------------------------- ------------------------------------------
(Name) (Address)
ACCEPTED AND AGREED:
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
</TABLE>
<PAGE>
Applied Telecommunications 20 William Street
Technologies, Inc. Wellesley, Massachusetts 02181
(617) 239-7600
Fax: (617) 239-0377
NOTICE OF ASSIGNMENT
September 13, 1994
FiveCom, Inc.
393 Totten Pond Road
Waltham, MA 02154
ATTN: Mr. Victor Colantonio
Dear Mr. Colantonio
This will serve as written notice to you that effective, August 31, 1994, all of
the rights (but none of the obligations) of Applied Telecommunications
Technologies, Inc. (the "Lessor"), including the right to receive rentals and
all other amounts due and payable from time to time on or after the said
effective date, under Lease No. 305 dated August 19, 1994 (the "Lease") between
you and the Lessor have been transferred to Applied Telecommunications
Technologies IV ("A.T.T. IV") N.V., whose address is 6 John B. Gorsiraweg,
Curacao, Netherlands Antilles, in the percentages expressed below:
Percentage Transferred: A.T.T. IV N.V. 100%
As Lessee under the Lease, as required by Section 11 (c) of each Lease, please
note this assignment on your corporate books and records.
Please sign and return the enclosed copy of this notice to the Lessor at 20
William Street, Wellesley, MA 02181.
Applied Telecommunications Technologies, Inc.
By: /s/ Susanne O'Donnell
Title: Lease Administration Manager
The undersigned hereby acknowledges receipt and agrees to the above referenced
Notice of Assignment this 16th day of September, 1994.
FiveCom, Inc.
Lessee
By: /s/ Victor Colantonio
-----------------------
Title: President
Exhibit 10.7
THIS WARRANT (AND THE UNDERLYING SECURITIES) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FIVECOM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 2 Right to Purchase 8,816 Shares of
Common Stock of FiveCom, Inc.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
February 15, 1995
FiveCom, Inc., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Applied Telecommunications Technologies,
Inc., a Delaware corporation ("ATTI") or assigns, is entitled, subject to the
terms set forth below, to purchase from the Company at any time or from time to
time before 5:00 p.m., Boston time, on five years from date of issuance hereof,
up to 8,816 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $0.01 par value per share, of the Company, at a purchase price of
$0.03 per share (such purchase price per share as adjusted from time to time as
herein provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FiveCom, Inc. and
any corporation which shall succeed or assume the obligations of
FiveCom, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $0.01 par value per share, as authorized on the date of issuance
hereof, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
<PAGE>
(c) The term "Expiration Date" shall mean five years from
the date of issuance hereof.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, 8,816 shares of Common Stock of the
Company, subject to adjustment pursuant to Section 5.
1.2. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 12), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise the Company at its expense will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in the
name of the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
1.4. Net Issue Exercise. In lieu of exercising this
Warrant pursuant to Sections 1.2 or 1.3 hereof, the holder may elect to receive
shares equal to the value of this Warrant (or of any portion thereof) by
surrender of this Warrant at the principal
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<PAGE>
office of the Company or at the office of its Warrant agent (as provided in
Section 12) together with notice of such election in which event the Company
shall issue to such holder the number of shares of the Company's Common Stock
computed using the following formula:
X = Y(A-B)/A
where X = the number of shares of Common Stock to be issued to the holder
Y = the number of shares of Common Stock then purchasable under this
Warrant
A = the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B = Purchase Price (as adjusted to the date of such calculation).
"Fair Market Value" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the closing or last sale
price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for
the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (e) below, if the Company's
Common Stock is not publicly traded, then as determined in good faith
by the Company's Board of Directors upon a review of relevant factors.
(d) If the Determination Date is the date on which the
Company's Common Stock is first sold to the public by the Company in a
firm commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial public offering price
(before deducting commissions, discounts or expenses) at which the
Common Stock is sold in such offering.
(e) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's Articles of
Organization, then all
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<PAGE>
amounts to be payable per share to holders of the Common Stock pursuant
to the Articles of Organization in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the Articles
of Organization, assuming for the purposes of this clause (e) that all
of the shares of Common Stock then issuable upon exercise of all of
this Warrant are outstanding at the Determination Date.
1.5. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of this
Warrant pursuant to Subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Dividends in Other Stock, Property etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or
property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out
of earnings or earned surplus of the Company), or
-4-
<PAGE>
(c) other or additional stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date hereof such holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 3)
receivable by such holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of this Warrant after the
effective date of such dissolution pursuant to this Section 4 to a bank or trust
company having its principal office in Boston, Massachusetts, as trustee for the
holder or holders of this Warrant.
-5-
<PAGE>
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (or any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Other Adjustments.
5.1. General. If following the date of issuance hereof the
Company shall at any time or from time to time, issue or sell any additional
shares of Common Stock without consideration or for a net consideration per
share less than the Purchase Price in effect immediately prior to such issuance
(other than (i) to employees or directors of, or consultants to, the Company
pursuant to a plan approved by the Company's Board of Directors or (ii) upon
conversion of shares of Series A Convertible Preferred Stock of the Company
outstanding on the date of issuance hereof), then, and in each such case: (a)
the Purchase Price shall be lowered to an amount determined by multiplying such
Purchase Price then in effect by a fraction:
(1) the numerator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (y) the number of shares of
Common Stock which the net aggregate consideration, if any, received by
the Company for the total number of such additional shares of Common
Stock so issued would purchase at the Purchase Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (y) the number of such
additional shares of Common Stock so issued;
and (b) the number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.1) be issuable on such exercise by a fraction of which (i) the
numerator is the Purchase
-6-
<PAGE>
Price that would otherwise (but for the provisions of this Subsection 5.1) be in
effect, and (ii) the denominator is the Purchase Price in effect on the date of
such exercise.
5.2. Definitions, etc. For purposes of this Section 5 and
of Section 7:
The issuance of (i) any warrants, options or other
subscription or purchase rights with respect to shares of Common Stock
(collectively, "Options"), (ii) any securities convertible into or
exchangeable for shares of Common Stock or (iii) any warrants, options
or any rights with respect to such convertible or exchangeable
securities (the instruments or rights described in clauses (i) through
(iii) above shall be referred to hereinafter collectively as "Common
Stock Equivalents") shall be deemed an issuance at such time of the
number of shares of Common Stock issuable upon the exercise of such
Common Stock Equivalents if the Net Consideration Per Share that may be
received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Purchase Price at the time of such
issuance and, except as hereinafter provided, an adjustment in the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be made upon each such issuance of
Common Stock Equivalents in the manner provided in Subsection 5.1. Any
obligation, agreement or undertaking to issue Options at any time in
the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No further
adjustment of the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made under
Subsection 5.1 upon the actual issuance of any shares of Common Stock
that are issued pursuant to the exercise of any Options or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if the adjustment required by the preceding sentence shall
previously have been made upon the issuance of any such Options or upon
the issuance of any convertible securities (or upon the issuance of any
warrants, options or any rights therefor). Any adjustment of the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to this Subsection 5.2 that
relates to Options with respect to shares of Common Stock shall be
disregarded if, as, and when all of such Options expire or are canceled
without being exercised, so that the Purchase Price effective
immediately upon such cancellation or expiration shall be equal to the
Purchase Price in effect at the time of the issuance of the expired or
canceled Options, with such additional adjustments as would have been
made to that Purchase Price had the expired or canceled Options not
been issued. For purposes of this Subsection 5.2, the "Net
Consideration Per Share" that may be received by the Company shall be
determined as follows:
The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company
-7-
<PAGE>
for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such Common Stock Equivalents were exercised,
exchanged or converted. In the event that the consideration,
if any, payable upon the conversion or exchange of such Common
Stock Equivalents or the rate at which any such Common Stock
Equivalents are convertible into or exchangeable for Common
Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Purchase
Price in effect at the time of such event shall forthwith be
readjusted to the Purchase Price which would have been in
effect at such time had such Common Stock Equivalents still
outstanding at such time been initially granted, issued or
sold and the Purchase Price initially adjusted as provided in
Section 5.1 above, except that the minimum amount of
additional consideration payable and the total maximum number
of shares issuable shall be determined after giving effect to
such event (and any prior event or events).
For purposes of this Section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of
the Common Stock or the issuance of any Common Stock Equivalents
consists of property other than cash, such consideration shall be
deemed to have the same value as shall be determined in good faith by
the Board of Directors of the Company. The number of shares of Common
Stock outstanding at any given time shall not include issued shares
owned or held by or for the account of the Company, and the disposition
of any such shares so owned or held shall be considered an issue or
sale of Common Stock for the purposes of this Section 5.
5.3. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
Section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
-8-
<PAGE>
5.4. Extraordinary Events Regarding Common Stock. In the event
that the Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock, (b)subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into fewer shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Subsection 5.4. The
number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Subsection 5.4) be in effect, and (b) the denominator is the Purchase Price
in effect on the date of such exercise.
6. No Dilution or Impairment. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant from time to time
outstanding, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of this Warrant.
7. Chief Financial Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such
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<PAGE>
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder of this Warrant and any Warrant agent of the Company
(appointed pursuant to Section 12 hereof), and the Company will, on the written
request at the time of any holder of this Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
8. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property of the
Company, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and the
date on which the holders of Common Stock will be entitled thereto, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
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<PAGE>
9. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
10. Assignment; Exchange of Warrant.
10.1. General. Subject to Subsection 10.2, this Warrant, and
the rights evidenced hereby, may be transferred by any registered holder hereof
(a "Transferor") with respect to any or all of the shares of Common Stock
issuable upon exercise of this Warrant. On surrender for exchange of this
Warrant, with the Transferor's endorsement in the Form of Exhibit B attached
hereto (the "Transferor Endorsement Form"), to the Company, the Company at its
expense (but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of this Warrant
so surrendered by the Transferor. The Company hereby covenants expeditiously to
register the Transferor and/or any such Transferees on its books as the
registered holder(s) of this Warrant or the portion hereof transferred as
specified in such Transferor Endorsement Form.
10.2. Requirements for Transfer.
(a) This Warrant and the shares of Common Stock
issuable upon exercise of this Warrant shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act of
1933, as amended (the "Act"), or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
holder of this Warrant which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner, if the transferee agrees
in writing to be subject to the terms of this Section 10, or (ii) a transfer
made in accordance with Rule 144 under the Act.
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<PAGE>
(c) Each certificate representing shares of
Common Stock issued upon exercise of this Warrant shall bear a legend
substantially in the following form:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until
such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing any
shares of Common Stock issued upon exercise of this Warrant, at the request of
the holder thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
11. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if the original holder of this Warrant is the registered
holder and this Warrant is lost, stolen or destroyed, the affidavit of the
President, Chief Financial Officer, Treasurer or any Assistant Treasurer of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
12. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 10,
and replacing this Warrant pursuant to Section 11, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by
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<PAGE>
a decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant or a portion hereof may be
transferred by endorsement (by the Transferor executing the Transferor
Endorsement Form) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery;
(b) any person in possession (which possession may be joint)
of this Warrant with an executed Transferor Endorsement Form naming
such person as a Transferee under the heading "Transferees" is
authorized to represent himself as absolute owner of the portion of
this Warrant stated in such Transferor Endorsement Form opposite the
name of such person under the heading "Number Transferred" and is
empowered to transfer absolute title to such portion of this Warrant by
endorsement and delivery thereof to a bona fide purchaser thereof for
value, notwithstanding the requirements of Section 10 hereof; each
prior taker or owner waives and renounces all of his equities or rights
in this Warrant in favor of each such bona fide purchaser, and each
such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
15. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
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<PAGE>
17. No Rights as Stockholder. Until the exercise of this Warrant,
the holder of this Warrant shall not have or exercise any rights by virtue
hereof as a stockholder of the Company.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FIVECOM, INC.
By: /s/ Victor Colantonio
----------------------------
Victor Colantonio, President
Agreed to and accepted:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By: /s/ Phillip Magiera
---------------------------
Name: Phillip Magiera
Title: President
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<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To FiveCom, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _______ shares
of Common Stock of FiveCom, Inc. and herewith makes payment of $_________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ____________, whose address is _____________________.
Dated: __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
------------------------------------------
(Address)
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of FiveCom, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints counsel to
FiveCom, Inc. as Attorney to transfer its respective right on the books of
FiveCom, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
Percentage Number
Transferees Transferred Transferred
<S> <C>
Dated: ________ ___, 199_ __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
Signed in the presence of:
- ------------------------- ------------------------------------------
(Name) (Address)
ACCEPTED AND AGREED:
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
</TABLE>
<PAGE>
Applied Telecommunications 20 William Street
Technologies, Inc. Wellesley, Massachusetts 02181
(617) 239-7600
Fax: (617) 239-0377
NOTICE OF ASSIGNMENT
February 27, 1994
FiveCom, Inc.
393 Totten Pond Road
Waltham, MA 02154
ATTN: Victor Colantonio
Dear Mr. Colantonio:
This will serve as written notice to you that effective, February 16, 1994, all
of the rights (but none of the obligations) of Applied Telecommunications
Technologies, Inc. (the "Lessor"), including the right to receive rentals and
all other amounts due and payable from time to time on or after the said
effective date, under Lease No. 316 dated February 15, 1995 (the "Lease")
between you and the Lessor have been transferred to Applied Telecommunications
Technologies IV ("A.T.T. IV") N.V., whose address is 6 John B. Gorsiraweg,
Curacao, Netherlands Antilles, in the percentages expressed below:
Percentage Transferred: A.T.T. IV N.V. 100%
As Lessee under the Lease, as required by Section 11 (c) of each Lease, please
note this assignment on your corporate books and records.
Please sign and return the enclosed copy of this notice to the Lessor at 20
William Street, Wellesley, MA 02181.
Applied Telecommunications Technologies, Inc.
By: /s/ Susanne O'Donnell
Title: Lease Administration Manager
The undersigned hereby acknowledges receipt and agrees to the above referenced
Notice of Assignment this ____ day of ___________, 1994.
FiveCom, Inc.
Lessee
By: /s/ Victor Colantonio
Title: President
Exhibit 10.8
THIS WARRANT (AND THE UNDERLYING SECURITIES) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FIVECOM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 3 Right to Purchase 7,310 Shares of
Common Stock of FiveCom, Inc.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
April 3, 1995
FiveCom, Inc., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Applied Telecommunications Technologies,
Inc., a Delaware corporation ("ATTI") or assigns, is entitled, subject to the
terms set forth below, to purchase from the Company at any time or from time to
time before 5:00 p.m., Boston time, on five years from date of issuance hereof,
up to 7,310 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $0.01 par value per share, of the Company, at a purchase price of
$0.03 per share (such purchase price per share as adjusted from time to time as
herein provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FiveCom, Inc. and any
corporation which shall succeed or assume the obligations of FiveCom,
Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $0.01 par value per share, as authorized on the date of issuance
hereof, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
<PAGE>
(c) The term "Expiration Date" shall mean five years from
the date of issuance hereof.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, 7,310 shares of Common Stock of the
Company, subject to adjustment pursuant to Section 5.
1.2. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 12), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise the Company at its expense will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in the
name of the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
1.4. Net Issue Exercise. In lieu of exercising this
Warrant pursuant to Sections 1.2 or 1.3 hereof, the holder may elect to receive
shares equal to the value of this Warrant (or of any portion thereof) by
surrender of this Warrant at the principal
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<PAGE>
office of the Company or at the office of its Warrant agent (as provided in
Section 12) together with notice of such election in which event the Company
shall issue to such holder the number of shares of the Company's Common Stock
computed using the following formula:
X = Y(A-B)/A
where X = the number of shares of Common Stock to be issued to the holder
Y = the number of shares of Common Stock then purchasable under this
Warrant
A = the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B = Purchase Price (as adjusted to the date of such calculation).
"Fair Market Value" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the closing or last sale
price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for
the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (e) below, if the Company's
Common Stock is not publicly traded, then as determined in good faith
by the Company's Board of Directors upon a review of relevant factors.
(d) If the Determination Date is the date on which the
Company's Common Stock is first sold to the public by the Company in a
firm commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial public offering price
(before deducting commissions, discounts or expenses) at which the
Common Stock is sold in such offering.
(e) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's Articles of
Organization, then all
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<PAGE>
amounts to be payable per share to holders of the Common Stock pursuant
to the Articles of Organization in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the Articles
of Organization, assuming for the purposes of this clause (e) that all
of the shares of Common Stock then issuable upon exercise of all of
this Warrant are outstanding at the Determination Date.
1.5. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of this
Warrant pursuant to Subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Dividends in Other Stock, Property etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or
property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out
of earnings or earned surplus of the Company), or
-4-
<PAGE>
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date hereof such holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 3)
receivable by such holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of this Warrant after the
effective date of such dissolution pursuant to this Section 4 to a bank or trust
company having its principal office in Boston, Massachusetts, as trustee for the
holder or holders of this Warrant.
-5-
<PAGE>
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (or any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Other Adjustments.
5.1. General. If following the date of issuance hereof the
Company shall at any time or from time to time, issue or sell any additional
shares of Common Stock without consideration or for a net consideration per
share less than the Purchase Price in effect immediately prior to such issuance
(other than (i) to employees or directors of, or consultants to, the Company
pursuant to a plan approved by the Company's Board of Directors or (ii) upon
conversion of shares of Series A Convertible Preferred Stock of the Company
outstanding on the date of issuance hereof), then, and in each such case: (a)
the Purchase Price shall be lowered to an amount determined by multiplying such
Purchase Price then in effect by a fraction:
(1) the numerator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (y) the number of shares of
Common Stock which the net aggregate consideration, if any, received by
the Company for the total number of such additional shares of Common
Stock so issued would purchase at the Purchase Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (y) the number of such
additional shares of Common Stock so issued;
and (b) the number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.1) be issuable on such exercise by a fraction of which (i) the
numerator is the Purchase
-6-
<PAGE>
Price that would otherwise (but for the provisions of this Subsection 5.1) be in
effect, and (ii) the denominator is the Purchase Price in effect on the date of
such exercise.
5.2. Definitions, etc. For purposes of this Section 5 and
of Section 7:
The issuance of (i) any warrants, options or other
subscription or purchase rights with respect to shares of Common Stock
(collectively, "Options"), (ii) any securities convertible into or
exchangeable for shares of Common Stock or (iii) any warrants, options
or any rights with respect to such convertible or exchangeable
securities (the instruments or rights described in clauses (i) through
(iii) above shall be referred to hereinafter collectively as "Common
Stock Equivalents") shall be deemed an issuance at such time of the
number of shares of Common Stock issuable upon the exercise of such
Common Stock Equivalents if the Net Consideration Per Share that may be
received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Purchase Price at the time of such
issuance and, except as hereinafter provided, an adjustment in the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be made upon each such issuance of
Common Stock Equivalents in the manner provided in Subsection 5.1. Any
obligation, agreement or undertaking to issue Options at any time in
the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No further
adjustment of the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made under
Subsection 5.1 upon the actual issuance of any shares of Common Stock
that are issued pursuant to the exercise of any Options or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if the adjustment required by the preceding sentence shall
previously have been made upon the issuance of any such Options or upon
the issuance of any convertible securities (or upon the issuance of any
warrants, options or any rights therefor). Any adjustment of the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to this Subsection 5.2 that
relates to Options with respect to shares of Common Stock shall be
disregarded if, as, and when all of such Options expire or are canceled
without being exercised, so that the Purchase Price effective
immediately upon such cancellation or expiration shall be equal to the
Purchase Price in effect at the time of the issuance of the expired or
canceled Options, with such additional adjustments as would have been
made to that Purchase Price had the expired or canceled Options not
been issued. For purposes of this Subsection 5.2, the "Net
Consideration Per Share" that may be received by the Company shall be
determined as follows:
The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company
-7-
<PAGE>
for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such Common Stock Equivalents were exercised,
exchanged or converted. In the event that the consideration,
if any, payable upon the conversion or exchange of such Common
Stock Equivalents or the rate at which any such Common Stock
Equivalents are convertible into or exchangeable for Common
Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Purchase
Price in effect at the time of such event shall forthwith be
readjusted to the Purchase Price which would have been in
effect at such time had such Common Stock Equivalents still
outstanding at such time been initially granted, issued or
sold and the Purchase Price initially adjusted as provided in
Section 5.1 above, except that the minimum amount of
additional consideration payable and the total maximum number
of shares issuable shall be determined after giving effect to
such event (and any prior event or events).
For purposes of this Section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of
the Common Stock or the issuance of any Common Stock Equivalents
consists of property other than cash, such consideration shall be
deemed to have the same value as shall be determined in good faith by
the Board of Directors of the Company. The number of shares of Common
Stock outstanding at any given time shall not include issued shares
owned or held by or for the account of the Company, and the disposition
of any such shares so owned or held shall be considered an issue or
sale of Common Stock for the purposes of this Section 5.
5.3. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
Section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
-8-
<PAGE>
5.4. Extraordinary Events Regarding Common Stock. In the event
that the Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock, (b)subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into fewer shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Subsection 5.4. The
number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Subsection 5.4) be in effect, and (b) the denominator is the Purchase Price
in effect on the date of such exercise.
6. No Dilution or Impairment. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant from time to time
outstanding, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of this Warrant.
7. Chief Financial Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such
-9-
<PAGE>
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder of this Warrant and any Warrant agent of the Company
(appointed pursuant to Section 12 hereof), and the Company will, on the written
request at the time of any holder of this Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
8. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property of the
Company, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and the
date on which the holders of Common Stock will be entitled thereto, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
-10-
<PAGE>
9. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
10. Assignment; Exchange of Warrant.
10.1. General. Subject to Subsection 10.2, this Warrant, and
the rights evidenced hereby, may be transferred by any registered holder hereof
(a "Transferor") with respect to any or all of the shares of Common Stock
issuable upon exercise of this Warrant. On surrender for exchange of this
Warrant, with the Transferor's endorsement in the Form of Exhibit B attached
hereto (the "Transferor Endorsement Form"), to the Company, the Company at its
expense (but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of this Warrant
so surrendered by the Transferor. The Company hereby covenants expeditiously to
register the Transferor and/or any such Transferees on its books as the
registered holder(s) of this Warrant or the portion hereof transferred as
specified in such Transferor Endorsement Form.
10.2. Requirements for Transfer.
(a) This Warrant and the shares of Common Stock
issuable upon exercise of this Warrant shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act of
1933, as amended (the "Act"), or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
holder of this Warrant which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner, if the transferee agrees
in writing to be subject to the terms of this Section 10, or (ii) a transfer
made in accordance with Rule 144 under the Act.
-11-
<PAGE>
(c) Each certificate representing shares of
Common Stock issued upon exercise of this Warrant shall bear a legend
substantially in the following form:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until
such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing any
shares of Common Stock issued upon exercise of this Warrant, at the request of
the holder thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
11. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if the original holder of this Warrant is the registered
holder and this Warrant is lost, stolen or destroyed, the affidavit of the
President, Chief Financial Officer, Treasurer or any Assistant Treasurer of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
12. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 10,
and replacing this Warrant pursuant to Section 11, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by
-12-
<PAGE>
a decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant or a portion hereof may be
transferred by endorsement (by the Transferor executing the Transferor
Endorsement Form) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery;
(b) any person in possession (which possession may be joint)
of this Warrant with an executed Transferor Endorsement Form naming
such person as a Transferee under the heading "Transferees" is
authorized to represent himself as absolute owner of the portion of
this Warrant stated in such Transferor Endorsement Form opposite the
name of such person under the heading "Number Transferred" and is
empowered to transfer absolute title to such portion of this Warrant by
endorsement and delivery thereof to a bona fide purchaser thereof for
value, notwithstanding the requirements of Section 10 hereof; each
prior taker or owner waives and renounces all of his equities or rights
in this Warrant in favor of each such bona fide purchaser, and each
such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
15. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
-13-
<PAGE>
17. No Rights as Stockholder. Until the exercise of this Warrant,
the holder of this Warrant shall not have or exercise any rights by virtue
hereof as a stockholder of the Company.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FIVECOM, INC.
By: /s/ Victor Colantonio
----------------------------
Victor Colantonio, President
Agreed to and accepted:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By: /s/ Phillip Magiera
------------------------
Name: Phillip S. Magiera
Title: President
-14-
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To FiveCom, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _______ shares
of Common Stock of FiveCom, Inc. and herewith makes payment of $_________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ____________, whose address is _____________________.
Dated: __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
------------------------------------------
(Address)
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of FiveCom, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints counsel to
FiveCom, Inc. as Attorney to transfer its respective right on the books of
FiveCom, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
Percentage Number
Transferees Transferred Transferred
<S> <C>
Dated: ________ ___, 199_ __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
Signed in the presence of:
- ------------------------- ------------------------------------------
(Name) (Address)
ACCEPTED AND AGREED:
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
</TABLE>
<PAGE>
Applied Telecommunications 20 William Street
Technologies, Inc. Wellesley, Massachusetts 02181
(617) 239-7600
Fax: (617) 239-0377
NOTICE OF ASSIGNMENT
April 19, 1995
Mr. Victor Colantonio
FiveCom, Inc.
391 Totten Pond Road
Waltham, MA 02154
Dear Mr. Colantonio:
This will serve as written notice to you that effective, April 7, 1995, all of
the rights (but none of the obligations) of Applied Telecommunications
Technologies, Inc. (the "Lessor"), including the right to receive rentals and
all other amounts due and payable from time to time on or after the said
effective date, under Lease No. 317 dated April 10, 1995 (the "Lease") between
you and the Lessor have been transferred to Applied Telecommunications
Technologies IV ("A.T.T. IV") N.V., whose address is 6 John B. Gorsiraweg,
Curacao, Netherlands Antilles, in the percentages expressed below:
Percentage Transferred: A.T.T. IV N.V. 100%
As Lessee under the Lease, as required by Section 11 (c) of each Lease, please
note this assignment on your corporate books and records.
Please sign and return the enclosed copy of this notice to the Lessor at 20
William Street, Wellesley, MA 02181.
Applied Telecommunications Technologies, Inc.
By: /s/ Susanne O'Donnell
---------------------
Title: Lease Administration Manager
The undersigned hereby acknowledges receipt and agrees to the above referenced
Notice of Assignment this 20 day of April, 1995.
FiveCom, Inc.
By: /s/ Victor Colantonio
---------------------
Title: President
Exhibit 10.9
THIS WARRANT (AND THE UNDERLYING SECURITIES) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FIVECOM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 4 Right to Purchase 206 Shares of
Common Stock of FiveCom, Inc.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
June 30, 1997
FiveCom, Inc., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Applied Telecommunications Technologies IV
("A.T.T. IV") N.V., a corporation organized under the laws of the Netherlands
Antilles ("ATTI") or its assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time before 5:00
p.m., Boston time, on five years from August 9, 1995, up to 206 fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $0.05 par value
per share, of the Company, at a purchase price of $0.15 per share (such purchase
price per share as adjusted from time to time as herein provided is referred to
herein as the "Purchase Price"). The number and character of such shares of
Common Stock and the Purchase Price are subject to adjustment as provided
herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FiveCom, Inc. and
any corporation which shall succeed or assume the obligations of
FiveCom, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $0.05 par value per share, as authorized on the date of issuance
hereof, and (b) any other securities into which or for which any of the
securities
<PAGE>
described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Expiration Date" shall mean five years from
August 9, 1995.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, 206 shares of Common Stock of the
Company, subject to adjustment pursuant to Section 5.
1.2. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 12), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise the Company at its expense will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in the
name of the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
-2-
<PAGE>
1.4. Net Issue Exercise. In lieu of exercising this Warrant
pursuant to Sections 1.2 or 1.3 hereof, the holder may elect to receive shares
equal to the value of this Warrant (or of any portion thereof) by surrender of
this Warrant at the principal office of the Company or at the office of its
Warrant agent (as provided in Section 12) together with notice of such election
in which event the Company shall issue to such holder the number of shares of
the Company's Common Stock computed using the following formula:
X = Y(A-B)/A
where X = the number of shares of Common Stock to be issued to the holder
Y = the number of shares of Common Stock then purchasable under this
Warrant
A = the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B = Purchase Price (as adjusted to the date of such calculation).
"Fair Market Value" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the closing or last sale
price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for
the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (e) below, if the Company's
Common Stock is not publicly traded, then as determined in good faith
by the Company's Board of Directors upon a review of relevant factors.
(d) If the Determination Date is the date on which the
Company's Common Stock is first sold to the public by the Company in a
firm commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial public offering price
(before deducting commissions, discounts or expenses) at which the
Common Stock is sold in such offering.
-3-
<PAGE>
(e) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's Articles of
Organization, then all amounts to be payable per share to holders of
the Common Stock pursuant to the Articles of Organization in the event
of such liquidation, dissolution or winding up, plus all other amounts
to be payable per share in respect of the Common Stock in liquidation
under the Articles of Organization, assuming for the purposes of this
clause (e) that all of the shares of Common Stock then issuable upon
exercise of all of this Warrant are outstanding at the Determination
Date.
1.5. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of this
Warrant pursuant to Subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Dividends in Other Stock, Property etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or
property (other than cash) by way of dividend, or
-4-
<PAGE>
(b) any cash (excluding cash dividends payable solely out
of earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date hereof such holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 3)
receivable by such holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of this Warrant after the
effective date of such
-5-
<PAGE>
dissolution pursuant to this Section 4 to a bank or trust company having its
principal office in Boston, Massachusetts, as trustee for the holder or holders
of this Warrant.
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (or any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Other Adjustments.
5.1. General. If following the date of issuance hereof the
Company shall at any time or from time to time, issue or sell any additional
shares of Common Stock without consideration or for a net consideration per
share less than the Purchase Price in effect immediately prior to such issuance
(other than (i) to employees or directors of, or consultants to, the Company
pursuant to a plan approved by the Company's Board of Directors or (ii) upon
conversion of shares of Series A Convertible Preferred Stock of the Company
outstanding on the date of issuance hereof), then, and in each such case: (a)
the Purchase Price shall be lowered to an amount determined by multiplying such
Purchase Price then in effect by a fraction:
(1) the numerator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (y) the number of shares of
Common Stock which the net aggregate consideration, if any, received by
the Company for the total number of such additional shares of Common
Stock so issued would purchase at the Purchase Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (y) the number of such
additional shares of Common Stock so issued;
and (b) the number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of
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<PAGE>
Common Stock that would otherwise (but for the provisions of this Subsection
5.1) be issuable on such exercise by a fraction of which (i) the numerator is
the Purchase Price that would otherwise (but for the provisions of this
Subsection 5.1) be in effect, and (ii) the denominator is the Purchase Price in
effect on the date of such exercise.
5.2. Definitions, etc. For purposes of this Section 5 and of
Section 7:
The issuance of (i) any warrants, options or other
subscription or purchase rights with respect to shares of Common Stock
(collectively, "Options"), (ii) any securities convertible into or
exchangeable for shares of Common Stock or (iii) any warrants, options
or any rights with respect to such convertible or exchangeable
securities (the instruments or rights described in clauses (i) through
(iii) above shall be referred to hereinafter collectively as "Common
Stock Equivalents") shall be deemed an issuance at such time of the
number of shares of Common Stock issuable upon the exercise of such
Common Stock Equivalents if the Net Consideration Per Share that may be
received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Purchase Price at the time of such
issuance and, except as hereinafter provided, an adjustment in the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be made upon each such issuance of
Common Stock Equivalents in the manner provided in Subsection 5.1. Any
obligation, agreement or undertaking to issue Options at any time in
the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No further
adjustment of the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made under
Subsection 5.1 upon the actual issuance of any shares of Common Stock
that are issued pursuant to the exercise of any Options or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if the adjustment required by the preceding sentence shall
previously have been made upon the issuance of any such Options or upon
the issuance of any convertible securities (or upon the issuance of any
warrants, options or any rights therefor). Any adjustment of the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to this Subsection 5.2 that
relates to Options with respect to shares of Common Stock shall be
disregarded if, as, and when all of such Options expire or are canceled
without being exercised, so that the Purchase Price effective
immediately upon such cancellation or expiration shall be equal to the
Purchase Price in effect at the time of the issuance of the expired or
canceled Options, with such additional adjustments as would have been
made to that Purchase Price had the expired or canceled Options not
been issued. For purposes of this Subsection 5.2, the "Net
Consideration Per Share" that may be received by the Company shall be
determined as follows:
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<PAGE>
The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such Common Stock
Equivalents, plus the minimum amount of consideration, if any,
payable to the Company upon exercise or conversion thereof,
divided by the aggregate number of shares of Common Stock that
would be issued if all such Common Stock Equivalents were
exercised, exchanged or converted. In the event that the
consideration, if any, payable upon the conversion or exchange
of such Common Stock Equivalents or the rate at which any such
Common Stock Equivalents are convertible into or exchangeable
for Common Stock shall change (other than under or by reason
of provisions designed to protect against dilution), the
Purchase Price in effect at the time of such event shall
forthwith be readjusted to the Purchase Price which would have
been in effect at such time had such Common Stock Equivalents
still outstanding at such time been initially granted, issued
or sold and the Purchase Price initially adjusted as provided
in Section 5.1 above, except that the minimum amount of
additional consideration payable and the total maximum number
of shares issuable shall be determined after giving effect to
such event (and any prior event or events).
For purposes of this Section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of
the Common Stock or the issuance of any Common Stock Equivalents
consists of property other than cash, such consideration shall be
deemed to have the same value as shall be determined in good faith by
the Board of Directors of the Company. The number of shares of Common
Stock outstanding at any given time shall not include issued shares
owned or held by or for the account of the Company, and the disposition
of any such shares so owned or held shall be considered an issue or
sale of Common Stock for the purposes of this Section 5.
5.3. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
Section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
-8-
<PAGE>
5.4. Extraordinary Events Regarding Common Stock. In the event
that the Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock, (b)subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into fewer shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Subsection 5.4. The
number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Subsection 5.4) be in effect, and (b) the denominator is the Purchase Price
in effect on the date of such exercise.
6. No Dilution or Impairment. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant from time to time
outstanding, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of this Warrant.
7. Chief Financial Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such
-9-
<PAGE>
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder of this Warrant and any Warrant agent of the Company
(appointed pursuant to Section 12 hereof), and the Company will, on the written
request at the time of any holder of this Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
8. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property of the
Company, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and the
date on which the holders of Common Stock will be entitled thereto, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
-10-
<PAGE>
9. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
10. Assignment; Exchange of Warrant.
10.1. General. Subject to Subsection 10.2, this Warrant, and
the rights evidenced hereby, may be transferred by any registered holder hereof
(a "Transferor") with respect to any or all of the shares of Common Stock
issuable upon exercise of this Warrant. On surrender for exchange of this
Warrant, with the Transferor's endorsement in the Form of Exhibit B attached
hereto (the "Transferor Endorsement Form"), to the Company, the Company at its
expense (but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of this Warrant
so surrendered by the Transferor. The Company hereby covenants expeditiously to
register the Transferor and/or any such Transferees on its books as the
registered holder(s) of this Warrant or the portion hereof transferred as
specified in such Transferor Endorsement Form.
10.2. Requirements for Transfer.
(a) This Warrant and the shares of Common Stock
issuable upon exercise of this Warrant shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act of
1933, as amended (the "Act"), or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
holder of this Warrant which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner, if the transferee agrees
in writing to be subject to the terms of this Section 10, or (ii) a transfer
made in accordance with Rule 144 under the Act.
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<PAGE>
(c) Each certificate representing shares of
Common Stock issued upon exercise of this Warrant shall bear a legend
substantially in the following form:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until
such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing any
shares of Common Stock issued upon exercise of this Warrant, at the request of
the holder thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
11. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if the original holder of this Warrant is the registered
holder and this Warrant is lost, stolen or destroyed, the affidavit of the
President, Chief Financial Officer, Treasurer or any Assistant Treasurer of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
12. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 10,
and replacing this Warrant pursuant to Section 11, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by
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<PAGE>
a decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant or a portion hereof may be
transferred by endorsement (by the Transferor executing the Transferor
Endorsement Form) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery;
(b) any person in possession (which possession may be joint)
of this Warrant with an executed Transferor Endorsement Form naming
such person as a Transferee under the heading "Transferees" is
authorized to represent himself as absolute owner of the portion of
this Warrant stated in such Transferor Endorsement Form opposite the
name of such person under the heading "Number Transferred" and is
empowered to transfer absolute title to such portion of this Warrant by
endorsement and delivery thereof to a bona fide purchaser thereof for
value, notwithstanding the requirements of Section 10 hereof; each
prior taker or owner waives and renounces all of his equities or rights
in this Warrant in favor of each such bona fide purchaser, and each
such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
15. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
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<PAGE>
17. No Rights as Stockholder. Until the exercise of this Warrant,
the holder of this Warrant shall not have or exercise any rights by virtue
hereof as a stockholder of the Company.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FIVECOM, INC.
By: /s/ Victor Colantonio
------------------------
Victor Colantonio, President
Agreed to and accepted:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES IV ("A.T.T. IV") N.V.
By: MEESPIERSON TRUST CURACAO N.V.
By: /s/ R. Cato /s/ K. Dhar
--------------------------
Name: R. Cato and K. Dhar
Title: Authorized signatories
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<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To FiveCom, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _______ shares
of Common Stock of FiveCom, Inc. and herewith makes payment of $_________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ____________, whose address is _____________________.
Dated: __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
------------------------------------------
(Address)
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of FiveCom, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints counsel to
FiveCom, Inc. as Attorney to transfer its respective right on the books of
FiveCom, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
Percentage Number
Transferees Transferred Transferred
<S> <C>
Dated: ________ ___, 199_ __________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
Signed in the presence of:
- ------------------------- ------------------------------------------
(Name) (Address)
ACCEPTED AND AGREED:
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
</TABLE>
Exhibit 10.10
THIS WARRANT (AND THE UNDERLYING SECURITIES) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FIVECOM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 5 Right to Purchase 132 Shares of
Common Stock of FiveCom, Inc.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
June 30, 1997
FiveCom, Inc., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Applied Telecommunications Technologies IV
("A.T.T. IV") N.V., a corporation organized under the laws of the Netherlands
Antilles ("ATTI") or its assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time before 5:00
p.m., Boston time, on five years from October 11, 1995, up to 132 fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $0.05 par value
per share, of the Company, at a purchase price of $0.15 per share (such purchase
price per share as adjusted from time to time as herein provided is referred to
herein as the "Purchase Price"). The number and character of such shares of
Common Stock and the Purchase Price are subject to adjustment as provided
herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FiveCom, Inc. and any
corporation which shall succeed or assume the obligations of FiveCom,
Inc.
hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $0.05 par value per share, as authorized on the date of issuance
hereof, and (b) any other securities into which or for which any of the
securities
<PAGE>
described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Expiration Date" shall mean five years from
October 11, 1995.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, 132 shares of Common Stock of the
Company, subject to adjustment pursuant to Section 5.
1.2. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 12), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise the Company at its expense will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in the
name of the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
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1.4. Net Issue Exercise. In lieu of exercising this Warrant
pursuant to Sections 1.2 or 1.3 hereof, the holder may elect to receive shares
equal to the value of this Warrant (or of any portion thereof) by surrender of
this Warrant at the principal office of the Company or at the office of its
Warrant agent (as provided in Section 12) together with notice of such election
in which event the Company shall issue to such holder the number of shares of
the Company's Common Stock computed using the following formula:
X = Y(A-B)/A
where X = the number of shares of Common Stock to be issued to the holder
Y = the number of shares of Common Stock then purchasable under
this Warrant
A = the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B = Purchase Price (as adjusted to the date of such calculation).
"Fair Market Value" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the closing or last sale
price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for
the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (e) below, if the Company's
Common Stock is not publicly traded, then as determined in good faith
by the Company's Board of Directors upon a review of relevant factors.
(d) If the Determination Date is the date on which the
Company's Common Stock is first sold to the public by the Company in a
firm commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial public offering price
(before deducting commissions, discounts or expenses) at which the
Common Stock is sold in such offering.
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(e) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's Articles of
Organization, then all amounts to be payable per share to holders of
the Common Stock pursuant to the Articles of Organization in the event
of such liquidation, dissolution or winding up, plus all other amounts
to be payable per share in respect of the Common Stock in liquidation
under the Articles of Organization, assuming for the purposes of this
clause (e) that all of the shares of Common Stock then issuable upon
exercise of all of this Warrant are outstanding at the Determination
Date.
1.5. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of this
Warrant pursuant to Subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Dividends in Other Stock, Property etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
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(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date hereof such holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 3)
receivable by such holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of this Warrant after the
effective date of such
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dissolution pursuant to this Section 4 to a bank or trust company having its
principal office in Boston, Massachusetts, as trustee for the holder or holders
of this Warrant.
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (or any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Other Adjustments.
5.1. General. If following the date of issuance hereof the
Company shall at any time or from time to time, issue or sell any additional
shares of Common Stock without consideration or for a net consideration per
share less than the Purchase Price in effect immediately prior to such issuance
(other than (i) to employees or directors of, or consultants to, the Company
pursuant to a plan approved by the Company's Board of Directors or (ii) upon
conversion of shares of Series A Convertible Preferred Stock of the Company
outstanding on the date of issuance hereof), then, and in each such case: (a)
the Purchase Price shall be lowered to an amount determined by multiplying such
Purchase Price then in effect by a fraction:
(1) the numerator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (y) the number of shares of
Common Stock which the net aggregate consideration, if any, received by
the Company for the total number of such additional shares of Common
Stock so issued would purchase at the Purchase Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (y) the number of such
additional shares of Common Stock so issued;
and (b) the number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of
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Common Stock that would otherwise (but for the provisions of this Subsection
5.1) be issuable on such exercise by a fraction of which (i) the numerator is
the Purchase Price that would otherwise (but for the provisions of this
Subsection 5.1) be in effect, and (ii) the denominator is the Purchase Price in
effect on the date of such exercise.
5.2. Definitions, etc. For purposes of this Section 5 and of
Section 7:
The issuance of (i) any warrants, options or other
subscription or purchase rights with respect to shares of Common
Stock (collectively, "Options"), (ii) any securities convertible
into or exchangeable for shares of Common Stock or (iii) any
warrants, options or any rights with respect to such convertible
or exchangeable securities (the instruments or rights described in
clauses (i) through (iii) above shall be referred to hereinafter
collectively as "Common Stock Equivalents") shall be deemed an
issuance at such time of the number of shares of Common Stock
issuable upon the exercise of such Common Stock Equivalents if the
Net Consideration Per Share that may be received by the Company
for such Common Stock (as hereinafter determined) shall be less
than the Purchase Price at the time of such issuance and, except
as hereinafter provided, an adjustment in the Purchase Price and
the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made upon each such issuance of Common Stock
Equivalents in the manner provided in Subsection 5.1. Any
obligation, agreement or undertaking to issue Options at any time
in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No further
adjustment of the Purchase Price and the number of shares of
Common Stock issuable upon exercise of this Warrant shall be made
under Subsection 5.1 upon the actual issuance of any shares of
Common Stock that are issued pursuant to the exercise of any
Options or pursuant to the exercise of any conversion or exchange
rights in any convertible securities if the adjustment required by
the preceding sentence shall previously have been made upon the
issuance of any such Options or upon the issuance of any
convertible securities (or upon the issuance of any warrants,
options or any rights therefor). Any adjustment of the Purchase
Price and the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to this Subsection 5.2 that
relates to Options with respect to shares of Common Stock shall be
disregarded if, as, and when all of such Options expire or are
canceled without being exercised, so that the Purchase Price
effective immediately upon such cancellation or expiration shall
be equal to the Purchase Price in effect at the time of the
issuance of the expired or canceled Options, with such additional
adjustments as would have been made to that Purchase Price had the
expired or canceled Options not been issued. For purposes of this
Subsection 5.2, the "Net Consideration Per Share" that may be
received by the Company shall be determined as follows:
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The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by
the Company for the issuance of such Common Stock Equivalents,
plus the minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if
all such Common Stock Equivalents were exercised, exchanged or
converted. In the event that the consideration, if any, payable
upon the conversion or exchange of such Common Stock Equivalents
or the rate at which any such Common Stock Equivalents are
convertible into or exchangeable for Common Stock shall change
(other than under or by reason of provisions designed to protect
against dilution), the Purchase Price in effect at the time of
such event shall forthwith be readjusted to the Purchase Price
which would have been in effect at such time had such Common Stock
Equivalents still outstanding at such time been initially granted,
issued or sold and the Purchase Price initially adjusted as
provided in Section 5.1 above, except that the minimum amount of
additional consideration payable and the total maximum number of
shares issuable shall be determined after giving effect to such
event (and any prior event or events).
For purposes of this Section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of
the Common Stock or the issuance of any Common Stock Equivalents
consists of property other than cash, such consideration shall be
deemed to have the same value as shall be determined in good faith by
the Board of Directors of the Company. The number of shares of Common
Stock outstanding at any given time shall not include issued shares
owned or held by or for the account of the Company, and the disposition
of any such shares so owned or held shall be considered an issue or
sale of Common Stock for the purposes of this Section 5.
5.3. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
Section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
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5.4. Extraordinary Events Regarding Common Stock. In the event
that the Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock, (b)subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into fewer shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Subsection 5.4. The
number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Subsection 5.4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Subsection 5.4) be in effect, and (b) the denominator is the Purchase Price
in effect on the date of such exercise.
6. No Dilution or Impairment. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant from time to time
outstanding, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of this Warrant.
7. Chief Financial Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such
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adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder of this Warrant and any Warrant agent of the Company
(appointed pursuant to Section 12 hereof), and the Company will, on the written
request at the time of any holder of this Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
8. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property of the
Company, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and the
date on which the holders of Common Stock will be entitled thereto, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
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9. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
10. Assignment; Exchange of Warrant.
10.1. General. Subject to Subsection 10.2, this Warrant, and the
rights evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor") with respect to any or all of the shares of Common Stock issuable
upon exercise of this Warrant. On surrender for exchange of this Warrant, with
the Transferor's endorsement in the Form of Exhibit B attached hereto (the
"Transferor Endorsement Form"), to the Company, the Company at its expense (but
with payment by the Transferor of any applicable transfer taxes) will issue and
deliver to or on the order of the Transferor thereof a new Warrant or Warrants
of like tenor, in the name of the Transferor and/or the transferee(s) specified
in such Transferor Endorsement Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of this Warrant so surrendered by the
Transferor. The Company hereby covenants expeditiously to register the
Transferor and/or any such Transferees on its books as the registered holder(s)
of this Warrant or the portion hereof transferred as specified in such
Transferor Endorsement Form.
10.2. Requirements for Transfer.
(a) This Warrant and the shares of Common Stock issuable
upon exercise of this Warrant shall not be sold or transferred unless either (i)
they first shall have been registered under the Securities Act of 1933, as
amended (the "Act"), or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Act.
(b) Notwithstanding the foregoing, no registration or
opinion of counsel shall be required for (i) a transfer by a holder of this
Warrant which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, if the transferee agrees in writing to
be subject to the terms of this Section 10, or (ii) a transfer made in
accordance with Rule 144 under the Act.
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(c) Each certificate representing shares of Common Stock
issued upon exercise of this Warrant shall bear a legend substantially in the
following form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until
such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing any
shares of Common Stock issued upon exercise of this Warrant, at the request of
the holder thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
11. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if the original holder of this Warrant is the registered
holder and this Warrant is lost, stolen or destroyed, the affidavit of the
President, Chief Financial Officer, Treasurer or any Assistant Treasurer of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
12. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 10,
and replacing this Warrant pursuant to Section 11, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by
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a decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant or a portion hereof may be
transferred by endorsement (by the Transferor executing the Transferor
Endorsement Form) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery;
(b) any person in possession (which possession may be joint)
of this Warrant with an executed Transferor Endorsement Form naming
such person as a Transferee under the heading "Transferees" is
authorized to represent himself as absolute owner of the portion of
this Warrant stated in such Transferor Endorsement Form opposite the
name of such person under the heading "Number Transferred" and is
empowered to transfer absolute title to such portion of this Warrant by
endorsement and delivery thereof to a bona fide purchaser thereof for
value, notwithstanding the requirements of Section 10 hereof; each
prior taker or owner waives and renounces all of his equities or rights
in this Warrant in favor of each such bona fide purchaser, and each
such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
15. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
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17. No Rights as Stockholder. Until the exercise of this Warrant, the
holder of this Warrant shall not have or exercise any rights by virtue hereof as
a stockholder of the Company.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FIVECOM, INC.
By: /s/ Victor Colantonio
----------------------------
Victor Colantonio, President
Agreed to and accepted:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES IV ("A.T.T. IV") N.V.
By: MEESPIERSON TRUST CURACAO N.V.
By: /s/ R. Cato /s/ K. Dhar
--------------------------
Name: R. Cato and K. Dhar
Title: Authorized signatories
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Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To FiveCom, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _______ shares
of Common Stock of FiveCom, Inc. and herewith makes payment of $_________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ____________, whose address is _____________________.
Dated: ____________________________________________
(Signature must conform to name of holder as
specified on the face of this Warrant)
--------------------------------------------
(Address)
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of FiveCom, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints counsel to
FiveCom, Inc. as Attorney to transfer its respective right on the books of
FiveCom, Inc. with full power of substitution in the premises.
Percentage Number
Transferees Transferred Transferred
----------- ----------- -----------
Dated: ________ ___, 199_ __________________________________________
(Signature must conform to name of holder
as specified on the face of this Warrant)
Signed in the presence of:
- ------------------------- ------------------------------------------
(Name) (Address)
ACCEPTED AND AGREED:
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
[TRANSFEREE] __________________________________________
(Address)
- -------------------------- ------------------------------------------
(Name) (Address Cont.)
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
states, and the sale, transfer or other disposition of such securities are
subject to the restrictions on transfer as set forth in such laws and in Section
12 of this Warrant, and the Membership Interest issuable on the exercise of this
Warrant is subject to the restrictions set forth in such laws.
Warrant No. 2 Right to Purchase 5,876
shares of Membership
Interest in FiveCom LLC
WARRANT
To Purchase Membership Interest in
FIVECOM LLC
FIVECOM LLC, a Massachusetts limited liability company (the "Company"),
hereby certifies that, for value received, Central Maine Power Company, or
registered assigns ("Holder"), is entitled to purchase from the Company Five
Thousand Eight Hundred Seventy-Six (5,876) shares of Membership Interest of the
Company (the "Shares"), at the purchase price per share (the "Exercise Price")
of $.01. The number and character of such Shares and the Exercise Price are
subject to adjustment as provided herein.
This Warrant is the warrant evidencing the right to purchase Shares
issued pursuant to the terms of a Construction Loan Agreement between the
Company and Holder, dated of even date herewith (the "Construction Loan
Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Company's Amended and Restated Operating
Agreement, dated May 23, 1996, as amended to date (the "Operating Agreement").
1. Exercise of Warrant.
1.1 This Warrant may be exercised by the holder hereof, starting on the
earlier to occur of (a) the date of the second draw under the Construction Loan
Agreement (counting the draw made on the date hereof as the first, or (b)
February 1, 1998 and ending on the date specified in Section 1.2, by surrender
of this Warrant, with the form of subscription at the end hereof duly executed
by such holder, to the Company at its principal office, accompanied by payment,
in cash or by certified or official bank check in immediately available funds
payable to the order of the
<PAGE>
Company, in the amount obtained by multiplying the number of Shares called for
on the face of this Warrant by the Exercise Price; provided, however, so long as
the Shares remain unregistered under the Securities Act of 1933, as amended, or
any successor statute having similar effect, (the "Act"), the Company shall not
be obligated to issue any Shares pursuant to this Section 1.1 in the name of any
person other than the person to whom this Warrant was originally issued unless
and until the new holder has furnished to the Company representations
satisfactory to the Company that the holder is acquiring such Shares for
investment purposes in compliance with applicable securities laws.
This Warrant may be exercised only in full; no partial exercise is
allowed.
1.2 This Warrant shall expire and be of no further force and effect if
it is not exercised at or before the latest to occur of (a) the closing of the
sale of Economic Interests (as defined in the Operating Agreement) in a public
offering pursuant to an effective registration statement under the Act, provided
that (i) the Company shall have given the holder at least thirty (30) days'
prior written notice of such closing, and (ii) the holder shall not have first
given notice to the Company of exercise of its "put" option rights under Section
13, (b) thirty (30) days after the date of any notice to the holder of such
public offering, or (c) the fifth (5th) anniversary of the date this Warrant is
issued; provided that if both (1) no draw is made under the Construction Loan
Agreement after the draw made on the date hereof, and (2) the Loan made under
the Construction Loan Agreement has been repaid in full before January 31, 1998,
then this Warrant shall expire on January 31, 1998.
2. Delivery of Shares on Exercise.
2.1 As soon as practicable after the exercise of this Warrant and in
any event within thirty (30) days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
delivered to the holder hereof, or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, evidence that the holder has been
admitted as a Member to the Company and an acknowledgment of the Shares
purchased pursuant to this Warrant, and shall cause the Operating Agreement to
be amended to admit the holder as a Member of the Company; provided, however, so
long as the Shares remain unregistered under the Act, the Company shall not be
obligated to issue any evidence of Shares pursuant to this Section 2 in the name
of any person other than the person to whom originally issued unless and until
such person has furnished to the Company representations satisfactory to the
Company that such person is acquiring such interest for investment purposes in
compliance with applicable securities laws.
3. Covenants as to Shares.
The Company covenants and agrees that
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<PAGE>
a. Validly issued. All Shares which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized, validly issued, and free from all taxes, liens and
charges with respect to the issue thereof, and
b. One class of Membership Interest. The Membership Interest
to be issued upon exercise hereof shall be of the same class as all
other Membership Interests in the Company, and otherwise identical to
all other Membership Interests except as to (a) the percentage of
ownership and voting rights attached thereto, (b) the amount of the
capital account related to any particular shares of Membership
Interest, and (c) the rights applicable as a result of the operation of
Section 17 hereof ("Survival").
4. No Dilution or Impairment; Adjustments for Distributions.
4.1 Dilution Protection: The Holder shall be protected from dilution as
follows (this Section not being the exclusive protection from dilution in this
Warrant). The number of Shares issuable on exercise of this Warrant shall be
multiplied by a fraction, the numerator of which is $90.69, and the denominator
of which is the Reference Price (as defined below) in effect at the time of
exercise.
(a) Special Definitions. For purposes of this Section 4.1, the
following definitions shall apply:
(i) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Membership Interests or Economic
Interests or Convertible Securities.
(ii) "Original Issue Date" shall mean the date on which this
Warrant was first issued -- October 7, 1997.
(iii) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Membership Interests or Economic Interests.
(iv) "Additional Shares of Economic Interest" shall mean all
shares of Membership Interests or Economic Interests issued (or, pursuant to
Subsection 4.1(c) below, deemed to be issued) by the Company after the Original
Issue Date, other than shares of Membership Interests or Economic Interests
issued or issuable:
(A) upon conversion of any Convertible
Securities of the Company outstanding from
time to time, which Securities, upon
issuance, are deemed Additional Shares of
Economic Interest pursuant to subsection (c)
below;
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<PAGE>
(B) by reason of a dividend, split, split-up or
other distribution on shares of Membership
Interests or Economic Interests that is
covered by Sections 4.2, 5 or 6 below;
(C) to employees or directors of, or consultants
to, the Company pursuant to a plan adopted
by the Members of the Company; or
(D) upon exercise of options or warrants when an
equal number of shares of Membership
Interests or Economic Interests are
transferred to the Company by holders of
previously outstanding shares of Membership
Interests or Economic Interests, so that net
result of exercising is no net increase in
the number of outstanding shares of
Membership Interests or Economic Interests.
(v) The "Reference Price" shall initially be $90.69. Such
initial Reference Price shall be subject to adjustment as provided below.
(b) No Adjustment of Reference Price. No adjustment in the
number of shares of Membership Interests or Economic Interests into which this
Warrant may be exercised shall be made, by adjustment in the applicable
Reference Price thereof: (i) unless the consideration per share (determined
pursuant to Subsection 4.1(e)) for an Additional Share of Economic Interest
issued or deemed to be issued by the Company is less than the applicable
Reference Price in effect on the date of, and immediately prior to, the issue of
such Additional Shares, or (ii) if prior to such issuance, the Company receives
written notice from the Holder agreeing that no such adjustment shall be made as
the result of the issuance of Additional Shares of Economic Interest.
(c) Issue of Securities Deemed Issue of Additional Shares of
Membership Interests or Economic Interests. If the Company at any time or from
time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Membership
Interests or Economic Interests (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Economic
Interest issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
that Additional Shares of Economic Interest shall not be deemed to
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<PAGE>
have been issued unless the consideration per share (determined pursuant to
Subsection 4.1(e) hereof) of such Additional Shares of Economic Interest would
be less than the applicable Reference Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Economic
Interest are deemed to be issued:
(i) No further adjustment in the Reference Price shall be made
upon the subsequent issue of shares of Membership Interests or Economic
Interests upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(ii) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, upon the exercise, conversion or exchange
thereof, the Reference Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;
(iii) Upon the expiration or termination of any unexercised
Option, the Reference Price shall not be-readjusted, but the Additional Shares
of Economic Interest deemed issued as the result of the original issue of such
Option shall not be deemed issued for the purposes of any subsequent adjustment
of the Reference Price;
(iv) In the event of any change in the number of shares of
Membership Interests or Economic Interests issuable upon the exercise,
conversion or exchange of any Option or Convertible Security, including, but not
limited to, a change resulting from the anti-dilution provisions thereof, the
Reference Price then in effect shall forthwith be readjusted to such Reference
Price as would have obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or converted prior to such
change been made upon the basis of such change; and
(v) No readjustment pursuant to clause (ii) or (iv) above
shall have the effect of increasing the Reference Price to an amount which
exceeds the lower of (A) the Reference Price on the original adjustment date, or
(B) the Reference Price that would have resulted from any issuances of
Additional Shares of Economic Interest between the original adjustment date and
such readjustment date.
(d) Adjustment of Reference Price Upon Issuance of Additional
Shares of Economic Interest. In the event the Company shall at any time after
the Original Issue Date issue Additional Shares of Economic Interest (including
Additional Shares of Economic Interest deemed to be issued pursuant to
Subsection
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<PAGE>
4.1(c), but excluding shares issued as a dividend or distribution as provided in
Subsection 4.2 or Section 6 or upon a stock split or combination as provided in
Section 5), without consideration or for a consideration per share less than the
applicable Reference Price in effect on the date of and immediately prior to
such issue, then and in such event, such Reference Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Reference Price by a fraction, (i) the numerator
of which shall be (A) the number of shares of Membership Interests and Economic
Interests outstanding immediately prior to such issue plus (B) the number of
shares of Membership Interests and Economic Interests which the aggregate
consideration received or to be received by the Company for the total number of
Additional Shares of Economic Interest so issued would purchase at such
Reference Price; and (ii) the denominator of which shall be the number of shares
of Membership Interests and Economic Interests outstanding immediately prior to
such issue plus the number of such Additional Shares of Economic Interest so
issued; provided that, (x) for the purpose of this Subsection 4.1(d), all shares
of Membership Interests or Economic Interests issuable upon exercise or
conversion of Options or Convertible Securities outstanding immediately prior to
such issue shall be deemed to be outstanding, (other than shares excluded from
the definition of "Additional Shares of Economic Interest" by virtue of clauses
(C) or (D) of Subsection 4.1 (a)(iv), and (ii) the number of shares of
Membership Interests or Economic Interests deemed issuable upon conversion of
such outstanding Options and Convertible Securities shall not give effect to any
adjustments to the Reference Price or conversion rate of such Options or
Convertible Securities resulting from the issuance of Additional Shares of
Economic Interest that is the subject of this calculation.
Notwithstanding the foregoing, the applicable Reference Price shall not
be so reduced at such time if the amount of such reduction would be an amount
less than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(e) Determination of Consideration. For purposes of this
Section 4.1, the consideration received by the Company for the issue of any
Additional Shares of Economic Interest shall be computed as follows:
(i) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be computed
at the aggregate of cash received by the
Company, excluding amounts paid or payable
for accrued interest or accrued dividends;
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<PAGE>
(B) insofar as it consists of property other
than cash, be computed at the fair market
value thereof at the time of such issue, as
determined in good faith by a Majority of
the Members; and
(C) in the event Additional Shares of Economic
Interest are issued together with other
shares or securities or other assets of the
Company for consideration which covers both,
be the proportion of such consideration so
received, computed as provided in clauses
(A) and (B) above, as determined in good
faith by a Majority of the Members.
(ii) Options and Convertible Securities. The consideration per
share received by the Company for Additional Shares of Economic Interest deemed
to have been issued pursuant to Subsection 4.1(c), relating to Options and
Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or
receivable by the Company as consideration
for the issue of such Options or Convertible
Securities, plus the minimum aggregate
amount of additional consideration (as set
forth in the instruments relating thereto,
without regard to any provision contained
therein for a subsequent adjustment of such
consideration) payable to the Company upon
the exercise of such Options or the
conversion or exchange of such Convertible
Securities, or in the case of Options for
Convertible Securities, the exercise of such
Options for Convertible Securities and the
conversion or exchange of such Convertible
Securities, by
(B) the maximum number of shares of Membership
Interests or Economic Interests (as set
forth in the instruments relating thereto,
without regard to any provision contained
therein for a subsequent adjustment of such
number) issuable upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities.
4.2 Adjustment for Distributions of Equity Interests. Property or
Reclassification. In case at any time or from time to time, the holders of
Economic Interests in the Company shall have received, or (on or after the
record date fixed for the determination of Members eligible to receive) shall
have become entitled to receive, without payment therefor,
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<PAGE>
(a) other or additional securities or property (other than
cash) by way of distribution, or
(b) any cash, not including compensation paid to a member for
services rendered pursuant to an agreement duly approved by the Company and not
in violation of its Operating Agreement, or
(c) other or additional securities or property (including
cash) by way of spin-off, split- up, reclassification, recapitalization,
combination of interests or other similar rearrangement,
then and in each such case the holder of this Warrant, on the exercise hereof as
provided in Section 1, shall be entitled to receive the amount of Economic
Interests and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 4.2) which such holder
would hold on the date of such exercise if on the date hereof it had been the
holder of record of the number of Shares called for on the face of this Warrant,
giving effect to all adjustments called for during such period by Sections 4.1,
4.2, 5 and 6, and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such Shares and all such other or
additional other securities and property (including cash in the cases referred
to in subdivisions (b) and (c) of this Section 4.2) receivable by it as
aforesaid during such period.
5. Adjustment for Reorganization, Consolidation, or Merger.
5.1 In case the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company within one year from
the date of such transfer, then, in each such case, the holder of this Warrant,
on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Shares issuable on such exercise immediately before such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant immediately prior thereto.
5.2 In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company,
before such dissolution, shall at its expense deliver or cause to be delivered
to the Holder the securities and property (including cash, where applicable)
receivable by the holders of the Warrants after the effective date of such
dissolution pursuant to this Section 5.
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<PAGE>
5.3 Upon any reorganization, consolidation, or merger referred to in
this Section 5, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 7.
6. Extraordinary Events Regarding Membership Interests.
6.1 In the event that the Company shall (i) issue additional shares of
Membership Interest as a distribution on outstanding Membership Interests, (ii)
subdivide its outstanding shares of Membership Interest, or (iii) combine its
outstanding shares of Membership Interest into a smaller number of shares of
Membership Interest, then, in each such event, the Exercise Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then Exercise Price by a fraction, (a) the numerator of which shall be the
number of shares of Membership Interest outstanding immediately before such
event, and (b) the denominator of which shall be the number of shares of
Membership Interest outstanding immediately after such event and the product so
obtaining shall thereafter be the Exercise Price then in effect. The Exercise
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described in this Section 6.
6.2 The holder of this Warrant shall thereafter, on the exercise hereof
as provided in Section 1, be entitled to receive that number of shares of
Membership Interest determined by multiplying the number of shares of Membership
Interest which would otherwise be issuable on such exercise (but for the
provisions of this Section 6) by a fraction of which (a) the numerator is the
initial purchase price per share for each Warrant and (b) the denominator is the
Exercise Price per share in effect on the date of such exercise, as determined
pursuant to Section 6.1.
7. No Impairment.
The Company will not, by amendment of its Certificate of Organization
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Warrants,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holders of the Warrants against dilution or other
impairment. Without limiting the generality
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<PAGE>
of the foregoing, the Company will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not a surviving
person), unless such other person shall assume and agree to be bound by all the
terms of the Warrants.
8. Notices of Record Date, etc.
In the event of:
(a) any taking by the Company of a record of the holders of
Economic Interests for the purpose of determining the holders thereof who are
entitled to receive (i) any distribution, or (ii) any right to subscribe for,
purchase or otherwise acquire any Economic Interest, or (iii) to receive any
other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the Economic Interests of the Company or
any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such distribution or right, and stating the
amount and character of such distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any is to be fixed, as of which the holders of record of Economic Interests
in the Company shall be entitled to exchange their interest in the Company for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any securities, or rights or options with respect thereto, proposed to be issued
or granted, the date of such proposed issue or grant and the persons or class of
persons to whom such proposed issue or grant is to be offered or made. Such
notice shall be mailed at least twenty (20) days before the date specified in
such notice on which any such action is to be taken.
9. Certain Registration Rights. The holder will have the following
registration rights:
9.1 Piggy-Back Registration Rights.
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(a) In case of any proposed registration by the Company under
the Act of any Economic Interest or Membership Interest of the Company, the
Holder shall have the right to participate in such registration and, if any,
public offering as to the Shares, or any part thereof, issued on the exercise of
this Warrant as hereinafter provided. Such registration is hereinafter referred
to as a "Piggyback Registration". Nothing herein shall give the Holder hereof
any right to force the Company or any other person or entity to make any
registration or public offering, except to the extent provided in Section 9.2.
(b) Procedures. The Company will give the Holder at least
twenty (20) days prior written notice of any proposed registration of Economic
Interests under the Act for any reason. If requested by the Holder in writing
within twenty (20) days after receipt of any such notice, the Company will use
its best efforts to register all or part of the Holder's Shares (as may be
specified in such request) under the Act concurrently with the registration of
other Economic Interests and from time to time, if possible, amend or supplement
the registration statement and prospectus used in connection therewith if and to
the extent necessary in order to comply with the Act for a period of up to one
hundred twenty (120) days after the initial effective date of such registration;
provided, however, that in the event of an offering by members in conjunction
with a primary offering of Economic Interests by or through an underwriter or an
underwriting syndicate, where the underwriter or managing underwriter imposes a
limitation on the aggregate number of Economic Interests offered because, in its
independent judgment, such limitation is desirable to effect an orderly public
distribution consistent with the capital needs of the Company, no reduction
shall be made in the amount of Economic Interests to be offered by the Company
and the full amount of the reduction shall be with respect to the amount of
Economic Interests included in the secondary portion of the offering with the
number of Economic Interests offered by each selling member reduced pro rata.
9.2 Demand Registration Rights.
(a) Right to Demand by Holders. Holders holding Warrants for
at least 50% of the Shares issuable upon the exercise hereof, or any Shares
issued upon such exercise (in the alternative, the "Equity Securities") may,
upon written request to the Company, demand registration with the SEC under and
in accordance with the provisions of the Act of all or part of its Shares (a
"Demand Registration"). Within 10 days after receipt of such a request, the
Company will serve written notice (the "Notice") of such registration request to
all other Holders and the Company will include in such registration shares of
such other Holders with respect to which the Company has received written
request for inclusion therein within 30 business days after the date of sending
of the Notice. All requests made pursuant to this Section 9.2 will specify the
aggregate number of shares to be registered and will also specify the intended
methods of disposition thereof.
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<PAGE>
(b) Reduction of Shares in Demand Registration. If the
managing underwriter or underwriters advise the Holders in writing that in its
or their opinion, the number or kind of securities proposed to be sold in such
Demand Registration will affect the success of such offering in a materially
adverse manner, the Company will include in such registration the number of
shares, if any, which, in the opinion of such underwriter or underwriters can be
sold. The number of shares to be included in such registration for each
requesting Holder shall then be reduced pro rata to such number.
(c) Number of Demand Registrations. The Holders shall be
entitled to one Demand Registration; provided that if the underwriters shall
have reduced the number of shares that are requested to be registered by 25% or
more in the first Demand Registration, and if such registration is the initial
public offering of the Issuer's securities, the Holders will thereafter be
entitled to one more Demand Registration.
(d) Selection of Underwriters. The person initiating such
Demand Registration will select a managing underwriter or underwriters of
recognized national standing to administer the offering, who shall be reasonably
satisfactory to the Company, and the Company shall have the option to select a
co-managing underwriter, who shall be reasonably satisfactory to the person
initiating such registration, and counsel to the underwriters, who shall be
reasonably satisfactory to both the managing underwriters and the person
initiating such registration.
(e) Restrictions on Public Sale.
(i) Public Sale by Holders of Shares. Each Holder, if
requested by the managing underwriter or underwriters for any underwritten
Piggyback Registration or Demand Registration in which such Holder is not
participating, agrees not to effect any public sale or distribution of any
Economic Interest, including a sale pursuant to Rule 144 (or any similar
provision then in force) under the Act, during a period (the "Holdback Period")
of the five business days before, and the 90-day period (or such shorter time as
may be agreed to) beginning on, the effective date of such actual or attempted
Piggyback Registration or Demand Registration (except as part of such actual or
attempted Piggyback Registration or Demand Registration) or such earlier time as
all the Economic Interests included in such registration statement have been
disposed of pursuant thereto; provided that there shall not be more than one
Holdback Period in any 6-month period.
(ii) Public Sale by the Company and Others. If requested by
the managing underwriter or underwriters for any underwritten Piggyback
Registration or Demand Registration, the Company will (A) not effect any public
sale or distribution of its Economic Interests for its own account (or
securities convertible into or exchangeable or exercisable for Economic
Interests) during the 10 business
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days prior to, and during the 90-day period beginning on, the effective date of
such Piggyback Registration or Demand Registration (except as part of such
registration or pursuant to registrations on Forms S-4, S-8, or any successor
form to such forms) and with respect to any Demand Registration the Company will
not effect any such sale or distribution during the period commencing on the
date of filing such Demand Registration and ending on the sixtieth day following
the effective date of such Demand Registration, and (B) use reasonable efforts
to cause each other holder of Economic Interests (or securities convertible into
or exchangeable or exercisable for Economic Interests) purchased from the
Company at any time after the Closing (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period (except as part of such Piggyback Registration or
Demand Registration, if otherwise permitted).
9.3 Registration Expenses. All of the costs and expenses of each
Registration hereunder will be borne by the Company, including the fees and
expenses of the counsel and accountants for the Company (including the expenses
of any "cold comfort" letters required by or incident to such performance), the
fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in an offering pursuant to Section 3 of
Schedule E to the By-laws of the National Association of Securities Dealers,
Inc. and all other costs and expenses of the Company incident to the
preparation, printing and filing under the Act of the Registration Statement
(and all amendments and supplements thereto) and furnishing copies thereof and
of any preliminary prospectus and the prospectus included therein, and the costs
and expenses incurred by the Company in connection with the qualification of the
Economic Interest under the state securities or "blue sky" laws of various
jurisdictions; provided that the Company shall not bear costs and expenses of
any Holders comprising underwriters commissions or discounts, brokerage fees,
transfer taxes, or the fees and expenses of any counsel (including counsel for
the underwriters), accountants or other representatives retained by any Holder;
and, provided further that the Company shall not be required to purchase
insurance in lieu of indemnification.
9.4 Indemnification.
(a) In the event of any such registration pursuant to this
Section 9, to the extent permitted by law, the Company will indemnify the
Holders who participate in any such registration (the "Participating Holders"),
each person, if any, who controls a Participating Holder within the meaning of
the Act, each underwriter and each person, if any, who controls any such
underwriter, within the meaning of the Act, against all losses, claims, damages,
liabilities and expenses (under the Act, at common law or otherwise) resulting
from any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus or resulting from any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
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<PAGE>
misleading, except insofar as such losses, claims, damages, liabilities or
expenses result from any untrue statement or omission or alleged untrue
statement or alleged omission contained in information furnished in writing to
the Company by the Participating Holders or such underwriter expressly for the
use therein.
(b) The Participating Holders will furnish to the Company in
writing such information as shall be reasonably requested by the Company or its
underwriters for use in any such registration statement or prospectus and, to
the extent permitted by law, will indemnify the Company, its directors, each
officer signing such registration statement, each person, if any, who controls
the Company within the meaning of the Act, and each person, if any, who controls
any such underwriter, within the meaning of the Act, against all losses, claims,
damages, liabilities and expenses resulting solely from any untrue statement or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus and necessary to make the statements therein not misleading, but only
to the extent that such untrue statement or omission or alleged untrue statement
or alleged omission is contained or omitted in information so furnished in
writing by the Participating Holders expressly for use therein.
9.5 Overall Limitations. Notwithstanding any of the foregoing
provisions of this Section 9:
(a) The Company shall not be required to register any Economic
Interest under the Act if in the opinion of a counsel for the Company, such
registration is not necessary in the circumstances. In rendering such opinion,
such counsel may rely on a "no-action" letter from the Securities and Exchange
Commission;
(b) In the case of any registration of any Economic Interest
pursuant to Section 9 hereof the Company may delay the preparation and filing of
any registration statement, amendment or supplement thereto during any period
until the financial statements required for inclusion therein have been prepared
in the ordinary course of business and, if deemed necessary or desirable by the
Company, examined by independent public accountants; and
(c) The Company shall not be required to register any Economic
Interest or any other securities unless the Company and its counsel obtain
reasonable assurances that such registration or any resulting offering will not
jeopardize the treatment of the Company as a partnership under the Internal
Revenue Code. If an IRS ruling would be reasonably required (as it would be on
the date hereof), the Holder or Holders demanding registration shall pay all
reasonable expenses for obtaining such ruling, including but not limited to the
reasonable fees and expenses of tax counsel to the Company. The Company shall
not be required to take any
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<PAGE>
unreasonable steps in order to qualify for such a ruling, it being agreed that
limiting the total number of holders of Economic Interests to 100 or fewer shall
not be considered unreasonable.
10. Exchange of Warrants.
On surrender for exchange of any Warrant properly endorsed to the
Company, the Company at its expense will issue and deliver to or on the order of
the holder thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (on payment by such holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for the
number of Shares called for on the face or faces of the Warrant or Warrants so
surrendered; provided, however, so long as the Shares remain unregistered under
the Act, the Company shall not be obligated to issue any new Warrant or Warrants
pursuant to this Section 10 in the name of any person other than the person to
whom originally issued unless and until such other person has furnished to the
Company representations satisfactory to the Company that such person is
acquiring the Warrant or Warrants for investment purposes in compliance with
applicable securities laws.
11. Replacement of Warrants.
On receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction of any Warrant, on delivery of an indemnity
agreement and security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver in lieu thereof, a
new Warrant of like tenor. This Warrant shall be promptly canceled by the
Company upon the surrender hereof in connection with any exchange, transfer or
replacement.
12. Restrictions on Transfer.
No part of this Warrant or the Shares issuable on the exercise of this
Warrant (collectively, the "Securities") may be sold, offered for sale or
otherwise disposed of for value unless:
(a) a registration statement under the Act is in effect with
respect thereto or the requirements of Regulation A under the Act have been met,
but nothing herein shall be construed to require the Company to file any such
registration statement or comply with any such requirements; or
(b) an opinion of counsel for the Company, in form and
substance reasonably satisfactory to the Company, has been delivered to the
effect that: (i) such offer or sale is pursuant to an exempt transaction under
the Act or registration
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<PAGE>
thereunder; or (ii) compliance with Regulation A is not required in connection
with such offer or sale; or
(c) the Securities and Exchange Commission (the "SEC") or the
staff thereof has indicated in writing to the Company, or to such holder and
with knowledge of such writing by the Company, that "no-action" would be
recommended if the proposed offer or sale were to be made without the filing of
a registration statement or compliance with the requirements of Regulation A.
The holder acknowledges and agrees that (i) the circumstances pursuant
to which a "no- action" letter will be issued by the SEC or pursuant to which
counsel may give an opinion may be limited, (ii) the Securities are not
presently traded in any recognized securities market or in any over-the-counter
market, (iii) the exemption from registration provided by Rule 144 under the Act
may not be available to the holder, particularly if the holder is deemed to be
an "affiliate" of the Company for purposes of Rule 144, in instances where
certain reports (which the Company is not presently obligated to file and which
the Company is not obligating itself to file hereby) pursuant to the Securities
Exchange Act of 1934, as amended, have not been filed, and (iv) even if the
exemption provided under Rule 144 is available to the holder, such exemption may
be limited with regard to such matters, among others, as the amount of
Securities which may be disposed of and the manner of disposition thereof.
13. Put and Call Options; Right of First Refusal
13.1 Put Option. The Company hereby grants to the holder a right to
sell back to the Company the Equity Securities at the Put Price (as defined
below), at any time after the earlier of (i) three (3) years from the date this
Warrant is initially issued, or (ii) upon any reorganization, acquisition,
consolidation or merger of the Company, if the Company is not the surviving or
controlling entity, or a sale of all or substantially all of its assets, or
(iii) in the event of an initial public offering of Company's Economic Interests
which meets the requirements set out in Section 1.2 hereof. The Company shall
give the holder at least thirty (30) days' prior written notice of any event
specified in (ii) or (iii) above, and shall purchase the Equity Securities for
cash, at the Put Price, no later than the later to occur of (x) the event which
triggers the right, or (y) fifteen (15) days after receipt of a written notice
from the holder that it is exercising its rights hereunder. Notwithstanding the
foregoing, the holder shall have no rights hereunder if the exercise thereof
would create an event of default under the Construction Loan Agreement.
For the purposes hereof, the "Put Price" shall mean the fair market
value (determined as provided below).
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<PAGE>
Fair market value shall be as agreed to by the Company and the holder
exercising its rights hereunder; if they are unable to agree to such value or to
an independent appraiser to determine such value within thirty (30) days of
submission, such value shall be determined by arbitration in accordance with the
Arbitration Rules of the American Arbitration Association, to be conducted in
Portland, Maine. Arbitration shall be before a single arbitrator if the parties
can agree on such an arbitrator within five (5) business days of submission. If
the parties cannot so agree within such period, then each party shall choose a
single arbitrator, and the two arbitrators thus chosen shall choose the third
arbitrator. If the first two arbitrators cannot agree on the third arbitrator
within ten (10) business days of submission, such arbitrator shall be chosen by
the American Arbitration Association. The value determined by the arbitrators
shall be binding on the parties.
13.2 Call Option. The Company will have the option to purchase this
Warrant at any time before the Warrant is exercised, at the Put Price, to be
paid in cash within fifteen (15) days of notice from the Company to the Holder
of the Company's exercise of its rights hereunder. Such option must be exercised
as to the entire Warrant, and may not be exercised in part.
13.3 Right of First Refusal. If the Holder intends to transfer this
Warrant or any rights therein to any person other than the Company, it shall
give 30 days' written notice (hereafter sometimes the "Section 13.3 notice") to
the Company of its intention so to transfer. In addition to stating the fact of
the intention to transfer, the notice shall state (i) the name, business and
residence address of the proposed transferee, (ii) whether or not the transfer
is for a valuable consideration, and, if so, the amount of the consideration and
the other terms of the sale.
Within 30 days of the Company's receipt of the Section 13.3 notice, the
Company may exercise an option to purchase this Warrant or the rights therein
proposed to be transferred for the price and upon the other terms stated in the
notice. The Company must exercise its option to purchase everything proposed to
be transferred or forfeit its option.
14. Remedies.
The Company stipulates that the remedies at law of the holder of this
Warrant in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
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<PAGE>
15. No Rights or Liabilities as Member.
This Warrant shall not entitle any holder hereof to any of the rights
of a Member of the Company. No provision hereof in the absence of affirmative
action by the holder hereof to purchase Shares, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability on the part of such holder for the Exercise Price or as Member of the
Company, whether such liability shall be asserted by the Company or by creditors
of the Company.
16. Notices.
All notices and other communications from the Company to the holder of
this Warrant shall be deemed to have been duly given when delivered or mailed by
first class registered or certified mail, return receipt requested, postage
prepaid, at such address as may have been furnished to the Company in writing by
such holder or, until any such holder furnishes to the Company an address, then
to, and at the address of, the last holder of this Warrant who has so furnished
an address to the Company.
17. Survival.
The provisions of Sections 4 through 9, 13 and 14 of this Warrant shall
survive exercise of this Warrant and shall remain in full force and effect as
applied to the Shares of Membership Interest issued on exercise hereof. It is
the intent of the foregoing that the registration, put, antidilution, and other
rights in such sections be applicable to such Shares.
18. Miscellaneous.
This Warrant and any term hereof may be changed, waived, discharged, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be construed and enforced in accordance with and governed by the
laws of the Commonwealth of Massachusetts. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
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<PAGE>
IN WITNESS WHEREOF, FiveCom LLC has caused this Warrant to be signed
and delivered by its duly authorized officer under the corporate seal, attested
to by its duly authorized officer, and to be dated October 7, 1997.
FIVECOM LLC
By FIVECOM, INC., its Manager
By: /s/ Victor Colantonio
----------------------------
Victor Colantonio, President
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Exhibit 10.12
LEASE
Date: August 19, 1994 Lease No. 305
Lessor:
APPLIED TELECOMMUNICATIONS TECHNOLOGIES, INC.
20 William Street
Wellesley, MA 02181
Attn: Susanne O'Donnell
(617) 239-7600 Phone
(617) 239-0377 Fax
Lessee:
FiveCom, Inc.
393 Totten Pond Road
Suite 201
Waltham, MA 02154
Victor Colantonio
(617) 890-6868
Equipment Location: See Schedule B
County: Middlesex Federal ID No. 04-3056279
Equipment: See Schedule B Capitalized Lessor's Cost: $450,000.00
----------
Primary Term: Basic Rent:
PRIMARY TERM BASIC RENT PER MONTH: $11,942.99
COMMENCEMENT DATE: excepting the final payment of
September 1, 1994 Basic Rent, which is $34,442.99
PRIMARY TERM
EXPIRATION DATE: August 30, 1998
PAYMENT DATES:
BASIC RENT PAYMENT DATES: The 1st day of each month, beginning with
September 1, 1994.
<PAGE>
1. DEFINITIONS AND RULES OF CONSTRUCTION. Unless the context shall otherwise
require, capitalized terms used herein, but not otherwise defined herein,
shall have the respective meanings specified in Schedule A attached hereto,
which is hereby incorporated by reference.
2. LEASE. Lessee hereby agrees to lease from the Lessor, and Lessor, by
acceptance of this Lease, agrees to lease to Lessee, the Equipment. Lessee
agrees that it shall, pursuant to the terms hereof, comply with all of the
terms and conditions herein.
3. TERM AND RENT; OBLIGATIONS UNCONDITIONAL. (a) The Equipment is leased for
the Interim Term and the Primary Term, unless and until the Term of this
Lease shall sooner expire pursuant to the terms hereof. The Interim Term
shall commence on the date of acceptance of such Equipment as evidenced by
Lessee's Indemnification and Installation Certificate as provided in Section
9 hereof and shall expire at midnight on the date that is one calendar day
prior to the Primary Term Commencement Date. The Primary Term shall commence
at 12:01 a.m. and expire at midnight on the dates set forth on the cover
page hereof as the "Primary Term Commencement Date" and the "Primary Term
Expiration Date," respectively.
(b) Lessee shall pay to Lessor or an agent designated by Lessor or any
Transferee in writing, in lawful money of the United States, (i) as fixed rent
for the Equipment during the Interim Term, the Basic Rent Per Day multiplied by
number of calendar days (full or partial) in the Interim Term on the first Basic
Rent Payment Date and (ii) as fixed rent for the Equipment during the Primary
Term, (A) the Basic Rent Per Month on each Basic Rent Payment Date and (B), on
the final Basic Rent Payment Date, an amount equal to five percent (5%) of the
Capitalized Lessor's Cost of the Equipment; provided, however, that if the first
Basic Rent Payment Date is also the Primary Term Commencement Date, Lessee shall
pay all Basic Rent Per Day and the first installment of Basic Rent Per Month on
the date that the Lessee delivers its Indemnification and Installation
Certificate. All payments of Basic Rent shall be made by wire transfer to
Lessor's account as set forth in Schedule D attached hereto, which is hereby
incorporated by reference, or at such other address or to such other Person and
in such other manner as Lessor, from time to time, may designate. Each payment
of Basic Rent shall be apportioned between the Equipment Expense and the
Amortization Expense for the Equipment as specified in Schedule E, which shall
be determined in accordance with the economic accrual method and which schedule
is hereby incorporated by reference.
(c) Lessee shall also pay to Lessor or an agent designated by Lessor or any
Transferee in writing, in lawful money of the United States, all Supplemental
Rent. Supplemental Rent shall be paid when due or on demand if there is no due
date therefor. If Lessee shall fail to pay any Supplemental Rent, Lessor shall
have the right to pay the same and shall have all rights, powers and remedies
for reimbursement from Lessee with respect thereto as are provided herein
(including, without limitation.
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<PAGE>
Sections 14 and 15 hereof) or by Law in the case of non-payment of Basic Rent.
Lessee shall also pay to Lessor the Excess Use Fee on all overdue Rent from the
due date thereof until paid. Lessee shall perform all of its obligations under
this Lease at its sole cost and expense, and shall pay all Rent when due,
without further notice or demand.
(d) This Lease is a net lease and Lessee acknowledges and agrees that
Lessee's obligation to pay all Rent and other sums payable hereunder, and the
rights of Lessor in and to such payments, shall be absolute and unconditional
and shall not be subject to any abatement, reduction, setoff, defense,
counterclaim or recoupment due to or alleged to be due to, or by reason of, any
past, present or future claims that Lessee may have against Lessor, any
Transferee, the manufacturer or Supplier of the Equipment or any Person for any
reason whatsoever.
4. PERSONAL PROPERTY; SECURITY INTEREST AND LIENS. (a) Lessee covenants and
agrees that the equipment is, and shall at all times be and remain, personal or
movable property. If requested by Lessor, Lessee shall obtain prior to delivery
of any item of Equipment or at any other time reasonably requested by Lessor, a
certificate in form satisfactory to Lessor from all parties with a real property
interest in the premises where the Equipment may be located waiving any claim
with respect to the Equipment.
(b) During the Term of this Lease and until (i) Lessee acquires such
Equipment pursuant to Section 19 hereof or (ii) Lessee returns the Equipment to
Lessor in compliance with Section 17 hereof, Lessor shall retain title to such
Equipment; provided, however, that Lessee and Lessor acknowledge that
transactions documented hereunder shall not constitute a "lease or a "true
lease," and instead shall constitute a "lease intended as security," or
"security Interest," as the case may be, under Applicable Law (including under
Section 1-201(37) of the UCC). In furtherance thereof, in order to secure the
prompt payment and performance as and when due of all of Lessee's obligations
hereunder, Lessee hereby grants to Lessor a first priority security interest in
the Equipment leased hereunder and all replacements, substitutions, successions
and proceeds (cash and non-cash) thereof, including the proceeds of all
insurance policies on the Equipment. Lessee agrees that, with respect to the
Equipment, Lessor shall have all of the rights and remedies of a first priority
secured party under the UCC. Lessee may not dispose of any of the Equipment
except to the extent expressly provided herein.
(c) Lessee shall not directly or indirectly create, incur, assume or suffer
to exist any Lien on or with respect to any of the Equipment, title thereto or
any interest therein, except Permitted Liens. Lessee shall notify Lessor
immediately in writing upon receipt of notice of any Lien affecting the
Equipment in whole or in part, and shall, at its own cost and expense, defend
Lessor's title therein and Lessor's first priority security interest with
respect thereto against all Persons holding or claiming to hold such a Lien on
the Equipment; and any losses, expenses or costs suffered by Lessor as a result
thereof shall be covered by the Lessee's indemnity in Section 18 hereof.
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<PAGE>
(d) Lessee shall not move any Equipment or permit any Equipment to be moved
from the address set forth on the cover page hereof without Lessor's prior
written consent; provided, however, that in no event shall any Equipment be
moved to any location outside the United States of America or to any
jurisdiction within the United States of America that has not adopted the UCC.
5. INSTALLATION, DEINSTALLATION, MAINTENANCE AND REPAIR. At all times
during the Term of this Lease, Lessee shall be solely responsible, at its own
expense, for the delivery, installation, maintenance, repair, use, possession,
operation, storage, deinstallation, and drayage of the Equipment by a party
acceptable to Lessor, and shall keep the Equipment in good repair, condition and
working order, and shall furnish any and all parts, mechanisms and devices
required to keep the Equipment in good repair, condition and working order, all
at the expense of Lessee. Lessee shall not make any alterations or additions to
the Equipment without the prior written consent of Lessor. All parts furnished
and all additions made to and all substitutions and replacements for the
Equipment shall immediately upon the installation thereof be deemed part of the
Equipment and become the property of Lessor subject to the terms of this Lease.
At all times during the Term of this Lease, Lessee shall maintain at its own
cost and expense in effect a comprehensive maintenance and servicing agreement
with respect to each item of the Equipment with the manufacturer or Supplier
thereof or such other party as may be acceptable to Lessor. Lessor shall be
entitled to inspect the Equipment at the location thereof during normal business
hours.
6. USE. Lessee shall use the Equipment in a careful and proper manner and
shall comply with and conform to all Applicable Laws and insurance and/or
maintenance requirements. Lessee shall not use the Equipment for any purpose
other than that for which it was designed. Lessor shall have the right to remove
the Equipment from the premises where located if the Equipment is, in the sole
discretion of Lessor, used beyond its capacity or in any manner improperly cared
for or abused.
7. QUIET ENJOYMENT. So long as no Event of Default has occurred and is
continuing hereunder and subject to Section 6 hereof, Lessor warrants peaceful
and quiet use and enjoyment of the Equipment by Lessee against acts of Lessor.
8. ACCEPTANCE, WARRANTIES, LIMITATION OF LIABILITY. LESSEE HEREBY
ACKNOWLEDGES AND AGREES THAT: THE EQUIPMENT, AND THE RIGHTS, TITLE AND INTEREST
BEING CONVEYED HEREIN WITH RESPECT THERETO, ARE BEING CONVEYED AND DELIVERED TO
LESSEE "AS IS" AND "WHERE IS" WITHOUT ANY RECOURSE TO LESSOR AND LESSOR HAS NOT
MADE, AND HEREBY DISCLAIMS, LIABILITY FOR, AND LESSEE HEREBY WAIVES ALL RIGHTS
AGAINST LESSOR RELATING TO, ANY AND ALL WARRANTIES, GUARANTIES, REPRESENTATIONS
OR OBLIGATIONS OF ANY KIND WITH RESPECT THERETO, EITHER EXPRESS OR IMPLIED OR
ARISING BY APPLICABLE LAW OR OTHERWISE, INCLUDING (A) ANY EXPRESS OR IMPLIED
WARRANTIES,
4
<PAGE>
GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF, ARISING FROM OR IN (1)
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (2) COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (3) QUALITY OF WORKMANSHIP OR
THE PROVISIONS OF ANY SUPPLY CONTRACT WITH SUPPLIER OR (4) TORT (WHETHER OR NOT
ARISING FROM THE ACTUAL, IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR STRICT
LIABILITY) OR UNDER THE UCC OR OTHER APPLICABLE LAW WITH RESPECT TO THE
EQUIPMENT, INCLUDING TITLE THERETO (INCLUDING ANY WARRANTY OF GOOD OR MARKETABLE
TITLE OR FREEDOM FROM LIENS), FREEDOM FROM TRADEMARK, PATENT OR COPYRIGHT
INFRINGEMENT, LATENT DEFECTS (WHETHER OR NOT DISCOVERABLE), CONDITION,
MANUFACTURE, DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW AND (B) ALL
OBLIGATIONS, LIABILITY, RIGHTS AND REMEDIES, HOWSOEVER ARISING UNDER ANY
APPLICABLE LAW WITH RESPECT TO THE MATTERS WAIVED AND DISCLAIMED, INCLUDING FOR
LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE EQUIPMENT, OR ANY LIABILITY
OF LESSEE OR LESSOR TO ANY THIRD PARTY, OR ANY OTHER DIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (AS SUCH TERMS ARE USED IN SECTION 2-719(3) OF THE UCC, OR
OTHER APPLICABLE LAW); all such risks, as between Lessor and Lessee, are to be
borne by Lessee. Lessee acknowledges and agrees that the Equipment has been
selected by Lessee on the basis of its own judgment, and Lessee has not asked
for, been given or relied upon the skill or opinion of, or any statements,
representations, guaranties or warranties by, Lessor or its agents or
representatives in relation thereto. Lessee understands and acknowledges that
Lessor is not in the business of manufacturing, assembling or supplying
Equipment or otherwise in the business of being a vendor but is instead
providing financial accommodations, including lease financing. Lessee has
examined the Equipment and delivered to Lessor its Indemnification and
Installation Certificate therefor. The Equipment is not to be used, and is not
being acquired hereby, for use in any respect for Lessee's or any other Person's
personal or family purposes and, as such, the Equipment does not constitute
"consumer goods" as such term is defined under Applicable Law. Lessor's
agreement to enter into this Lease is in reliance upon the freedom from
liability or responsibility for the matters waived and disclaimed herein. THE
PROVISIONS OF THIS SECTION 8 HAVE BEEN NEGOTIATED BY LESSOR AND LESSEE AND,
EXCEPT FOR THE WARRANTY MADE BY LESSOR IN SECTION 7 HEREOF, ARE INTENDED TO
CONSTITUTE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS, GUARANTIES,
OBLIGATIONS OR WARRANTIES OF LESSOR, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT AND THE RIGHTS, TITLE AND INTEREST BEING CONVEYED HEREIN WITH RESPECT
THERETO THAT MAY ARISE PURSUANT TO ANY APPLICABLE LAW NOW OR HEREAFTER IN
EFFECT. (LESSEE'S INITIALS: FIVECOM, INC.)
Lessee agrees that the only representations, warranties, guaranties or
indemnities made with respect to the Equipment are those made by the Supplier
thereof. Provided that no Default or Event of Default has occurred and is
continuing hereunder, Lessor:
5
<PAGE>
(i) shall cooperate fully with Lessee with respect to the resolution of any
claims by Lessee against Supplier with respect to an item of Equipment, in good
faith and by appropriate proceedings at Lessee's expense, (ii) subject to the
initial proviso of this sentence, hereby assigns to Lessee, for and during the
Term of this Lease, any applicable warranties, indemnities or other rights under
any Supply Contracts (excluding any refunds or other similar payments reflecting
a decrease in the value of any such Equipment, which amount shall be received by
and paid to Lessor, for application to Lessee's obligations to pay Rent for such
Equipment), and (iii) hereby authorizes Lessee to obtain all services,
warranties or amounts from the Supplier of such Equipment to be used to repair
such Equipment (and such amounts shall be used by Lessee to repair such
Equipment). Lessee understands, acknowledges and agrees that neither Supplier
nor its salesmen or agents is an agent of Lessor or authorized to waive, alter
or add to any provision of this Lease.
9. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants for the
benefit of Lessor:
(a) Lessee is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is duly
qualified to do business and is in good standing in the jurisdiction(s) where
the Equipment will be located and has adequate corporate power to enter into and
perform this Lease.
(b) This Lease has been duly authorized, executed and delivered by Lessee
and constitutes a valid, legal and binding agreement of Lessee, enforceable in
accordance with its terms.
(c) The entering into and performance of this Lease by Lessee will not
violate any Applicable Law or any provision of Lessee's charter or bylaws or
result in any breach of, or constitute a default under, or result in the
creation of any Lien upon any assets of Lessee, or on the Equipment pursuant to
any instrument or Applicable Law to which Lessee is a party or by which it or
its assets may be bound.
(d) There are no pending or threatened actions or proceedings to which
Lessee is a party, or otherwise affecting Lessee, before any Government
Authority, which, either individually or in the aggregate, would adversely
affect the financial condition of Lessee, or the ability of Lessee to perform
its obligations under, or comply with the terms of, the Lease Documents.
(e) Lessee is not in default under any obligation for the payment of
borrowed money, for the deferred purchase price of property or for the payment
of any rent under any lease agreement which, either individually or in the
aggregate, would adversely affect the financial condition of Lessee, or the
ability of Lessee to perform its obligations under, or comply with the terms of,
the Lease Documents.
6
<PAGE>
(f) No consent, approval or other authorization of or by any Governmental
Authority is required in connection with the execution, delivery or performance
by Lessee of, or the consummation by Lessee of the transactions contemplated by,
this Lease.
(g) With respect to the Equipment, under the Applicable Law of the state(s)
in which such Equipment is to be located, such Equipment consists solely of
personal property and not fixtures.
(h) The financial statements of Lessee that have been provided to Lessor
have been prepared in accordance with GAAP, and fairly present Lessee's
financial condition and the results of its operations as of the date of and for
the period covered by such statements, and since the date of such statements
there has been no material adverse change in such conditions or operations.
(i) The address of Lessee as set forth on the cover page hereof is the
chief place of business and chief executive office (which terms shall have the
meanings ascribed therefor in Article 9 of the UCC) of Lessee; and Lessee does
not conduct business under any trade, assumed or fictitious name.
(j) With respect to the Equipment, no filing, recordation or registration
of any Financing Statement or other document or instrument was or is necessary
in order to cause Lessor to have good, valid and enforceable title with respect
thereto and, without limiting the generality of the foregoing, upon the last to
occur of (1) Lessor's payment of the Total Invoice Cost (or any portion thereof)
of any item of Equipment to Lessee or any Supplier, as the case may be and (2)
the filing of a Financing Statement in the State Filing Office, County Filing
Office and, if applicable, the Fixture Filing Office (naming Lessee as debtor
and Lessor as secured party and describing such item of Equipment), Lessor will
have a valid, perfected, first priority security interest in such item of
Equipment pursuant to the UCC and other Applicable Law.
(k) For purposes of Federal, state and local income tax laws: (i) Lessee
(and not Lessor or any Transferee) will be treated as the owner of the
Equipment; and (ii) all payments made by Lessee to Lessor or any Transferee will
constitute returns of capital and/or payments for the use or forbearance of
money.
(l) Lessee has obtained all Permits necessary to possess and use the
Equipment in compliance with and as contemplated by this Lease.
(m) If requested by Lessor, Lessee will provide an opinion of counsel and
other supporting documents to the foregoing effect and with respect to such
other legal matters as Lessor may request.
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<PAGE>
10. COVENANTS OF LESSEE. Lessee covenants and agrees as follows:
(a) Lessee will, if requested by Lessor, furnish Lessor (i) within one
hundred twenty (120) days after the end of each fiscal year of Lessee, a balance
sheet of Lessee as at the end of such year, and the related statements of income
and retained earnings and cash flows of Lessee for such fiscal year, prepared in
accordance with GAAP, all in reasonable detail and certified by independent
certified public accountants of recognized standing selected by Lessee; (ii)
within sixty (60) days after the end of each quarter of Lessee's fiscal year a
balance sheet of Lessee as at the end of such quarter, and the related statement
of income and retained earnings and cash flows of Lessee for such quarter,
prepared in accordance with GAAP; and (iii) within thirty (30) days after the
date on which they are filed, all regular periodic reports, forms and other
filings required to be made by Lessee to the Securities and Exchange Commission,
if any.
(b) Lessee will promptly execute and deliver to Lessor such further
documents, instruments and assurances and take such further action as Lessor
from time to time may reasonably request in order to carry out the intent and
purpose of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor hereunder and under the
other Lease Documents.
(c) Lessee shall provide written notice to Lessor: (i) thirty (30) days
prior to any contemplated change in the name or address of Lessee; (ii) promptly
upon the occurrence of any Default or Event of Default; (iii) of the
commencement of proceedings under Federal bankruptcy laws or any other
insolvency laws (as now or hereafter in effect) involving Lessee or any Person
(other than Lessor) holding an interest in the Equipment or related property as
the debtor; (iv) promptly upon Lessee becoming aware of (1) any alleged
violation of Applicable Law, or (2) any threatened or actual suspension,
revocation or rescission of any Permit necessary for Lessee to be in compliance
with the terms hereof; and (v) promptly after any of the Equipment becomes lost,
stolen, destroyed, materially damaged or worn out.
(d) Lessee shall not attach or incorporate the Equipment to or in any other
item of equipment or any realty in such a manner that the Equipment may be
deemed to have become an accession to or a part of such other item of equipment
or realty.
(e) Lessee shall cause each principal item of the Equipment to be marked at
all times, in a plain, distinct and legible manner, with the name of Lessor or
its designee followed by the words "Lessor and Secured Party," or other
appropriate words designed by Lessor on labels furnished by Lessor.
(f) Lessee will not take any action or suffer any omission that is
inconsistent with the representations and warranties of Lessee set forth in
Section 9(k), and will (i) refrain from withholding, from payments made by
Lessee to Lessor or any Transferee under any Lease Document, any Federal income
tax under any section of the Code
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(including, without limitation, Section 1442) provided that Lessee receives from
any Transferee that is a foreign corporation (and from Lessor, if Lessor is a
foreign corporation) the statement described in Section 881(c)(2)(B)(ii) of the
Code, and (ii) timely file all required information and other returns required
under Federal income tax regulations implementing and interpreting Section
881(c) of the Code.
11. ASSIGNMENT AND TRANSFER. (a) WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, LESSEE WILL NOT ASSlGN ANY OF ITS RIGHTS NOR DELEGATE ANY OF ITS
OBLIGATIONS HEREUNDER, SUBLET THE EQUIPMENT OR OTHERWISE PERMIT THE EQUIPMENT TO
BE OPERATED OR USED BY, OR TO COME INTO OR REMAIN IN THE POSSESSION OF, ANY
PERSON BUT LESSEE. No assignment or sublease, whether authorized in this Section
11 or in violation of the terms hereof, shall relieve Lessee of its obligations
hereunder and Lessee shall remain primarily liable hereunder.
(b) Lessor and any subsequent Transferee may transfer any or all of their
respective rights, obligations, title and/or interest herein, to one or more
other Transferees. Lessor shall give prompt written notice to Lessee of such a
Transfer, including the name(s) and address(es) of the Transferee(s) pursuant to
such Transfer. Lessee hereby acknowledges and agrees that in the event Lessor or
such other Transferee has transferred its interest herein (i) no Transferee(s)
shall be obligated to perform any duty, covenant or condition required to be
performed by the Lessor under the terms of this Lease (other than the covenant
of quiet enjoyment specified in Section 7 hereof) and (ii) all notices or other
communications shall be given to, and made by, Lessor or its designee.
(c) Upon written notice from Lessor of a Transfer of an interest herein,
Lessee shall promptly record such Transfer in its books and records, including
the name(s) and address(es) of the Transferee(s). Lessee acknowledges and agrees
that (i) its failure to record such Transfer within ten (10) days of delivery of
such notice shall be an Event of Default pursuant to Section 16(a)(ii) hereof
and (ii) Lessor's obligations to any Transferee(s) may be secured by Lessor's
interest in the Lease and the Equipment.
(d) LESSEE HEREBY WAIVES AS AGAINST ANY TRANSFEREE(S) OF LESSOR, ITS
SUCCESSORS AND ASSIGNS, ANY CLAIM OR DEFENSE THAT LESSEE MAY NOW OR HEREAFTER
HAVE AS AGAINST LESSOR, WHETHER FOR BREACH OF THIS LEASE, BREACH OF WARRANTY OR
OTHERWISE.
12. INSURANCE. At all times during the Term of this Lease, Lessee, at its
own expense, shall maintain insurance on each item of the Equipment against all
risks and in such amounts as Lessor shall reasonably require (but not less than
the Stipulated Loss Value of such item as set forth in Schedule C hereto) with
carriers acceptable to Lessor, and shall maintain a loss payable endorsement in
favor of Lessor and its successors and assigns affording to Lessor and its
successors and assigns such additional
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protection as Lessor and its successors and assignees shall reasonably require
(such as a breach of Lessee's warranty clause), and Lessee shall maintain public
liability and property damage insurance with respect to each item of Equipment
in amounts satisfactory to Lessor for both personal and property damage. Lessee
shall be liable for any deductibles contained in such insurance policies. All
such insurance policies shall name Lessor and its successors and Transferees as
insureds and shall provide that all amounts payable by reason of loss, theft or
damage to the Equipment shall be payable only to Lessor or its designees and
that such policies may not be canceled or altered without at least 30 days'
prior written notice to Lessor or its successors and Transferees. The Lessee
shall furnish the Lessor with certificates or other satisfactory evidence of the
maintenance of the insurance required hereunder.
13. LOSS AND DAMAGE. Lessee hereby assumes and shall bear the entire risk
of loss, damage, theft or destruction, partial or complete, whether or not
insured against, of the Equipment from any and every cause whatsoever from the
date of delivery of the Equipment to Lessee. No loss, damage, theft or
destruction of the Equipment or any part thereof shall relieve Lessee of any
obligation under this Lease, which shall continue in full force and effect. In
the event of loss or damage of any kind to any item of Equipment, Lessee shall
promptly notify Lessor of such event and, at Lessor's option, Lessee shall, at
its own cost and expense, (i) use all reasonable efforts to place the same in
good repair, condition and working order to the satisfaction of Lessor within 30
days of such loss or damage unless Lessor shall determine that such item has
been irreparably damaged, in which case Lessor may elect to shorten or terminate
said 30-day period, or (ii) replace such Equipment with like equipment in good
repair, condition and working order and, upon prior written notice to Lessor,
cause such replacement equipment to be delivered to and installed at a location
otherwise permitted hereunder and give clear title thereto by appropriate
instrument to Lessor, which replacement equipment shall be subject to the terms
and conditions hereof, including, without limitation, Section 4(b) hereof. In
the event Lessee has fully complied to Lessor's reasonable satisfaction with the
requirements of the previous sentence, Lessor shall return to Lessee (without
interest) the insurance proceeds, if any, paid to Lessor as a result of such
loss or damage under the insurance policies required pursuant to Section 12
hereof. In the event that any item of Equipment shall become subject to a Total
Loss, Lessee shall inform the Lessor in writing in regard thereto within thirty
(30) days after such Total Loss and Lessee shall pay to Lessor, in cash, an
amount equal to the Stipulated Loss Value thereof as set forth in Schedule C
hereto as the case may be; provided, however, that such amount shall be reduced
if and to the extent that Lessor or any Transferee has received proceeds from
the insurance required to be maintained by Lessee pursuant to Section 12 as a
result of such Total Loss, and Lessor agrees that if such insurance proceeds are
paid to Lessor after Lessee has paid Stipulated Loss Value in full, Lessor shall
reimburse Lessee the proceeds thereof, such reimbursement not to exceed the
Stipulated Loss Value amount paid by Lessee related to such Total Loss. Where a
single amount for the payment of Basic Rent is set forth on the cover page
hereof for more than one item of Equipment, and less than all such items are
subject to
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a Total Loss, such Basic Rent shall be apportioned among such items in
accordance with their original list prices, and the Stipulated Loss Value shall
be based on such apportioned Basic Rent. Upon such payment of Stipulated Loss
Value for any item(s) hereunder, this Lease shall terminate with respect to such
items(s) and Basic Rent shall thereafter abate proportionately.
14. TAXES AND FEES. (a) To the extent permitted by Law, Lessee shall file
any necessary reports and returns for, shall pay promptly when due, shall
otherwise be liable to reimburse Lessor (on an after-tax basis) for, and agrees
to indemnify and hold Lessor harmless from, all Impositions.
(b) If any report, return or property listing relating to any Imposition
is, by Law, required to be filed by, assessed or billed to or paid by, Lessor,
Lessee will do all things required to be done by Lessor (to the extent permitted
by Law) in connection therewith and is hereby authorized by Lessor to act on
behalf of Lessor in all respects in relation thereto, including the contest or
protest, in good faith and by appropriate proceedings, of the validity of any
Imposition, or the amount thereof; provided, however, that Lessor hereby
unconditionally reserves the right to revoke such authorization and such
revocation shall not affect Lessee's indemnity or other obligations under this
Lease, including, without limitation, this Section 14 and Section 18 hereof.
Lessor agrees fully to cooperate with Lessee in any such contest, and Lessee
agrees promptly to indemnify Lessor for all reasonable expenses incurred by
Lessor in the course of such cooperation. An Imposition or claim therefor shall
be paid by Lessee, subject to refund proceedings, if failure to pay would
adversely affect the title or rights of Lessor in the Equipment or otherwise
hereunder. Provided that no Default or Event of Default has occurred and is then
continuing, if Lessor obtains a refund of any Imposition that has been paid (by
Lessee, or by Lessor and for which Lessor has been fully reimbursed by Lessee),
Lessor shall promptly pay to Lessee the amount of such refund actually received.
Lessee shall cause all billings of such charges to Lessor to be made to Lessor
in care of Lessee and shall, in preparing any report or return required by Law,
show the ownership of the Equipment in Lessee, and shall send a copy of any such
report or return to Lessor. If Lessee fails to pay any such charges when due,
except any Imposition being contested in good faith and by appropriate
proceedings (as above provided) for a reasonable period of time, Lessor at its
option may do so pursuant to Section 15, in which event the amount so paid shall
be payable by Lessee as Supplemental Rent as provided in Section 15.
(c) The provisions of this Section 14 shall not apply to any Impositions
(i) imposed as a result of any voluntary transfer or disposition by Lessor of
all or any portion of its interest in the Equipment pursuant to Section 11
hereof; (ii) that Lessee is contesting in good faith, by appropriate proceedings
and as otherwise permitted pursuant to the provisions of this Lease until the
conclusion of such contest; except that Lessee's right to contest any Imposition
is conditioned upon the existence of such Imposition during any such contest not
causing any material danger, as determined by
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Lessor in its sole discretion, of the sale, forfeiture or loss of the Equipment;
or (iii) imposed on Lessor that are based on or measured by gross or net income
(including capital gains taxes, income taxes collected by withholding and taxes
on tax preference items), except for (1) amounts payable by Lessee to Lessor or
any Transferee under the Lease Documents but not so paid to the extent that such
failure to pay constitutes a breach of Lessee's obligations under Sections 9(k)
or 10(f) hereof, (2) Lessee's obligation to pay indemnities and reimbursements
on an "after-tax basis" and (3) as otherwise expressly provided herein.
15. LESSEE'S FAILURE TO PAY TAXES, INSURANCE, ETC. Should Lessee fail to
make any tax, insurance or other payment or do any act required to be performed
by Lessee as herein provided, Lessor shall have the right, but not the
obligation and without releasing Lessee from any obligation hereunder, to make
or do the same, and to pay, purchase, contest or compromise any Imposition that
in the judgment of Lessor appears to affect the Equipment, and, in exercising
any such rights, incur any liability and expend whatever amounts in its absolute
discretion Lessor may deem necessary therefor. All sums so incurred or expended
by Lessor (including any penalty incurred as a result of Lessee's failure to
perform such obligation or make such payment) shall be without demand
immediately due and payable by Lessee and shall be payable as Supplemental Rent.
16. DEFAULT AND REMEDIES. (a) The occurrences of any of the following
events shall constitute an Event of Default hereunder, and shall permit Lessor
to exercise the remedies provided in Section 16(b) below, including the
termination of Lessee's right to possession of the Equipment:
(i) the nonpayment when due from Lessee of any installment of Rent or
any other sum required hereunder to be paid by Lessee;
(ii) the failure by Lessee to perform any other term, obligation,
covenant or condition of this Lease that is not cured within 10 days
after such failure;
(iii) Lessee shall be in default under the terms of any other written
agreement with Lessor (or any Transferee) and Lessor (or such
Transferee) shall have declared a default and/or begun to exercise
remedies thereunder;
(iv) the subjection of a substantial part of Lessee's property or any
part of the Equipment to any Lien other than a Permitted Lien;
(v) in the event that (A) Lessee shall (1) authorize or agree to the
commencement of a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency, corporation,
receivership or other similar Law now or hereafter in effect that
authorizes the reorganization
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or liquidation of such party or its debt or the appointment of a
trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, (2) make a general
assignment for the benefit of its creditors, (3) fail generally or
admit in writing its inability to pay its debts as they become due,
(4) take any corporate action to authorize any of the foregoing or
(5) have an involuntary or other proceeding commenced against it
seeking liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or other similar
Law now or hereafter in effect, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period
exceeding 60 days; or (B) an order for relief pursuant to such
applicable debtor/creditor law shall have been entered against
Lessee; or
(vi) if any representation or warranty made by the Lessee herein, or made
by the Lessee in any statement or certificate furnished by the
Lessee in connection with the execution of this Lease or the
delivery of any items of Equipment hereunder or furnished by the
Lessee pursuant hereto, proves untrue in any material respect as of
the date of the Issuance or making thereof (and Lessee hereby agrees
that the falsity of its representation set forth in Section 9(k)
would be material);
(vii) The issuance of any writ or order of attachment or execution or
other legal process against any Equipment which is not discharged or
satisfied within ten (10) days;
(viii) The occurrence of any event or condition described in subsections
(iii), (iv), (v) or (vi) hereof with respect to any guarantor or any
other party liable, in whole or in part, for performance of any
Lessee's obligations under this Lease.
(b) Upon the happening of any of the above Events of Default, Lessor may
declare this Lease in Default. Such declaration shall be by written notice to
Lessee and shall apply to all Equipment leased hereunder. Lessee hereby
authorizes Lessor at any time thereafter to enter with or without legal process
any premises where the Equipment may be and take possession thereof. Lessee
shall, without further demand, forthwith pay to Lessor an amount that is equal
to any unpaid Rent due on or before Lessor has declared this Lease to be in
Default plus, as liquidated damages for loss of a bargain and not as a penalty,
an amount equal to the Stipulated Loss Value for the Equipment (as defined in
Schedule C hereto) on the date the Lessor shall declare this Lease in Default
(in each case together with any Excess Use Fee related thereto). After Default,
as and to the extent requested by Lessor, Lessee shall comply with the
provisions of Section 17 of this Lease. Lessor shall be entitled to sell the
Equipment at private or public sale within or without the United States, in bulk
or in parcels, with or without notice, without having the Equipment present at
the place of sale, with the privilege of
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becoming the purchaser thereof; and Lessor shall be entitled to lease, otherwise
dispose of or keep idle all or any part of the Equipment, and Lessor may use
Lessee's premises for any or all of the foregoing without liability for rent,
costs, damages or otherwise. The proceeds of sale, lease or other disposition,
if any, shall be applied (1) to all Lessor's costs, charges and expenses
incurred in taking, removing, holding, repairing and selling, leasing or
otherwise disposing of the Equipment (including, without limitation, reasonable
attorneys' fees, costs and disbursements); then, (2) to the extent not
previously paid by Lessee, to pay Lessor the Stipulated Loss Value for the
Equipment and all other sums then-payable by Lessee hereunder, including any
unpaid Rent; then, (3) any remaining amounts shall be paid to Lessee. Lessee
shall pay any deficiency for amounts described in clauses (1) and (2) above
forthwith. The exercise of any of the foregoing remedies by Lessor shall not
constitute a termination of this Lease unless Lessor so notifies Lessee in
writing.
No remedy referred to in this Section 16 is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy referred to above
or otherwise available to Lessor at law or in equity.
17. SURRENDER OF EQUIPMENT. Upon the expiration or earlier termination of
this Lease with respect to any item of Equipment, Lessee shall, unless (i)
Lessee has paid Lessor in cash the Stipulated Loss Value of such Equipment
pursuant to Section 13 hereof, (ii) Lessee has acquired such Equipment pursuant
to Section 19 hereof or (iii) Lessor has abandoned such Equipment pursuant to
Section 19 hereof, return the same to Lessor in good repair, condition and
working order, ordinary wear and tear resulting from permitted use thereof under
the terms of this Lease alone excepted, to a location within or outside of the
continental United States specified by Lessor. Such Equipment shall be carefully
crated and shipped, freight, drayage and reassembly costs prepaid and properly
insured, by Lessee, and Lessee shall bear all risk of loss until the Equipment
is delivered to Lessor or its designee.
18. INDEMNITY. Lessee agrees to indemnify, defend, and hold harmless, even
if such claims are groundless, false or fraudulent, Lessor, any Transferee and
their respective agents and employees, from and against any and all Claims
(other than such as may directly and proximately result from the gross
negligence or wilful misconduct of Lessor, any Transferee or their respective
agents or employees), by paying (on an after-tax basis) or otherwise discharging
same, when and as such Claims shall become due, including, without limitation,
Claims arising on account of (a) this Lease or any other Lease Documents, or (b)
the Equipment, or any item or part thereof, including, without limitation, the
selection, ordering, acquisition, delivery, installation, return, rejection,
abandonment or other disposition of any item of Equipment, the possession,
maintenance, leasing, use, condition, ownership, operation or control of any
item of Equipment by whosoever owned, used or operated during the Term of this
Lease or the existence of latent and other defects (whether or not discoverable
or discovered by Lessor or Lessee). Lessor shall give Lessee prompt notice of
any Claim or liability
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hereby indemnified against and Lessee shall be entitled to control the defense
thereof; provided, however, that (i) Lessor shall have the right to approve or
reject defense counsel selected by Lessee and any settlement proposed by Lessee
or its counsel and (ii) the defense of any Claim relating to the payment of any
tax, fee, assessment or other charge upon Lessor or any Transferee shall be
controlled by Lessor.
19. PURCHASE AND SALE OPTIONS. (a) On the Purchase Option Date, Lessee
shall have the option, upon at least sixty (60) days' prior irrevocable written
notice to Lessor, to purchase on such date all (but not less than all) Equipment
from Lessor for a purchase price equal to the Option Price. Upon such payment in
full and payment of any other amounts then due hereunder (including the costs of
expenses of Lessor, if any, in connection with such purchase), Lessor will
transfer to Lessee, without recourse or warranty and on a "WHERE IS, AS IS"
basis, all of Lessor's right, title and interest in and to the Equipment.
(b) At the expiration of the Primary Term, Lessee may, and upon written
notice Lessor may require Lessee to, purchase all of the Equipment from Lessor
for a sales price equal to $1.00. Upon such payment in full and payment of any
other amounts then due hereunder (including the costs and expenses of Lessor, if
any, in connection with such sale or transfer), Lessor will transfer to Lessee,
without recourse or warranty and on a "WHERE IS, AS IS" basis, all of Lessor's
right, title and interest in and to the Equipment.
If Lessee fails to pay such purchase price and such other amounts then due
hereunder, Lessor may, without prejudice to its rights under Section 16 hereof,
abandon such Equipment where such Equipment is located without liability of any
kind to Lessee.
20. MISCELLANEOUS. (a) Any notice required or permitted to be given by the
provisions hereof shall be conclusively deemed to have been received by a party
hereto on the day it is delivered by hand or by facsimile transmission to such
party at the address as set forth on the cover page hereof (or at such other
address as such party shall specify to the other party in writing) or, if sent
by registered or certified mail, on the third Business Day after the date on
which mailed, addressed to such party at the address set forth above, postage
prepaid.
(b) No delay or omission to exercise any right or remedy accruing to Lessor
upon any breach or default of Lessee shall impair any such right to remedy or be
construed to be a waiver of any such breach or default; nor shall any waiver of
any single breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval on the part of Lessor of any breach or default under
this Lease or, of any provision or condition hereof, must be in writing and
shall be effective only to the extent in such writing specifically set forth.
All remedies, either under this Lease or by law or otherwise afforded to Lessor,
shall be cumulative and not exclusive.
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(c) Lessee agrees to reimburse Lessor on demand for any and all costs and
expenses incurred by Lessor in enforcing its rights hereunder, including without
limitation, reasonable attorney's fees and costs of repossession, storage,
insuring, re-leasing and selling of all Equipment.
(d) The obligations of Lessor hereunder shall be suspended to the extent
that it is hindered or prevented from complying therewith because of labor
disturbances, including strikes and lockouts, acts of God, fires, storms,
accidents, failure of the manufacturer or Supplier to deliver any item of
Equipment, commercial frustration, Laws or interference of any cause whatsoever
not within the sole control of Lessor.
(e) THIS AGREEMENT MAY NOT BE TERMINATED EXCEPT AS EXPRESSLY PROVIDED
HEREIN. This Lease may be modified only by a written agreement duly signed by
Persons authorized to sign agreements on behalf of Lessor and Lessee, and any
variance from the terms and conditions of this Lease in any order or other
notification from Lessee, written or oral, shall be of no effect. The
capitalized term "Lease" as used herein includes any supplement, subsequent
schedule or exhibit or future written amendment made in accordance herewith, and
Lessee, by its execution hereof, explicitly acknowledges and agrees with the
foregoing. LESSEE ACKNOWLEDGES THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND
AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, LESSEE AGREES THAT THIS
LEASE IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE LEASE BETWEEN THE PARTIES,
WHICH SUPERSEDES ALL PROPOSALS OR PRIOR AGREEMENTS OR UNDERSTANDINGS, ORAL OR
WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE
SUBJECT MATTER OF THIS LEASE.
(f) This Lease and the covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, Lessor and its successors and assigns
and Lessee and its successors and permitted assigns.
(g) The table of contents and the headings of the sections hereof are for
convenience of reference only, are not a part of this Lease and shall not be
deemed to affect the meaning or construction of any of the provisions hereof.
(h) This Lease may be executed in any number of counterparts. However, to
the extent, if any, that this Lease constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in this Lease may be created through the
transfer of possession of any counterpart other than the counterpart identified
by marking as the "Original."
(i) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY
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AND PERFORMANCE. LESSOR AND LESSEE HEREBY IRREVOCABLY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE MASSACHUSETTS STATE AND FEDERAL COURTS LOCATED
IN MIDDLESEX COUNTY, MASSACHUSETTS, FOR ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE OVERALL TRANSACTION EVIDENCED BY THE LEASE DOCUMENTS. LESSOR
AND LESSEE HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS STATE
COURTS, OR TO THE EXTENT PERMITTED BY LAW, SUCH FEDERAL COURTS. LESSOR AND
LESSEE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO
SO, THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR
PROCEEDING. LESSOR AND LESSEE HEREBY WAIVE ANY RIGHTS EITHER OF THEM MAY HAVE TO
A TRIAL BY JURY IN ACTIONS OR PROCEEDINGS BROUGHT IN RESPECT OF THE LEASE
DOCUMENTS.
(j) Should any Section or any part of a Section within this Lease be
rendered void, invalid or unenforceable by any court or Law for any reason, such
invalidity or unenforceability shall not void or render invalid or unenforceable
any other Section or part of a Section in this Lease.
21. ADDITIONAL PROVISIONS. The schedules and exhibits attached hereto and
any riders signed by the parties hereto and attached hereto are hereby
incorporated by reference.
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IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly
executed, all as of the date first above written.
LESSOR:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By: /s/ Phillip Magiera
-----------------------------------
Name: Phillip Magiera
---------------------------------
Title: President
--------------------------------
LESSEE:
By: FiveCom, Inc. /s/ Victor Colantonio
-----------------------------------
Name: Victor Colantonio
---------------------------------
Title: President
--------------------------------
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SCHEDULE A TO LEASE
DEFINITIONS AND RULES OF CONSTRUCTION.
--------------------------------------
1. DEFINITIONS. The following terms, when capitalized as below, have the
following meanings:
"Amortization Expense": that portion of Basic Rent applied to the
amortization over the Term of the invoice cost to the Lessor of the Equipment,
as set forth on Schedule to the Lease for each payment of Basic Rent.
"Applicable Law": any Law that may apply to (i) the Lessee or its
properties and operations, (ii) the operation, modification, maintenance,
ownership, leasing or use of the Equipment, or (iii) any transaction
contemplated under any Lease Document, including in each case any environmental
Law, federal or state securities Law, commercial Law (pertaining to the rights
and obligations of sellers, purchasers, debtors, secured parties, or to any
other pertinent matter), zoning, sanitation, siting or building Law, energy,
occupational safety and health practices Law or the Employee Retirement Income
Security Act of 1974, as amended, and any regulations promulgated thereunder.
"Basic Rent": the rental installments due from Lessee pursuant to Section
3(b) of the Lease for the Interim Term and the Primary Term in the amounts and
on the dates as provided therein.
"Basic Rent Per Day": one thirtieth (1/30th) of the Basic Rent Per Month.
"Basic Rent Payment Date": as set forth on the cover page to the Lease.
"Basic Rent Per Month": as set forth on the cover page to the Lease.
"Business Day": any day, other than a Saturday, Sunday or legal holiday for
commercial banks under the laws of the Commonwealth of Massachusetts (or such
other jurisdictions in the United States as Lessor specifies to Lessee by at
least 30 days' prior written notice).
"Capitalized Lessor's Cost": the amount specified in the Equipment Schedule
under the heading "capitalized lessor's cost."
"Claims": all claims, judgments, good faith settlements entered into,
suits, actions, debts, obligations, damages (whether incidental, consequential
or direct), demands (for compensation, indemnification, reimbursement or
otherwise), losses,
A - 1
<PAGE>
penalties, fines, liabilities (including strict liability), charges that Lessor
has incurred or is responsible for in the nature of amounts for the use or
forbearance of money, Liens, and costs (including attorneys' fees and
disbursements and other legal or non-legal expenses of the investigation or
defense of any claim, whether or not such claim is ultimately defeated, or the
enforcement of the rights, remedies or indemnities provided for hereunder, or
otherwise available at law or in equity to Lessor), of whatever kind or nature,
contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, by
or against any Person.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"County Recording Office": as set forth in Scheduled D to the Lease.
"Default": except when inconsistent with the context of any provision
hereof, an event that, but for the lapse of time or the giving of notice or
both, would constitute an Event of Default.
"Equipment": with respect to the Equipment Schedule, the property described
therein, together with all appliances, parts, instruments accessories and
furnishings that are from time to time incorporated in the Equipment, or having
been so incorporated, are later removed therefrom, unless title thereto is
expressly released by Lessor, and all replacements of, and additions,
improvements and accessions to any and all of the foregoing, and all books,
records, maintenance logs and general intangibles (including all patents,
copyrights and trade secrets) relating thereto; and, when used in the context of
Lessor's title to the Equipment (whether relating to the creation, grant,
perfection, release, priority, enforcement or application of proceeds thereof),
shall also include all other property in which Lessor is granted a security
interest hereunder or under the Equipment Schedule.
"Equipment Expense": that portion of Basic Rent equivalent to Basic Rent
minus the Amortization Expense, as set forth on Schedule E to the Lease for each
payment of Basic Rent.
"Equipment Schedule": the Equipment Schedule that is attached as Schedule B
to the Lease.
"Event of Default": any event of default as specified in Section 16(a) of
the Lease.
"Excess Use Fee": the fee payable by Lessee for the continued use or
possession of the Equipment by the Lessee, which is payable if the Lessee has
not paid Rent when due and which shall equal 1-1-2% per month, or the highest
rate permitted by law, whichever is lower, on all overdue Rent from the due date
thereof until paid.
A - 2
<PAGE>
"Financing Statement": a Uniform Commercial Code financing statement.
"Fixture Filing Office": as set forth in Schedule D to the Lease.
"GAAP": generally accepted accounting principles, applied consistently.
"Governmental Authority": any federal, state, county, municipal, regional
or other governmental authority, agency board, body, instrumentality or court,
in each case either domestic or foreign.
"Imposition": any title, recordation, documentary stamp or other fees,
taxes, assessments, charges or withholdings of any nature (together with any
penalties or fines thereon) arising at any time upon or relating to the
Equipment or to the Lease, or the delivery, acquisition, ownership, use,
operation, leasing or other disposition of such Equipment or upon the Rent
payable thereunder, whether the same be assessed to Lessor (or any Transferee)
or Lessee.
"Indemnification and Installation Certificate": the certificate of Lessee
in the form of Exhibit I to the Lease.
"Interim Term": the period from the date of the Lessee's acceptance of the
Equipment as evidenced by Lessee's Indemnification and Installation Certificate
to but not including the Primary Term Commencement Date.
"Law": any law, rule, regulation, ordinance, order, code, common law,
interpretation, judgment, directive, decree, treaty, injunction, writ,
determination, Permit or similar norm or decision of any Governmental Authority.
"Lease": the Full Payout Net Lease by and between Lessor and Lessee and
relating to the Equipment, as amended from time to time, including any exhibits,
schedules and riders thereto as provided in Section 21 thereof.
"Lease Documents": collectively, the Lease, the Indemnification and
Installation Certificate(s) and all instruments, documents, certificates and
agreements delivered pursuant hereto.
"Lien": any mortgage, pledge, lease, sublease, security interest,
attachment, charge, encumbrance or right or claim of others whatsoever
(including any conditional sale or other retention agreement).
"Option Price": as set forth in Schedule D to the Lease.
A - 3
<PAGE>
"Permit": any action, approval, certificate of occupancy, consent, waiver,
exemption, variance, franchise, order, permit, authorization, right or license,
or other form of legally required permission, of or from a Governmental
Authority.
"Permitted Lien": (a) Lessor's and Lessee's respective rights, titles and
interests in the Equipment, (b) Liens for the benefit of mechanics, materialmen,
laborers, employees or suppliers and similar Liens arising by operation of Law
and incurred by Lessee in the ordinary course of business for sums that are not
yet delinquent or are being contested in good faith by negotiations or by
appropriate proceedings that suspend the collection and enforcement thereof
(provided that the existence of such Lien while such negotiations or proceedings
are pending does not involve any substantial risk (as determined by Lessor in
its discretion) of the sale, forfeiture or loss of the Equipment or any therein,
and for which adequate reserves have been provided in accordance with GAAP), and
(c) Liens arising out of any judgments or awards against Lessee that have been
adequately bonded to protect Lessor's interests or with respect to which a stay
of execution has been granted pending an appeal or a proceeding for review.
"Person": any individual, corporation, partnership, joint venture, or other
legal entity or a Governmental Authority.
"Primary Term": as set forth on the cover page to the Lease.
"Primary Term Commencement Date": as set forth on the cover page to the
Lease.
"Primary Term Expiration Date": as set forth on the cover page to the
Lease.
"Purchase Option Date": as set forth in Schedule D to the Lease.
"Rent": collectively, the Basic Rent and the Supplemental Rent.
"State Filing Office": as set forth in Schedule D to the Lease.
"Stipulated Loss Value": with respect to each item of Equipment listed in
the Equipment Schedule, the product of the Capitalized Lessor's Cost of such
item and the applicable percentage set forth on the Schedule of Stipulated Loss
Value attached as Schedule C to the Lease.
"Supplemental Rent": all amounts, liabilities and obligations (other than
Basic Rent) that Lessee assumes or agrees to pay to Lessor or others hereunder,
or under any other Lease Document, including, without limitation, Stipulated
Loss Value, the purchase price for the Equipment pursuant to Section 19 of the
Lease and payments
A - 4
<PAGE>
constituting indemnities, reimbursements, expenses, Excess Use Fees and other
charges payable pursuant to the terms of any Lease Document.
"Supplier": the person from whom Lessor is purchasing or has purchased the
Equipment.
"Supply Contract": any written contract from the Supplier of the Equipment
or any item thereof, pursuant to which Lessor has purchased such Equipment (or
item thereof) for lease to Lessee under an Equipment Schedule.
"Term": the period for which Equipment is leased under the Lease, including
the Interim Term and the Primary Term.
"Total Invoice Cost": with respect to each item of Equipment set forth in
the Equipment Schedule, the amount specified as such thereon.
"Total Loss": for any item of Equipment, the occurrence of any of the
following: (i) the actual or constructive total loss of such item of the
Equipment; or (ii) the loss, disappearance, theft or destruction of such item of
the Equipment; or (iii) damage to such item of the Equipment to such extent as
shall make repair thereof uneconomical, or shall render any item of the
Equipment permanently unfit for normal use, for any reason whatsoever; or (iv)
the condemnation, confiscation, requisition, seizure, forfeiture or other taking
of title to or use of such item of the Equipment; or (v) as a result of any Law
or other action taken by any Governmental Authority, the use of such item of
Equipment in the normal course of Lessee's business shall have been prohibited
(1) indefinitely or (2) for a period (A) in excess of 60 days or (B) that
extends beyond the then existing Term; all of the foregoing, to the extent
established to the reasonable satisfaction of Lessor.
"Transfer": any transfer or other agreement pursuant to which Lessor or
Transferee has transferred or agreed to pay any Person the Rent, or a portion
thereof, received from Lessee pursuant to the Lease, which obligation may be
secured by Lessor's interest in the Lease and the Equipment.
"Transferee": any Person to whom Lessor or any subsequent transferee
thereof has assigned any or all of its rights, obligations, title and/or
interest under the Lease.
"Uniform Commercial Code" or "UCC": the Uniform Commercial Code as in
effect in Massachusetts or in any other pertinent jurisdiction; and any
reference to an article or section thereof shall mean the corresponding article
or section (however named) of any such other applicable version of the Uniform
Commercial Code.
2. RULES OF CONSTRUCTION. Any defined term used in the singular preceded by
"any" indicates any number of the members of the relevant class. Any
A - 5
<PAGE>
Lease Document or other agreement or instrument referred to herein means such
agreement or instrument as supplemented and amended from time to time. Any
reference to Lessor or Lessee shall include their permitted successors and
assigns. Any reference to a Law or Permit shall also mean such Law or Permit as
amended, superseded or replaced from time to time. Unless otherwise expressly
provided to the contrary in the Lease, all actions that Lessee takes or is
required to take under this Lease or any other Lease Document shall be taken at
Lessee's sole cost and expense, and all such costs and expenses borne by Lessor
shall constitute Claims and shall be covered by Sections 14 and 18 of the Lease.
3. INTEGRATION. Lessor and Lessee agree that the definitions and rules of
construction herein shall constitute an integral part of this Lease.
A - 6
<PAGE>
EXHIBIT I TO LEASE
INDEMNIFICATION AND INSTALLATION CERTIFICATE
______________ ____, 19___
TO: Applied Telecommunications Technologies, Inc.
20 William Street
Wellesley, MA 02181
Gentlemen:
This Indemnification and Installation Certificate is issued pursuant to
that certain Full Payout Net Lease, dated _________ , 19 ___, Lease No.
_____________, (the "Lease") between Applied Telecommunications Technologies,
Inc., as Lessor, and the undersigned, as lessee (the "Lessee"), and evidences
delivery to and acceptance by Lessee of the equipment described on Schedule B
attached hereto (the "Equipment") pursuant to the Lease calling for Basic Rent
Per Day in the amount of $________ and Basic Rent Per Month in the amount of
$________, commencing in accordance with the payment dates as described in the
Lease.
Capitalized terms used but not defined herein shall have the respective
meanings assigned therefor in Schedule A to the Lease.
We confirm to you as follows:
1. The Commencement Date of the Interim Term of the Lease is the date of
this Certificate. All of the Equipment has been delivered to and has been
received by the undersigned; all installation or other work necessary prior to
the use thereof has been completed; the Equipment has been examined and/or
tested and is in good operating order and condition and is in all respects
satisfactory to the undersigned as represented; the Equipment is new and unused
(unless otherwise noted below) and has not been placed in service prior to the
date of this Certificate; the Equipment has been accepted by the undersigned and
complies with all terms of the Lease Documents; and the Equipment has been
marked and labeled to show the interests of Lessor or its assigns.
2. In the future, in the event that the Equipment fails to perform as
expected or represented or in the event that the undersigned shall have a claim
or defense against the Lessor of said Equipment, whether by breach of the Lease
or otherwise, we will continue to honor the Lease by continuing to make our
rental payments in the normal course of business and we indemnify any
Transferees, their successors and assigns and hold it harmless from such non
performance of the Equipment.
<PAGE>
3. Lessee further confirms that the representations and warranties of
Lessee contained in the Lease are true and accurate as of the date hereof as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date) and that no
event has occurred and is continuing which constitutes a Default or an Event of
Default under the Lease.
(Signature of individual or name of
corporation or partnership)
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
SCHEDULE B TO
INDEMNIFICATION AND INSTALLATION CERTIFICATE
EQUIPMENT SCHEDULE
Total Capitalized
Quantity Description Invoice Cost Lessor & Cost
- -------- ----------- ------------ -------------
<PAGE>
Lease No. 305
SCHEDULE B
Equipment Location: City of Waltham
City of Wellesley
Description Capitalized Lessor's Cost
- ----------- -------------------------
All fiber in Wellesley and Waltham including but not limited to the revenue
flows derived from the fiber per the agreements referenced below:
License Agreement for Occupancy of Underground Conduit Systems between New
England Telephone and Telegraph Company d/b/a NYNEX and FiveCom, Inc. dated
- -------------.
Aerial License Agreement between New England Telephone and Telegraph Company and
Boston Edison Company and FiveCom, Inc. dated January 4, 1994.
Aerial License Agreement between New England Telephone and Telegraph Company and
Town of Wellesley MA acting by and through its Municipal Light Plant and
FiveCom, Inc. dated March 4, 1992.
Total Capitalized Lessor's Cost $450,000.00
<PAGE>
ATTI LEASE AMORTIZATION AND OID CALCULATION
FIVECOM, INC.
Amortization Schedule Showing
No OID Daily Portions and No
Initial Accrual Period
ASSUMPTIONS:
<TABLE>
<S> <C>
Gross Equipment Cost: $450,000.00
Number of Shares Received: 5,077
Price Per Share: $0.03
Total Cost of Shares: $152.32
Net Amount Loaned: $449,847.69
Lease Term: 48 months
Balloon Payment: $22,500.00
Stated Annual Rate: 13.00%
(on Gross Equipment Cost)
Basic Monthly Payments Made: In Advance
Interim Payment (per Day): $398.10
1/30 x Basic Monthly Payment
(Due with First Basic
Monthly Payment)
Basic Monthly Payment: $11,942.99
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
PAYMENT PAYMENT EQUIPMENT AMORTIZATION
(DAY) AMOUNT EXPENSE EXPENSE
- --------------------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
1 $11,942.99 $5,252.38 $6,690.61
2 $11,942.99 $5,174.26 $6,768.73
3 $11,942.99 $5,095.23 $6,847.76
4 $11,942.99 $5,015.27 $6,927.72
5 $11,942.99 $4,934.39 $7,008.60
6 $11,942.99 $4,852.56 $7,090.44
7 $11,942.99 $4,769.77 $7,173.22
8 $11,942.99 $4,686.01 $7,256.98
9 $11,942.99 $4,601.28 $7,341.71
10 $11,942.99 $4,515.56 $7,427.43
11 $11,942.99 $4,428.84 $7,514.15
12 $11,942.99 $4,341.10 $7,601.89
13 $11,942.99 $4,252.35 $7,690.64
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
PAYMENT PAYMENT EQUIPMENT AMORTIZATION
(DAY) AMOUNT EXPENSE EXPENSE
- --------------------------------------- ----------------------------- --------------------------------
<S> <C> <C> <C>
14 $11,942.99 $4,162.55 $7,780.44
15 $11,942.99 $4,071.71 $7,871.28
16 $11,942.99 $3,979.80 $7,963.19
17 $11,942.99 $3,886.83 $8,056.17
18 $11,942.99 $3,792.76 $8,150.23
19 $11,942.99 $3,697.60 $8,245.39
20 $11,942.99 $3,601.33 $8,341.66
21 $11,942.99 $3,503.93 $8,439.06
22 $11,942.99 $3,405.40 $8,537.59
23 $11,942.99 $3,305.71 $8,637.28
24 $11,942.99 $3,204.87 $8,738.12
25 $11,942.99 $3,102.84 $8,840.15
26 $11,942.99 $2,999.62 $8,943.37
27 $11,942.99 $2,895.20 $9,047.79
28 $11,942.99 $2,789.56 $9,153.43
29 $11,942.99 $2,682.69 $9,260.30
30 $11,942.99 $2,574.56 $9,368.43
31 $11,942.99 $2,465.18 $9,477.81
32 $11,942.99 $2,354.52 $9,588.47
33 $11,942.99 $2,242.56 $9,700.43
34 $11,942.99 $2,129.30 $9,813.69
35 $11,942.99 $2,014.72 $9,928.27
36 $11,942.99 $1,898.80 $10,044.19
37 $11,942.99 $1,781.52 $10,161.47
38 $11,942.99 $1,662.88 $10,280.11
39 $11,942.99 $1,542.85 $10,400.14
40 $11,942.99 $1,421.42 $10,521.57
41 $11,942.99 $1,298.57 $10,644.42
42 $11,942.99 $1,174.28 $10,768.71
43 $11,942.99 $1,048.55 $10,894.44
44 $11,942.99 $921.35 $11,021.64
45 $11,942.99 $792.66 $11,150.33
46 $11,942.99 $662.47 $11,280.52
47 $11,942.99 $530.76 $11,412.23
48 $34,442.99 $397.51 $34,045.48
- --------------------------------------- ----------------------------- --------------------------------
$595,763.56 $145,915.87 $449,847.69
</TABLE>
<PAGE>
SCHEDULE D TO LEASE
MISCELLANEOUS INFORMATION
1. Lessor's wire transfer information: Marine Midland Bank, N.A.
One Marine Midland Plaza
Rochester, New York 14639
ABA# 021001088
Acct. # 590-83810-5
2. Name and address of State Filing Office: Secretary of State of MA, Boston, MA
3. Name and address of Town Recording Office: Waltham, MA, Wellesley, MA
Exhibit 10.13
LEASE
Date: February 15, 1995 Lease No. 316
Lessor:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
20 William Street
Wellesley, MA 02181
Attn: Susanne O'Donnell
(617) 239-7600 Phone (617) 239-0377 Fax
Lessee:
FiveCom, Inc.
391 Totten Pond Road, Suite 401
Waltham, MA 02154
Attention: Victor Colantonio
Phone: 617/890-6868
Equipment Location: See Schedule B
County: Middlesex Federal ID No. 04-3056279
Equipment: See Schedule B Capitalized
Lessor's Cost: $500,000.00
Primary Term: Basic Rent:
PRIMARY TERM BASIC RENT PER MONTH $13,269.99
COMMENCEMENT DATE: excepting the final payment of Basic
March 1, 1995 Rent, which is $38,269.99
PRIMARY TERM
EXPIRATION DATE: February 28, 1999
PAYMENT DATES:
BASIC RENT PAYMENT DATES: The 1st day of each month, beginning with
March 1, 1994.
<PAGE>
-2-
1. DEFINITIONS AND RULES OF CONSTRUCTION. Unless the context shall
otherwise require, capitalized terms used herein, but not otherwise defined
herein, shall have the respective meanings specified in Schedule A attached
hereto, which is hereby incorporated by reference.
2. LEASE. Lessee hereby agrees to lease from the Lessor, and Lessor, by
acceptance of this Lease, agrees to lease to Lessee, the Equipment. Lessee
agrees that it shall, pursuant to the terms hereof, comply with all of the terms
and conditions herein.
3. TERM AND RENT; OBLIGATIONS UNCONDITIONAL.
(a) The Equipment is leased for the Interim Term and the
Primary Term, unless and until the Term of this Lease shall sooner expire
pursuant to the terms hereof. The Interim Term shall commence on the date of
acceptance of such Equipment as evidenced by Lessee's Indemnification and
Installation Certificate as provided in Section 9 hereof and shall expire at
midnight on the date that is one calendar day prior to the Primary Term
Commencement Date. The Primary Term shall commence at 12:01 a.m. and expire at
midnight on the dates set forth on the cover page hereof as the "Primary Term
Commencement Date" and the "Primary Term Expiration Date," respectively.
(b) Lessee shall pay to Lessor or an agent designated by
Lessor or any Transferee in writing, in lawful money of the United States, (i)
as fixed rent for the Equipment during the Interim Term, the Basic Rent Per Day
multiplied by number of calendar days (full or partial) in the Interim Term on
the first Basic Rent Payment Date and (ii) as fixed rent for the Equipment
during the Primary Term, (A) the Basic Rent Per Month on each Basic Rent Payment
Date and (B), on the final Basic Rent payment Date, an amount equal to five
percent (5% ) of the Capitalized Lessor 5 Cost of the Equipment; provided,
however, that if the first Basic Rent Payment Date is also the primary Term
Commencement Date, Lessee shall pay all Basic Rent Per Day and the first
installment of Basic Rent Per Month on the date that the Lessee delivers its
Indemnification and Installation Certificate. All payments of Basic Rent shall
be made by wire transfer to Lessor's account as set forth in Schedule D attached
hereto, which is hereby incorporated by reference, or at such other address or
to such other Person and in such other manner as Lessor, from time to time, may
designate. Each payment of Basic Rent shall be apportioned between the Equipment
Expense and the Amortization Expense for the Equipment as specified in Schedule
E, which schedule is hereby incorporated by reference.
(c) Lessee shall also pay to Lessor or an agent designated by
Lessor or any Transferee in writing, in lawful money of the United States, all
Supplemental Rent. Supplemental Rent shall be paid when due or on demand if
there is no due date therefor. If Lessee shall fail to pay any Supplemental
Rent, Lessor shall have the
<PAGE>
-3-
right to pay the same and shall have all rights, powers and remedies for
reimbursement from Lessee with respect thereto as are provided herein
(including, without limitation, Sections 14 and 15 hereof) or by Law in the case
of non-payment of Basic Rent. Lessee shall also pay to Lessor the Excess Use Fee
on all overdue Rent from the due date thereof until paid. Lessee shall perform
all of its obligations under this Lease at its sole cost and expense, and shall
pay all Rent when due, without further notice or demand.
(d) This Lease is a net lease and Lessee acknowledges and
agrees that Lessee's obligation to pay all Rent and other sums payable
hereunder, and the rights of Lessor in and to such payments, shall be absolute
and unconditional and shall not be subject to any abatement, reduction, setoff,
defense, counterclaim or recoupment due to or alleged to be due to, or by reason
of, any past, present or future claims that Lessee may have against Lessor, any
Transferee, the manufacturer or Supplier of the Equipment or any Person for any
reason whatsoever.
4. PERSONAL PROPERTY; SECURITY INTEREST AND LIENS.
(a) Lessee covenants and agrees that the Equipment is, and
shall at all times be and remain, personal or movable property. If requested by
Lessor, Lessee shall obtain prior to delivery of any item of Equipment or at any
other time reasonably requested by Lessor, a certificate in form satisfactory to
Lessor from all parties with a real property interest in the premises where the
Equipment may be located waiving any claim with respect to the Equipment.
(b) During the Term of this Lease and until (i) Lessee
acquires such Equipment pursuant to Section 19 hereof or (ii) Lessee returns the
Equipment to Lessor in compliance with Section 17 hereof, Lessor shall retain
title to such Equipment; provided, however, that Lessee and Lessor acknowledge
that transactions documented hereunder shall not constitute a "lease" or a "true
lease," and instead shall constitute a "lease intended as security," or
"security interest," as the case may be, under Applicable Law (including under
Section 1-201(37) of the UCC). In furtherance thereof, in order to secure the
prompt payment and performance as and when due of all of Lessee's obligations
hereunder, Lessee hereby grants to Lessor security interest in the Equipment
leased hereunder and all replacements, substitutions, accessions thereto, and
proceeds (cash and non-cash) thereof, including the proceeds of all insurance
policies on the Equipment. Lessee agrees that, with respect to the Equipment,
Lessor shall have all of the rights and remedies of a secured party under the
UCC. Lessee may not dispose of any of the Equipment except to the extent
expressly provided herein.
(c) Lessee shall not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to any of the Equipment,
title thereto or any interest therein, except Permitted Liens. Lessee shall
notify Lessor immediately
<PAGE>
-4-
in writing upon receipt of notice of any Lien affecting the Equipment in whole
or in part, and shall, at its own cost and expense, defend Lessor's title
therein and Lessor's first priority security interest with respect thereto
against all Persons holding or claiming to hold such a Lien on the Equipment;
and any losses, expenses or costs suffered by Lessor as a result thereof shall
be covered by the Lessee's indemnity in Section 18 hereof.
(d) Lessee shall not move any tangible Equipment or permit any
tangible Equipment to be moved from the address set forth on the cover page
hereof without Lessor's prior written consent; provided, however, that in no
event shall any Equipment be moved to any location outside the United States of
America or to any jurisdiction within the United States of America that has not
adopted the UCC.
5. INSTALLATION, DEINSTALLATION, MAINTENANCE AND REPAIR. At all times
during the Term of this Lease, Lessee shall be solely responsible, at its own
expense, for the delivery, installation, maintenance, repair, use, possession,
operation, storage, deinstallation, and drayage of the Equipment by a party
acceptable to Lessor, and shall keep the Equipment in good repair, condition and
working order, and shall furnish any and all parts, mechanisms and devices
required to keep the Equipment in good repair, condition and working order, all
at the expense of Lessee. Lessee shall not make any alterations or additions to
the Equipment without the prior written consent of Lessor. All parts furnished
and all additions made to and all substitutions and replacements for the
Equipment shall immediately upon the installation thereof be deemed part of the
Equipment and become the property of Lessor subject to the terms of this Lease.
At all times during the Term of this Lease, Lessee shall maintain at its own
cost and expense in effect a comprehensive maintenance and servicing agreement
with respect to each item of the Equipment with the manufacturer or Supplier
thereof or such other party as may be acceptable to Lessor. Lessor shall be
entitled to inspect the Equipment at the location thereof during normal business
hours.
6. USE. Lessee shall use the Equipment in a careful and proper manner
and shall comply with and conform to all Applicable Laws and insurance and/or
maintenance requirements. Lessee shall not use the Equipment for any purpose
other than that for which it was designed. Lessor shall have the right to remove
the Equipment from the premises where located if the Equipment is, in the sole
discretion of Lessor, used beyond its capacity or in any manner improperly cared
for or abused.
7. QUIET ENJOYMENT. So long as no Event of Default has occurred and is
continuing hereunder and subject to Section 6 hereof, Lessor warrants peaceful
and quiet use and enjoyment of the Equipment by Lessee against acts of Lessor.
<PAGE>
-5-
8. ACCEPTANCE, WARRANTIES, LIMITATION OF LIABILITY. LESSEE HEREBY
ACKNOWLEDGES AND AGREES THAT: THE EQUIPMENT, AND THE RIGHTS, TITLE AND INTEREST
BEING CONVEYED HEREIN WITH RESPECT THERETO, ARE BEING CONVEYED AND DELIVERED TO
LESSEE "AS IS" AND "WHERE IS" WITHOUT ANY RECOURSE TO LESSOR AND LESSOR HAS NOT
MADE, AND HEREBY DISCLAIMS, LIABILITY FOR, AND LESSEE HEREBY WAIVES ALL RIGHTS
AGAINST LESSOR RELATING TO, ANY AND ALL WARRANTIES, GUARANTIES, REPRESENTATIONS
OR OBLIGATIONS OF ANY KIND WITH RESPECT THERETO, EITHER EXPRESS OR IMPLIED OR
ARISING BY APPLICABLE LAW OR OTHERWISE, INCLUDING (A) ANY EXPRESS OR IMPLIED
WARRANTIES, GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF, ARISING FROM OR IN
(1) MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (2) COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (3) QUALITY OF WORKMANSHIP OR
THE PROVISIONS OF ANY SUPPLY CONTRACT WITH SUPPLIER OR (4) TORT (WHETHER OR NOT
ARISING FROM THE ACTUAL, IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR STRICT
LIABILITY) OR UNDER THE UCC OR OTHER APPLICABLE LAW WITH RESPECT TO THE
EQUIPMENT, INCLUDING TITLE THERETO (INCLUDING ANY WARRANTY OF GOOD OR MARKETABLE
TITLE OR FREEDOM FROM LIENS), FREEDOM FROM TRADEMARK, PATENT OR COPYRIGHT
INFRINGEMENT, LATENT DEFECTS (WHETHER OR NOT DISCOVERABLE), CONDITION,
MANUFACTURE, DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW AND (B) ALL
OBLIGATIONS, LIABILITY, RIGHTS AND REMEDIES, HOWSOEVER ARISING UNDER ANY
APPLICABLE LAW WITH RESPECT TO THE MATTERS WAIVED AND DISCLAIMED, INCLUDING FOR
LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE EQUIPMENT, OR ANY LIABILITY
OF LESSEE OR LESSOR TO ANY THIRD PARTY, OR ANY OTHER DIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (AS SUCH TERMS ARE USED IN SECTION 2-719(3) OF THE UCC, OR
OTHER APPLICABLE LAW); all such risks, as between Lessor and Lessee, are to be
borne by Lessee. Lessee acknowledges and agrees that the Equipment has been
selected by Lessee on the basis of its own judgment, and Lessee has not asked
for, been given or relied upon the skill or opinion of, or any statements,
representations, guaranties or warranties by, Lessor or its agents or
representatives in relation thereto. Lessee understands and acknowledges that
Lessor is not in the business of manufacturing, assembling or supplying
Equipment or otherwise in the business of being a vendor but is instead
providing financial accommodations,sor its Indemnification and Installation
Certificate therefor. The Equipment is not to be used, and is not being acquired
hereby, for use in any respect for Lessee's or any other Person's personal or
family purposes and, as such, the Equipment does not constitute "consumer goods"
as such term is defined under Applicable Law. Lessor's agreement to enter into
this Lease is in reliance upon the freedom from liability or responsibility for
the matters waived and disclaimed herein. THE PROVISIONS OF THIS SECTION 8 HAVE
BEEN NEGOTIATED BY LESSOR
<PAGE>
-6-
AND LESSEE AND, EXCEPT FOR THE WARRANTY MADE BY LESSOR IN SECTION 7 HEREOF, ARE
INTENDED TO CONSTITUTE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS,
GUARANTIES, OBLIGATIONS OR WARRANTIES OF LESSOR, EXPRESS OR IMPLIED WITH RESPECT
TO THE EQUIPMENT AND THE RIGHTS, TITLE AND INTEREST BEING CONVEYED HEREIN WITH
RESPECT THERETO THAT MAY ARISE PURSUANT TO ANY APPLICABLE LAW NOW OR HEREAFTER
IN EFFECT. (LESSEE'S INITIALS: VC 2/16/95).
Lessee agrees that the only representations, warranties, guaranties or
indemnities made with respect to the Equipment are those made by the Supplier
thereof. Provided that no Default or Event of Default has occurred and is
continuing hereunder, Lessor: (i) shall cooperate fully with Lessee with respect
to the resolution of any claims by Lessee against Supplier with respect to an
item of Equipment, in good faith and by appropriate proceedings at Lessee's
expense, (ii) subject to the initial proviso of this sentence, hereby assigns to
Lessee, for and during the Term of this Lease, any applicable warranties,
indemnities or other rights under any Supply Contracts (excluding any refunds or
other similar payments reflecting a decrease in the value of any such Equipment,
which amount shall be received by and paid to Lessor, for application to
Lessee's obligations to pay Rent for such Equipment), and (iii) hereby
authorizes Lessee to obtain all services, warranties or amounts from the
Supplier of such Equipment to be used to repair such Equipment (and such amounts
shall be used by Lessee to repair such Equipment). Lessee understands,
acknowledges and agrees that neither Supplier nor its salesmen or agents is an
agent of Lessor or authorized to waive, alter or add to any provision of this
Lease.
9. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants for
the benefit of Lessor:
(a) Lessee is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
is duly qualified to do business and is in good standing in the jurisdiction(s)
where the Equipment will be located and has adequate corporate power to enter
into and perform this Lease.
(b) This Lease has been duly authorized, executed and
delivered by Lessee and constitutes a valid, legal and binding agreement of
Lessee, enforceable in accordance with its terms.
(c) The entering into and performance of this Lease by Lessee
will not violate any Applicable Law or any provision of Lessee's charter or
bylaws or result in any breach of, or constitute a default under, or result in
the creation of any Lien upon any assets of Lessee, or on the Equipment pursuant
to any instrument or Applicable Law to which Lessee is a party or by which it or
its assets may be bound.
<PAGE>
-7-
(d) There are no pending or threatened actions or proceedings
to which Lessee is a party, or otherwise affecting Lessee, before any Government
Authority, which, either individually or in the aggregate, would adversely
affect the financial condition of Lessee, or the ability of Lessee to perform
its obligations under, or comply with the terms of, the Lease Documents.
(e) Other than to Lessor, Lessee is not in default under any
obligation for the payment of borrowed money, for the deferred purchase price of
property or for the payment of any rent under any lease agreement which, either
individually or in the aggregate, would adversely affect the financial condition
of Lessee, or the ability of Lessee to perform its obligations under, or comply
with the terms of, the Lease Documents.
(f) No consent, approval or other authorization of or by any
Governmental Authority is required in connection with the execution, delivery or
performance by Lessee of, or the consummation by Lessee of the transactions
contemplated by, this Lease.
(g) With respect to the Equipment, under the Applicable Law of
the state(s) in which such Equipment is to be located, such Equipment consists
solely of personal property and not fixtures.
(h) The financial statements of Lessee that have been provided
to Lessor have been prepared in accordance with GAAP, and fairly present
Lessee's financial condition and the results of its operations as of the date of
and for the period covered by such statements, and since the date of such
statements there has been no material adverse change in such conditions or
operations.
(i) The address of Lessee as set forth on the cover page
hereof is the chief place of business and chief executive office (which terms
shall have the meanings ascribed therefor in Article 9 of the UCC) of Lessee;
and Lessee does not conduct business under any trade, assumed or fictitious
name.
(j) With respect to the Equipment, no filing, recordation or
registration of any Financing Statement or other document or instrument was or
is necessary in order to cause Lessor to have good, valid and enforceable title
with respect thereto and, without limiting the generality of the foregoing, upon
the last to occur of (1) Lessor's payment of the Total Invoice Cost (or any
portion thereof) of any item of Equipment to Lessee or any Supplier, as the case
may be and (2) the filing of a Financing Statement in the State Filing Office,
County Filing Office and, if applicable, the Fixture Filing Office (naming
Lessee as debtor and Lessor as secured party and describing such item of
Equipment), Lessor will have a valid, perfected,
<PAGE>
-8-
first priority security interest in such item of Equipment pursuant to the UCC
and other Applicable Law.
(k) For purposes of Federal, state and local income tax laws:
(i) Lessee (and not Lessor or any Transferee) will be treated as the owner of
the Equipment; and (ii) all payments made by Lessee to Lessor or any Transferee
will constitute returns of capital and/or payments for the use or forbearance of
money.
(l) Lessee has obtained all Permits necessary to possess and
use the Equipment in compliance with and as contemplated by this Lease.
(m) If requested by Lessor, Lessee will provide an opinion of
counsel and other supporting documents to the foregoing effect and with respect
to such other legal matters as Lessor may request.
10. COVENANTS OF LESSEE. Lessee covenants and agrees as follows:
(a) Lessee will, if requested by Lessor, furnish Lessor (i)
within one hundred twenty (120) days after the end of each fiscal year of
Lessee, a balance sheet of Lessee as at the end of such year, and the related
statements of income and retained earnings and cash flows of Lessee for such
fiscal year, prepared in accordance with GAAP, all in reasonable detail and
certified by independent certified public accountants of recognized standing
selected by Lessee; (ii) within sixty (60) days after the end of each quarter of
Lessee's fiscal year a balance sheet of Lessee as at the end of such quarter,
and the related statement of income and retained earnings and cash flows of
Lessee for such quarter, prepared in accordance with GAAP; and (iii) within
thirty (30) days after the date on which they are filed, all regular periodic
reports, forms and other filings required to be made by Lessee to the Securities
and Exchange Commission, if any.
(b) Lessee will promptly execute and deliver to Lessor such
further documents, instruments and assurances and take such further action as
Lessor from time to time may reasonably request in order to carry out the intent
and purpose of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor hereunder and under the
other Lease Documents.
(c) Lessee shall provide written notice to Lessor: (i) thirty
(30) days prior to any contemplated change in the name or address of Lessee;
(ii) promptly upon the occurrence of any Default or Event of Default; (iii) of
the commencement of proceedings under Federal bankruptcy laws or any other
insolvency laws (as now or hereafter in effect) involving Lessee or any Person
(other than Lessor) holding an interest in the Equipment or related property as
the debtor; (iv) promptly upon Lessee becoming aware of (1) any alleged
violation of Applicable Law, or (2) any threatened or actual suspension,
revocation or rescission of any Permit necessary for
<PAGE>
-9-
Lessee to be in compliance with the terms hereof; and (v) promptly after any of
the Equipment becomes lost, stolen, destroyed, materially damaged or worn out.
(d) Lessee shall not attach or incorporate the Equipment to or
in any other item of equipment or any realty in such a manner that the Equipment
may be deemed to have become an accession to or a part of such other item of
equipment or realty.
(e) Lessee shall cause each principal item of the Equipment to
be marked at all times, in a plain, distinct and legible manner, with the name
of Lessor or its designee followed by the words "Lessor and Secured Party," or
other appropriate words designated by Lessor on labels furnished by Lessor.
(f) Lessee will not take any action or suffer any omission
that is inconsistent with the representations and warranties of Lessee set forth
in Section 9(k), and will (i) refrain from withholding, from payments made by
Lessee to Lessor or any Transferee under any Lease Document, any Federal income
tax under any section of the Code (including, without limitation, Section 1442)
provided that Lessee receives from any Transferee that is a foreign corporation
(and from Lessor, if Lessor is a foreign corporation) the statement described in
Section 881 (c)(2)(B)(ii) of the Code, and (ii) timely file all required
information and other returns required under Federal income tax regulations
implementing and interpreting Section 881(c) of the Code.
11. ASSIGNMENT AND TRANSFER.
(a) WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, LESSEE WILL
NOT ASSIGN ANY OF ITS RIGHTS NOR DELEGATE ANY OF ITS OBLIGATIONS HEREUNDER,
SUBLET THE EQUIPMENT OR OTHERWISE PERMIT THE EQUIPMENT TO BE OPERATED OR USED
BY, OR TO COME INTO OR REMAIN IN THE POSSESSION OF, ANY PERSON BUT LESSEE. No
assignment or sublease, whether authorized in this Section 11 or in violation of
the terms hereof, shall relieve Lessee of its obligations hereunder and Lessee
shall remain primarily liable hereunder.
(b) Lessor and any subsequent Transferee may transfer any or
all of their respective rights, obligations, title and/or interest herein, to
one or more other Transferees. Lessor shall give prompt written notice to Lessee
of such a Transfer, including the name(s) and address(es) of the Transferee(s)
pursuant to such Transfer. Lessee hereby acknowledges and agrees that in the
event Lessor or such other Transferee has transferred its interest herein (i) no
Transferee(s) shall be obligated to perform any duty, covenant or condition
required to be performed by the Lessor under the terms of this Lease (other than
the covenant of quiet enjoyment specified in
<PAGE>
-10-
Section 7 hereof) and (ii) all notices or other communications shall be given
to, and made by, Lessor or its designee.
(c) Upon written notice from Lessor of a Transfer of an
interest herein, Lessee shall promptly record such Transfer in its books and
records, including the name(s) and address(es) of the Transferee(s). Lessee
acknowledges and agrees that (i) its failure to record such Transfer within ten
(10) days of delivery of such notice shall be an Event of Default pursuant to
Section 16(a)(ii) hereof and (ii) Lessor's obligations to any Transferee(s) may
be secured by Lessor's interest in the Lease and the Equipment.
(d) LESSEE HEREBY WAIVES AS AGAINST ANY TRANSFEREE(S) OF
LESSOR, ITS SUCCESSORS AND ASSIGNS, ANY CLAIM OR DEFENSE THAT LESSEE MAY NOW OR
HEREAFTER HAVE AS AGAINST LESSOR, WHETHER FOR BREACH OF THIS LEASE, BREACH OF
WARRANTY OR OTHERWISE.
12. INSURANCE. At all times during the Term of this Lease, Lessee, at
its own expense, shall maintain insurance on each item of the Equipment against
all risks and in such amounts as Lessor shall reasonably require with carriers
acceptable to Lessor, and shall maintain a loss payable endorsement in favor of
Lessor and its successors and assigns affording to Lessor and its successors and
assigns such additional protection as Lessor and its successors and assignees
shall reasonably require (such as a breach of Lessee's warranty clause), and
Lessee shall maintain public liability and property damage insurance with
respect to each item of Equipment in amounts satisfactory to Lessor for both
personal and property damage. Lessee shall be liable for any deductibles
contained in such insurance policies. All such insurance policies shall name
Lessor and its successors and Transferees as insureds and shall provide that all
amounts payable by reason of loss, theft or damage to the Equipment shall be
payable only to Lessor or its designees and that such policies may not be
canceled or altered without at least 30 days' prior written notice to Lessor or
its successors and Transferees. The Lessee shall furnish the Lessor with
certificates or other satisfactory evidence of the maintenance of the insurance
required hereunder.
13. LOSS AND DAMAGE. Lessee hereby assumes and shall bear the entire
risk of loss, damage, theft or destruction, partial or complete, whether or not
insured against, of the Equipment from any and every cause whatsoever from the
date of delivery of the Equipment to Lessee. No loss, damage, theft or
destruction of the Equipment or any part thereof shall relieve Lessee of any
obligation under this Lease, which shall continue in full force and effect. In
the event of loss or damage of any kind to any item of Equipment, Lessee shall
promptly notify Lessor of such event and, at Lessor's option, Lessee shall, at
its own cost and expense, (i) use all reasonable efforts to place the same in
good repair, condition and working order to the satisfaction of Lessor within 30
days of such loss or damage unless Lessor shall
<PAGE>
-11-
determine that such item has been irreparably damaged, in which case Lessor may
elect to shorten or terminate said 30-day period, or (ii) replace such Equipment
with like equipment in good repair, condition and working order and, upon prior
written notice to Lessor, cause such replacement equipment to be delivered to
and installed at a location otherwise permitted hereunder and give clear title
thereto by appropriate instrument to Lessor, which replacement equipment shall
be subject to the terms and conditions hereof, including, without limitation,
Section 4(b) hereof. In the event Lessee has fully complied to Lessor's
reasonable satisfaction with the requirements of the previous sentence, Lessor
shall return to Lessee (without interest) the insurance proceeds, if any, paid
to Lessor as a result of such loss or damage under the insurance policies
required pursuant to Section 12 hereof. In the event that any item of Equipment
shall become subject to a Total Loss, Lessee shall inform the Lessor in writing
in regard thereto within thirty (30) days after such Total Loss and Lessee shall
pay to Lessor, in cash, an amount equal to the Stipulated Loss Value thereof as
set forth in Schedule C hereto as the case may be; provided, however, that such
amount shall be reduced if and to the extent that Lessor or any Transferee has
received proceeds from the insurance required to be maintained by Lessee
pursuant to Section 12 as a result of such Total Loss, and Lessor agrees that if
such insurance proceeds are paid to Lessor after Lessee has paid Stipulated Loss
Value in full, Lessor shall reimburse Lessee the proceeds thereof, such
reimbursement not to exceed the Stipulated Loss Value amount paid by Lessee
related to such Total Loss. Where a single amount for the payment of Basic Rent
is set forth on the cover page hereof for more than one item of Equipment, and
less than all such items are subject to a Total Loss, such Basic Rent shall be
apportioned among such items in accordance with their original list prices, and
the Stipulated Loss Value shall be based on such apportioned Basic Rent. Upon
such payment of Stipulated Loss Value for any item(s) hereunder, this Lease
shall terminate with respect to such items(s) and Basic Rent shall thereafter
abate proportionately.
14. TAXES AND FEES.
(a) To the extent permitted by Law, Lessee shall file any
necessary reports and returns for, shall pay promptly when due, shall otherwise
be liable to reimburse Lessor (on an after-tax basis) for, and agrees to
indemnify and hold Lessor harmless from, all Impositions.
(b) If any report, return or property listing relating to any
Imposition is, by Law, required to be filed by, assessed or billed to or paid
by, Lessor, Lessee will do all things required to be done by Lessor (to the
extent permitted by Law) in connection therewith and is hereby authorized by
Lessor to act on behalf of Lessor in all respects in relation thereto, including
the contest or protest, in good faith and by appropriate proceedings, of the
validity of any Imposition, or the amount thereof; provided, however, that
Lessor hereby unconditionally reserves the right to revoke such authorization
and such revocation shall not affect Lessee's indemnity or other
<PAGE>
-12-
obligations under this Lease, including, without limitation, this Section 14 and
Section 18 hereof. Lessor agrees fully to cooperate with Lessee in any such
contest, and Lessee agrees promptly to indemnify Lessor for all reasonable
expenses incurred by Lessor in the course of such cooperation. An Imposition or
claim therefor shall be paid by Lessee, subject to refund proceedings, if
failure to pay would adversely affect the title or rights of Lessor in the
Equipment or otherwise hereunder. Provided that no Default or Event of Default
has occurred and is then continuing, if Lessor obtains a refund of any
Imposition that has been paid (by Lessee, or by Lessor and for which Lessor has
been fully reimbursed by Lessee), Lessor shall promptly pay to Lessee the amount
of such refund actually received. Lessee shall cause all billings of such
charges to Lessor to be made to Lessor in care of Lessee and shall, in preparing
any report or return required by Law, show the ownership of the Equipment in
Lessee, and shall send a copy of any such report or return to Lessor. If Lessee
fails to pay any such charges when due, except any Imposition being contested in
good faith and by appropriate proceedings (as above provided) for a reasonable
period of time, Lessor at its option may do so pursuant to Section 15, in which
event the amount so paid shall be payable by Lessee as Supplemental Rent as
provided in Section 15.
(c) The provisions of this Section 14 shall not apply to any
Impositions (i) imposed as a result of any voluntary transfer or disposition by
Lessor of all or any portion of its interest in the Equipment pursuant to
Section 11 hereof; (ii) that Lessee is contesting in good faith, by appropriate
proceedings and as otherwise permitted pursuant to the provisions of this Lease
until the conclusion of such contest; except that Lessee's right to contest any
Imposition is conditioned upon the existence of such Imposition during any such
contest not causing any material danger, as determined by Lessor in its sole
discretion, of the sale, forfeiture or loss of the Equipment; or (iii) imposed
on Lessor that are based on or measured by gross or net income (including
capital gains taxes, income taxes collected by withholding and taxes on tax
preference items), except for (1) amounts payable by Lessee to Lessor or any
Transferee under the Lease Documents but not so paid to the extent that such
failure to pay constitutes a breach of Lessee's obligations under Sections 9(k)
or 10(f) hereof, (2) Lessee's obligation to pay indemnities and reimbursements
on an "after-tax basis" and (3) as otherwise expressly provided herein.
15. LESSEE'S FAILURE TO PAY TAXES, INSURANCE, ETC. Should Lessee fail
to make any tax, insurance or other payment or do any act required to be
performed by Lessee as herein provided, Lessor shall have the right, but not the
obligation and without releasing Lessee from any obligation hereunder, to make
or do the same, and to pay, purchase, contest or compromise any Imposition that
in the judgement of Lessor appears to affect the Equipment, and, in exercising
any such rights, incur any liability and expend whatever amounts in its absolute
discretion Lessor may deem necessary therefor. All sums so incurred or expended
by Lessor (including any penalty incurred as a result of Lessee's failure to
perform such
<PAGE>
-13-
obligation or make such payment) shall be without demand immediately due and
payable by Lessee and shall be payable as Supplemental Rent.
16. DEFAULT AND REMEDIES.
(a) The occurrences of any of the following events shall
constitute an Event of Default hereunder, and shall permit Lessor to exercise
the remedies provided in Section 16(b) below, including the termination of
Lessee's right to possession of the Equipment:
(i) the nonpayment when due from Lessee of any installment of Rent
or any other sum required hereunder to be paid by Lessee which
nonpayment is not cured within 60 days;
(ii) the failure by Lessee to perform any other term, obligation,
covenant or condition of this Lease that is not cured within
60 days after such failure;
(iii) Lessee shall be in default under the terms of any other
written agreement with Lessor (or any Transferee) and Lessor
(or such Transferee) shall have declared a default and/or
begun to exercise remedies thereunder which default is not
cured within 60 days;
(iv) the subjection of a substantial part of Lessee's property or
any part of the Equipment to any Lien other than a Permitted
Lien which Lien is not removed within 60 days;
(v) in the event that (A) Lessee shall (1) authorize or agree to
the commencement of a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy,
insolvency, corporation, receivership or other similar Law now
or hereafter in effect that authorizes the reorganization or
liquidation of such party or its debt or the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, (2)
make a general assignment for the benefit of its creditors,
(3) fail generally or admit in writing its inability to pay
its debts as they become due, (4) take any corporate action to
authorize any of the foregoing or (5) have an involuntary or
other proceeding commenced against it seeking liquidation,
reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar Law now or
hereafter in effect, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period
exceeding 60 days; or (B) an
<PAGE>
-14-
order for relief pursuant to such applicable debtor/creditor
law shall have been entered against Lessee; or
(vi) if any representation or warranty made by the Lessee herein,
or made by the Lessee in any statement or certificate
furnished by the Lessee in connection with the execution of
this Lease or the delivery of any items of Equipment hereunder
or furnished by the Lessee pursuant hereto, proves untrue in
any material respect as of the date of the issuance or making
thereof (and Lessee hereby agrees that the falsity of its
representation set forth in Section 9(k) would be material);
(vii) The issuance of any writ or order of attachment or execution
or other legal process against any Equipment which is not
discharged or satisfied within sixty (60) days;
(viii) The occurrence of any event or condition described in
subsections (iii), (iv), (v) or (vi) hereof with respect to
any guarantor or any other party liable, in whole or in part,
for performance of any Lessee's obligations under this Lease.
(b) Upon the happening of any of the above Events of Default,
Lessor may declare this Lease in Default. Such declaration shall be by written
notice to Lessee and shall apply to all Equipment leased hereunder. Lessee
hereby authorizes Lessor at any time thereafter to enter with or without legal
process any premises where the Equipment may be and take possession thereof.
Lessee shall, without further demand, forthwith pay to Lessor an amount that is
equal to any unpaid Rent due on or before Lessor has declared this Lease to be
in Default plus, as liquidated damages for loss of a bargain and not as a
penalty, an amount equal to the stipulated Loss Value for the Equipment (as
defined in Schedule C hereto) on the date the Lessor shall declare this Lease in
Default (in each case together with any Excess Use Fee related thereto). After
Default, as and to the extent requested by Lessor, Lessee shall comply with the
provisions of Section 17 of this Lease. Lessor shall be entitled to sell the
Equipment at private or public sale within or without the United States, in bulk
or in parcels, with or without notice, without having the Equipment present at
the place of sale, with the privilege of becoming the purchaser thereof; and
Lessor shall be entitled to lease, otherwise dispose of or keep idle all or any
part of the Equipment, and Lessor may use Lessee's premises for any or all of
the foregoing without liability for rent, costs, damages or otherwise. The
proceeds of sale, lease or other disposition, if any, shall be applied (1) to
all Lessor's costs, charges and expenses incurred in taking, removing, holding,
repairing and selling, leasing or otherwise disposing of the Equipment
(including, without limitation, reasonable attorneys' fees, costs and
disbursements); then, (2) to the extent not previously paid by Lessee, to pay
Lessor the Stipulated Loss Value for the Equipment and all other sums then
payable by Lessee hereunder, including any unpaid Rent;
<PAGE>
-15-
then, (3) any remaining amounts shall be paid to Lessee. Lessee shall pay any
deficiency for amounts described in clauses (1) and (2) above forthwith. The
exercise of any of the foregoing remedies by Lessor shall not constitute a
termination of this Lease unless Lessor so notifies Lessee in writing.
No remedy referred to in this Section 16 is intended to be exclusive,
but each shall be cumulative and in addition to any other remedy referred to
above or otherwise available to Lessor at law or in equity.
17. SURRENDER OF EQUIPMENT. Upon the expiration or earlier termination
of this Lease with respect to any item of Equipment, Lessee shall, unless (i)
Lessee has paid Lessor in cash the Stipulated Loss Value of such Equipment
pursuant to Section 13 hereof, (ii) Lessee has acquired such Equipment pursuant
to Section 19 hereof or (iii) Lessor has abandoned such Equipment pursuant to
Section 19 hereof, return the same to Lessor in good repair, condition and
working order, ordinary wear and tear resulting from permitted use thereof under
the terms of this Lease alone excepted, to a location within or outside of the
continental United States specified by Lessor. Such Equipment shall be carefully
crated and shipped, freight, drayage and reassembly costs prepaid and properly
insured, by Lessee, and Lessee shall bear all risk of loss until the Equipment
is delivered to Lessor or its designee.
18. INDEMNITY. Lessee agrees to indemnify, defend, and hold harmless,
even if such claims are groundless, false or fraudulent, Lessor, any Transferee
and their respective agents and employees, from and against any and all Claims
(other than such as may directly and proximately result from the gross
negligence or wilful misconduct of Lessor, any Transferee or their respective
agents or employees), by paying (on an after-tax basis) or otherwise discharging
same, when and as such Claims shall become due, including, without limitation,
Claims arising on account of (a) this Lease or any other Lease Documents, or (b)
the Equipment, or any item or part thereof, including, without limitation, the
selection, ordering, acquisition, delivery, installation, return, rejection,
abandonment or other disposition of any item of Equipment, the possession,
maintenance, leasing, use, condition, ownership, operation or control of any
item of Equipment by whosoever owned, used or operated during the Term of this
Lease or the existence of latent and other defects (whether or not discoverable
or discovered by Lessor or Lessee). Lessor shall give Lessee prompt notice of
any Claim or liability hereby indemnified against and Lessee shall be entitled
to control the defense thereof; provided, however ,that (i) Lessor shall have
the right to approve or reject defense counsel selected by Lessee and any
settlement proposed by Lessee or its counsel and (ii) the defense of any Claim
relating to the payment of any tax, fee, assessment or other charge upon Lessor
or any Transferee shall be controlled by Lessor.
<PAGE>
-16-
19. PURCHASE AND SALE OPTIONS.
(a) On the Purchase Option Date, Lessee shall have the option,
upon at least sixty (60) days' prior irrevocable written notice to Lessor, to
purchase on such date all (but not less than all) Equipment from Lessor for a
purchase price equal to the Option Price. Upon such payment in full and payment
of any other amounts then due hereunder (including the costs of expenses of
Lessor, if any, in connection with such purchase), Lessor will transfer to
Lessee, without recourse or warranty and on a "WHERE IS, AS IS" basis, all of
Lessor's right, title and interest in and to the Equipment.
(b) At the expiration of the Primary Term, Lessee may, and
upon written notice Lessor may require Lessee to, purchase all of the Equipment
from Lessor for a sales price equal to $1.00. Upon such payment in full and
payment of any other amounts then due hereunder (including the costs and
expenses of Lessor, if any, in connection with such sale or transfer), Lessor
will transfer to Lessee, without recourse or warranty and on a "WHERE IS, AS IS"
basis, all of Lessor's right, title and interest in and to the Equipment.
<PAGE>
-17-
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly
executed, all as of the date first above written.
LESSOR:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
------------------------------
LESSEE:
FIVECOM, INC.
By: /s/ Victor Colantonio, President
--------------------------------
Name: Victor Colantonio
-----------------------------
Title: President
-----------------------------
<PAGE>
A-1
SCHEDULE A TO LEASE
-------------------
DEFINITIONS AND RULES OF CONSTRUCTION.
--------------------------------------
1. DEFINITIONS. The following terms, when capitalized as below, have
the following meanings:
"Amortization Expense": that portion of Basic Rent applied to the
amortization over the Term of the invoice cost to the Lessor of the Equipment,
as set forth on Schedule E to the Lease for each payment of Basic Rent.
"Applicable Law": any Law that may apply to (i) the Lessee or its
properties and operations, (ii) the operation, modification, maintenance,
ownership, leasing or use of the Equipment, or (iii) any transaction
contemplated under any Lease Document, including in each case any environmental
Law, federal or state securities Law, commercial Law (pertaining to the rights
and obligations of sellers, purchasers, debtors, secured parties, or to any
other pertinent matter), zoning, sanitation, siting or building Law, energy,
occupational safety and health practices Law or the Employee Retirement Income
Security Act of 1974, as amended, and any regulations promulgated thereunder.
"Basic Rent": the rental installments due from Lessee pursuant to
Section 3(b) of the Lease for the Interim Term and the Primary Term in the
amounts and on the dates as provided therein.
"Basic Rent Per Day": one thirtieth (1/30th) of the Basic Rent Per
Month.
"Basic Rent Payment Date": as set forth in the cover page to the Lease.
"Basic Rent Per Month": as set forth on the cover page to the Lease.
"Business Day": any day, other than a Saturday, Sunday or legal holiday
for commercial banks under the laws of the Commonwealth of Massachusetts (or
such other jurisdictions in the United States as Lessor specifies to Lessee by
at least 30 days' prior written notice).
"Capitalized Lessor's Cost": the amount specified in the Equipment
Schedule under the heading "capitalized lessor's cost."
"Claims": all claims, judgments, good faith settlements entered into,
suits, actions, debts, obligations, damages (whether incidental, consequential
or direct), demands (for compensation, indemnification, reimbursement or
otherwise), losses,
<PAGE>
A-2
penalties, fines, liabilities (including strict liability), charges that Lessor
has incurred or is responsible for in the nature of amounts for the use or
forbearance of money, Liens, and costs (including attorneys' fees and
disbursements and other legal or non-legal expenses of the investigation or
defense of any claim, whether or not such claim is ultimately defeated, or the
enforcement of the rights, remedies or indemnities provided for hereunder, or
otherwise available at law or in equity to Lessor), of whatever kind or nature,
contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, by
or against any Person.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"County Recording Office": as set forth in Schedule D to the Lease.
"Default": except when inconsistent with the context of any provision
hereof, an event that, but for the lapse of time or the giving of notice or
both, would constitute an Event of Default.
"Equipment": with respect to the Equipment Schedule, the property
described therein, together with all appliances, parts, instrument, accessories
and furnishings that are from time to time incorporated in the Equipment, or
having been so incorporated, are later removed therefrom, unless title thereto
is expressly released by Lessor, and all replacements of, and additions,
improvements and accessions to any and all of the foregoing, and all books,
records, maintenance logs and general intangibles (including all patents,
copyrights and trade secrets) relating thereto; and, when used in the context of
Lessor's title to the Equipment (whether relating to the creation, grant,
perfection, release, priority, enforcement or application of proceeds thereof),
shall also include all other property in which Lessor is granted a security
interest hereunder or under the Equipment Schedule.
"Equipment Expense": that portion of Basic Rent equivalent to Basic
Rent minus the Amortization Expense, as set forth on Schedule E to the Lease for
each payment of Basic Rent.
"Equipment Schedule": the Equipment Schedule that is attached as
Schedule B to the Lease.
"Event of Default": any event of default as specified in Section 16(a)
of the Lease.
"Excess Use Fee": the fee payable by Lessee for the continued use or
possession of the Equipment by the Lessee, which is payable if the Lessee has
not paid Rent when due and which shall equal 1-1/2% per month, or the highest
rate permitted by law, whichever is lower, on all overdue Rent from the due date
thereof until paid.
<PAGE>
A-3
"Financing Statement": a Uniform Commercial Code financing statement.
"Fixture Filing Office": as set forth in Schedule D to the Lease.
"GAAP": generally accepted accounting principles, applied consistently.
"Governmental Authority": any federal, state, county, municipal,
regional or other governmental authority, agency board, body, instrumentality or
court, in each case either domestic or foreign.
"Imposition": any title, recordation, documentary stamp or other fees,
taxes, assessments, charges or withholdings of any nature (together with any
penalties or fines thereon) arising at any time upon or relating to the
Equipment or to the Lease, or the delivery, acquisition, ownership, use,
operation, leasing or other disposition of such Equipment or upon the Rent
payable thereunder, whether the same be assessed to Lessor (or any Transferee)
or Lessee.
"Indemnification and Installation Certificate": the certificate of
Lessee in the form of Exhibit 1 to the Lease.
"Interim Term": the period from the date of the Lessee's acceptance of
the Equipment as evidenced by Lessee's Indemnification and Installation
Certificate to but not including the Primary Term Commencement Date.
"Law": any law, rule, regulation, ordinance, order, code, common law,
interpretation, judgment, directive, decree, treaty, injunction, writ,
determination, Permit or similar norm or decision of any Governmental Authority.
"Lease": the Full Payout Net Lease by and between Lessor and Lessee and
relating to the Equipment, as amended from time to time, including any exhibits,
schedules and riders thereto as provided in Section 21 thereof.
"Lease Documents": collectively, the Lease, the Indemnification and
Installation Certificate(s) and all instruments, documents, certificates and
agreements delivered pursuant hereto.
"Lien": any mortgage, pledge, lease, sublease, security interest,
attachment, charge, encumbrance or right or claim of others whatsoever
(including any conditional sale or other retention agreement).
"Option Price": as set forth in Schedule D to the Lease.
<PAGE>
A-4
"Permit": any action, approval, certificate of occupancy, consent,
waiver, exemption, variance, franchise, order, permit, authorization, right or
license, or other form of legally required permission, of or from a Governmental
Authority.
"Permitted Lien": (a) Lessor s and Lessee's respective rights, titles
and interests in the Equipment, (b) Liens for the benefit of mechanics,
materialmen, laborers, employees or suppliers and similar Liens arising by
operation of Law and incurred by Lessee in the ordinary course of business for
sums that are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings that suspend the collection and
enforcement thereof (provided that the existence of such Lien while such
negotiations or proceedings are pending does not involve any substantial risk
(as determined by Lessor in its discretion) of the sale, forfeiture or loss of
the Equipment or any therein, and for which adequate reserves have been provided
in accordance with GAAP), and (c) Liens arising out of any judgments or awards
against Lessee that have been adequately bonded to protect Lessor's interests or
with respect to which a stay of execution has been granted pending an appeal or
a proceeding for review and (d) Liens expressly authorized by the terms of the
Collateral Assignment between Lessor and Lessee of even date herewith.
"Person": any individual, corporation, partnership, joint venture, or
other legal entity or a Governmental Authority.
"Primary Term": as set forth on the cover page to the Lease.
"Primary Term Commencement Date": as set forth on the cover page to the
Lease.
"Primary Term Expiration Date": as set forth on the cover page to the
Lease.
"Purchase Option Date": as set forth in Schedule D to the Lease.
"Rent": collectively, the Basic Rent and the supplemental Rent.
"State Filing Office": as set forth in Schedule D to the Lease.
"Stipulated Loss Value": with respect to each item of Equipment listed
in the Equipment Schedule, the product of the Capitalized Lessor's Cost of such
item and the applicable percentage set forth on the Schedule of Stipulated Loss
Value attached as Schedule C to the Lease.
"Supplemental Rent": all amounts, liabilities and obligations (other
than Basic Rent) that Lessee assumes or agrees to pay to Lessor or others
hereunder, or under any other Lease Document, including, without limitation,
Stipulated Loss Value, the
<PAGE>
A-5
purchase price for the Equipment pursuant to Section 19 of the Lease and
payments constituting indemnities, reimbursements, expenses, Excess Use Fees and
other charges payable pursuant to the terms of any Lease Document.
"Supplier": the person from whom Lessor is purchasing or has purchased
the Equipment.
"Supply Contract": any written contract from the Supplier of the
Equipment or any item thereof, pursuant to which Lessor has purchased such
Equipment (or item thereof) for lease to Lessee under an Equipment Schedule.
"Term": the period for which Equipment is leased under the Lease,
including the Interim Term and the Primary Term.
"Total Invoice Cost": with respect to each item of Equipment set forth
in the Equipment Schedule, the amount specified as such thereon.
"Total Loss": for any item of Equipment, the occurrence of any of the
following: (i) the actual or constructive total loss of such item of the
Equipment; or (ii) the loss, disappearance theft or destruction of such item of
the Equipment; or (iii) damage to such item of the Equipment to such extent as
shall make repair thereof uneconomical, or shall render any item of the
Equipment permanently unfit for normal use, for any reason whatsoever; or (iv)
the condemnation, confiscation, requisition, seizure, forfeiture or other taking
of title to or use of such item of the Equipment; or (v) as a result of any Law
or other action taken by any Governmental Authority, the use of such item of
Equipment in the normal course of Lessee's business shall have been prohibited
(1) indefinitely or (2) for a period (A) in excess of 60 days or (B) that
extends beyond the then existing Term; all of the foregoing, to the extent
established to the reasonable satisfaction of Lessor.
"Transfer": any transfer or other agreement pursuant to which Lessor or
Transferee has transferred or agreed to pay any Person the Rent, or a portion
thereof, received from Lessee pursuant to the Lease, which obligation may be
secured by Lessor's interest in the Lease and the Equipment.
"Transferee": any Person to whom Lessor or any subsequent transferee
thereof has assigned any or all of its rights, obligations, title and/or
interest under the Lease.
"Uniform Commercial Code" or "UCC": the Uniform Commercial Code as in
effect in Massachusetts or in any other pertinent jurisdiction; and any
reference to an article or section thereof shall mean the corresponding article
or section (however named) of any such other applicable version of the Uniform
Commercial Code.
<PAGE>
A-6
2. RULES OF CONSTRUCTION. Any defined term used in the singular
preceded by "any" indicates any number of the members of the relevant class. Any
Lease Document or other agreement or instrument referred to herein means such
agreement or instrument as supplemented and amended from time to time. Any
reference to Lessor or Lessee shall include their permitted successors and
assigns. Any reference to a Law or Permit shall also mean such Law or Permit as
amended, superseded or replaced from time to time. Unless otherwise expressly
provided to the contrary in the Lease, all actions that Lessee takes or is
required to take under this Lease or any other Lease Document shall be taken at
Lessee's sole cost and expense, and all such costs and expenses borne by Lessor
shall constitute Claims and shall be covered by Sections 14 and 18 of the Lease.
3. INTEGRATION. Lessor and Lessee agree that the definitions and rules
of construction herein shall constitute an integral part of this Lease.
<PAGE>
Lease No. 316
SCHEDULE B
<TABLE>
<CAPTION>
Vendor Quantity Description Capitalized Lessor's Cost
- ------ -------- ----------- -------------------------
<S> <C> <C> <C>
New England
Office 1 60X30 Desk $1,076.25
Warehouse
1 Credenza
3 Chairs
Office Furniture 2 Gray Flat files 3,051.50
Bargain Center
1 Grey base
8 Global Chairs
1 8' Conference table
Main Board Co. 1 586 DX 90 System pentium 2,758.35
1 Intel PCI Pentium Main
Board S/N 5930
1 Diamond Ste. Ath 64wlzm
vram S/N 3504
1 CPU S/N 854
1 w. Digital 730 MB IDE HDD
S/N 6518
2 8 Meg/ 2 X 32 ram
1 3.5" mitsumi FDD s/n 4263
1 heat sink w/fan
1 Mouse
1 Mini tower
1 Keyboard
1 15" Mag 15F SVGA Monitor
Comp USA 1 Laptop S/N 2,791.77
Compaq 1 Memory Card 581.00
2 Data and Fax Modem
</TABLE>
-1-
<PAGE>
NorthEast Utility Collateral Assignment 489,741.13
Including all accessions, additions, attachments, replacements, improvements,
repairs, substitutions and accessories thereto.
<TABLE>
<S> <C>
Total Capitalized Lessor's Cost: $500,000.00
Lessee: Lessor:
FiveCom, Inc. Applied Telecommunications Technologies, Inc.
By: /s/ Victor Colantonio By:
----------------------------- -----------------------------------------
Title: President Title:
-------------------------- --------------------------------------
</TABLE>
-2-
<PAGE>
Schedule C To Lease
-------------------
Stipulated Loss Value
---------------------
The Stipulated Loss Value with respect to the Equipment or any item of
the Equipment shall be an amount equal to the product of (i) the Capitalized
Lessor's Cost of such Equipment or item of Equipment as set forth in Schedule B
to the Lease multiplied by (ii) the applicable Stipulated Loss Value Percentage
set forth below opposite the "Stipulated Loss Value Date" on which such
"Stipulated Loss Value Payment" occurs.
<TABLE>
<CAPTION>
Stipulated Loss Stipulated Loss Stipulated Loss Stipulated Loss
Value Date Value Percentage Value Date Value Percentage
---------- ---------------- --------------- ----------------
<S> <C> <C> <C>
Before the 1st Basic Rent 105.00%
Payment Date
After the following Basic Rent
Payment Dates:
1 102.35% 25 58.78%
2 100.75% 26 56.70%
3 99.13% 27 54.61%
4 97.50% 28 52.49%
5 95.84% 39 50.35%
6 94.17% 30 48.19%
7 92.49% 31 46.01%
8 90.78% 32 43.80%
9 89.05% 33 41.56%
10 87.31% 34 39.30%
11 85.55% 35 37.02%
12 83.77% 36 34.71%
13 81.97% 37 32.38%
14 80.15% 38 30.02%
15 78.31% 39 27.64%
16 76.45% 40 25.23%
17 74.57% 41 22.80%
18 72.67% 42 20.34%
19 70.75% 43 17.85%
20 68.80% 44 15.33%
21 66.84% 45 12.79%
22 64.86% 46 10.22%
23 62.85% 47 7.63%
24 60.82% 48 0.00%
</TABLE>
-3-
<PAGE>
SCHEDULE D TO LEASE
MISCELLANEOUS INFORMATION
1. Lessor's wire transfer information: Marine Midland Bank, N.A.
One Marine Midland Plaza
Rochester, New York 14639
ABA # 021001088
Acct. #590-83810-5
2. Name and Address of State Filing Once: Secretary of State of MA, Boston, MA
3 Name and Address of Town Recording Office: Waltham MA, Wellesley, MA
4. Purchase Option date: February 28, 1999
-4-
<PAGE>
EXHIBIT I TO LEASE
INDEMNIFICATION AND INSTALLATION CERTIFICATE
_________________________ ___, 19__
TO: Applied Telecommunications Technologies, Inc.
20 William Street
Wellesley, MA 02181
Gentlemen:
This Indemnification and Installation Certificate is issued pursuant to
that certain Full Payout Net Lease, dated ________ , 19 ___, Lease No._________
, (the "Lease") between Applied Telecommunications Technologies, Inc., as
Lessor, and the undersigned, as lessee (the "Lessee"), and evidences delivery to
and acceptance by Lessee of the equipment described on Schedule B attached
hereto (the "Equipment") pursuant to the Lease calling for Basic Rent Per Day in
the amount of $__________ and Basic Rent Per Month in the amount of $_________,
commencing in accordance with the payment dates as described in the Lease.
Capitalized terms used but not defined herein shall have the respective
meanings assigned therefor in Schedule A to the Lease.
We confirm to you as follows:
1. The Commencement Date of the Interim Term of the Lease is the date
of this Certificate. All of the Equipment has been delivered to and has been
received by the undersigned; all installation or other work necessary prior to
the use thereof has been completed; the Equipment has been examined and/or
tested and is in good operating order and condition and is in all respects
satisfactory to the undersigned as represented; the Equipment is new and unused
(unless otherwise noted below) and has not been placed in service prior to the
date of this Certificate; the Equipment has been accepted by the undersigned and
complies with all terms of the Lease Documents; and the Equipment has been
marked and labeled to show the interests of Lessor or its assigns.
2. In the future, in the event that the Equipment fails to perform as
expected or represented or in the event that the undersigned shall have a claim
or defense against the Lessor of said Equipment, whether by breach of the Lease
or otherwise, we will continue to honor the Lease by continuing to make our
rental payments in the normal course of business and we indemnify any
Transferees, their successors and assigns and hold them harmless from such
nonperformance of the Equipment.
<PAGE>
3. Lessee further confirms that the representations and warranties of
Lessee contained in the Lease are true and accurate as of the date hereof as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date) and that no
event has occurred and is continuing which constitutes a Default or an Event of
Default under the Lease.
(Signature of individual or name of
corporation or partnership)
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
Schedule E
FiveCom, Inc., Lease No. 316
Assumptions
- -----------
Gross equipment cost $500,000.00
Number of warrants received 8,816
Price per warrant $1.82
Total cost of warrants $16,045.12
Net amount loaned $483,954.88
Lease term 48 months
12 days
Repayment term 47 months
13 days
Balloon payment (5%) $25,000.00
Stated annual lease rate 13.0000%
Advance (1) or Arrears (0) Advance
Interim payment per diem 1/30 x basic monthly
payment (due with first
payment)
Basic monthly payment $13,269.99
<TABLE>
<CAPTION>
Day Pmt Payment Equipment Amortization
No. Amount Expense Expense
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
17-Feb 0.00 224.09 (224.09)
18-Feb 0.00 224.09 (224.09)
19-Feb 0.00 224.09 (224.09)
20-Feb 0.00 224.09 (224.09)
21-Feb 0.00 224.09 (224.09)
22-Feb 0.00 224.09 (224.09)
23-Feb 0.00 224.09 (224.09)
24-Feb 0.00 224.09 (224.09)
25-Feb 0.00 224.09 (224.09)
26-Feb 0.00 224.09 (224.09)
27-Feb 0.00 224.09 (224.09)
28-Feb 0.00 224.09 (224.09)
3/1/95 1 18,577.99 224.09 18,353.90
4/1/95 2 13,269.99 6,530.71 6,739.28
5/1/95 3 13,269.99 6,436.72 6,833.27
6/1/95 4 13,269.99 6,341.43 6,928.56
7/1/95 5 13,269.99 6,244.80 7,025.19
<PAGE>
Day Pmt Payment Equipment Amortization
No. Amount Expense Expense
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
8/1/95 6 13,269.99 6,146.83 7,123.16
9/1/95 7 13,269.99 6,047.49 7,222.50
10/1/95 8 13,269.99 5,946.77 7,323.22
11/1/95 9 13,269.99 5,844.64 7,425.35
12/1/95 10 13,269.99 5,741.09 7,528.90
1/1/96 11 13,269.99 5,636.09 7,633.90
2/1/96 12 13,269.99 5,529.63 7,740.36
3/1/96 13 13,269.99 5,421.68 7,848.31
4/1/96 14 13,269.99 5,312.23 7,957.76
5/1/96 15 13,269.99 5,201.25 8,068.74
6/1/96 16 13,269.99 5,088.73 8,181.26
7/1/96 17 13,269.99 4,974.63 8,295.36
8/1/96 18 13,269.99 4,858.95 8,411.04
9/1/96 19 13,269.99 4,741.65 8,528.34
10/1/96 20 13,269.99 4,622.71 8,647.28
11/1/96 21 13,269.99 4,502.12 8,767.87
12/1/96 22 13,269.99 4,379.84 8,890.15
1/1/97 23 13,269.99 4,255.86 9,014.13
2/1/97 24 13,269.99 4,130.15 9,139.84
3/1/97 25 13,269.99 4,002.69 9,267.30
4/1/97 26 13,269.99 3,873.45 9,396.54
5/1/97 27 13,269.99 3,742.41 9,527.58
6/1/97 28 13,269.99 3,609.53 9,660.45
7/1/97 29 13,269.99 3,474.81 9,795.18
8/1/97 30 13,269.99 3,338.21 9,931.78
9/1/97 31 13,269.99 3,199.70 10,070.29
10/1/97 32 13,269.99 3,059.26 10,210.73
11/1/97 33 13,269.99 2,916.87 10,353.12
12/1/97 34 13,269.99 2,722.48 10,497.51
1/1/98 35 13,269.99 2,626.09 10,643.90
2/1/98 36 13,269.99 2,477.65 10,792.34
3/1/98 37 13,269.99 2,327.14 10,942.85
4/1/98 38 13,269.99 2,174.53 11,095.46
5/1/98 39 13,269.99 2,019.80 11,250.19
6/1/98 40 13,269.99 1,862.90 11,407.09
7/1/98 41 13,269.99 1,703.82 11,566.17
8/1/98 42 13,269.99 1,542.52 11,727.47
9/1/98 43 13,269.99 1,378.97 11,891.02
<PAGE>
Day Pmt Payment Equipment Amortization
No. Amount Expense Expense
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
10/1/98 44 13,269.99 1,213.14 12,056.85
11/1/98 45 13,269.99 1,045.00 12,224.99
12/1/98 46 13,269.99 874.51 12,395.48
1/1/99 47 13,269.99 701.64 12,568.35
2/1/99 48 38,269.99 526.37 37,743.62
TOTALS: 667,267.50 183,312.62 483,954.88
</TABLE>
<PAGE>
ATTI Lease Amortization and OID Calculation
FiveCom, Inc., Lease No. 316
Assumptions:
- ------------
Gross equipment cost $500,000.00
Number of warrants received 8,816
Price per warrant $1.82
Total cost of warrants $16,045.12
Net amount loaned $483,954.88
Lease term 48 months
12 days
Repayment term 47 months
13 days
Balloon payment (5%) $25,000.00
Stated annual lease rate 13.0000%
Advance (1) or Arrears (0) Advance
Interim payment per diem 1/30 x basic monthly
payment (due with first
payment)
Basic monthly payment $13,269.99
Yield to maturity (monthly) 1.3946%
Annual yield to maturity 18.0602%
Issue price $483,954.88
<PAGE>
<TABLE>
<CAPTION>
Payment and Tax Reporting Schedule Amortization of Gross Equipment Cost
---------------------------------- ------------------------------------
Adjusted
Pmt Payment Equipment Amortization Issue Stipulated
Day No. Amount Expense Expense Price "Principal" "Interest" "Balance" loss Value
- ----------- ------ ------------ ------------ ------------- ---------------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
17-Feb 0.00 224.09 (224.09) 484,178.97 0.00 0.00 500,000.00 105.00
18-Feb 0.00 224.09 (224.09) 484,403.06 0.00 0.00 500,000.00 105.00
19-Feb 0.00 224.09 (224.09) 484,627.15 0.00 0.00 500,000.00 105.00
20-Feb 0.00 224.09 (224.09) 484,851.24 0.00 0.00 500,000.00 105.00
21-Feb 0.00 224.09 (224.09) 485,075.33 0.00 0.00 500,000.00 105.00
22-Feb 0.00 224.09 (224.09) 485,299.42 0.00 0.00 500,000.00 105.00
23-Feb 0.00 224.09 (224.09) 485,523.51 0.00 0.00 500,000.00 105.00
24-Feb 0.00 224.09 (224.09) 485,747.60 0.00 0.00 500,000.00 105.00
25-Feb 0.00 224.09 (224.09) 485,971.69 0.00 0.00 500,000.00 105.00
26-Feb 0.00 224.09 (224.09) 486,195.78 0.00 0.00 500,000.00 105.00
27-Feb 0.00 224.09 (224.09) 486,419.87 0.00 0.00 500,000.00 105.00
28-Feb 0.00 224.09 (224.09) 486,643.96 0.00 0.00 500,000.00 105.00
</TABLE>
Exhibit 10.14
LEASE
Date: April 3, 1995 Lease No. 317
Lessor:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
20 William Street
Wellesley, MA 02181
Attn: Susanne O'Donnell
(617) 239-7600 Phone (617) 239-0377 Fax
Lessee:
FiveCom, Inc.
391 Totten Pond Road
Waltham, MA 02154
Attention:Victor Colantonio
Phone: 617/890-6868
Equipment Location: See Schedule B
County: Middlesex Federal ID No.04-3056279
Equipment: See Schedule B Capitalized
Lessor's Cost: $500,000.00
Primary Term: Basic Rent:
PRIMARY TERM BASIC RENT PER MONTH: $13,269.99
COMMENCEMENT DATE: excepting the final payment of Basic
May 1, 1995 Rent, which is $38,269.99
PRIMARY TERM
EXPIRATION DATE: April 30, 1999
PAYMENT DATES:
BASIC RENT PAYMENT DATES: The 1st day of each month, beginning with
May 1, 1995.
<PAGE>
1. DEFINITIONS AND RULES OF CONSTRUCTION. Unless the context shall
otherwise require, capitalized terms used herein, but not otherwise defined
herein, shall have the respective meanings specified in Schedule A attached
hereto, which is hereby incorporated by reference.
2. LEASE. Lessee hereby agrees to lease from the Lessor, and Lessor, by
acceptance of this Lease, agrees to lease to Lessee, the Equipment. Lessee
agrees that it shall, pursuant to the terms hereof, comply with all of the terms
and conditions herein.
3. TERM AND RENT; OBLIGATIONS UNCONDITIONAL. (a) The Equipment is
leased for the Interim Term and the Primary Term, unless and until the Term of
this Lease shall sooner expire pursuant to the terms hereof. The Interim Term
shall commence on the date of acceptance of such Equipment as evidenced by
Lessee's Indemnification and Installation Certificate as provided in Section 9
hereof and shall expire at midnight on the date that is one calendar day prior
to the Primary Term Commencement Date. The Primary Term shall commence at 12:01
a.m. and expire at midnight on the dates set forth on the cover page hereof as
the "Primary Term Commencement Date" and the "Primary Term Expiration Date,"
respectively.
(b) Lessee shall pay to Lessor or an agent designated by
Lessor or any Transferee in writing, in lawful money of the United States, (i)
as fixed rent for the Equipment during the Interim Term, the Basic Rent Per Day
multiplied by number of calendar days (full or partial) in the Interim Term on
the first Basic Rent Payment Date and (ii) as fixed rent for the Equipment
during the Primary Term, (A) the Basic Rent Per Month on each Basic Rent Payment
Date and (B), on the final Basic Rent Payment Date, an amount equal to five
percent (5% ) of the Capitalized Lessor's Cost of the Equipment; provided,
however, that if the first Basic Rent Payment Date is also the Primary Term
Commencement Date, Lessee shall pay all Basic Rent Per Day and the first
installment of Basic Rent Per Month on the date that the Lessee delivers its
Indemnification and Installation Certificate. All payments of Basic Rent shall
be made by wire transfer to Lessor's account as set forth in Schedule D attached
hereto, which is hereby incorporated by reference, or at such other address or
to such other Person and in such other manner as Lessor, from time to time, may
designate. Each payment of Basic Rent shall be apportioned between the Equipment
Expense and the Amortization Expense for the Equipment as specified in Schedule
E, which schedule is hereby incorporated by reference.
(c) Lessee shall also pay to Lessor or an agent designated by
Lessor or any Transferee in writing, in lawful money of the United States, all
Supplemental Rent. Supplemental Rent shall be paid when due or on demand if
there is no due date therefor. If Lessee shall fail to pay any Supplemental
Rent, Lessor shall have the right to pay the same and shall have all rights,
powers and remedies for reimbursement from Lessee with respect thereto as are
provided herein (including, without limitation, Sections 14 and 15 hereof) or by
Law in the case of non-payment of Basic Rent. Lessee shall also pay to Lessor
the Excess Use Fee on all overdue Rent from the due date
<PAGE>
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thereof until paid. Lessee shall perform all of its obligations under this Lease
at its sole cost and expense, and shall pay all Rent when due, without further
notice or demand.
(d) This Lease is a net lease and Lessee acknowledges and
agrees that Lessee's obligation to pay all Rent and other sums payable
hereunder, and the rights of Lessor in and to such payments, shall be absolute
and unconditional and shall not be subject to any abatement, reduction, setoff,
defense, counterclaim or recoupment due to or alleged to be due to, or by reason
of, any past, present or future claims that Lessee may have against Lessor, any
Transferee, the manufacturer or Supplier of the Equipment or any Person for any
reason whatsoever.
4. PERSONAL PROPERTY; SECURITY INTEREST AND LIENS.
(a) Lessee covenants and agrees that the Equipment is, and
shall at all times be and remain, personal or movable property. If requested by
Lessor, Lessee shall obtain prior to delivery of any item of Equipment or at any
other time reasonably requested by Lessor, a certificate in form satisfactory to
Lessor from all parties with a real property interest in the premises where the
Equipment may be located waiving any claim with respect to the Equipment.
(b) During the Term of this Lease and until (i) Lessee
acquires such Equipment pursuant to Section 19 hereof or (ii) Lessee returns the
Equipment to Lessor in compliance with Section 17 hereof, Lessor shall retain
title to such Equipment; provided, however, that Lessee and Lessor acknowledge
that transactions documented hereunder shall not constitute a "lease" or a "true
lease," and instead shall constitute a "lease intended as security," or
"security interest," as the case may be, under Applicable Law (including under
Section 1-201(37) of the UCC). In furtherance thereof, in order to secure the
prompt payment and performance as and when due of all of Lessee's obligations
hereunder, Lessee hereby grants to Lessor security interest in the Equipment
leased hereunder and all replacements, substitutions, accessions thereto, and
proceeds (cash and non-cash) thereof, including the proceeds of all insurance
policies on the Equipment. Lessee agrees that, with respect to the Equipment,
Lessor shall have all of the rights and remedies of a secured party under the
UCC. Lessee may not dispose of any of the Equipment except to the extent
expressly provided herein.
(c) Lessee shall not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to any of the Equipment,
title thereto or any interest therein, except Permitted Liens. Lessee shall
notify Lessor immediately in writing upon receipt of notice of any Lien
affecting the Equipment in whole or in part, and shall, at its own cost and
expense, defend Lessor's title therein and Lessor's first priority security
interest with respect thereto against all Persons holding or claiming to hold
such a Lien on the Equipment; and any losses, expenses or costs suffered by
Lessor as a result thereof shall be covered by the Lessee's indemnity in Section
18 hereof.
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(d) Lessee shall not move any tangible Equipment or permit any
tangible Equipment to be moved from the address set forth on the cover page
hereof without Lessor's prior written consent; provided, however, that in no
event shall any Equipment be moved to any location outside the United States of
America or to any jurisdiction within the United States of America that has not
adopted the UCC.
5. INSTALLATION, DEINSTALLATION, MAINTENANCE AND REPAIR. At all times
during the Term of this Lease, Lessee shall be solely responsible, at its own
expense, for the delivery, installation, maintenance, repair, use, possession,
operation, storage, deinstallation, and drayage of the Equipment by a party
acceptable to Lessor, and shall keep the Equipment in good repair, condition and
working order, and shall furnish any and all parts, mechanisms and devices
required to keep the Equipment in good repair, condition and working order, all
at the expense of Lessee. Lessee shall not make any alterations or additions to
the Equipment without the prior written consent of Lessor. All parts furnished
and all additions made to and all substitutions and replacements for the
Equipment shall immediately upon the installation thereof be deemed part of the
Equipment and become the property of Lessor subject to the terms of this Lease.
At all times during the Term of this Lease, Lessee shall maintain at its own
cost and expense in effect a comprehensive maintenance and servicing agreement
with respect to each item of the Equipment with the manufacturer or Supplier
thereof or such other party as may be acceptable to Lessor. Lessor shall be
entitled to inspect the Equipment at the location thereof during normal business
hours.
6. USE. Lessee shall use the Equipment in a careful and proper manner
and shall comply with and conform to all Applicable Laws and insurance and/or
maintenance requirements. Lessee shall not use the Equipment for any purpose
other than that for which it was designed. Lessor shall have the right to remove
the Equipment from the premises where located if the Equipment is, in the sole
discretion of Lessor, used beyond its capacity or in any manner improperly cared
for or abused.
7 QUIET ENJOYMENT. So long as no Event of Default has occurred and is
continuing hereunder and subject to Section 6 hereof Lessor warrants peaceful
and quiet use and enjoyment of the Equipment by Lessee against acts of Lessor.
8. ACCEPTANCE, WARRANTIES, LIMITATION OF LIABILITY. LESSEE HEREBY
ACKNOWLEDGES AND AGREES THAT: THE EQUIPMENT, AND THE RIGHTS, TITLE AND INTEREST
BEING CONVEYED HEREIN WITH RESPECT THERETO, ARE BEING CONVEYED AND DELIVERED TO
LESSEE "AS IS" AND "WHERE IS" WITHOUT ANY RECOURSE TO LESSOR AND LESSOR HAS NOT
MADE, AND HEREBY DISCLAIMS, LIABILITY FOR, AND LESSEE HEREBY WAIVES ALL RIGHTS
AGAINST LESSOR RELATING TO, ANY AND ALL WARRANTIES, GUARANTIES, REPRESENTATIONS
OR OBLIGATIONS OF ANY KIND WITH RESPECT THERETO, EITHER EXPRESS OR IMPLIED OR
ARISING BY APPLICABLE LAW OR OTHERWISE, INCLUDING (A) ANY EXPRESS OR IMPLIED
WARRANTIES,
<PAGE>
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GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF, ARISING FROM OR IN (1)
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (2) COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (3) QUALITY OF WORKMANSHIP OR
THE PROVISIONS OF ANY SUPPLY CONTRACT WITH SUPPLIER OR (4) TORT (WHETHER OR NOT
ARISING FROM THE ACTUAL, IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR STRICT
LIABILITY) OR UNDER THE UCC OR OTHER APPLICABLE LAW WITH RESPECT TO THE
EQUIPMENT, INCLUDING TITLE THERETO (INCLUDING ANY WARRANTY OF GOOD OR MARKETABLE
TITLE OR FREEDOM FROM LIENS), FREEDOM FROM TRADEMARK, PATENT OR COPYRIGHT
INFRINGEMENT, LATENT DEFECTS (WHETHER OR NOT DISCOVERABLE), CONDITION,
MANUFACTURE, DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW AND (B) ALL
OBLIGATIONS, LIABILITY, RIGHTS AND REMEDIES, HOWSOEVER ARISING UNDER ANY
APPLICABLE LAW WITH RESPECT TO THE MATTERS WAIVED AND DISCLAIMED, INCLUDING FOR
LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE EQUIPMENT, OR ANY LIABILITY
OF LESSEE OR LESSOR TO ANY THIRD PARTY, OR ANY OTHER DIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (AS SUCH TERMS ARE USED IN SECTION 2-719(3) OF THE UCC, OR
OTHER APPLICABLE LAW); all such risks, as between Lessor and Lessee, are to be
borne by Lessee. Lessee acknowledges and agrees that the Equipment has been
selected by Lessee on the basis of its own judgment, and Lessee has not asked
for, been given or relied upon the skill or opinion of, or any statements,
representations, guaranties or warranties by, Lessor or its agents or
representatives in relation thereto. Lessee understands and acknowledges that
Lessor is not in the business of manufacturing, assembling or supplying
Equipment or otherwise in the business of being a vendor but is instead
providing financial accommodations, including lease financing. Lessee has
examined the Equipment and delivered to Lessor its Indemnification and
Installation Certificate therefor. The Equipment is not to be used, and is not
being acquired hereby, for use in any respect for Lessee's or any other Person's
personal or family purposes and, as such, the Equipment does not constitute
"consumer goods" as such term is defined under Applicable Law. Lessor's
agreement to enter into this Lease is in reliance upon the freedom from
liability or responsibility for the matters waived and disclaimed herein. THE
PROVISIONS OF THIS SECTION 8 HAVE BEEN NEGOTIATED BY LESSOR AND LESSEE AND,
EXCEPT FOR THE WARRANTY MADE BY LESSOR IN SECTION 7 HEREOF, ARE INTENDED TO
CONSTITUTE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS, GUARANTIES,
OBLIGATIONS OR WARRANTIES OF LESSOR, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT AND THE RIGHTS, TITLE AND INTEREST BEING CONVEYED HEREIN WITH RESPECT
THERETO THAT MAY ARISE PURSUANT TO ANY APPLICABLE LAW NOW OR HEREAFTER IN
EFFECT. (LESSEE'S INITIALS VC)
Lessee agrees that the only representations, warranties, guaranties or
indemnities made with respect to the Equipment are those made by the Supplier
thereof. Provided that no Default or Event of Default has occurred and is
continuing hereunder, Lessor:
<PAGE>
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(i) shall cooperate fully with Lessee with respect to the resolution of any
claims by Lessee against Supplier with respect to an item of Equipment, in good
faith and by appropriate proceedings at Lessee's expense, (ii) subject to the
initial proviso of this sentence, hereby assigns to Lessee, for and during the
Term of this Lease, any applicable warranties, indemnities or other rights under
any Supply Contracts (excluding any refunds or other similar payments reflecting
a decrease in the value of any such Equipment, which amount shall be received by
and paid to Lessor, for application to Lessee's obligations to pay Rent for such
Equipment), and (iii) hereby authorizes Lessee to obtain all services,
warranties or amounts from the Supplier of such Equipment to be used to repair
such Equipment (and such amounts shall be used by Lessee to repair such
Equipment). Lessee understands, acknowledges and agrees that neither Supplier
nor its salesmen or agents is an agent of Lessor or authorized to waive, alter
or add to any provision of this Lease.
9. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants for
the benefit of Lessor:
(a) Lessee is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
is duly qualified to do business and is in good standing in the jurisdiction(s)
where the Equipment will be located and has adequate corporate power to enter
into and perform this Lease.
(b) This Lease has been duly authorized, executed and
delivered by Lessee and constitutes a valid, legal and binding agreement of
Lessee, enforceable in accordance with its terms.
(c) The entering into and performance of this Lease by Lessee
will not violate any Applicable Law or any provision of Lessee's charter or
bylaws or result in any breach of, or constitute a default under, or result in
the creation of any Lien upon any assets of Lessee, or on the Equipment pursuant
to any instrument or Applicable Law to which Lessee is a party or by which it or
its assets may be bound.
(d) There are no pending or threatened actions or proceedings
to which Lessee is a party, or otherwise affecting Lessee, before any Government
Authority, which, either individually or in the aggregate, would adversely
affect the financial condition of Lessee, or the ability of Lessee to perform
its obligations under, or comply with the terms of, the Lease Documents.
(e) Other than to Lessor, Lessee is not in default under any
obligation for the payment of borrowed money, for the deferred purchase price of
property or for the payment of any rent under any lease agreement which, either
individually or in the aggregate, would adversely affect the financial condition
of Lessee, or the ability of Lessee to perform its obligations under, or comply
with the terms of, the Lease Documents.
<PAGE>
- 7 -
(f) No consent, approval or other authorization of or by any
Governmental Authority is required in connection with the execution, delivery or
performance by Lessee of, or the consummation by Lessee of the transactions
contemplated by, this Lease.
(g) With respect to the Equipment, under the Applicable Law of
the state(s) in which such Equipment is to be located, such Equipment consists
solely of personal property and not fixtures.
(h) The financial statements of Lessee that have been provided
to Lessor have been prepared in accordance with GAAP, and fairly present
Lessee's financial condition and the results of its operations as of the date of
and for the period covered by such statements, and since the date of such
statements there has been no material adverse change in such conditions or
operations.
(i) The address of Lessee as set forth on the cover page
hereof is the chief place of business and chief executive off ice (which terms
shall have the meanings ascribed therefor in Article 9 of the UCC) of Lessee;
and Lessee does not conduct business under any trade, assumed or fictitious
name.
(j) With respect to the Equipment, no filing, recordation or
registration of any Financing Statement or other document or instrument was or
is necessary in order to cause Lessor to have good, valid and enforceable title
with respect thereto and, without limiting the generality of the foregoing, upon
the last to occur of (1) Lessor's payment of the Total Invoice Cost (or any
portion thereof) of any item of Equipment to Lessee or any Supplier as the case
may be and (2) the filing of a Financing Statement in the State Filing Office,
County Filing Office and, if applicable, the Fixture Filing Office (naming
Lessee as debtor and Lessor as secured party and describing such item of
Equipment), Lessor will have a valid, perfected, first priority security
interest in such item of Equipment pursuant to the UCC and other Applicable Law.
(k) For purposes of Federal, state and local income tax laws:
(i) Lessee (and not Lessor or any Transferee) will be treated as the owner of
the Equipment; and (ii) all payments made by Lessee to Lessor or any Transferee
will constitute returns of capital and/or payments for the use or forbearance of
money.
(l) Lessee has obtained all Permits necessary to possess and
use the Equipment in compliance with and as contemplated by this Lease.
(m) If requested by Lessor, Lessee will provide an opinion of
counsel and other supporting documents to the foregoing effect and with respect
to such other legal matters as Lessor may request.
10. COVENANTS OF LESSEE. Lessee covenants and agrees as follows:
<PAGE>
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(a) Lessee will, if requested by Lessor, furnish Lessor (i)
within one hundred twenty (120) days after the end of each fiscal year of
Lessee, a balance sheet of Lessee as at the end of such year, and the related
statements of income and retained earnings and cash flows of Lessee for such
fiscal year, prepared in accordance with GAAP, all in reasonable detail and
certified by independent certified public accountants of recognized standing
selected by Lessee; (ii) within sixty (60) days after the end of each quarter of
Lessee's fiscal year a balance sheet of Lessee as at the end of such quarter,
and the related statement of income and retained earnings and cash flows of
Lessee for such quarter, prepared in accordance with GAAP; and (iii) within
thirty (30) days after the date on which they are filed, all regular periodic
reports, forms and other filings required to be made by Lessee to the Securities
and Exchange Commission, if any.
(b) Lessee will promptly execute and deliver to Lessor such
further documents, instruments and assurances and take such further action as
Lessor from time to time may reasonably request in order to carry out the intent
and purpose of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor hereunder and under the
other Lease Documents.
(c) Lessee shall provide written notice to Lessor: (i) thirty
(30) days prior to any contemplated change in the name or address of Lessee;
(ii) promptly upon the occurrence of any Default or Event of Default; (iii) of
the commencement of proceedings under Federal bankruptcy laws or any other
insolvency laws (as now or hereafter in effect) involving Lessee or any Person
(other than Lessor) holding an interest in the Equipment or related property as
the debtor; (iv) promptly upon Lessee becoming aware of (1) any alleged
violation of Applicable Law,. or (2) any threatened or actual suspension,
revocation or rescission of any Permit necessary for Lessee to be in compliance
with the terms hereof; and (v) promptly after any of the Equipment becomes lost,
stolen, destroyed, materially damaged or worn out.
(d) Lessee shall not attach or incorporate the Equipment to or
in any other item of equipment or any realty in such a manner that the Equipment
may be deemed to have become an accession to or a part of such other item of
equipment or realty.
(e) Lessee shall cause each principal item of the Equipment to
be marked at all times, in a plain, distinct and legible manner, with the name
of Lessor or its designee followed by the words "Lessor and Secured Party," or
other appropriate words designated by Lessor on labels furnished by Lessor.
(f) Lessee will not take any action or suffer any omission
that is inconsistent with the representations and warranties of Lessee set forth
in Section 9(k), and will (i) refrain from withholding, from payments made by
Lessee to Lessor or any Transferee under any Lease Document, any Federal income
tax under any section of the Code (including, without limitation, Section 1442)
provided that Lessee receives from
<PAGE>
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any Transferee that is a foreign corporation (and from Lessor, if Lessor is a
foreign corporation) the statement described in Section 881 (c)(2)(B)(ii) of the
Code, and (ii) timely file all required information and other returns required
under Federal income tax regulations implementing and interpreting Section
881(c) of the Code.
11. ASSIGNMENT AND TRANSFER. (a) WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, LESSEE WILL NOT ASSIGN ANY OF ITS RIGHTS NOR DELEGATE ANY OF ITS
OBLIGATIONS HEREUNDER, SUBLET THE EQUIPMENT OR OTHERWISE PERMIT THE EQUIPMENT TO
BE OPERATED OR USED BY, OR TO COME INTO OR REMAIN IN THE POSSESSION OF, ANY
PERSON BUT LESSEE. No assignment or sublease, whether authorized in this Section
11 or in violation of the terms he root, shall relieve Lessee of its obligations
hereunder and Lessee shall remain primarily liable hereunder.
(b) Lessor and any subsequent Transferee may transfer any or
all of their respective rights, obligations, title and/or interest herein, to
one or more other Transferees. Lessor shall give prompt written notice to Lessee
of such a Transfer, including the name(s) and address(es) of the Transferee(s)
pursuant to such Transfer. Lessee hereby acknowledges and agrees that in the
event Lessor or such other Transferee has transferred its interest herein (i) no
Transferee(s) shall be obligated to perform any duty, covenant or condition
required to be performed by the Lessor under the terms of this Lease (other than
the covenant of quiet enjoyment specified in Section 7 hereof) and (ii) all
notices or other communications shall be given to, and made by, Lessor or its
designee.
(c) Upon written notice from Lessor of a Transfer of an
interest herein, Lessee shall promptly record such Transfer in its books and
records, including the name(s) and address(es) of the Transferee(s). Lessee
acknowledges and agrees that (i) its failure to record such Transfer within ten
(10) days of delivery of such notice shall be an Event of Default pursuant to
Section 16(a)(ii) hereof and (ii) Lessor's obligations to any Transferee(s) may
be secured by Lessor's interest in the Lease and the Equipment.
(d) LESSEE HEREBY WAIVES AS AGAINST ANY TRANSFEREE(S) OF
LESSOR, ITS SUCCESSORS AND ASSIGNS, ANY CLAIM OR DEFENSE THAT LESSEE MAY NOW OR
HEREAFTER HAVE AS AGAINST LESSOR, WHETHER FOR BREACH OF THIS LEASE, BREACH OF
WARRANTY OR OTHERWISE.
12. INSURANCE. At all times during the Term of this Lease, Lessee, at
its own expense, shall maintain insurance on each item of the Equipment against
all risks and in such amounts as Lessor shall reasonably require with carriers
acceptable to Lessor, and shall maintain a loss payable endorsement in favor of
Lessor and its successors and assigns affording to Lessor and Its successors and
assigns such additional protection as Lessor and its successors and assignees
shall reasonably require (such as a breach of Lessee's warranty clause), and
Lessee shall maintain public liability and property
<PAGE>
- 10 -
damage insurance with respect to each item of Equipment in amounts satisfactory
to Lessor for both personal and property damage. Lessee shall be liable for any
deductibles contained in such insurance policies. All such insurance policies
shall name Lessor and its successors and Transferees as insureds and shall
provide that all amounts payable by reason of loss, theft or damage to the
Equipment shall be payable only to Lessor or its designees and that such
policies may not be canceled or altered without at least 30 days' prior written
notice to Lessor or its successors and Transferees. The Lessee shall furnish the
Lessor with certificates or other satisfactory evidence of the maintenance of
the insurance required hereunder.
13. LOSS AND DAMAGE. Lessee hereby assumes and shall bear the entire
risk of loss, damage, theft or destruction, partial or complete, whether or not
insured against, of the Equipment from any and every cause whatsoever from the
date of delivery of the Equipment to Lessee. No loss, damage, theft or
destruction of the Equipment or any part thereof shall relieve Lessee of any
obligation under this Lease, which shall continue in full force and effect. In
the event of loss or damage of any kind to any item of Equipment, Lessee shall
promptly notify Lessor of such event and, at Lessor's option, Lessee shall, at
its own cost and expense, (i) use all reasonable efforts to place the same in
good repair, condition and working order to the satisfaction of Lessor within 30
days of such loss or damage unless Lessor shall determine that such item has
been irreparably damaged, in which case Lessor may elect to shorten or terminate
said 30-day period, or (ii) replace such Equipment with like equipment in good
repair, condition and working order and, upon prior written notice to Lessor,
cause such replacement equipment to be delivered to and installed at a location
otherwise permitted hereunder and give clear title thereto by appropriate
instrument to Lessor, which replacement equipment shall be subject to the terms
and conditions hereof, including, without limitation, Section 4(b) hereof. In
the event Lessee has fully complied to Lessor's reasonable satisfaction with the
requirements of the previous sentence, Lessor shall return to Lessee (without
interest) the insurance proceeds, if any, paid to Lessor as a result of such
loss or damage under the insurance policies required pursuant to Section 12
hereof. In the event that any item of Equipment shall become subject to a Total
Loss, Lessee shall inform the Lessor in writing in regard thereto within thirty
(30) days after such Total Loss and Lessee shall pay to Lessor, in cash, an
amount equal to the Stipulated Loss Value thereof as set forth in Schedule C
hereto as the case may be; provided, however, that such amount shall be reduced
if and to the extent that Lessor or any Transferee has received proceeds from
the insurance required to be maintained by Lessee pursuant to Section 12 as a
result of such Total Loss, and Lessor agrees that if such insurance proceeds are
paid to Lessor after Lessee has paid Stipulated Loss Value in full, Lessor shall
reimburse Lessee the proceeds thereof, such reimbursement not to exceed the
Stipulated Loss Value amount paid by Lessee related to such Total Loss. Where a
single amount for the payment of Basic Rent is set forth on the cover page
hereof for more than one item of Equipment, and less than all such items are
subject to a Total Loss, such Basic Rent shall be apportioned among such items
in accordance with their original list prices, and the Stipulated Loss Value
shall be based on such
<PAGE>
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apportioned Basic Rent. Upon such payment of Stipulated Loss Value for any
item(s) hereunder, this Lease shall terminate with respect to such items(s) and
Basic Rent shall thereafter abate proportionately.
14. TAXES AND FEES. (a) To the extent permitted by Law, Lessee shall
file any necessary reports and returns for, shall pay promptly when due, shall
otherwise be liable to reimburse Lessor (on an after-tax basis) for, and agrees
to indemnity and hold Lessor harmless from, all Impositions.
(b) If any report, return or property listing relating to any
Imposition is, by Law, required to be filed by, assessed or billed to or paid
by, Lessor, Lessee will do all things required to be done by Lessor (to the
extent permitted by Law) in connection therewith and is hereby authorized by
Lessor to act on behalf of Lessor in all respects in relation thereto, including
the contest or protest, in good faith and by appropriate proceedings, of the
validity of any Imposition, or the amount thereof; provided, however, that
Lessor hereby unconditionally reserves the right to revoke such authorization
and such revocation shall not affect Lessee's indemnity or other obligations
under this Lease, including, without limitation, this Section 14 and Section 18
hereof. Lessor agrees fully to cooperate with Lessee in any such contest, and
Lessee agrees promptly to indemnify Lessor for all reasonable expenses incurred
by Lessor in the course of such cooperation. An Imposition or claim therefor
shall be paid by Lessee, subject to refund proceedings, if failure to pay would
adversely affect the title or rights of Lessor in the Equipment or otherwise
hereunder. Provided that no Default or Event of Default has occurred and is then
continuing, if Lessor obtains a refund of any Imposition that has been paid (by
Lessee, or by Lessor and for which Lessor has been fully reimbursed by Lessee),
Lessor shall promptly pay to Lessee the amount of such refund actually received.
Lessee shall cause all billings of such charges to Lessor to be made to Lessor
in care of Lessee and shall, in preparing any report or return required by Law,
show the ownership of the Equipment in Lessee, and shall send a copy of any such
report or return to Lessor. If Lessee fails to pay any such charges when the
except any Imposition being contested in good faith and by appropriate
proceedings (as above provided) for a reasonable period of time, Lessor at its
option may do so pursuant to Section 15, in which event the amount so paid shall
be payable by Lessee as Supplemental Rent as provided in Section 15.
(c) The provisions of this Section 14 shall not apply to any
Impositions (i) imposed as a result of any voluntary transfer or disposition by
Lessor of all or any portion of its interest in the Equipment pursuant to
Section 11 hereof; (ii) that Lessee is contesting in good faith, by appropriate
proceedings and as otherwise permitted pursuant to the provisions of this Lease
until the conclusion of such contest; except that Lessee's right to contest any
Imposition is conditioned upon the existence of such Imposition during any such
contest not causing any material danger, as determined by Lessor in its sole
discretion, of the sale, forfeiture or loss of the Equipment; or (iii) imposed
on Lessor that are based on or measured by gross or net income (including
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capital gains taxes, income taxes collected by withholding and taxes on tax
preference items), except for (1) amounts payable by Lessee to Lessor or any
Transferee under the Lease Documents but not so paid to the extent that such
failure to pay constitutes a breach of Lessee's obligations under Sections 9(k)
or 10(f) hereof, (2) Lessee's obligation to pay indemnities and reimbursements
on an "after-tax basis" and (3) as otherwise expressly provided herein.
15. LESSEE'S FAILURE TO PAY TAXES, INSURANCE, ETC. Should Lessee fail
to make any tax, insurance or other payment or do any act required to be
performed by Lessee as herein provided, Lessor shall have the right, but not the
obligation and without releasing Lessee from any obligation hereunder to make or
do the same, and to pay, purchase, contest or compromise any Imposition that in
the judgement of Lessor appears to affect the Equipment, and, in exercising any
such rights, incur any liability and expend whatever amounts in its absolute
discretion Lessor may deem necessary therefor. All sums so incurred or expended
by Lessor (including any penalty incurred as a result of Lessee's failure to
perform such obligation or make such payment) shall be without demand
immediately due and payable by Lessee and shall be payable as Supplemental Rent.
16. DEFAULT AND REMEDIES. (a) The occurrences of any of the following
events shall constitute an Event of Default hereunder, and shall permit Lessor
to exercise the remedies provided in Section 16(b) below, including the
termination of Lessee's right to possession of the Equipment:
(i) the nonpayment when due from Lessee of any installment of Rent
or any other sum required hereunder to be paid by Lessee which
nonpayment is not cured within 60 days;
(ii) the failure by Lessee to perform any other term, obligation,
covenant or condition of this Lease that is not cured within
60 days after such failure;
(iii) Lessee shall be in default under the terms of any other
written agreement with Lessor (or any Transferee) and Lessor
(or such Transferee) shall have declared a default and/or
begun to exercise remedies thereunder which default is not
cured within 60 days;
(iv) the subjection of a substantial part of Lessee's property or
any part of the Equipment to any Lien other than a Permitted
Lien which Lien is not removed within 60 days:
(v) in the event that (A) Lessee shall (1) authorize or agree to
the commencement of a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy,
insolvency, corporation, receivership or other
<PAGE>
- 13 -
similar Law now or hereafter in effect that authorizes the
reorganization or liquidation of such party or its debt or the
appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its
property, (2) make a general assignment for the benefit of its
creditors, (3) fail generally or admit in writing its
inability to pay its debts as they become due, (4) take any
corporate action to authorize any of the foregoing or (5) have
an involuntary or other proceeding commenced against it
seeking liquidation, reorganization or other relief with
respect of it or its debts under any bankruptcy, insolvency or
other similar Law now or hereafter in effect, and such
involuntary case or other proceeding shall remain undismissed
and unstayed for a period exceeding 60 days; or (B) an order
for relief pursuant' to such applicable debtor/creditor law
shall have been entered against Lessee; or
(vi) if any representation or warranty made by the Lessee herein,
or made by the Lessee in any statement or certificate
furnished by the Lessee in connection with the execution of
this Lease or the delivery of any Items of Equipment hereunder
or furnished by the Lessee pursuant hereto, proves untrue in
any material respect as of the date of the issuance or making
thereof (and Lessee hereby agrees that the falsity of its
representation set forth in Section 9(k) would be material);
(vii) The issuance of any writ or order of attachment or execution
or other legal process against any Equipment which is not
discharged or satisfied within sixty (60) days;
(viii) The occurrence of any event or condition described in
subsections (iii), (iv), (v) or (vi) hereof with respect to
any guarantor or any other party liable, in whole or in part,
for performance of any Lessee's obligations under this Lease.
(b) Upon the happening of any of the above Events of Default,
Lessor may declare this Lease in Default. Such declaration shall be by written
notice to Lessee and shall apply to all Equipment leased hereunder. Lessee
hereby authorizes Lessor at any time thereafter to enter with or without legal
process any premises where the Equipment may be and take possession thereof.
Lessee shall, without further demand, forthwith pay to Lessor an amount that is
equal to any unpaid Rent due on or before Lessor has declared this Lease to be
in Default plus, as liquidated damages for loss of a bargain and not as a
penalty, an amount equal to the Stipulated Loss Value for the Equipment (as
defined in Schedule C hereto) on the date the Lessor shall declare this Lease in
Default (in each case together with any Excess Use Fee related thereto). After
Default, as and to the extent requested by Lessor, Lessee shall comply with the
provisions of Section 17 of this Lease. Lessor shall be entitled to sell the
Equipment at private or public sale within or without the United States, in bulk
or in parcels, with or
<PAGE>
- 14 -
without notice, without having the Equipment present at the place of sale, with
the privilege of becoming the purchaser thereof; and Lessor shall be entitled to
lease, otherwise dispose of or keep idle all or any part of the Equipment, and
Lessor may use Lessee's premises for any or all of the foregoing without
liability for rent, costs, damages or otherwise. The proceeds of sale, lease or
other disposition, if any, shall be applied (1) to all Lessor's costs, charges
and expenses incurred in taking, removing, holding, repairing and selling,
leasing or otherwise disposing of the Equipment (including, without limitation,
reasonable attorneys' fees, costs and disbursements); then, (2) to the extent
not previously paid by Lessee, to pay Lessor the Stipulated Loss Value for the
Equipment and all other sums then-payable by Lessee hereunder, including any
unpaid Rent; then, (3) any remaining amounts shall be paid to Lessee. Lessee
shall pay any deficiency for amounts described in clauses (1) and (2) above
forthwith. The exercise of any of the foregoing remedies by Lessor shall not
constitute a termination of this Lease unless Lessor so notifies Lessee in
writing.
No remedy referred to in this Section 16 is intended to be exclusive,
but each shall be cumulative and in addition to any other remedy referred to
above or otherwise available to Lessor at law or in equity.
17. SURRENDER OF EQUIPMENT. Upon the expiration or earlier termination
of this Lease with respect to any item of Equipment. Lessee shall, unless (i)
Lessee has paid Lessor in cash the stipulated Loss Value of such Equipment
pursuant to Section 13 hereof, (ii) Lessee has acquired such Equipment pursuant
to Section 19 hereof or (iii) Lessor has abandoned such Equipment pursuant to
Section 19 hereof, return the same to Lessor in good repair, condition and
working order, ordinary wear and tear resulting from permitted use thereof under
the terms of this Lease alone excepted, to a location within or outside of the
continental United States specified by Lessor. Such Equipment shall be carefully
crated and shipped, freight, drayage and reassembly costs prepaid and properly
insured, by Lessee, and Lessee shall bear all risk of loss until the Equipment
is delivered to Lessor or its designee.
18. INDEMNITY. Lessee agrees to indemnify, defend, and hold harmless,
even if such claims are groundless, false or fraudulent, Lessor, any Transferee
and their respective agents and employees, from and against any and all Claims
(other than such as may directly and proximately result from the gross
negligence or wilful misconduct of Lessor, any Transferee or their respective,
agents or employees), by paying (on an after-tax basis) or otherwise ,
discharging same, when and as such Claims shall become due, including, without
limitation, Claims arising on account of (a) this Lease or any other Lease
Documents, or (b) the Equipment, or any item or part thereof, including. without
limitation, the selection, ordering, acquisition, delivery, installation,
return, rejection, abandonment or other disposition of any item of Equipment,
the possession, maintenance, leasing, use, condition, ownership, operation or
control of any item of Equipment by whosoever owned, used or operated during the
Term of this Lease or the existence of latent and other defects (whether or not
discoverable or discovered by
<PAGE>
- 15 -
Lessor or Lessee). Lessor shall give Lessee prompt notice of any Claim or
liability hereby indemnified against and Lessee shall be entitled to control the
defense thereof; provided, however that (i) Lessor shall have the right to
approve or reject defense counsel selected by Lessee and any settlement proposed
by Lessee or its counsel and (ii) the defense of any Claim relating to the
payment of any tax, fee, assessment or other charge upon Lessor or any
Transferee shall be controlled by Lessor.
19. PURCHASE AND SALE OPTIONS. (a) On the Purchase Option Date, Lessee
shall have the option, upon at least sixty (60) days' prior irrevocable written
notice to Lessor, to purchase on such date all (but not less than all) Equipment
from Lessor for a purchase price equal to the Option Price. Upon such payment in
full and payment of any other amounts then due hereunder (including the costs of
expenses of Lessor, if any, in connection with such purchase), Lessor will
transfer to Lessee, without recourse or warranty and on a "WHERE IS, AS IS"
basis. all of Lessor's right, title and interest in and to the Equipment.
(b) At the expiration of the Primary Term. Lessee may, and upon written
notice Lessor may require Lessee to, purchase all of the Equipment from Lessor
for a sales price equal to $1.00. Upon such payment in full and payment of any
other amounts then due hereunder (including the costs and expenses of Lessor, if
any, in connection with such sale or transfer). Lessor will transfer to Lessee,
without recourse or warranty and on a "WHERE IS, AS IS" basis, all of Lessor's
right, title and interest in and to the Equipment. If Lessee fails to pay such
purchase price and such other amounts then due hereunder, Lessor may, without
prejudice to its rights under Section 16 hereof, abandon such Equipment where
such Equipment 5 located without liability of any kind to Lessee.
20. MISCELLANEOUS. (a) Any notice required or permitted to be given by
the provisions hereof shall be conclusively deemed to have been received by a
party hereto on the day it is delivered by hand or by facsimile transmission to
such party at the address as set forth on the cover page hereof (or at such
other address as such party shall specify to the other party in writing) or, if
sent by registered or certified mail, on the third Business Day after the date
on which mailed, addressed to such party at the address set forth above, postage
prepaid.
(b) No delay or omission to exercise any right or remedy
accruing to Lessor upon any breach or default of Lessee shall impair any such
right to remedy or be construed to be a waiver of any such breach or default;
nor shall any waiver of any single breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval on the part of Lessor of any
breach or default under this Lease or, of any provision or condition hereof,
must be in writing and shall be effective only to the extent in such writing
specifically set forth. All remedies, either under this Lease or by law or
otherwise afforded to Lessor, shall be cumulative and not exclusive.
<PAGE>
- 16 -
(c) Lessee agrees to reimburse Lessor on demand for any and
all costs and expenses incurred by Lessor in enforcing its rights hereunder,
including without limitation, reasonable attorney's fees and costs of
repossession, storage, insuring, re-leasing and selling of all Equipment.
(d) The obligations of Lessor hereunder shall be suspended to
the extent that it is hindered or prevented from complying therewith because of
labor disturbances, including strikes and lockouts, acts of God, fires, storms,
accidents, failure of the manufacturer or Supplier to deliver any item of
Equipment, commercial frustration, Laws or interference of any cause whatsoever
not within the sole control of Lessor.
(e) THIS AGREEMENT MAY NOT BE TERMINATED EXCEPT AS EXPRESSLY
PROVIDED HEREIN. This Lease may be modified only by a written agreement duly
signed by Persons authorized to sign agreements on behalf of Lessor and Lessee,
and any variance from the terms and conditions of this Lease in any order or
other notification from Lessee, written or oral, shall be of no effect. The
capitalized term "Lease" as used herein includes any supplement, subsequent
schedule or exhibit or future written amendment made in accordance herewith, and
Lessee, by its execution hereof, explicitly acknowledges and agrees with the
foregoing. LESSEE ACKNOWLEDGES THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND
AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, LESSEE AGREES THAT THIS
LEASE IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE LEASE BETWEEN THE PARTIES,
WHICH SUPERSEDES ALL PROPOSALS OR PRIOR AGREEMENTS OR UNDERSTANDINGS, ORAL OR
WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE
SUBJECT MATTER OF THIS LEASE.
(f) This Lease and the covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, Lessor and its
successors and assigns and Lessee and its successors and permitted assigns.
(g) The table of contents and the headings of the sections
hereof are for convenience of reference only, are not a part of this Lease and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
(h) This Lease may be executed in any number of counterparts.
However, to the extent, if any, that this Lease constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction) no security interest in this Lease may be created
through the transfer of possession of any counterpart other than the counterpart
identified by marking as the "Original".
(i) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
<PAGE>
- 17 -
AND PERFORMANCE. LESSOR AND LESSEE HEREBY IRREVOCABLY SUBMIT TO THE NONEXCLUSIVE
JURISDICTION OF THE MASSACHUSETTS STATE AND FEDERAL COURTS LOCATED IN MIDDLESEX
COUNTY, MASSACHUSETTS, FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THE OVERALL TRANSACTION EVIDENCED BY THE LEASE DOCUMENTS. LESSOR AND LESSEE
HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS STATE COURTS, OR TO
THE EXTENT PERMITTED BY LAW, SUCH FEDERAL COURTS. LESSOR AND LESSEE HEREBY
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO, THE DEFENSE
OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING. LESSOR
AND LESSEE HEREBY WAIVE ANY RIGHTS EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
ACTIONS OR PROCEEDINGS BROUGHT IN RESPECT OF THE LEASE DOCUMENTS.
(j) Should any Section or any part of a Section within this
Lease be rendered void, invalid or unenforceable by any court or Law for any
reason, such invalidity or unenforceability shall not void or render invalid or
unenforceable any other Section or part of a Section in this Lease.
21. ADDITIONAL PROVISIONS. The schedules and exhibits attached hereto
and any riders signed by the parties hereto and attached hereto are hereby
incorporated by reference.
<PAGE>
- 18 -
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly
executed, all as of the date first above written.
LESSOR:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By: /s/ Phillip Magiera
---------------------
Name: Phillip Magiera
-------------------
Title: President
-------------------
LESSEE:
FIVECOM, INC.
By: /s/ Victor Colantonio
---------------------
Name: Victor Colantonio
-------------------
Title: President
-------------------
<PAGE>
A- 1
SCHEDULE A TO LEASE
-------------------
DEFINITIONS AND RULES OF CONSTRUCTION.
--------------------------------------
1. DEFINITIONS. The following terms, when capitalized as below, have
the following meanings:
"Amortization Expense": that portion of Basic Rent applied to the
amortization over the Term of the invoice cost to the Lessor of the Equipment,
as set forth on Schedule E to the Lease for each payment of Basic Rent.
"Applicable Law": any Law that may apply to (i) the Lessee or its
properties and operations, (ii) the operation, modification, maintenance,
ownership, leasing or use of the Equipment, or (iii) any transaction
contemplated under any Lease Document, including in each case any environmental
Law, federal or state securities Law, commercial Law (pertaining to the rights
and obligations of sellers, purchasers, debtors, secured parties, or to any
other pertinent matter), zoning, sanitation, siting or building Law, energy,
occupational safety and health practices Law or the Employee Retirement Income
Security Act of 1974, as amended, and any regulations promulgated thereunder.
"Basic Rent": the rental installments due from Lessee pursuant to
Section 3(b) of the Lease for the Interim Term and the Primary Term in the
amounts and on the dates as provided therein.
"Basic Rent Per Day": one thirtieth (1/30th) of the Basic Per Month.
"Basic Rent Payment Date": as set forth in the cover page to the Lease.
"Basic Rent Per Month": as set forth on the cover page to the Lease.
"Business Day": any day, other than a Saturday, Sunday or legal holiday
for commercial banks under the laws of the Commonwealth of Massachusetts (or
such other jurisdictions in the United States as Lessor specifies to Lessee by
at least 30 days' prior written notice).
"Capitalized Lessor's Cost": the amount specified in the Equipment
Schedule under the heading "capitalized lessor's cost."
"Claims": all claims, judgments, good faith settlements entered into,
suits, actions, debts, obligations, damages (whether incidental, consequential
or direct), demands (for compensation, indemnification, reimbursement or
otherwise), losses, penalties, fines, liabilities (including strict liability),
charges that Lessor has incurred or is responsible for in the nature of amounts
(or the use or forbearance of money, Liens, and costs (including
<PAGE>
A- 2
attorneys' fees and disbursements and other legal or non-legal expenses of the
investigation or defense of any claim, whether or not such claim is ultimately
defeated, or the enforcement of the rights, remedies or indemnities provided for
hereunder, or otherwise available at law or in equity to Lessor), of whatever
kind or nature, contingent or otherwise, matured or unmatured, foreseeable or
unforeseeable, by or against any Person.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"County Recording Office": as set forth in Schedule D to the Lease.
"Default": except when inconsistent with the context of any provision
hereof, an event that, but for the lapse of time or the giving of notice or
both, would constitute an Event of Default.
"Equipment": with respect to the Equipment Schedule, the property
described therein, together with all appliances, parts, instruments accessories
and furnishings that are from time to time incorporated in the Equipment, or
having been so incorporated, are later removed therefrom, unless title thereto
is expressly released by Lessor, and all replacements of, and additions,
improvements and accessions to any and all of the foregoing, and all books,
records, maintenance logs and general intangibles (including all patents,
copyrights and trade secrets) relating thereto; and, when used in the context of
Lessor's title to the Equipment (whether relating to the creation, grant,
perfection, release, priority, enforcement or application of proceeds thereof),
shall also include all other property in which Lessor is granted a security
interest hereunder or under the Equipment Schedule.
"Equipment Expense": that portion of Basic Rent equivalent to Basic
Rent minus the Amortization Expense, as set forth on Schedule E to the Lease for
each payment of Basic Rent.
"Equipment Schedule": the Equipment Schedule that is attached as
Schedule B to the Lease.
"Event of Default": any event of default as specified in Section 16(a)
of the Lease.
"Excess Use Fee": the fee payable by Lessee for the continued use or
possession of the Equipment by the Lessee, which is payable if the Lessee has
not paid Rent when due and which shall equal 1-1/2% per month, or the highest
rate permitted by law, whichever is lower, on all overdue Rent from the due date
thereof until paid.
"Financing Statement": a Uniform Commercial Code financing statement.
"Fixture Filing Office": as set forth in Schedule D to the Lease.
<PAGE>
A- 3
"GAAP": generally accepted accounting principles, applied consistently.
"Governmental Authority": any federal, state, county, municipal,
regional or other governmental authority, agency board, body, instrumentality or
court, in each case either domestic or foreign.
"Imposition": any title, recordation, documentary stamp or other fees,
taxes, assessments, charges or withholdings of any nature (together with any
penalties or fines thereon) arising at any time upon or relating to the
Equipment or to the Lease, or the delivery, acquisition, ownership, use,
operation, leasing or other disposition of such Equipment or upon the Rent
payable thereunder, whether the same be assessed to Lessor (or any Transferee)
or Lessee.
"Indemnification and Installation Certificate": the certificate of
Lessee in the form of Exhibit I to the Lease.
"Interim Term": the period from the date of the Lessee's acceptance of
the Equipment as evidenced by Lessee's Indemnification and Installation
Certificate to but not including the Primary Term Commencement Date.
"Law": any law, rule, regulation, ordinance, order, code, common law,
interpretation, judgment, directive, decree, treaty, injunction, writ,
determination, Permit or similar norm or decision of any Governmental Authority.
"Lease": the Full. Payout Net Lease by and between Lessor and Lessee
and relating to the Equipment, as amended from time to time, including any
exhibits, schedules and riders thereto as provided in Section 21 thereof.
"Lease Documents": collectively, the Lease, the Indemnification and
Installation Certificate(s) and all instruments, documents, certificates and
agreements delivered pursuant hereto.
"Lien": any mortgage, pledge, lease, sublease, security interest,
attachment, charge, encumbrance or right or claim of others whatsoever
(including any conditional sale or other retention agreement).
"Option Price": as set forth in Schedule D to the Lease.
"Permit": any action, approval, certificate of occupancy, consent,
waiver, exemption, variance, franchise, order, permit, authorization, right or
license, or other form of legally required permissions of or from a Governmental
Authority.
"Permitted Lien": (a) Lessor's and Lessee's respective rights, titles
and interests in the Equipment (b) Liens for the benefit of -mechanics,
materialmen, laborers,
<PAGE>
A- 4
employees or suppliers and similar Liens arising by operation of Law and
incurred by Lessee in the ordinary course of business for sums that are not yet
delinquent or are being contested in good faith by negotiations or by
appropriate proceedings that suspend the collection and enforcement thereof
(provided that the existence of such Lien while such negotiations or proceedings
are pending does not involve any substantial risk (as determined by Lessor in
its discretion) of the sale, forfeiture or loss of the Equipment or any therein,
and for which adequate reserves have been provided in accordance with GAAP), and
(c) Liens arising out of any judgments or awards against Lessee that have been
adequately bonded to protect Lessor's interests or with respect to which a stay
of execution has been granted pending an appeal or a proceeding for review and
(d) Liens expressly authorized by the terms of the Collateral Assignment between
Lessor and Lessee of even date herewith.
"Person": any individual, corporation, partnership, joint venture, or
other legal entity or a Governmental Authority.
"Primary Term": as set forth on the cover page to the Lease.
"Primary Term Commencement Date": as set forth on the cover page to the
Lease.
"Primary Term Expiration Date": as set forth on the cover page to the
Lease.
"Purchase Option Date": as set forth in Schedule D to the Lease.
"Rent": collectively, the Basic Rent and the Supplemental Rent.
"State Filing Office": as set forth in Schedule D to the Lease.
"Stipulated Loss Value": with respect to each item of Equipment listed
in the Equipment Schedule, the product of the Capitalized Lessor's Cost of such
item and the applicable percentage set forth on the Schedule of Stipulated Loss
Value attached as Schedule C to the Lease.
"Supplemental Rent": all amounts, liabilities and obligations (other
than Basic Rent) that Lessee assumes or agrees to pay to Lessor or others
hereunder, or under any other Lease Document, including, without limitation,
Stipulated Loss Value, the purchase price for the Equipment pursuant to Section
19 of the Lease and payments constituting indemnities, reimbursements, expenses,
Excess Use Fees and other charges payable pursuant to the terms of any Lease
Document.
"Supplier": the person from whom Lessor is purchasing or has purchased
the Equipment.
<PAGE>
A- 5
"Supply Contract": any written contract from the Supplier of the
Equipment or any item thereof, pursuant to which Lessor has purchased such
Equipment (or item thereof) for lease to Lessee under an Equipment Schedule.
"Term": the period for which Equipment is leased under the Lease,
including the Interim Term and the Primary Term.
"Total Invoice Cost": with respect to each item of Equipment set forth
in the Equipment Schedule, the amount specified as such thereon.
"Total Loss": for any item of Equipment, the occurrence of any of the
following: (i) the actual or constructive total loss of such item of the
Equipment; or (ii) the loss, disappearance, theft or destruction of such item of
the Equipment; or (iii) damage to such item of the Equipment to such extent as
shall make repair thereof uneconomical, or shall render. any item of the
Equipment permanently unfit for normal use, for any reason whatsoever; or (iv)
the condemnation, confiscation, requisition, seizure, forfeiture or other taking
of title to or use of such item of the Equipment; or (v) as a result of any Law
or other action taken by any Governmental Authority, the use of such item of
Equipment in the normal course of Lessee's business shall have been prohibited
(1) indefinitely or (2) for a period (A) in excess of 60 days or (8) that
extends beyond the then existing Term; all of the foregoing, to the extent
established to the reasonable satisfaction of Lessor.
"Transfer": any transfer or other agreement pursuant to which Lessor or
Transferee has transferred or agreed to pay any Person the Rent, or a portion
thereof, received from Lessee pursuant to the Lease, which obligation may be
secured by Lessor's interest in the Lease and the Equipment.
"Transferee": any Person to whom Lessor or any subsequent transferee
thereof has assigned any or all of its rights, obligations, title and/or
interest under the Lease.
"Uniform Commercial Code" or "UCC": the Uniform Commercial Code as in
effect in Massachusetts or in any other pertinent jurisdiction; and any
reference to an article or section thereof shall mean the corresponding article
or section (however named) of any such other applicable version of the Uniform
Commercial Code.
2. RULES OF CONSTRUCTION. Any defined term used in the singular
preceded by "any" indicates any number of the members of the relevant class. Any
Lease Document or other agreement or instrument referred to herein means such
agreement or Instrument as supplemented and amended from time to time. Any
reference to Lessor or Lessee shall include their permitted successors and
assigns. Any reference to a Law or Permit shall also mean such Law or Permit as
amended, superseded or replaced from time to time. Unless otherwise expressly
provided to the contrary in the Lease, all actions that Lessee takes or is
required to take under this Lease
<PAGE>
A- 6
or any other Lease Document shall be taken at Lessee's sole cost and expense,
and all such costs and expenses borne by Lessor shall constitute Claims and
shall be covered by Sections 14 and 18 of the Lease.
3. INTEGRATION. Lessor and Lessee agree that the definitions and rules
of construction herein shall constitute an integral part of this Lease.
<PAGE>
Lease No.317
SCHEDULE B
Vendor Quantity Description Capitalized Lessor's
- ------ -------- ----------- --------------------
Cost
NorthEast Utility
Collateral Assignment $500,000.00
Including all accessions, additions, attachments, replacements, repairs,
substitutions, and accessories thereto.
Lessee acknowledges that this Lease No. 317 is secured by the Collateral
Assignment dated February 15, 1995 between FiveCom, Inc. and Applied
Telecommunications Technologies, Inc.
Total Capitalized Lessor's Cost: $ 500,000.00
Lessee Lessor:
FiveCom,Inc. Applied Telecommunications
Technologies,Inc.
By: /s/ Victor Colantonio By: /s/ Phillip Magiera
------------------------- ----------------------
Title: President Title: President
---------------------- -------------------
<PAGE>
Schedule C To Lease
-------------------
Stipulated Loss Value
---------------------
The Stipulated Loss Value with respect to the Equipment or any item of
the Equipment shall be an amount equal to the product of (i) the Capitalized
Lessor's Cost of such Equipment or item of Equipment as set forth in Schedule B
to the Lease multiplied by (ii) the applicable Stipulated Loss Value Percentage
set forth below opposite the "Stipulated Loss Value Date" on which such
"Stipulated Loss Value Payment" occurs.
<TABLE>
<CAPTION>
Stipulated Loss Stipulated Loss Stipulated Loss Stipulated Loss
Value Date Value Percentage Value Date Value Percentage
---------- ---------------- ---------- ----------------
<S> <C> <C> <C>
Before the 1st Basic Rent 105.00%
Payment Date
After the following Basic Rent
Payment Dates
1 102.35% 25 58.78%
2 100.75% 26 56.70%
3 99.13% 27 54.61%
4 97.50% 28 52.49%
5 95.84% 29 50.35%
6 94.17% 30 48.19%
7 92.49% 31 46.01%
8 90.78% 32 43.80%
9 89.05% 33 41.56%
10 87.31% 34 39.30%
11 85.55% 35 37.02%
12 83.77% 36 34.71%
13 81.97% 37 32.38%
14 80.15% 38 30.02%
15 78.31% 39 27.64%
16 76.45% 40 25.23%
17 74.57% 41 22.80%
18 72.67% 42 20.34%
19 70.75% 43 17.85%
20 68.80% 44 15.33%
21 66.84% 45 12.79%
22 64.86% 46 10.22%
23 62.85% 47 7.63%
24 60.82% 48 0.00%
</TABLE>
<PAGE>
SCHEDULE D TO LEASE
MISCELLANEOUS INFORMATION
1. Lessor's wire transfer information: Marine Midland Bank, N.A.
One Marine Midland Plaza
Rochester, New York 14639
ABA # 021001088
Acct. #590-83810-5
2. Name and Address of State Filing Office: Secretary of State of MA, Boston, MA
3 Name and Address of Town Recording Office: Waltham MA, Wellesley, MA
4. Purchase Option date: April 30, 1999
<PAGE>
Schedule E
ATTI Lease Amortization and OID Calculation
FIVECOM, INC. LEASE 317
Amortization Schedule Showing OID Daily Portions for 19-Day Initial Accrual
Period and First Monthly Accrual Periods
Assumptions:
- ------------
Gross equipment cost $500,000.00
Number of warrants received 7,310
Price per warrant $1.82
Total cost of warrants $13,304.20
Net amount loaned $486,695.80
Lease term 48 months
19 days
Repayment term 47 months
20 days
Balloon payment (5%) $25,000.00
Stated annual lease rate 13.0000%
Advance (1) or Arrears (0) Advance
Interim payment per diem 1/30 x basic monthly
payment (due with first
payment)
Basic monthly payment $13,269.99
<TABLE>
<CAPTION>
Day Pmt Payment Equipment Amortization
No. Amount Expense Expense
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
11-Apr 0.00 223.48 (223.48)
12-Apr 0.00 223.48 (223.48)
13-Apr 0.00 223.48 (223.48)
14-Apr 0.00 223.48 (223.48)
15-Apr 0.00 223.48 (223.48)
16-Apr 0.00 223.48 (223.48)
17-Apr 0.00 223.48 (223.48)
18-Apr 0.00 223.48 (223.48)
19-Apr 0.00 223.48 (223.48)
20-Apr 0.00 223.48 (223.48)
21-Apr 0.00 223.48 (223.48)
22-Apr 0.00 223.48 (223.48)
5/1/95 1 21,674.32 223.48 21,450.83
<PAGE>
Day Pmt Payment Equipment Amortization
No. Amount Expense Expense
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
6/1/95 2 13,269.99 6,485.40 6,784.59
7/1/95 3 13,269.99 6,391.72 6,878.27
8/1/95 4 13,269.99 6,296.75 6,973.24
9/1/95 5 13,269.99 6,200.47 7,069.52
10/1/95 6 13,269.99 6,102.86 7,167.13
11/1/95 7 13,269.99 6,003.90 7,266.09
12/1/95 8 13,269.99 5,903.58 7,366.41
1/1/95 9 13,269.99 5,801.87 7,468.12
2/1/95 10 13,269.99 5,698.76 7,571.23
3/1/96 11 13,269.99 5,594.22 7,675.77
4/1/96 12 13,269.99 5,488.24 7,781.75
5/1/96 13 13,269.99 5,380.80 7,889.19
6/1/96 14 13,269.99 5,271.87 7,998.12
7/1/96 15 13,269.99 5,161.44 8,108.55
8/1/96 16 13,269.99 5,049.49 8,220.50
9/1/96 17 13,269.99 4,935.98 8,334.00
10/1/96 18 13,269.99 4,820.92 8,449.07
11/1/96 19 13,269.99 4,704.26 8,565.73
12/1/96 20 13,269.99 4,585.99 8,684.00
1/1/96 21 13,269.99 4,466.09 8,803.90
2/1/96 22 13,269.99 4,344.53 8,925.46
3/1/97 23 13,269.99 4,221.30 9,048.69
4/1/97 24 13,269.99 4,096.36 9,173.63
5/1/97 25 13,269.99 3,969.70 9,300.29
6/1/97 26 13,269.99 3,841.29 9,428.70
7/1/97 27 13,269.99 3,711.11 9,558.88
8/1/97 28 13,269.99 3,579.13 9,690.86
9/1/97 29 13,269.99 3,445.33 9,824.66
10/1/97 30 13,269.99 3,309.68 9,960.31
11/1/97 31 13,269.99 3,172.15 10,097.84
12/1/97 32 13,269.99 3,032.73 10,237.26
1/1/98 33 13,269.99 2,891.38 10,378.61
2/1/98 34 13,269.99 2,748.09 10,521.90
3/1/98 35 13,269.99 2,602.81 10,667.18
4/1/98 36 13,269.99 2,455.53 10,814.46
5/1/98 37 13,269.99 2,306.21 10,963.78
6/1/98 38 13,269.99 2,154.83 11,115.16
7/1/98 39 13,269.99 2,001.36 11,268.63
<PAGE>
Day Pmt Payment Equipment Amortization
No. Amount Expense Expense
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
8/1/98 40 13,269.99 1,845.78 11,424.21
9/1/98 41 13,269.99 1,688.04 11,581.95
10/1/98 42 13,269.99 1,528.13 11,741.86
11/1/98 43 13,269.99 1,366.01 11,903.98
12/1/98 44 13,269.99 1,201.65 12,068.34
1/1/99 45 13,269.99 1,035.02 12,234.97
2/1/99 46 13,269.99 866.09 12,403.90
3/1/99 47 13,269.99 694.83 12,575.16
4/1/99 48 38,269.99 521.20 37,748.79
TOTALS: 670,363.83 183,668.03 486,695.80
</TABLE>
<PAGE>
EXHIBIT I TO LEASE
INDEMNIFICATION AND INSTALLATION CERTIFICATE
_________________________ ___, 19__
TO: Applied Telecommunications Technologies, Inc.
20 William Street
Wellesley, MA 02181
Gentlemen:
This Indemnification and Installation Certificate is issued pursuant to
that certain Full Payout Net Lease, dated ________ , 19 ___, Lease No._________
, (the "Lease") between Applied Telecommunications Technologies, Inc., as
Lessor, and the undersigned, as lessee (the "Lessee"), and evidences delivery to
and acceptance by Lessee of the equipment described on Schedule B attached
hereto (the "Equipment") pursuant to the Lease calling for Basic Rent Per Day in
the amount of $___________ and Basic Rent Per Month in the amount of $_________,
commencing in accordance with the payment dates as described in the Lease.
Capitalized terms used but not defined herein shall have the respective
meanings assigned therefor in Schedule A to the Lease.
We confirm to you as follows:
1. The Commencement Date of the Interim Term of the Lease is the date
of this Certificate. All of the Equipment has been delivered to and has been
received by the undersigned; all installation or other work necessary prior to
the use thereof has been completed; the Equipment has been examined and/or
tested and is in good operating order and condition and is in all respects
satisfactory to the undersigned as represented; the Equipment is new and unused
(unless otherwise noted below) and has not been placed in service prior to the
date of this Certificate; the Equipment has been accepted by the undersigned and
complies with all terms of the Lease Documents; and the Equipment has been
marked and labeled to show the interests of Lessor or its assigns.
2. In the future, in the event that the Equipment fails to perform as
expected or represented or in the event that the undersigned shall have a claim
or defense against the Lessor of said Equipment, whether by breach of the Lease
or otherwise, we will continue to honor the Lease by continuing to make our
rental payments in the normal course of business and we indemnify any
Transferees, their successors and assigns and hold it harmless from such
nonperformance of the Equipment.
<PAGE>
3. Lessee further confirms that the representations and warranties of
Lessee contained in the Lease are true and accurate as of the date hereof as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date) and that no
event has occurred and is continuing which constitutes a Default or an Event of
Default under the Lease.
(Signature of individual or name of
corporation or partnership)
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
MASTER SERVICES AGREEMENT
BETWEEN
MCI TELECOMMUNICATIONS CORPORATION, INC.
AND
FIVECOM, INC.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS.......................................................2
II. TERM AND TERMINATION..............................................3
III. SERVICE AVAILABILITY..............................................4
IV. PAYMENT FOR SERVICES..............................................5
V. AUTHORITY, REPRESENTATIONS AND PERFORMANCE OF
EQUIPMENT.........................................................7
VI. SERVICE SPECIFICATIONS, MAINTENANCE, REPAIR AND TESTING...........9
VII. COLLOCATION OF EQUIPMENT..........................................9
VIII. SERVICE INTERRUPTION, LIMITATIONS OF WARRANTY AND
DAMAGES..........................................................10
IX. INDEMNIFICATION..................................................12
X. DEFAULT..........................................................13
XI. INFRINGEMENT.....................................................14
XII. REQUIRED RIGHTS..................................................14
XIII. FORCE MAJEURE....................................................14
XIV. TAXES............................................................15
XV. NOTICES..........................................................15
XVI. CONFIDENTIALITY..................................................16
XVII. WAIVER...........................................................16
XVIII. GOVERNING LAW....................................................16
XIX. [**].............................................................16
<PAGE>
XX. COMMON CARRIERS..................................................17
XXI. NON-EXCLUSIVE ARRANGEMENT........................................17
XXII. INSURANCE AND LIABILITY..........................................17
XXIII. AUTHORITY........................................................18
XXIV. GENERAL PROVISIONS...............................................19
XXV. ARBITRATION......................................................19
XXVI. ENTIRE AGREEMENT.................................................19
</TABLE>
EXHIBIT A TECHNICAL SPECIFICATIONS
EXHIBIT B SERVICE AGREEMENT
EXHIBIT C SERVICE AVAILABILITY
EXHIBIT D REQUIREMENTS FOR AUTOMATED INTERFACE WITH MCI
EXHIBIT E PRICING
EXHIBIT F DESCRIPTION OF SWITCHED SERVICES
EXHIBIT G PERFORMANCE AND MAINTENANCE
EXHIBIT H PROVIDER RESPONSIBILITIES AND SYSTEM CRITERIA
EXHIBIT I CONFIDENTIALITY AGREEMENT
<PAGE>
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of January,
1994, by and between MCI Telecommunications Corporation, a Delaware corporation,
having an office at 1133 Nineteenth Street, N.W., Washington, D.C. 20036
(hereinafter referred to as "MCI"), and FiveCom, Inc., a Massachusetts
corporation, having an office at 393 Totten Pond Road, Suite 201, Waltham, MA
02154 (hereinafter referred to as "Provider").
RECITALS
WHEREAS, Provider and MCI wish to set forth a standard set of general
terms and conditions which will facilitate MCI's ability to obtain private line
and/or switched access services ("Services") in various metropolitan areas. The
Services will be offered in each metropolitan area by an entity which is either
an affiliate or subsidiary of Provider and/or which Provider manages or is
otherwise contractually affiliated with ("Authorized Entity"). Provider will
notify Customer from time to time of the identity of each such entity for which
such terms and conditions are applicable and of the appropriate procedure for
placing orders.
WHEREAS, Provider and MCI have entered into this Agreement for the
purpose of setting forth those terms and conditions under which Provider will
furnish MCI with requested Services; and
WHEREAS, Provider and MCI also agree that they will enter into separate
capacity agreements (hereinafter referred to collectively or singly as the
"Service Agreement") for each MCI circuit requirement not otherwise available to
MCI under the procedures set forth in this Agreement which Service Agreement
shall incorporate the terms, conditions and covenants of this Agreement and
shall also set forth the terms and provisions unique to each such circuit
requirement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and in consideration of the covenants and agreements contained
in any Service Agreement, the parties hereto hereby agree as follows:
This Agreement supersedes all existing Agreements between Provider and
MCI pursuant to which MCI purchases telecommunications access services, in their
entirety, with the exception of the Agreement listed below:
1. Fiber Use Agreement between FiveCom Associates and MCI
Telecommunications, dated June 1, 1993.
1
<PAGE>
I. DEFINITIONS
1.1 "Capacity" shall mean dedicated telecommunications
Circuits (as hereinafter defined) that Provider furnishes to MCI under the terms
of this Agreement.
1.2 "Circuit" shall mean any individual DS-O, DS-1 or DS-3 or
other data transmission service Provider furnishes to MCI.
1.3 "Collocation" or "collocate" shall mean Provider's right
to place equipment in MCI locations solely for the purpose of providing the
Services ordered by MCI, or approved by MCI, to MCI's telecommunications network
pursuant to this Agreement or the Service Agreement.
1.4 "Confidential Information" shall mean any materials
defined as confidential or proprietary in any Confidentiality Agreement entered
into between the parties, and: a) all requests for service quotations and
Services and the contents thereof, including, but not limited to, the identity
and location of MCI's Customers (as hereinafter defined); b) all responses to
requests for quotations and Services, and the contents thereof, which Provider
submits to MCI; and c) all proprietary information one party provides to the
other.
1.5 "Customer" shall mean any corporation, company, entity or
person to which MCI furnishes Services or service, either under tariff or
contractual arrangement.
1.6 "Demarcation Point" shall mean the interface between the
Network (as hereinafter defined) and MCI's telecommunications equipment, the
interface between the Network and the local exchange carriers' network, as well
as the interface between the Network and a Customer's telecommunications
equipment. Provider shall be responsible for all equipment required for
provision of service between the Network and a Customer's telecommunications
equipment.
1.7 "Interconnection Facilities" shall mean all local access
facilities at a Demarcation Point(s).
1.8 "LEC" shall mean any company responsible for the
provisioning of local access lines owned and operated by a Regional Bell
Operating Company or an independent telephone company which has historically
held the rights to provide such services in their franchised territory.
1.9 "MCI" shall mean MCI Telecommunications Corporation, MCI
Communications Corporation, and all subsidiaries, affiliates, successors and
assigns.
2
<PAGE>
1.10 "Network" shall mean any telecommunications links
utilized by or necessary to Provider in order to furnish the Services.
1.11 "Provider" shall mean FiveCom, Inc., and all
subsidiaries, affiliates, successors and assigns.
1.12 "SECABS" shall mean Small Exchange Carrier Access Billing
System as defined by Bellcore Special Publication Number SROPT-001-856.
1.13 "Services" shall mean the telecommunications services
provided by the Authorized Entity to MCI pursuant to this Agreement for Capacity
and/or enhanced local switching.
1.14 "Switch Services" are those Provider-furnished shared,
network or feature group services which access the MCI switch via shared
facilities from Provider; as further defined in Exhibit F.
Unless otherwise expressly defined, all other terms used in this
Agreement shall be accorded their usual and customary meanings.
II. TERM AND TERMINATION
2.1 The term of this Agreement shall commence as of the date
hereof and shall continue either: (a) for a period of ten (10) years, or (b)
until final termination of any active Service Agreement or ASR (as hereinafter
defined) entered into in accordance with this Agreement, whichever is later.
2.2 The initial term of each ASR or Service Agreement shall
commence on the date upon which the Services described in the ASR or Service
Agreement is available for use. The initial term of the ASR or Service Agreement
shall expire at the end of the period set forth in the ASR or Service Agreement.
2.3 MCI shall have the right, in its sole discretion, to
cancel any ASR or Service Agreement upon twenty-four (24) hours written notice
to Provider. Unless the ASR or Service Agreement is cancelled for Provider's
breach as provided for elsewhere in this Agreement, MCI shall remain liable for
any termination liabilities associated with the cancelled ASR or Service
Agreement. In the event MCI exercises its right to cancel any ASR or Service
Agreement, the terms and conditions of this Agreement shall nevertheless remain
in effect until termination of the last active ASR or Service Agreement.
2.4 If at any time during the Term all or any significant
portion of the fiber optic or other facilities or associated equipment used to
provide the Services to MCI shall be taken for any public or quasi-public
purpose by any lawful power or authority
3
<PAGE>
by the exercise of the right of condemnation or eminent domain, Provider shall
be entitled to elect to terminate this Agreement or the applicable portions
hereof upon written notice to MCI.
2.5 Upon termination of this Agreement, all rights of MCI to
the Services shall cease and Provider shall have no further obligations to MCI
with respect to furnishing the Services.
III. SERVICE AVAILABILITY
3.1 Provider shall make available to MCI, in response to any
electronically transmitted requests from MCI, Services as specifically provided
for in any ASR or Service Agreement which may be entered into by the parties,
subject to the terms of this Agreement. A sample form of the Service Agreement
is attached hereto as Exhibit B.
3.2 The metropolitan areas and building locations in which
Provider's Network is currently able to furnish Capacity to MCI are listed in
Exhibit C attached hereto and made a part hereof. Provider shall have the right,
at any time and from time to time during the term of this Agreement, to provide
MCI with a revised list of metropolitan areas and building locations, in a
format acceptable to MCI. Upon receipt by MCI, any such revised list shall be
automatically attached hereto as an amended Exhibit C.
3.3 To order Capacity to be furnished at a building location
included in Exhibit C, MCI shall electronically submit an Access Service Request
(herein referred to as "ASR") to Provider, including the requested date of
service. Within five (5) business days after receipt of the ASR, Provider shall
electronically issue a Firm Order Commitment (hereinafter referred to as "FOC")
to MCI. MCI shall have the right, in its sole discretion, to cancel the ASR,
without incurring any termination liability, at any time prior to receiving the
FOC or in the event the Capacity is not provided by the in-service date set
forth in the FOC, unless the delay in providing the service is directly
attributable to MCI or its Customer for the requested Capacity. In the event the
Capacity is not provided by the in-service date set forth in the FOC, and MCI
chooses not to cancel the ASR, Provider will credit to MCI one day of service
for each day the Capacity is unavailable to MCI after the in-service date
specified in the FOC. Under no circumstances shall MCI be billed for use of a
circuit prior to installation. The requirements for electronically issuing an
ASR and an FOC are further defined in Exhibit D attached hereto and made a part
hereof.
3.4 To order Capacity to be furnished at a location not
included in Exhibit C, MCI shall submit an ASR to Provider, including a
requested date of service. Within five (5) business days after receipt of the
ASR, if Provider will be able to furnish such Capacity, Provider shall issue an
FOC to MCI, along with an estimated date on
4
<PAGE>
which the Capacity can be made available to MCI. Within ten (10) business days
after receipt of the FOC, MCI shall have the right, in its sole discretion, to
either: (a) notify Provider that the availability date is not acceptable and
cancel the ASR at no cost to MCI or request Provider to submit a new FOC, or (b)
notify Provider that the availability date is acceptable. In the event MCI
chooses option (a) and requests Provider to submit a new FOC, the procedures and
the time periods for responses set forth in this paragraph 3.4 shall again be
applicable to MCI's request. In the event MCI chooses option (b), Provider shall
immediately begin making all arrangements necessary to insure that the Capacity
will be available for MCI's use by the estimated availability date. The parties
shall execute a Service Agreement for the Capacity within twenty (20) days from
the date Provider notifies MCI of the actual availability date for the Capacity;
provided, however, that MCI shall have the right, in its sole discretion, to
cancel a Service Agreement for Capacity without incurring any termination
liability, in the event the Capacity is not furnished on or before the
in-service date set forth in the Service Agreement.
3.5 For Switch Services, Provider shall use the facilities as
described in Exhibit F for communications originated at or terminated at MCI
locations for the applicable telephone number groups provided by Provider. On
thirty (30) days prior written notice to MCI, Provider may change, from time to
time and by deletion or addition, the eligible telephone number groups. The
communications may include, without limitation, direct dialed calls, operator
assisted calls, calling card calls, conference calls and 800 service.
To order entrance facilities/interconnect for Switch Services, MCI shall
electronically submit an Access Service Request (herein referred to as "ASR") to
Provider, including the requested date of service. Within five (5) business days
after receipt of the ASR, Provider shall electronically issue a Firm Order
Commitment (hereinafter referred to as "FOC") to MCI. MCI shall have the right,
in its sole discretion, to cancel the ASR, without incurring any termination
liability, at any time prior to receiving the FOC.
IV. PAYMENT FOR SERVICES
4.1 The monthly recurring charges for the Capacity shall be at
the rates set forth in Exhibit E, attached hereto and made a part hereof, net of
any discounts provided for in Exhibit E, and shall be payable by MCI within
thirty (30) days after receipt of an itemized invoice therefor. The charges for
Capacity will begin to accrue on the date the Capacity is available for use.
Provider will submit monthly invoices as directed by MCI, which invoice(s) will
include all Capacity furnished to MCI as of the date of the invoice(s). The
invoice(s) submitted by Provider to MCI must be prepared utilizing the SECABS
billing guidelines, and must be rendered to MCI within fifteen (15) days after
the close of the billing period. Under no circumstances shall MCI be liable for
any charges which are not billed to MCI within ninety (90) days after the
charges were initially incurred.
5
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
4.2 The non-recurring fee set forth in Exhibit E will be
included in the first monthly invoice submitted to MCI after Provider has
furnished the Services specified in the applicable FOC.
4.3 MCI shall have the right to dispute any charges for which
it is invoiced by Provider. In the event MCI disputes any such invoice or
portion thereof, MCI shall promptly pay that portion of the invoice which is
undisputed. MCI shall have the right to withhold payment of any disputed amount,
provided that MCI gives Provider notice of the amount and reason for the dispute
in accordance with the provisions of paragraph 25.1 herein. All invoicing
disputes shall be resolved in accordance with the provisions of Article XXV
herein. Notwithstanding any provisions contained in this Agreement to the
contrary, MCI's failure to pay any invoice or portion thereof as a result of an
unresolved dispute shall not be considered a breach of the terms and provisions
of this Agreement.
4.4 For Switch Services, Provider will calculate its charges
for each month at the applicable rate provided for in Exhibit E, on the basis of
Provider's accurate Switched Minutes of Actual Use report produced by Automatic
Machine Accounting (AMA) equipment. For such calculation, Provider will
calculate the time for each call, rounded up to the nearest .1 second, and such
monthly total accumulation by end office shall be rounded up to the nearest
minute. Provider will issue its invoice for these charges as of the last day of
each month. Provider will furnish an AMA tape with each bill to Customer.
4.5 The rates for furnishing the Capacity to MCI throughout
the term of this Agreement are set forth in Exhibit E. Under no circumstances
during the term of this agreement shall the price MCI pays to Provider for
Capacity be more than[**] of the tariffed prices MCI can obtain from the LEC
serving the same locations as Provider (Provider mileage for individual Circuits
shall conform to the mileage component assigned to the individual Circuit by the
LEC) assuming the LEC is used for all MCI access requirements (MCI LEC Price).
In the event of a LEC tariff change, MCI will notify the Provider within sixty
days of any such change, and Provider will modify the applicable rates in
Exhibit E within 10 days of receipt of such notice. This change will be
effective on the date of the LEC tariff change.
In the event of changes in the rates in Exhibit E resulting from changes in the
factors used by MCI to calculate the MCI LEC Price, the changes to the rates in
Exhibit E will be effective on the date MCI notifies Provider of the change in
calculation of the MCI LEC Price.
6
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Notwithstanding the provisions of the foregoing sentence, however, in the event
Provider issues a revised schedule of rates resulting in a decrease in pricing,
all Capacity furnished to MCI by Provider pursuant to this Agreement shall be
subject to such decreased pricing schedule.
4.6 Under no circumstances during the term of this agreement
shall the price MCI pays to Provider for Switch Services be more than [**] for
Switch Services from the LEC capable of providing Switch Services to the same
location as Provider. MCI will notify the Provider of any changes to the LEC
tariffed rate, and Provider will modify the applicable rates in Exhibit E within
10 days of receipt of such notice. This change will be effective on the date of
the LEC tariff change. Such changes in the rates shall be subject to the terms
of this paragraph and paragraph 4.7.
4.7 Provider shall submit a quarterly report to MCI to include
any relevant calculations required to prove compliance with the terms of
sections 4.5 and 4.6.
4.8 [**] Notwithstanding the pricing structure set forth
herein, the price available to MCI for the Services [**] in which Provider
furnishes Services to MCI, as set forth in Exhibit C. In the event that [**] in
which Provider furnishes Services to MCI, [**].
If it is determined that Provider has not fully complied with the terms of this
Paragraph, Provider shall 2[**].
V. AUTHORITY, REPRESENTATIONS AND PERFORMANCE
OF EQUIPMENT
5.1 Provider warrants and represents that it is authorized by
all applicable federal, state and local laws, regulations and ordinances to
furnish the Services and hereby agrees to indemnify and hold harmless MCI and
MCI's Customers from and against any and all loss, liability, damage and expense
(including reasonable attorneys' fees) for any demand, claim, suit or judgment
against MCI and/or MCI's Customers attributable to Provider not having or losing
such authorizations.
5.2 Provider represents and warrants to MCI that it has
authority to do business in the areas in which it furnishes Services to MCI as
set forth in Exhibit C and the right to furnish the Services to MCI, and that it
is an entity, duly organized, validly existing and in good standing under the
laws of the state of its origin, with all requisite power to enter into and
perform its obligations under this Agreement in accordance with its terms.
7
<PAGE>
5.3 Provider represents and warrants to MCI that the Services
furnished under the terms of this Agreement and any Service Agreement shall be
designed, produced, installed, provided and maintained in conformance and
compliance with applicable federal, state and local laws, administrative and
regulatory requirements and any other authorities having jurisdiction over the
subject matter of this Agreement. Provider shall be responsible for applying
for, obtaining and maintaining all registrations and certifications which may be
required by such authorities.
5.4 Provider represents and warrants to MCI that the Services
it furnishes to MCI shall be free of interruptions (as defined in Exhibit H)
except for scheduled maintenance (as described in Exhibit G). Outages resulting
from scheduled maintenance shall not exceed one (1) cumulative hour per
consecutive thirty (30) day period with respect to any single Circuit.
5.5 Provider shall obtain any authorizations and approvals
necessary to furnish the Services to MCI. In the event of a conflict between the
terms of this Agreement and/or any Service Agreement and any tariff which
Provider or MCI may file pursuant to any federal or state law, rule or
regulation, the terms of any such tariff shall control; provided, however, that
to the extent lawfully required, Provider represents and warrants that there are
no such conflicts on the date hereof. Notwithstanding the termination provisions
set forth in paragraph 2.3 herein, if the provisions of any tariff alter the
terms and conditions of this Agreement and/or any Service Agreement materially
or adversely to either party, the affected party may terminate this Agreement
and/or any affected Service Agreement(s) upon thirty (30) days notice to the
other party, without incurring any termination liability. In the event that MCI
is the affected party, MCI shall also be entitled to receive any non-recurring
charges incurred to effectuate a reconnection of the affected service.
5.6 Each party agrees that neither its equipment nor the
Circuit(s) associated with the providing Services shall interfere with or impair
any other services or facilities furnished by the other party including, but not
limited to, damage to the other's plant, unlawful impairment of the privacy of
any communications transmitted over the Service, or creation of a hazard to any
employees or customers or to the public. If a party determines that any such
impairment of interference exists and, in the event such impairment or
interference, shall provide written notice to the other. The aforementioned
notice shall state, if known, the nature and cause of the interference or
impairment in sufficient detail to allow the damaging party to take immediate
remedial measures including, but not limited to, blockage of the other party's
network associated with the Service as provided for in paragraph 6.5 herein. If
additional equipment is required because of the damaging party's misuse of the
Service, the damaging party shall bear the cost thereof. The damaged party shall
have the right to inspect any such equipment to determine its compliance and
compatibility with the damaged party's network.
8
<PAGE>
VI. SERVICE SPECIFICATIONS, MAINTENANCE, REPAIR
AND TESTING
6.1 Provider represents, covenants and warrants to MCI that it
shall, at all times, comply with the provisions of Exhibits G and H attached
hereto and made a part hereof.
6.2 Provider warrants, covenants and represents that the
Service it furnishes to MCI shall meet the technical specifications set forth in
Exhibit A (hereinafter referred to as the "Specifications").
6.3 Provider shall be responsible for maintaining and
repairing the Network in accordance with the procedures set forth in Exhibit G.
MCI is prohibited from performing any other maintenance and repair on the
Network without the express written authorization of Provider. Upon request from
MCI, Provider shall furnish, install, test, maintain and repair any
Interconnection Facilities in a Customer location, at Provider's sole cost and
expense, in accordance with any procedures Customer and MCI deem appropriate,
including, but not limited to, those procedures set forth in paragraph 2.9 of
Exhibit G.
6.4 Provider shall report, investigate and correct any
failure, interruption or impairment of the Service in accordance with the
procedures set forth in Exhibit G.
6.5 The parties agree that if either party, in its sole
discretion, determines that any emergency action is necessary to protect its own
telecommunications network, that party may block any signals the other party may
be transmitting over the blocking party's network. In the event MCI blocks
Provider's Circuit(s) and/or Service because such Circuit(s) and/or Service does
not meet the parameters of the specifications set forth in Exhibit A, MCI shall
be relieved of all obligations to make payments for charges relating to such
Circuit(s) and/or Service until such time as the affected Circuit(s) and/or
Service meets the Specifications. Each party agrees that it will notify the
other, as soon as practicable, when a blockage occurs and both parties agree to
work diligently towards restoration of the affected Circuits and/or Service.
Neither party shall have any obligation to the other party for any claim,
judgment or liability resulting from such blockage, except as otherwise provided
in this paragraph 6.5.
VII. COLLOCATION OF EQUIPMENT
7.1 Subject to MCI's approval, which approval may be withheld
in MCI's sole discretion, Provider shall be permitted to install its equipment
at MCI locations provided that such equipment shall be used solely for the
purpose of providing access facilities to interconnect the Service to MCI's
telecommunications network. Any equipment installed by Provider must be MCI
lab-approved. Any equipment Provider is permitted to install at an MCI location
shall be maintained and repaired by Provider.
9
<PAGE>
In addition, MCI will allow Provider to access its equipment for the purpose of
maintenance and repair of equipment and testing the Circuits and the Service,
but only in accordance with procedures which MCI, in its sole discretion, deems
to be appropriate, including, but not limited to, those procedures set forth in
paragraph 2.9 of Exhibit G. For each MCI location in the metropolitan areas set
forth in Exhibit C, the parties shall prepare a detailed scope of work,
including a designation of the space at the MCI location within which Provider
will install its equipment and a list of the equipment Provider intends to
install, which scope of work as amended from time to time shall be attached to
this Agreement as a part of Exhibit C. Subject to all required approvals and the
availability of sufficient space, MCI will provide, at MCI's cost, reasonable
space, power and environmental conditions including, but not limited to,
equipment space, battery space and conduit space, air conditioning and fire
protection, as necessary to facilitate said interconnection.
7.2 The parties agree that if Provider installs equipment at
MCI locations in accordance with paragraph 7.1 herein, Provider will make the
equipment available as a bailment and title to the equipment will remain with
Provider. MCI shall have no right, title or interest therein, except as
expressly provided in this Agreement. MCI will keep Provider's equipment free
and clear of all liens, security interest and encumbrances. MCI shall have the
right to require Provider to relocate Provider's equipment for MCI's convenience
due to MCI's networking requirements. Such equipment relocation at the same MCI
location, and any associated out-of-pocket costs, shall be at MCI's expense and
shall accrue after written notice to Provider; provided, however, that if, as a
result of MCI's networking requirements, Provider's equipment must be relocated
to a different MCI location, such relocation shall be undertaken at Provider's
sole cost and expense.
7.3 Provider understands and agrees that permission to install
its equipment at an MCI location is not intended to and shall not be deemed to
grant Provider any property rights in the location. In the event, however, that
this arrangement shall be construed by the owner of the building in which the
location is situated to be such a grant and if the owner of the building asserts
such a grant to be a violation of the lease under which MCI occupies the
location, Provider agrees, upon request of MCI, to either enter into an
agreement approved by said owner or immediately remove its equipment. MCI agrees
to cooperate with Provider in obtaining the approvals Provider may need to
obtain from any building owner.
VIII. SERVICE INTERRUPTION, LIMITATIONS OF WARRANTY
AND DAMAGES
8.1 For interruptions of the Capacity MCI shall be entitled to
credit for interruption in one or more Circuits, unless such interruption is the
result of any act or omission of MCI or suspension of Services by Provider as
permitted under the terms of this Agreement. The amount of the credit shall be
as follows:
10
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
<TABLE>
<CAPTION>
Length of Service Interruption Credit
<S> <C>
Less than [**] [**]
Each additional [**] period or [**]
fractions thereof
</TABLE>
Notwithstanding the termination provisions of paragraph 2.3 herein or the
default provisions of Article X herein, if any Circuit cannot meet the
Specifications for any consecutive [**] period, or for [**] of the time over a
consecutive [**] period, MCI may immediately terminate the Services or Circuit,
at MCI's discretion, without incurring any termination liability, and Provider
will reimburse MCI for any and all installation charges MCI incurs in furnishing
the Circuit and/or Services by an alternate method; provided, however, that such
charges shall not exceed the then prevailing rates charged by the local exchange
carrier for comparable services.
In addition, if Provider has identified a location listed on Exhibit C, Building
List, as being serviced by a self-healing fiber ring, MCI shall be entitled to a
credit equal to one month's service in the event that there is a service
interruption equal to or greater than one (1) second during a particular month.
The credit will be applicable only against the specific levels of service
affected by the interruption. In no event, however, shall MCI's credit for such
service interruption during a particular month at a location serviced by a
self-healing ring exceed one month, regardless of the number of interruptions
during that particular month.
Once a location has been identified by Provider as being serviced by a
self-healing ring, that location will be subject to the service interruption
credit listed above for the term of this Agreement.
8.2 For documented interruptions of available Switch Services,
MCI shall be entitled to the following credit, unless such interruption is the
result of any act or omission of MCI or suspension of Services by Provider as
permitted under the terms of this Agreement:
<TABLE>
<CAPTION>
Length of Service Interruption Credit
<S> <C>
Less than [**] [**]
Each additional [**] period or [**]
fractions thereof
</TABLE>
11
<PAGE>
The credit shall apply to the period directly succeeding the
resumption of interrupted service.
8.3 THE FOREGOING SHALL BE PROVIDER'S SOLE OBLIGATION AND
MCI'S SOLE REMEDY FOR ANY LOSS OR DAMAGE SUSTAINED AS A RESULT .OF ANY
INTERRUPTION OR FAILURE OF THE SERVICE OR ANY FACILITIES USED IN PROVIDING THE
SERVICE, HOWEVER LONG IT SHALL LAST AND REGARDLESS OF THE CAUSE, UNLESS SUCH
LOSS OR DAMAGE IS DUE TO PROVIDER'S WILLFUL OR NEGLIGENT ACT OR OMISSIONS;
PROVIDED, HOWEVER, THAT NO LIMITATION AS TO DAMAGES FOR PERSONAL INJURY IS
HEREBY INTENDED.
8.4 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR
TO ANY THIRD PARTIES FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES
INCLUDING, WITHOUT LIMITATION, THOSE BASED ON LOSS OF REVENUES, PROFITS OR
BUSINESS OPPORTUNITIES, WHETHER OR NOT PROVIDER OR MCI HAD OR SHOULD HAVE HAD
ANY KNOWLEDGE, ACTUAL OR CONSTRUCTIVE, THAT SUCH DAMAGES MIGHT BE INCURRED.
8.5 THERE ARE NO AGREEMENTS, WARRANTIES, OR REPRESENTATIONS,
EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR
OTHERWISE, INCLUDING WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN.
IX. INDEMNIFICATION
9.1 Provider shall indemnify and hold MCI and its Customers
harmless from and against any and all loss, liability, damage and expense
(including reasonable attorneys' fees) arising out of any demand, claim, suit or
judgment for damages to any property or bodily injury to or death of any
persons, including, but not limited to, customers, agents and employees of
either party hereto (including payment under any worker's compensation law or
under any plan for employee disability and death benefits) which may arise out
of or be caused by any act or omission of Provider.
9.2 MCI shall indemnify and hold Provider harmless from and
against any and all loss, liability, damage and expense (including reasonable
attorneys' fees) arising out of any demand, claim, suit or judgment for damages
to any property or bodily injury to or death of any persons, including, but not
limited to, customers, agents and employees of either party hereto (including
payment under any workers' compensation law or under any plan for employee
disability and death benefits) which may arise out of or be caused by any act or
omission of MCI.
12
<PAGE>
9.3 If any claim arises to which the provisions of this
Article IX may be applicable, the party against whom such claim is made shall
immediately upon learning of such claim, notify the other party. Such other
party, at its option, may settle or compromise such claim or retain counsel of
its own choosing and control and prosecute the defense. In no event shall the
party against whom the claim is asserted have the right to pay, settle or
otherwise compromise such claim without the prior written consent of the party
who may be obligated for such indemnity and the parties hereto agree that they
will not unreasonably withhold their consent to such payment, settlement or
compromise.
X. DEFAULT
10.1 Except for Provider's obligations to furnish the Service
without interruption and to repair the Network and/or Circuit(s) comprising the
Service, the remedies for breach of which obligations are provided for in
Article VIII herein, neither party shall be in default under this Agreement or
in breach of any provisions hereof unless and until it has been given written
notice of a breach of this Agreement by the other party and shall have failed to
cure such breach within thirty (30) days after receipt of such notice. When a
breach cannot reasonably be cured within such thirty (30) day period, if the
breaching party shall proceed promptly to cure the same and prosecute such
curing with due diligence, the time for curing such breach shall be extended for
such period of time as may be necessary to complete such curing. Notwithstanding
the termination provisions of paragraph 2.3 herein, upon the failure to cure any
such breach as provided above, the party giving notice of the breach may
thereupon immediately terminate this Agreement or any ASR or Service Agreement
upon providing written notice of termination to the breaching party and without
incurring any termination liability. Upon default by either party, the
non-defaulting party shall have the right to pursue any or all remedies
available at law and/or equity.
10.2 In addition to any breach of a material term of this
Agreement, other events that will, if not cured within the applicable time
periods, constitute a default shall include, but not be limited to, the
occurrence of any one or more of the following events:
a. The filing of bankruptcy or making a general
assignment for the benefit of creditors; and/or
b. The defaulting party's violation of any
applicable laws, statutes, ordinances, codes or
other legal requirements with respect to the
Services when the violation(s) is not remedied
within ten (10) business days after written
notice thereof; provided, however, that each
party hereto reserves the right to contest
and/or appeal any such claim of violation and if
such contest and/or appeal is undertaken prior
to the end
13
<PAGE>
of the ten (10) business day period, the
defaulting party shall have a reasonable time,
which shall not exceed 180 days, to prosecute
the appeal and obtain a final determination of
the matter.
XI. INFRINGEMENT
11.1 Provider represents that the equipment and facilities it
will use in furnishing the Services to MCI pursuant to this Agreement will not
infringe or violate any copyright, patent, trade secret or any other
intellectual property rights or similar property rights, excluding, however, any
such infringement which may arise due to combining such equipment and facilities
with equipment or facilities furnished by MCI or with equipment or facilities
furnished by any entity other than Provider outside the Demarcation Points.
Provider will indemnify, defend and hold MCI and its Customers harmless from and
against any claims made as a consequence of any such infringement or violation
of any copyright, patent, trade secret or any other intellectual property rights
or similar property rights. Moreover, should the equipment or facilities
furnished by Provider hereunder become, or in Provider's opinion is likely to
become, the subject of a claim of infringement, or should MCI's use of the
equipment and facilities be finally enjoined, Provider shall, at its expense:
A. Procure for MCI the right to continue using the equipment
or facilities; or
B. Replace or modify the equipment or facilities to make it
non-infringing.
XII. REQUIRED RIGHTS
12. Provider represents that it currently owns, has obtained
or will obtain all licenses, authorizations, franchises, rights of way and other
licenses or permits necessary for furnishing the Service to MCI (hereinafter
referred to as "Required Rights"). Provider shall utilize its best efforts to
cause such Required Rights to remain in effect throughout the term of this
Agreement. Notwithstanding the termination provisions of paragraph 2.3 herein,
if Provider does not obtain and maintain such Required Rights, MCI may terminate
this Agreement and/or any affected ASR or Service Agreement immediately upon
notice to Provider, without incurring any termination liability, and the
indemnification provisions of Article IX shall apply to any claims, demands,
suits or judgments for damages arising therefrom.
XIII. FORCE MAJEURE
13.1 In no event shall either party have any claim or right
against the other party for any failure of performance by such other party if
such failure of
14
<PAGE>
performance is caused by or the result of causes beyond the reasonable control
of such other party, including, but not limited to, act of God, fire, flood or
other natural catastrophe; laws, orders, rules, regulations, directions or
actions of governmental authorities having jurisdiction over the subject matter
of this Agreement or any civil or military authority; national emergency,
insurrection, riot or war; or other similar occurrence. Notwithstanding the
termination provisions of paragraph 2.3 herein, if the excusable delay exceeds
sixty (60) days either party may terminate this Agreement and/or any affected
ASR or Service Agreement immediately upon written notice, without incurring any
termination liability.
XIV. TAXES
14.1 Any sums MCI is required to pay under this Agreement are
exclusive of any taxes which may be imposed with respect to this Agreement or
any of the services furnished or used hereunder including, but not limited to,
taxes imposed on this Agreement, the Service, maintenance and repair or
Provider's provision of or MCI's use thereof. MCI shall be responsible for any
such taxes with the exception of municipal franchise taxes which shall be
Provider's responsibility and obligation. MCI shall pay to or reimburse Provider
for any taxes Provider is required to pay on MCI's behalf upon presentation of
proof thereof.
XV. NOTICES
15.1 All notices and communications concerning this Agreement
shall be addressed to:
MCI (one copy to each) at:
1. Director
Alternative Access Development 9460/022
1650 Tyson Boulevard
McLean, Virginia 22102
2. Assistant General Counsel-Real Estate
1133 Nineteenth Street, N.W.
Washington, D.C. 20036
Provider at:
1. FiveCom, Inc.
393 Totten Pond Road, Suite 201
Waltham, MA 02154
Attn: President
15
<PAGE>
2. Peabody Brown 101 Federal Street
Boston, MA 02110 Attn: Kenneth A.
Alperin, P.C.
or at such other address as may be designated in writing to the other party.
15.2 Notices shall be sent by registered or certified U.S.
Mail, postage prepaid, or by commercial overnight delivery service, or by
facsimile, and shall be deemed delivered to addressee on the date of return
receipt acknowledgment, in the case of notices sent via U.S. Mail; or on the
next day after the date the notice was sent, in the case of notices sent by
either overnight delivery service or by facsimile; provided, however, that upon
receipt of a returned notice marked "unclaimed," the sending party shall make
reasonable effort to contact and notify the other party by telephone.
Notwithstanding the aforementioned, the original of the facsimile notice must be
sent by overnight delivery service in order for the delivery of facsimile notice
to be deemed effected.
XVI. CONFIDENTIALITY
16.1 All confidential and proprietary information disclosed by
either party hereto to the other in connection with this Agreement or any
Service Agreement and in accordance with the Confidentiality Agreement, attached
hereto as Exhibit I, which is hereby incorporated herein, shall not be disclosed
to third parties and each party shall protect any such information received from
the other with the same degree of care accorded its own proprietary and
confidential information and as required under the provisions of the
Confidentiality Agreement.
16.2 The provisions of this Article XVI shall survive
termination of this Agreement for a period of two (2) years.
XVII. WAIVER
17.1 Except as otherwise stated herein, no waiver of any
breach of this Agreement or of any of the terms hereof shall be effective unless
such waiver is in writing and signed by the party against whom such waiver is
claimed. No waiver of any breach shall be deemed to be a waiver of any other or
subsequent breach.
XVIII. GOVERNING LAW
18.1 This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to its
principles of conflicts of laws.
16
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
XIX. [**]
19.1 [**]of this Agreement by Provider [**] under this
Agreement [**] under the terms and conditions of this Agreement and any Service
Agreement. [**] under this Agreement and any Service Agreement.
19.2 This Agreement, and each of the parties' respective
rights and obligations hereunder, shall be binding on and inure to the benefit
of the parties and each of their respective successors and assigns.
XX. COMMON CARRIERS
20.1 Provider hereby acknowledges its obligations under
Section 705 of the Communications Act of 1934, as amended, and other applicable
federal or state laws not to divulge or publish (except as authorized by law)
the existence, contents, substance, purport, effort or meaning of any
communications which Provider transmits, receives or assists in transmitting or
receiving as part of this Agreement.
XXI. NON-EXCLUSIVE ARRANGEMENT
21.1 This Agreement between Provider and MCI is non-exclusive.
Nothing in this Agreement shall prevent Provider or MCI from entering into
similar arrangements with any other entities or otherwise furnishing Service to
any entity.
XXII. INSURANCE AND LIABILITY
22.1 Throughout the term of this Agreement, Provider and its
contractors and/or subcontractors, shall obtain and maintain the following
insurance coverage:
17
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
a. Comprehensive or commercial general liability
insurance naming Provider and its affiliates as
the named insureds. MCI shall be named as an
additional insured for purposes of this
Agreement. The comprehensive or commercial
general liability insurance policy shall cover
liability for injury to or death of persons or
damage to property including, but not limited
to, work associated with this Agreement,
including such liability as may arise from the
use of independent contractors, as well as any
contractual liability assumed under this
Agreement. The policy shall be in the amount of
[**] combined single limit per occurrence and
aggregate (where applicable) for bodily injury,
personal injury and property damage, and shall
cover (i) explosion liability and damages to
underground utilities and damage caused by
collapse if the appropriate exposure exists
(involving blasting, underpinning, and
structural alterations, etc.); (ii) broad form
property damage; and (iii) personal injury
liability.
b. Business automobile liability insurance
including coverage for owned, hired and
non-owned vehicles in the amount of [**]
combined single limit per occurrence/ accident
for bodily injury and property damage. MCI shall
be named as an additional insured for purposes
of this Agreement.
c. Worker's compensation in the statutory amount(s)
and with benefits required by the laws of the
state in which the work is performed and the
state(s) in which employees are hired, if the
state(s) are other than that in which the work
is performed. Provider shall also obtain and
maintain employers' liability insurance with a
minimum limit of liability of [**] for bodily
injury per accident.
22.2 Certificates evidencing such insurance coverage shall be
submitted to MCI prior to Provider beginning any work associated with this
Agreement. The Certificates shall certify that no material alteration,
modification or termination of such coverage shall be effective without at least
thirty (30) days' advance notice to MCI.
18
<PAGE>
22.3 Provider shall require each contractor and/or
subcontractor to obtain and maintain at all times during the term of this
Agreement, insurance equivalent to that which is required of Provider.
Subcontractor's carriers shall waive all right of recovery against MCI for any
injuries to persons or damage to property in the execution of work performed
pursuant to this Agreement.
XXIII. AUTHORITY
23.1 Each party has full power and authority to enter into and
perform this Agreement, and the person signing this Agreement on behalf of each
party has been properly authorized and empowered to enter into this Agreement.
XXIV. GENERAL PROVISIONS
24.1 The relationship of the parties hereunder shall always
and only be that of independent contractors.
24.2 Whenever the singular is used herein, the same shall
include the plural where appropriate, and when the plural is used herein, the
same shall include the singular where appropriate.
24.3 In the event any of the provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the unaffected provisions
of this Agreement shall be unimpaired and remain in full force and effect. MCI
and Provider shall negotiate in good faith to substitute for such invalid,
illegal or unenforceable provisions a mutually acceptable provision consistent
with the original intention of the parties hereto.
24.4 The title page, captions or headings in this Agreement
are strictly for convenience and shall not be considered in interpreting it or
as amplifying or limiting any of its content.
24.5 This Agreement is the joint work product of both parties
hereto; accordingly, in the event of ambiguity no presumption shall be imposed
against any party by reason of document preparation.
XXV. ARBITRATION
25.1 Any dispute or disagreement arising between Provider and
MCI in connection with this Agreement, which is not settled to the mutual
satisfaction of Provider and MCI within thirty (30) days (or such longer period
as may be mutually agreed upon) from the date that either party informs the
other in writing that such dispute or disagreement exists, shall be settled by
arbitration conducted in Washington,
19
<PAGE>
DC, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect on the date that such notice is given.
The decision of the arbitrator shall be final and binding upon the parties and
judgment may be obtained thereon by either party in a court of competent
jurisdiction. Each party shall bear the cost of preparing and presenting its
case. The cost of the arbitration, including the fees and expenses of the
arbitrator, will be shared equally by the parties unless the award otherwise
provides.
XXVI. ENTIRE AGREEMENT
26.1 This Agreement, including Exhibits A through I which are
attached hereto and hereby incorporated as an integral part of this Agreement,
constitutes the entire Agreement between the parties with respect to the subject
matter and geographic location(s) referred to and supersedes any and all prior
or contemporaneous agreements whether written or oral. This Agreement cannot be
modified except in writing signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
<TABLE>
<S> <C>
MCI TELECOMMUNICATION
FIVECOM, INC. CORPORATION
By: /s/ Victor Colantonio By: /s/ Donald T. Lynch
--------------------- ------------------------
Name: Victor Colantonio Name: Donald T. Lynch
--------------------- ------------------------
Title: President Title: Vice President
--------------------- ------------------------
ATTEST: ATTEST:
By: /s/ John F. DeSilva By: /s/ C. Rolton-Smith
--------------------- ------------------------
Name: John F. DeSilva Name: C. Rolton-Smith
--------------------- ------------------------
Title: Notary Title: Assistant Secretary
--------------------- ------------------------
(Corporate Seal) (Corporate Seal)
</TABLE>
20
<PAGE>
EXHIBIT A
Page 1 of Exhibit A is Missing
A-1
<PAGE>
2. SWITCH SERVICES PARAMETERS
The following table provides the switched services parameters excluding billing,
CAMA, LAMA, and Calling Card services. Calling Card services require DAP access.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BASIC CALL PROCESSING SWITCHING PARAMETERS
- --------------------------------------------------------------------------------
PARAMETERS VALUES COMMENTS
- --------------------------------------------------------------------------------
<S> <C> <C>
Inter Digit Timing 80 ms. Max.
- --------------------------------------------------------------------------------
Short Time release after 2.08 sec.
called party has disconnected
- --------------------------------------------------------------------------------
Duration of transmitted wink 190-320 ms. Min.-Max.
for DP/MF pulsing
- --------------------------------------------------------------------------------
The duration of transmitted 190-320 ms. Min.-Max.
wink for DP & MF
- --------------------------------------------------------------------------------
ABBREVIATED DIALING Yes
FOR Calling Card
- --------------------------------------------------------------------------------
Capturing Call Detail Record Yes
for ISDN Primary Access
Rate
- --------------------------------------------------------------------------------
Progressive Six party Yes
Conference calling feature
along with its associated
error tones
- --------------------------------------------------------------------------------
Deactivation of Dialtone Yes
speed recording during
premium service durations
- --------------------------------------------------------------------------------
Maximum number of nailed 300
up connections
- --------------------------------------------------------------------------------
Maximum Number of 36000
simultaneous calls
- --------------------------------------------------------------------------------
FG D Direct access Yes
- --------------------------------------------------------------------------------
Delay threshold for incoming 3 sec.
Start to Dial Delay
- --------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BASIC CALL PROCESSING SWITCHING PARAMETERS
- --------------------------------------------------------------------------------
PARAMETERS VALUES COMMENTS
- --------------------------------------------------------------------------------
<S> <C> <C>
CCS7 H0H1 Routset HEX 53 (HEX)
value
- --------------------------------------------------------------------------------
Feature Group D Cut through NO (Blocked)
and transitional option
- --------------------------------------------------------------------------------
1FXO GS loop closure time 20 ms.
delay from receipt of Ring
Ground
- --------------------------------------------------------------------------------
FXO Remote Busy A-Off b-Off HK Loop Open,
requirement Ring Ground
- --------------------------------------------------------------------------------
GS FXO Seizure Failure 5.12 sec.
declare (time-out)
- --------------------------------------------------------------------------------
Hi & Dry time-out 250 ms.
- --------------------------------------------------------------------------------
MAX Num. of Rings 15
- --------------------------------------------------------------------------------
Ack. Wink Delay 200 ms.
- --------------------------------------------------------------------------------
ANS Delay time after wink 200 ms.
Termination
- --------------------------------------------------------------------------------
CDR for ISUP & IMT Yes
- --------------------------------------------------------------------------------
Detecting dial Tone Time out 5.02 sec.
for ONAL
- --------------------------------------------------------------------------------
DTMF & MF Receiver Queue 30 sec.
time out
- --------------------------------------------------------------------------------
Switching Delay After Wink 1200 ms.
for connecting to
announcement
- --------------------------------------------------------------------------------
International Equal Access 190-320 ms. Min.-Max.
Wink Duration
- --------------------------------------------------------------------------------
Delay for sending 2nd wink 200 ms. Min.
after the 1st stage for
international circuit
- --------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BASIC CALL PROCESSING SWITCHING PARAMETERS
- --------------------------------------------------------------------------------
PARAMETERS VALUES COMMENTS
- --------------------------------------------------------------------------------
<S> <C> <C>
Answer Supervision back to No
originating switch upon
detection of HI & DRY,
Reorder and Ring no answer
in to an Audio Tone detector
- --------------------------------------------------------------------------------
Reorigination Duration for # 60-1000 ms. Min.-Max.
sign
- --------------------------------------------------------------------------------
Reorigination Receiver STR & DTMF
- --------------------------------------------------------------------------------
ISDN Basic Access Rate 0 or none
- --------------------------------------------------------------------------------
MAX CCS7 Links 255
- --------------------------------------------------------------------------------
ISDN PRI 0
- --------------------------------------------------------------------------------
TR-444 supported Yes
- --------------------------------------------------------------------------------
Allow RINGING ON TIP No
- --------------------------------------------------------------------------------
Trunk Conditioning Yes, 2.5 sec.
- --------------------------------------------------------------------------------
reserved reserved reserved
- --------------------------------------------------------------------------------
reserved reserved reserved
- --------------------------------------------------------------------------------
</TABLE>
3. INDUSTRY STANDARDS COMPLIANCE LIST:
Provider is to comply with the network standards contained in the following
documents:
Bellcore Technical Reference, TR-TSY-000499 (DS-0 performance specifications)
AT&T Technical Reference, TR 62415, June 1989 (Switched 56K specifications)
American National Standard T1.403 (T-1 interface specifications)
American National Standard T1.404 (T-3 interface specifications)
American National Standard T1.102 (DS-1 and DS-3 physical network
specifications)
Bellcore Technical Reference TR-NPL-000335 (Switched access technical
specifications)
A-4
<PAGE>
EXHIBIT B
SERVICE AGREEMENT
THIS SERVICE AGREEMENT shall be subject to all terms and conditions of
the Services Agreement dated as of the ___________ day of _______________, 19__,
(the "Services Agreement"), between _____________________________ (hereinafter
referred to as "Provider"), and MCI Telecommunications Corporation (hereinafter
referred to as "MCI") which, by this reference, is incorporated herein.
1. SERVICE DESCRIPTION
_____ DS-1 (1.544 Mbps) digital channels; or
_____ DS-3 (45 Mbps) digital channel(s)
on the Provider's Network, between the following
Demarcation Points in __________, __________:
Demarcation Point #1:
-----------------------, -------------------------------------
(Building No.) (Building Name)
--------------------------------------------------------------
(Customer's Name)
-------------------------, ----------------, -----------------
(Street) (Floor or Level) (Room)
-----------------------, -------------------------------------
(City) (State)
Demarcation Point #2:
-----------------------, -------------------------------------
(Building No.) (Building Name)
--------------------------------------------------------------
(Customer's Name)
-------------------------, -------------------, --------------
(Street) (Floor or Level) (Room)
-----------------------, -------------------------------------
(City) (State)
B-1
<PAGE>
The Demarcation Points will be the Provider-furnished DSX-1 (OR) DSX-3 cross
connect panel, whichever is applicable, located within the premises designated
room or other location described above as Demarcation Points 1 and 2.
2. Requested Availability Date: _________________.
3. Term Commencement Date: __________________.
(commencement date for service and billing)
This Service Agreement shall commence on the date (hereinafter referred to as
the "Commencement Date") upon which the following conditions have been
fulfilled: (i) the Services described in this Service Agreement are available
for use; (ii) Provider has completed all testing required by the Services
Agreement and Provider has obtained MCI's authorized signature on a completed
Service Acceptance Certificate; and (iii) the seventy-two (72) hour acceptance
period described in Exhibit A of the Services Agreement has expired without MCI
notifying Provider that any Circuit has failed to perform within the
Specifications.
4. Fees and Charges for Services
The Fees and Charges for the Services provided hereunder shall be:
4.1 $_____.00 Recurring Charge per month ($_____.00 Recurring Charge
per channel, per month for service provided herein).
4.2 $_____.00 Non-Recurring Fee (one time set-up
charge).
5. Term
Unless terminated as provided for elsewhere in this Service Agreement or in the
Services Agreement, this Agreement shall be for an initial term of
______________ (_____) year(s) (the "Initial Term") commencing on the
Commencement Date, and shall continue thereafter following the expiration of the
Initial Term, on a month-to-month basis at the rates stated herein until
terminated by MCI in accordance with the provisions of the Services Agreement.
6. Miscellaneous
All capitalized terms referred to in this Service Agreement shall have the
meanings defined herein or in the Services Agreement. This Service Agreement may
not be amended or otherwise altered except by written agreement between the
parties hereto.
B-2
<PAGE>
This Service Agreement shall not be considered as an exhibit or amendment to the
Services Agreement. Any amendments made hereto shall only affect this Service
Agreement and the Services described herein.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement this ______ date of ________________, 19___.
______________________________ MCI TELECOMMUNICATIONS
CORPORATION
By: __________________________ By: ________________________________
Name: ________________________ Name: ______________________________
Title: _______________________ Title: _____________________________
B-3
<PAGE>
EXHIBIT C
SERVICE AVAILABILITY
TBD
C-1
<PAGE>
EXHIBIT D
REQUIREMENTS FOR AUTOMATED INTERFACE WITH MCI
Required Codes:
[bullet] Provider is required to obtain the four (4) digit Vendor code that
uniquely identifies local exchange providers by state. Codes are
assigned by National Exchange Carrier Association (NECA).
[bullet] Provider is required to obtain a valid ICSC code(s) assigned by
Bellcore.
[bullet] Provider must obtain registered CLLI codes assigned by Bellcore for
identifying connection points between MCI POPs and CAP interconnect
facilities.
Provisioning Requirements:
[bullet] Automated ASR, FOC and DLR processing as specified in the following
Bellcore documents:
- "Access Service Ordering Guidelines"
- "ASR Mechanized Interface Specifications"
- "DLR - Mechanized Interface Specifications"
- "DLR - Industry Support Interface"
[bullet] Automated ASR, FOC and DLR transmission per MCI standard transmission
method of Network Data Mover (NDM).
[bullet] Automated delivery of building list with all fields as specified in
MCI's Automated Interface Requirements document dated March 4, 1993, as
may be amended.
[bullet] Automated delivery of terminal list with all fields as specified in
MCI's Automated Interface Requirements document dated March 4, 1993, as
may be amended.
[bullet] Automated delivery of rate file with all fields as specified in MCI's
Automated Interface Requirements document dated March 4, 1993, as may
be amended.
[bullet] Automated processing of error files as specified in MCI's Automated
Interface Requirements document dated March 4, 1993, as may be amended.
D-1
<PAGE>
Billing Requirements:
[bullet] Automated delivery of invoicing as specified in Bellcore document
"Small Exchange Carrier Access Billing Guidelines."
D-2
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT E
PRICING
FIVECOM - HARTFORD
Effective 7/2/93
Assumption:
MCI LEC RATE
1. [**] (23 DS1s per DS3, 538 DS0s per DS3) fill factor in all LEC
territories
2. DS3 Entrance Facility - 1 Pk/5 year, DS1 and DS0 - month-month
FiveCom mileage calculated on LEC DS1 channel; not LEC DS3 or DS0 facilities
SPECIAL ACCESS DSO RATES
RECURRING
Base Rate
2 wire $ [**]
4 wire $ [**]
2.4/4.8/9.6KB $ [**]
56KB $ [**]
Fixed Mileage
2/4 wire
0-4 miles $ [**]
4-8 miles $ [**]
8-25 miles $ [**]
25-50 miles $ [**]
50+ miles $ [**]
2.4/4.8KB $ [**]
9.6KB $ [**]
56.0KB $ [**]
Variable Mileage
2/4 wire
0-4 miles $ [**]
4-8 miles $ [**]
8-25 miles $ [**]
25-50 miles $ [**]
50+ miles $ [**]
2.4/4.8/9.6/56.0KB $ [**]
E-1
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
NON-RECURRING
2 wire $ [**]
4 wire $ [**]
2.4/4.8/9.6/KB $ [**]
56.0KB $ [**]
SPECIAL ACCESS DS1 RATES
RECURRING
Base Rate $ [**]
Fixed Mileage $ [**]
Variable Mileage $ [**]
NON-RECURRING $ [**]
SPECIAL ACCESS DS3 RATES
RECURRING
Base Rate $ [**]
Fixed Mileage $ [**]
Variable Mileage $ [**]
NON-RECURRING $ [**]
E-2
<PAGE>
EXHIBIT F
DESCRIPTION OF SWITCHED SERVICES
A. At the point(s) of interface, each party will receive the
switched access traffic from the other at the DS1 or DS3
level. The point of demarcation shall be the main distribution
frame at MCI's switch. Provider shall utilize an interface for
the origination and termination of calls to the Customer
premises that is compatible to MCI's network. The interface
between the MCI and Provider switch shall be two-way feature
Group D equivalent.
B. At the termination of each DS1 or DS3 facility in a party's
location; that party shall furnish, install and maintain an
extended superframe (ESF) interface unit or remote test line
capability (or equivalent).
C. Each party shall provide the other with network control and
interface capability, including but not limited to those
contained in the Industry Standards Compliance documents
referenced in Exhibit A.
D. SS7 connectivity is required between Provider and MCI and
Provider and the BOC to avoid increases in call set up time.
E. Provider's SS7 links must meet MCI standards for diversity as
diagrammed below.
DIAGRAM
In this scenario, any path or STP can go down and 2 way
diversity still exists.
F. Provider entrance facility augments may be required. Depending
on the amount of traffic in the LATA, MCI may require entrance
diversity.
G. Trunk parameters, e.g. glare must follow Bellcore standards
(Document TRNPL000335).
H. Provider shall provide the MCI Regional Access Management
groups with a monthly report (disk or paper) which details
common transport blocking at the trunk group level.
F-1
<PAGE>
I. Provider must have capability to transport calling party ANI
for 700/800/900/Vision/VNET products.
J. MCI will coordinate billing certification with Provider to
insure signals are properly passed for access and egress.
K. Provider shall be responsible for notifying MCI on ANI changes
for updates in the MCI switch database.
L. Trunk groups shall be configured to prevent blockage on direct
trunk groups.
F-2
<PAGE>
EXHIBIT G
PERFORMANCE AND MAINTENANCE
1.0 PERFORMANCE MONITORING AND REPORTING
1.1 Provider shall be responsible for performing surveillance on
the Network. However, MCI may also perform surveillance on
Provider's Network.
1.2 MCI, at its expense, may provide surveillance equipment to the
terminating equipment Network side of the DSX-1 cross connect
frame connected to Provider's transmission equipment situated
in MCI's locations, which will provide the MCI's Surveillance
System Operations group with the ability to perform
surveillance of the Services to MCI's Customer locations.
1.3 Alarms related to the Services will be reported immediately to
Provider by the MCI Surveillance System Operations group.
2.0 MAINTENANCE
2.1 Provider shall be responsible for maintaining, repairing and
testing the Circuits, the Services and the Network, including
Provider-owned equipment in Customer and MCI locations. MCI
shall permit Provider to access its equipment in MCI locations
for the purpose of testing the Circuits and the Services in
accordance with procedures which MCI, in its sole discretion,
deems appropriate, including, but not limited to, the
provisions of paragraph 2.9 of this Exhibit G.
2.2 Provider shall perform all maintenance functions, except as
provided for in paragraph 2.9 of this Exhibit G and in
paragraph 7.1 of this Agreement, on the Circuits, Services
and/or Network between the Demarcation Point(s) twenty-four
(24) hours per day, seven (7) days per week. Provider
scheduled maintenance will be performed between 12:00 A.M. and
6:00 A.M. unless otherwise agreed between Provider and MCI,
with the exception of scheduled maintenance on DDN services,
which are to performed between 12:00 A.M. and 6:00 A.M. on the
second or third Sunday of a month, unless otherwise approved
by MCI.
2.3 Specifications. Maintenance of the Circuits, Services and/or
Network shall be performed to meet the manufacturer's
specifications and those provided
G-1
<PAGE>
for in this Agreement. MCI shall have the right to review
Provider's maintenance procedures and maintenance records.
2.4 Coordination. Any maintenance and/or service function
performed by Provider on the Network which will or could
affect the Circuits and/or Services provided to MCI shall be
coordinated and scheduled through MCI's Surveillance System
Operations group pursuant to Article VI and this Exhibit G.
2.5 Response and Repair Times. In the event of a Services failure,
Provider shall begin restoring service to the affected
Services within the following time frames:
(i) Electronic Restoration. In the event of an
electronics failure, Provider shall restore Services
to the affected electronics within two (2) hours of
notification by MCI's Surveillance System operations
group.
(ii) Cable Restoration. In the event of a cable failure,
Provider shall begin cable restoration within two (2)
hours after the faulty cable is identified. Provider
shall reroute all affected MCI Circuits to an
alternate route within one (1) hour after location of
such failure has been determined. The cable shall be
restored no later than eight (8) hours after failure.
(iii) Emergency Reconfiguration. If the affected Network
has the capability to provide route reconfiguration
to maintain Services between the Demarcation Points,
Provider shall provide reconfiguration if other means
of restoration will not restore the Services within
the time frames provided in subparagraphs (i) and
(ii) above. Reconfiguration will begin within one (1)
hour after the need to re-configure has been
determined.
2.6 Trouble reporting. Provider shall maintain a twenty-four (24)
hour a day, seven (7) day a week point-of-contact for MCI to
report Services troubles. Provider shall furnish MCI with
periodically updated lists for Network management.
2.6.1 Each party shall furnish the other with a list of its
personnel authorized to issue trouble reports under
this Agreement. Each party shall accept trouble
reports without delay from these personnel whenever,
after the performance of appropriate tests, trouble
is located in the facilities provided by such party
under this Agreement and shall cause further testing
and sectionalization to be done to determine whether
the trouble is located in the provider's
G-2
<PAGE>
facilities, switching vehicle, equipment or another
source. If such testing is ineffective, each party
will work with the other to assist with the
localization of the trouble. Such cooperative testing
will normally be limited to continuity testing under
a party's existing practices. If the trouble is
sectionalized to a party's facilities, switching
vehicle or equipment, such party shall take all
necessary steps to clear the trouble and restore the
Services.
2.6.2 If a party becomes aware of any condition,
circumstance or failure that could adversely affect
the Services, such party shall immediately notify the
other. A party may, upon obtaining consent from the
other party, temporarily interrupt the Services to
perform needed testing.
2.6.3 When troubles are reported by either party, specific
trouble tracking information will be exchanged with
the other party. To facilitate the exchange of
information, each party will maintain a trouble log
of all trouble reports. The trouble log shall include
the following information:
1. serialization of each trouble report;
2. the nature of the reported trouble;
3. date and time of the trouble report;
4. name and telephone number of the person
reporting trouble;
5. name and telephone number of the person
receiving the trouble report;
6. diagnosis of trouble;
7. date and time of trouble clearance;
8. name and telephone number of the person
reporting trouble clearance; and
9. name and telephone number of the person
receiving trouble clearance.
2.6.4 Each party shall furnish to the other status reports
of each trouble report with thirty (30) minutes of
the initial report and periodically thereafter.
2.6.5 Whenever a party designates a recurring trouble to be
chronic in nature, each party shall immediately
perform an investigation of the recent trouble
history and report the findings to the other.
2.7 Equipment spares. Provider will supply all maintenance spares
plus repair and return service of defective parts. Provider
will be responsible for furnishing storage space for
maintenance spares.
G-3
<PAGE>
2.8 Scheduled Maintenance.
2.8.1 Maintenance which may place the Services in jeopardy
or require Services down time will normally be
performed during the "Maintenance Window" of 12:00
midnight and 6:00 A.M., and shall be mutually agreed
to by MCI and Provider. Provider shall request
permission from the MCI Surveillance System
Operations group at least seventy two (72) hours
prior to commencing any such scheduled maintenance
work.
2.8.2 Provider maintenance personnel shall notify MCI prior
to beginning scheduled maintenance work and must
receive authorization to proceed. Provider personnel
shall notify MCI upon completion of scheduled
maintenance work and must receive verification from
MCI that the Services is fully operational.
2.9 Access to Equipment and Facilities
2.9.1 Each party shall comply with rules, regulations and
restrictions which apply to the premises or
facilities of the other party in which such party has
installed its equipment. Such rules, regulations and
restrictions may include, without limitation, the
following:
- Visitors may be denied admission unless they
present satisfactory identification or are
identified on an authorized personnel list, or
both.
- Visitors may be required to be accompanied by
authorized personnel or be subject to other
access restrictions.
2.9.2 MCI shall have the right to be present during any
equipment testing, and during any scheduled and
non-scheduled maintenance activity. Provider shall
notify MCI in advance of any such activity.
G-4
<PAGE>
EXHIBIT H
PROVIDER RESPONSIBILITIES AND SYSTEM CRITERIA
1.0 PROVIDER RESPONSIBILITIES
Unless otherwise provided in the applicable Service Agreement, Provider
shall furnish the following:
(i) full-duplex, full time DS-0 and/or DS-1 and/or DS-3
Circuits between Provider-furnished cross-connect
panels at designated Demarcation Points, provided by
a fiber-optic transmission Network. MCI will provide
the connections from the designated Demarcation
Points to MCI's equipment. Provider will supply the
connections from the designated Demarcation Point(s)
to Customer's equipment, upon request from MCI.
(ii) at the Demarcation Points, digital signals which meet
the Specifications.
Provider shall not use any equipment to furnish the Services that will
in any way harm or restrict test access by MCI, including, but not limited to,
the in-band looping codes utilized to test Channel Service Units (CSUs).
2.0 SERVICES INTERRUPTION
An interruption begins when MCI reports a trouble on any one or more
Circuits to Provider in accordance with Exhibit G. Provider will provide
diagnostics and perform corrective action as necessary to timely restore the
affected Circuit(s) in accordance with the Specifications. Upon correction of
the trouble, Provider will contact MCI and advise of the action taken to correct
the problem. MCI will consult with MCI's Customer regarding acceptability of the
Circuits and upon Customer's confirmation that the Circuits are acceptable,
Provider will be so notified and the trouble will be considered as having been
cleared at the time that Provider last reported clearance of same, immediately
prior to Customer's confirmation.
If, during the testing of the affected Circuit(s), it is determined
that the Circuit(s) is operating normally and within the parameters of the
Specifications and the same is confirmed by Customer through MCI then such
interruption shall not be considered a Services Interruption for credit
purposes.
H-1
<PAGE>
3.0 SYSTEM ACCEPTANCE CRITERIA
The following acceptance tests will be conducted:
DS-0, DS-1 and/or DS-3: A test for a period of seventy-two
(72) hours where Bit Error Ratio ("BER"), Error Free Seconds ("EFS") and Burst
Error Seconds ("BES") shall meet the parameters of the Specifications.
Protection Switch Operation: The protection switch shall
operate within all manufacturer's specific operating parameters.
Equipment Alarm and Status Indication Functionality: All
equipment alarm functions and status indicators provided by the equipment vendor
will function properly under all simulated (non-destructive) alarm conditions.
4.0 INTERCONNECTION
4.1 Interconnection of Provider's, MCI's or MCI's Customer's
telecommunications equipment to the Demarcation Point will be performed by MCI,
Provider or Customer, at MCI's sole discretion.
4.2 Provider shall supply and connect any special interface equipment
or facilities necessary to achieve compatibility between Provider, MCI and/or
MCI's Customer at the Demarcation Points. If such special interface equipment or
facilities are required because MCI's equipment or MCI's Customer's equipment
deviates from industry standards, then such entity shall be responsible for
supplying and connecting any special interface equipment or facilities necessary
to achieve compatibility.
H-2
<PAGE>
EXHIBIT J
NONDISCLOSURE AGREEMENT
(Standard Two-Way)
Agreement between MCI TELECOMMUNICATIONS CORPORATION, a
Delaware corporation having offices at 400 International Pkwy, Richardson, TX
("MCI"), and FiveCom, Inc., a _____________ corporation having offices at 391
Totten Pond Road, Waltham, MA (the "Company").
WHEREAS, for the purpose of furthering a potential business
relationship between them, MCI and the Company (collectively referred to as the
"Parties," and individually referred to as a "Party") have determined to
establish terms governing the use and protection of certain information one
Party ("Owner") may disclose to the other Party ("Recipient"), which
information, in the case of MCI, relates generally to leased fiber capacity, and
in the case of the Company, relates generally to leased fiber capacity.
NOW, THEREFORE, the Parties agree as follows:
1. "Confidential Information" means information of an Owner which
relates, respectively, to the above-identified subject matter, including
business and technical information and data, or which, although not related to
such subject matter, is nevertheless disclosed as a result of the Parties'
discussions in that regard, and which, in any case, is disclosed by Owner or its
Affiliate(s) to Recipient or its Affiliate(s) in document or other tangible form
bearing an appropriate legend indicating its confidential or proprietary nature,
or which, if initially disclosed orally or visually is identified as
confidential at the time of disclosure and a written summary thereof, also
marked with such a legend, is provided to Recipient within fourteen (14) days of
the initial disclosure. The term "Affiliate" means any person or entity
controlling, controlled by, or under common control with a Party.
2. [For a period of five (5) years from the date of this Agreement]
Recipient may use Confidential Information of Owner only for the purpose of this
Agreement and shall protect such Confidential Information from disclosure to
others, using the same degree of care used to protect its own confidential or
proprietary information of like importance, but in any case using no less than a
reasonable degree of care. Recipient may disclose Confidential Information
received hereunder to (i) its Affiliates who agree, in advance, in writing, to
be bound by this Agreement, and (ii) to its employees, and its Affiliates'
employees, who have a need to know, for the purpose of this Agreement, and who
are bound to protect the received Confidential Information from unauthorized use
and disclosure. Confidential Information shall not otherwise be disclosed to any
third party without the prior written consent of the Owner.
J-1
<PAGE>
3. The restrictions of this Agreement on use and disclosure of
Confidential Information shall not apply to information that:
(a) Was publicly known at the time of Owner's communication
thereof to Recipient;
(b) Becomes publicly known through no fault of Recipient
subsequent to the time of Owner's communication thereof
to Recipient;
(c) Was in Recipient's possession free of any obligation of
confidence at the time of Owner's communication thereof
to Recipient;
(d) Is developed by Recipient independently of and without
reference to any of Owner's Confidential Information or
other information that Owner disclosed in confidence to
any third party;
(e) Is rightfully obtained by Recipient from third parties
authorized to make such disclosure without restriction;
or
(f) Is identified by Owner as no longer proprietary or
confidential.
4. In the event Recipient is required by law, regulation or court order
to disclose any of Owner's Confidential Information, Recipient will promptly
notify Owner in writing prior to making any such disclosure in order to
facilitate Owner seeking a protective order or other appropriate remedy from the
proper authority. Recipient agrees to cooperate with Owner in seeking such order
or other remedy. Recipient further agrees that if Owner is not successful in
precluding the requesting legal body from requiring the disclosure of the
Confidential Information, it will furnish only that portion of the Confidential
Information which is legally required and will exercise all reasonable efforts
to obtain reliable assurances that confidential treatment will be accorded the
Confidential Information.
5. All Confidential Information disclosed under this Agreement
(including information in computer software or held in electronic storage media)
shall be and remain the property of Owner. All such information in tangible form
shall be returned to Owner promptly upon written request and shall not
thereafter be retained in any form by Recipient.
6. No licenses or rights under any patent, copyright, trademark, or
trade secret are granted or are to be implied by this Agreement. Neither Party
is obligated under this Agreement to purchase from or provide to the other Party
any service or product.
J-2
<PAGE>
7. Owner shall not have any liability or responsibility for errors or
omissions in, or any decisions made by Recipient in reliance on, any
Confidential Information disclosed under this Agreement.
8. This Agreement shall become effective as of the date it is signed by
both Parties and shall automatically expire one (1) year thereafter, provided,
however, that prior to such expiration, either Party may terminate this
Agreement at any time by written notice to the other. Notwithstanding such
expiration or termination, all obligations hereunder shall survive with respect
to the disclosed Confidential Information.
9. Except upon mutual written agreement, or as may be required by law,
neither Party shall in any way or in any form disclose the discussions that gave
rise to this Agreement or the fact that there have been, or will be, discussions
or negotiations covered by this Agreement.
10. The Parties acknowledge that Confidential Information is unique and
valuable, and that disclosure in breach of this Agreement will result in
irreparable injury to Owner for which monetary damages alone would not be an
adequate remedy. Therefore, the Parties agree that in the event of a breach or
threatened breach of confidentiality, the Owner shall be entitled to specific
performance and injunctive or other equitable relief as a remedy for any such
breach or anticipated breach without the necessity of posting a bond. Any such
relief shall be in addition to and not in lieu of any appropriate relief in the
way of monetary damages.
11. Neither Party shall assign any of its rights or obligations
hereunder, except to an Affiliate or successor in interest, without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld.
12. No failure or delay in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any right, power or privilege hereunder.
13. This Agreement (a) is the complete agreement of the Parties
concerning the subject matter hereof and supersedes any prior such agreements
with respect to further disclosures concerning such subject matter; (b) may not
be amended or in any manner modified except by a written instrument signed by
both Parties; and (c) shall be governed and construed in accordance with the
laws of New York without regard to its choice of law provisions.
14. If any provision of this Agreement is found to be unenforceable,
the remainder shall be enforced as fully as possible and the unenforceable
provision shall
J-3
<PAGE>
be deemed modified to the limited extent required to permit its enforcement in a
manner most closely representing the intention of the Parties as expressed
herein.
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed by its duly authorized representative.
MCI TELECOMMUNICATIONS
CORPORATION
/s/ Keith Steiner
-------------------------------------------
Signature
Keith Steiner
Vice President, Network Engineering
February 13, 1997
FIVECOM
/s/ Michael A. Musen
-------------------------------------------
Signature
Michael A. Musen
Vice President
August 8, 1996
J-4
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
FIBER OPTIC USE AGREEMENT
BETWEEN
FIVECOM, INC.
AND
MCI TELECOMMUNICATIONS CORPORATION
<PAGE>
FIBER OPTIC USE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE NO.
<S> <C> <C>
ARTICLE I FIVECOM SYSTEM AND MCI FIBERS...............................1
ARTICLE II SCHEDULE....................................................2
ARTICLE III ACCEPTANCE..................................................2
ARTICLE IV DELIVERABLES................................................3
ARTICLE V TERM AND INDEFEASIBLE RIGHT OF USE..........................4
ARTICLE VI TERMS OF PAYMENT............................................5
ARTICLE VII MAINTENANCE AND REPAIR OF THE MCI FIBERS....................5
ARTICLE VIII WARRANTIES..................................................7
ARTICLE IX TAXES.......................................................7
ARTICLE X LIABILITY...................................................8
ARTICLE XI FORCE MAJEURE...............................................8
ARTICLE XII PERMITS AND REQUIRED RIGHTS-OF-WAY..........................9
ARTICLE XIII RELOCATION OF THE FlVECOM SYSTEM AND THE MCI
FIBERS......................................................9
ARTICLE XIV CONDEMNATION...............................................10
ARTICLE XV USE OF THE MCI FIBERS......................................10
ARTICLE XVI OWNERSHIP OF THE MCI FIBERS................................10
ARTICLE XVII RIGHT OF FIRST REFUSAL and OPTION TO LEASE
ADDITIONAL DARK FIBERS.....................................11
</TABLE>
-I-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XVIII REGENERATORS...............................................11
ARTICLE XIX CONFIDENTIALITY............................................11
ARTICLE XX DEFAULT....................................................12
ARTICLE XXI NOTICES....................................................12
ARTICLE XXII ASSIGNMENT; SUCCESSION.....................................13
ARTICLE XXIII VENDORS....................................................14
ARTICLE XXIV GOVERNING LAW..............................................14
ARTICLE XXV DISPUTE RESOLUTION.........................................14
ARTICLE XXVI LIENS......................................................16
ARTICLE XXVII MISCELLANEOUS..............................................16
ARTICLE XXVIII INSURANCE..................................................17
ARTICLE XXIX ENTIRE AGREEMENT...........................................17
</TABLE>
EXHIBITS
EXHIBIT A MAP OF LOCATION OF MCI FIBERS
EXHIBIT B TECHNICAL SPECIFICATIONS
EXHIBIT C ACCEPTANCE TEST PLAN
EXHIBIT D ACCEPTANCE NOTICE
EXHIBIT E SPECIFICATIONS
EXHIBIT F CONSTRUCTION AND MILESTONE SCHEDULE
EXHIBIT G EMERGENCY MAINTENANCE PROCEDURES
EXHIBIT H ROUTINE MAINTENANCE STANDARDS
EXHIBIT I SHELTER EQUIPMENT LAYOUT
EXHIBIT J CONFIDENTIALITY AGREEMENT
-II-
<PAGE>
FIBER OPTIC USE AGREEMENT
THIS AGREEMENT (hereinafter referred to as the "Agreement") made and
entered into as of the 2nd day of January, 1997, by and between FiveCom, LLC
(hereinafter referred to as "FiveCom"), a Massachusetts corporation, having an
office at 391 Totten Pond Road, Suite 401, Waltham, MA 021541 and MCI
TELECOMMUNICATIONS CORPORATION (hereinafter referred to as "MCI"), a Delaware
corporation, having an office at 1133 19th Street, N.W., Washington, D.C. 20036.
WHEREAS, MCI is in the business of providing long distance
telecommunications services: and
WHEREAS, MCI desires to utilize FiveCom's fiber optic access services
for the purpose of providing telecommunications services and FiveCom is willing
to provide its fiber optic access services to MCI for that purpose;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto hereby expressly agree as follows:
ARTICLE I FIVECOM SYSTEM AND MCI FIBERS
1.1 FiveCom will construct and install four (4) True Wave dark optical
fibers between the Lightwave Distribution Frame at MCI's Nashua NH terminal, One
Indian Head Plaza, Suite 517 and the Lightwave Distribution Frame at MCI's
Portland, ME Terminal at 1 City Center, 4th Floor including any connectors
thereto as depicted in Exhibit A, attached hereto. Four (4) AT&T True Wave dark
fibers will be dedicated to MCI's use along the cable system (the "MCI Fibers").
1.2 The MCI Fibers shall be provided to MCI in accordance with the
technical specifications (hereinafter referred to as the "Specifications") set
forth in Exhibit B, attached hereto and incorporated herein. FiveCom shall
comply in all material respects with any and all applicable building,
construction and safety codes for the construction and installation of the MCI
Fibers as well as any and all other applicable federal, state and local laws,
codes, ordinances, statutes and regulations.
1.3 The MCI Fibers shall be 100% diverse with a minimum of twenty-five
(25) feet separation from existing AT&T and Sprint fiber optic facilities.
1.4 MCI shall allow FiveCom to construct the MCI Fibers into MCI's
facilities, and shall provide all electricity, sanitary facilities and other
utilities at its locations as FiveCom may reasonably require to provide safe and
convenient working
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
conditions for its personnel for the installation of the MCI Fibers into MCI's
locations and for the maintenance and repair of the MCI Fibers. FiveCom shall
have no responsibility for any damage or loss to the MCI Fibers or any portion
or component thereof which is on or in an MCI location, either before or after
installation, if such damage or loss results from a fire, other casualty, theft,
mysterious disappearance, vandalism or condemnation.
ARTICLE II SCHEDULE
2.1 FiveCom shall use its best efforts to complete construction and
installation and have the MCI Fibers ready for testing no later than April 1,
1997.
2.2 In the event the MCI Fibers are not made available for MCI testing
by April 1, 1997 then, MCI, in its sole discretion, may deduct the sum of [**]
from the monthly payment described in Article VI for each day beyond April 1,
1997, that the MCI Fibers are not ready for testing. This deduction will be
taken as a credit on the front end of the contract. In the event the MCI Fibers
are not made available for testing by June 1, 1997, MCI may choose to continue
the [**] deduction or to terminate this agreement.
ARTICLE III ACCEPTANCE
3.1 Upon installation of the MCI Fibers, FiveCom shall conduct
acceptance tests in accordance with the Acceptance Test Plan ("ATP") described
in Exhibit C attached hereto and incorporated herein. FiveCom shall provide MCI
with written notice of the commencement of the acceptance testing at least seven
(7) days prior to said commencement date. MCI shall have the right, at its sole
expense, to have a person or persons present to observe any tests conducted by
FiveCom as a part of the ATP. Within ten (10) days of the conclusion of the
acceptance testing, FiveCom shall provide MCI with certified test results in
accordance with the ATP. In the event MCI does not have observers present at the
time FiveCom conducts the acceptance tests, the results of the tests conducted
thereunder as certified by FiveCom to MCI shall be deemed valid and binding upon
MCI and the MCI Fibers shall be deemed unconditionally accepted by MCI upon
receipt of the certified test results and MCI shall provide a written Acceptance
Notice within ten (10) days of receipt of such certified test results, provided
such certified test results are within the parameters of the Specifications.
3.2 In the event MCI has observers present to witness the acceptance
tests, MCI and FiveCom shall then jointly evaluate the measured results of the
tests section by section. If the measured test results are within the parameters
of the
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Specifications, then and in such event, MCI shall unconditionally accept the
test results and the MCI Fibers and provide a written Acceptance Notice.
3.3 In the event the measured test results are not within the
parameters of the Specifications, then within ten (10) days of its receipt of
the certified results from FiveCom, MCI shall notify FiveCom in writing that
such results are unacceptable and shall specify in reasonable detail the
portions of the MCI Fibers that are not within the parameters of the
Specifications. Thereupon, FiveCom shall use its best efforts to take such
action as shall be necessary to bring the operating standards of the
unacceptable portions of the MCI Fibers within the parameters of the
Specifications. If FiveCom shall not have completed corrective action and
brought the operating standards of such portions of the MCI Fibers within the
parameters of the Specifications within thirty (30) days of said written notice
from MCI that such measured test results are unacceptable, MCI shall have the
right to undertake, on its own behalf, any corrective action necessary to bring
the operating standards of the MCI Fibers within the parameters of the
Specifications, in which event FiveCom shall reimburse MCI for any and all
reasonable direct costs expended by MCI therefor. Upon completion of corrective
action by MCI or FiveCom, MCI shall provide FiveCom with an Acceptance Notice
within ten (10) days of completion of such corrective action.
3.4 Upon acceptance by MCI of all the optical fiber strands comprising
the MCI Fibers, the MCI Fibers shall be deemed to be installed by FiveCom in
accordance with the Specifications, and FiveCom shall have no further liability
therefor, except as provided for under the provisions of Articles VII and VIII,
herein.
3.5 Upon successful completion of the ATP and acceptance of the MCI
Fibers by MCI, MCI shall provide FiveCom with an "Acceptance Notice" within any
applicable period specified by this Article III in the form attached hereto as
Exhibit D. The date of acceptance set forth in the Acceptance Notice shall be
hereinafter referred to as the "Acceptance Date." In no event will MCI be
required to supply such Acceptance Notice sooner than sixty (60) days after the
beginning of acceptance testing by MCI. In the event MCI fails to provide the
Acceptance Notice or fails to specify the Acceptance Date, the Acceptance Date
shall be deemed to be the date of acceptance as determined pursuant to this
Article III or, in the event a date of acceptance is not specified, the
Acceptance Date shall be deemed to be the last day of any Acceptance Notice
period required by this Article III. Upon execution, the Acceptance Notice shall
be attached to this Agreement as Exhibit D and shall be incorporated herein by
reference.
ARTICLE IV DELIVERABLES
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4.1 In accordance with the time frame set forth in Subarticle 4.2,
herein, FiveCom shall deliver to MCI complete documentation regarding the
as-built condition of the MCI Fibers. This documentation (hereinafter referred
to as the "Deliverables") shall consist of the following:
(a) As-Built Drawings prepared in accordance with the
specifications set forth in Exhibit E, attached
hereto and incorporated herein.
(b) Names of all manufacturers whose optical fiber cable,
associated splices and other equipment are used in
installing and providing the MCI Fibers.
(c) Technical specifications of the optical fiber cable;
associated splices and other equipment used in
installing and providing the MCI Fibers.
(d) List of names and 7 X 24 telephone numbers for
FiveCom personnel responsible for maintaining and
repairing the MCI Fibers.
(e) For purposes of tracking the progress of the
construction activities associated with the MCI
fiber, FiveCom shall develop a milestone schedule,
which shall be attached hereto as Exhibit "F".
4.2 The Deliverables shall be supplied within thirty (30) days after
the Acceptance Date, provided, however, 4.1(d) & (e) shall be supplied upon
execution of the Agreement. FiveCom shall provide five (5) copies of the
Deliverables to MCI.
ARTICLE V TERM AND INDEFEASIBLE RIGHT OF USE
5.1 Unless sooner terminated in accordance with the terms of this
Agreement, FiveCom hereby grants to MCI an Indefeasible Right of Use ("IRU") in
the MCI Fibers for an initial term of twenty (20) years (hereinafter referred to
as the "Initial Term"), commencing on the Acceptance Date.
5.2 MCI shall have the option to renew this Agreement for one (1) ten
(10) year period (the Extension term) commencing at the expiration of the
Initial Term, the lease rate for the extension term shall be negotiated by the
parties, but will in no event be more than the then prevailing market rate on
the system for dark fibers excluding any amortization for system construction
costs.
5.3 Notwithstanding any provision contained in this Agreement to the
contrary, at any time after the Acceptance Date, and after having satisfied the
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
provisions of ARTICLE VI, MCI shall have the option, in its sole discretion and
for any reason, to terminate this Agreement upon one hundred eighty (180) days'
prior written notice to FiveCom.
ARTICLE VI TERMS OF PAYMENT
6.1 The lease rate for the MCI Fibers will be [**] per month. The first
payment will be due forty-five (45) days after the Acceptance Date.
6.2 FiveCom agrees that the monthly lease rate for the MCI Fibers [**].
Should FiveCom contract to [**]. FiveCom and MCI shall promptly thereafter
execute an appropriate amendment to this Agreement [**].
ARTICLE VII MAINTENANCE AND REPAIR OF THE MCI FIBERS
7.1 All routine maintenance and repair functions and emergency
maintenance and repair functions, including "one-call" responses and cable
locate services, for the MCI Fibers shall be performed by or under the direction
of FiveCom, at FiveCom's sole cost and expense. MCI shall have the right to have
an employee or representative available, at MCI's sole cost and expense, to
assist FiveCom in any maintenance or repair of the MCI Fibers. FiveCom shall use
best efforts to provide MCI with forty-eight (48) hours advance notice for all
routine maintenance and repair functions by notifying MCI's national
transmission surveillance center at 1-800-873-7366. In the event of an
emergency, similar notice shall be given to MCI as soon as the emergency is
discovered.
7.2 (a) Emergency Maintenance. FiveCom shall use best efforts to
respond to any failure, interruption or impairment in the operation of the MCI
Fibers within two (2) hours after receiving a report from MCI of any such
failure, interruption or impairment and MCI reserves the right to have a
representative present to assist in any maintenance or repair. FiveCom
recognizes that MCI company objective is to have all fibers restored within six
(6) hours of any failure, interruption or impairment and FiveCom will use its
best efforts to accomplish this objective. When trouble is encountered on the
MCI Fibers, MCI, to assist FiveCom in its maintenance activities, will diagnose
the trouble through OTDR testing, if possible, and ascertain and notify FiveCom
of the location address to the nearest cross street. FiveCom shall use its best
efforts to perform maintenance and repair to correct any failure, interruption
or impairment in the operation of the MCI Fibers in accordance
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
with the procedures set forth in Exhibit G attached hereto and incorporated
herein. In the event FiveCom fails to perform any necessary Emergency
Maintenance in accordance with the procedures set forth in Exhibit G, MCI shall
have the right, with notice to FiveCom, but not the obligation, to immediately
undertake such Emergency Maintenance of the MCI Fibers, at FiveCom's sole cost
and expense.
(b) Routine Maintenance. FiveCom will schedule and perform
specific periodic maintenance and repair checks and services, as set forth in
FiveCom's Routine Maintenance Standards, attached hereto as part of Exhibit H,
from time to time on the MCI Fibers, at FiveCom's reasonable discretion, upon
adequate advance notice to MCI, or at MCI's reasonable request. MCI may request
reasonable Routine Maintenance by delivering to FiveCom, not more than twice per
agreement year, for FiveCom's approval, a statement detailing the maintenance
checks and services MCI desires to be performed on the MCI Fibers. In the event
FiveCom fails to perform any Routine Maintenance in accordance with FiveCom's
Routine Maintenance Standards, after written notice by MCI, MCI shall have the
right, but not the obligation, to undertake such Routine Maintenance of the MCI
Fibers, at FiveCom's sole cost and expense, using contractors pre-approved by
FiveCom.
(c) MCI shall receive a credit ("Outage Credit") against the
fiber lease rate owed FiveCom hereunder in the event that the MCI Fibers do not
operate within the parameters of the Specifications. The Outage Credit shall be
equal to the proportionate amount of lease fee, for the fibers out of
compliance, paid by MCI for the duration of the noncompliance, as measured from
the time MCI notifies FiveCom of the problem until the time FiveCom, or MCI in
the event of self help, has corrected the problem. The Outage Credit shall be
[**] for each hour or portion thereof of noncompliance.
7.3 In the event FiveCom, or others acting in FiveCom's behalf, after
written notice to MCI, at any time during the term of this Agreement
discontinues maintenance and/or repair of the MCI Fibers, MCI, or others acting
in MCI's behalf, shall have the right, but not the obligation, to thereafter
provide for the maintenance and repair of the MCI Fibers, at FiveCom's sole cost
and expense. Any such discontinuance shall be upon no less than six (6) months'
prior written notice to MCI. In the event of such discontinuance, FiveCom shall
obtain for MCI, or others acting in MCI's behalf, adequate access to the
Rights-of-Way (as hereinafter defined) on or within which the MCI Fibers are
located, for the purpose of permitting MCI, or others acting in MCI's behalf, to
undertake such maintenance and repair of the MCI Fibers.
7.4 In the event all or any part of the MCI Fibers shall require
replacement during the Initial Term of this Agreement, such replacement shall be
made as soon as reasonably practical, at FiveCom's sole cost and expense. If
replacement of the MCI Fibers is required in accordance with the preceding
sentence, FiveCom shall give MCI
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
written notice of such replacement as soon as reasonably practical before the
replacement optical fiber cable is ordered from the manufacturer. MCI shall have
the option, in its sole discretion, to be exercised by written notice to FiveCom
within twenty (20) days of MCI's receipt of notice from FiveCom to: (a) accept
the proposed replacement optical fiber cable per Specifications or; (b) increase
the number of optical fiber strands to be installed in such new cable for MCI's
use at MCI's incremental cost.
ARTICLE VIII WARRANTIES
8.1 FiveCom warrants for the Initial Term of this Agreement, that the
FiveCom System shall: (a) be in full compliance with and operate within the
parameters of the Specifications, and (b) be fit to perform as an optical fiber
cable system; provided, however, that such warranties shall in no way be deemed
to be a limitation on or in derogation of FiveCom's obligations under Article
VII, herein. Any maintenance or repairs to the FiveCom System required as a
result of a breach of the foregoing warranties shall be performed at FiveCom's
sole cost and expense.
8.2 FiveCom represents and warrants to MCI that it has full Corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by FiveCom have
been duly and validly authorized by all necessary Corporate action on the part
of FiveCom
8.3 MCI represents and warrants to FiveCom that it has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by MCI have been
duly and validly authorized by all necessary corporate action on the part of
MCI.
ARTICLE IX TAXES
9.1 [**] taxes and franchise, license and permit [**] and/or [**]
and/or the physical location and construction thereof in, on, across, along or
through public or private roads, highways or rights-of-way.
9.2 If at any time during the Initial Term a federal, state or local
government authority seeks to impose any new taxes, franchise, license or permit
fees on FiveCom because of FiveCom's provision of the MCI Fibers pursuant to
this Agreement, FiveCom shall be responsible, at its sole expense, for paying
such charges
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either with or without a protest to the appropriate administrative jurisdiction
or administrative forum.
ARTICLE X LIABILITY
10.1 Neither MCI nor FiveCom shall be liable to the other for any
indirect, special, punitive or consequential damages (including, but not limited
to, any claim from any customer for loss of services) arising under this
Agreement or from any breach or partial breach of the provisions of this
Agreement or arising out of any act or omission of either party hereto, its
employees, servants, contractors and/or agents. Both FiveCom and MCI shall use
their best efforts to include in any agreement with any third party relating to
the use of the FiveCom System or the MCI Fibers a waiver by such third party of
any claim for indirect, special, punitive or consequential damages (including,
but not limited to, any claim from any client or customer for loss of services)
arising out of or as a result of any act or omission by either party hereto, its
employees, servants, contractors and/or agents.
10.2 Each party hereto agrees to indemnify, defend, protect and save
the other harmless from and against any claim, damage, loss, liability, cost and
expense (including reasonable attorney's fees) in connection with any personal
injury, including death, loss or damage to any property, or facilities of any
party (including FiveCom, MCI or any other party operating or using any part of
the FiveCom System or the MCI Fibers) arising out of or resulting in any way
from the acts or omissions to act, negligent or otherwise, of such party, its
employees, servants, contractors and/or agents in connection with the exercise
of its rights and obligations under the terms of this Agreement or any breach by
such party of any obligation contained herein.
10.3 Nothing contained herein shall operate as a limitation on the
right of either party hereto to bring an action for damages, including
consequential damages, against any third party based on any acts or omissions of
such third party as such acts or omissions may affect the construction,
operation or use of the MCI System or the MCI Fibers; provided, however, that
each party hereto shall assign such rights or claims, execute such documents and
do whatever else may be reasonably necessary to enable the injured party to
pursue any such action against such third party.
ARTICLE XI FORCE MAJEURE
11.1 The obligations of the parties hereto are subject to force majeure
and neither party shall be in default under this Agreement if any failure or
delay in performance is caused by strike or other labor problems; accidents;
acts of God; fire; flood; adverse weather conditions; material or facility
shortages or unavailability not
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resulting from such party's failure to timely place orders therefore; lack of
transportation; the imposition of any governmental codes, ordinances, laws,
rules, regulations or restrictions; condemnation or the exercise of rights of
eminent domain; war or civil disorder; or any other cause beyond the reasonable
control of either party hereto; provided, however, that the incidence of strikes
or other labor unrest shall not delay commencement of the running of time
periods which must expire before MCI shall be entitled to itself take corrective
action under the terms of this Agreement; provided, further, however, that
delays in FiveCom securing the necessary Rights-of-Way for installation of the
MCI Fibers shall not be deemed to be a force majeure, such delays being
otherwise provided for in Article XII, herein.
ARTICLE XII PERMITS AND REQUIRED RIGHTS-OF-WAY
12.1 FiveCom represents that, to the best of its knowledge and belief,
FiveCom owns, has obtained or can and will obtain all rights, licenses,
franchises, governmental regulatory approvals, authorizations, rights-of-way,
permits and other agreements necessary for the use of poles, conduit, cable,
wire or other physical plant facilities, as well as any other such rights,
licenses, authorizations, rights-of-way and other agreements necessary for the
installation and use of the MCI Fibers (all of which are herein collectively
referred to as the "Rights-of-Way"). It is expressly understood that FiveCom's
obligations under this Agreement are conditioned upon and shall in all respects
be subject to the continuation or acquisition of such Rights- of-Way. FiveCom
shall use its best efforts to obtain or to cause such Rights-of-Way to remain
effective through the Initial Term of this Agreement. MCI will be notified in
writing by FiveCom concerning any delays in obtaining any approval described in
12.1.
ARTICLE XIII RELOCATION OF THE FlVECOM SYSTEM AND THE
MCI FIBERS
13.1 If, for any reason, FiveCom is required by any third party,
including, but not limited to, a governmental entity, to relocate any of the
facilities used or required in providing the FiveCom System and the MCI Fibers,
FiveCom shall give MCI at least sixty (60) days' (or such lesser period of
notice that FiveCom may have received) prior written notice of any such
relocation and MCI shall be entitled to terminate this Agreement, in accordance
with the provisions, excluding the notification period, of Subarticle 5.3,
herein, by giving at least thirty (30) days' prior written notice to FiveCom. In
the event this Agreement is not terminated, FiveCom shall relocate the MCI
Fibers and, to the extent FiveCom is not reimbursed for the cost of such
relocation by a third party, governmental entity or otherwise, FiveCom shall be
responsible for all the costs associated with the relocation of the MCI Fibers.
If FiveCom desires, for any other reason, to relocate any of the facilities used
or
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required in providing the MCI Fibers, such relocation shall be undertaken at
FiveCom's sole cost and expense.
ARTICLE XIV CONDEMNATION
14.1 In the event any portion of the FiveCom System and/or the MCI
Fibers, or the Rights-of-Way in or upon which they shall have been installed,
become the subject of a condemnation proceeding which is not dismissed within
one hundred eighty (180) days of the date of filing of such proceeding and which
could reasonably be expected to result in a taking, by any governmental agency
or other party cloaked with the power of eminent domain for public purpose or
use, then and in such event, it is agreed that MCI shall be entitled to
terminate this Agreement by giving at least thirty (30) days' prior written
notice to FiveCom and, in that event, both parties shall be entitled, to the
extent permitted under applicable law, to participate in any condemnation
proceedings to seek to obtain compensation by either joint or separate awards
for the economic value of their respective interests.
14.2 Upon its receipt of a formal notice of condemnation or taking,
FiveCom shall notify MCI immediately of any condemnation proceeding filed
against the MCI System, including the MCI Fibers, or the Rights-of-Way in or
upon which the MCI Fibers shall have been installed. FiveCom shall also notify
MCI of any similar threatened condemnation proceeding and agrees not to sell the
MCI Fibers or Rights-of-Way to such acquiring agency, authority or other party
in lieu of condemnation without prior written notice to MCI.
14.3 If the taking or condemnation requires relocation of the MCI
Fibers, FiveCom shall use its best efforts to obtain an alternative route over
which the MCI Fibers may be relocated, at no cost to MCI.
ARTICLE XV USE OF THE MCI FIBERS
15.1 MCI shall not use the MCI Fibers in any way which fails to comply
with any applicable federal, state or local code, ordinance, law, rule,
regulation or restriction or any policy of insurance.
ARTICLE XVI OWNERSHIP OF THE MCI FIBERS
16.1 MCI shall have an undivided right of use of the MCI Fibers.
FiveCom shall have an undivided, absolute and legal title to ownership in the
MCI Fibers.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
16.2 Except as otherwise provided in this Agreement, MCI shall not
represent to any third party that any party other than FiveCom is the legal
owner of the MCI Fibers. FiveCom acknowledges that MCI has contracted for the
purchase of an IRU in the MCI Fibers and agrees that it will not take any action
which is inconsistent with MCI's said position.
ARTICLE XVII [**]OPTION TO LEASE ADDITIONAL DARK FIBERS
FiveCom hereby grants [**] an Option to License additional dark fibers
to MCI upon the following terms and conditions:
17.1 [**] on the MCI route detailed in Exhibit A, FiveCom shall provide
[**] received by FiveCom, at any time [**]. In the event MCI [**] during that
period, [**].
In the event FiveCom [**].
17.2 In addition [**], MCI shall also have the option to use an
additional four (4) fibers along the MCI route detailed in Exhibit A, at any
time throughout the term of this agreement, including any extension terms, by
paying consideration equal to the prevailing market rate for dark fiber licenses
on the FiveCom System.
ARTICLE XVIII REGENERATORS
18.1 FiveCom shall provide MCI with secure separate caged shelter space
for placement of its electronics equipment at the two (2) regenerator sites
located at Manchester and Dover with 7/24 unescorted access. The Shelter
Equipment Layout is as identified in Exhibit I. MCI shall pay FiveCom for all
incremental actual costs associated with providing MCI with secure separate
shelter space and access. Such cost shall not exceed [**].
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18.2 FiveCom will provide MCI with a minimum of twelve (12) hour
battery backup and generator power at each regenerator site.
ARTICLE XIX CONFIDENTIALITY
18.1 The Parties executed a Confidentiality Agreement on
________________, attached hereto as Exhibit J. Both parties acknowledge and
agree that the terms of that Confidentiality Agreement apply to and are binding
as to this Agreement in all respects.
ARTICLE XX DEFAULT
20.1 MCI shall not be in default under this Agreement, or in breach of
any provision hereof unless and until FiveCom shall have given MCI written
notice of such breach and MCI shall have failed to cure the same within thirty
(30) days after receipt of such notice; provided, however, that where such
breach cannot reasonably be cured within such thirty (30) day period, if MCI
shall proceed promptly to cure the same and prosecute such curing with due
diligence, the time for curing such breach shall be extended for such period of
time as may be necessary to complete such curing. Upon the failure by MCI to
timely cure any such breach after notice thereof from FiveCom, FiveCom shall
have the right, in its sole discretion, to take such action as it may determine,
to be necessary to cure the breach or to terminate this Agreement upon written
notice to MCI.
20.2 FiveCom shall not be in default under this Agreement or in breach
of any provision hereof unless and until MCI shall have given FiveCom written
notice of such breach and FiveCom shall have failed to cure the same within
thirty (30) days after receipt of such notice; provided, however, that where
such breach cannot reasonably be cured within such thirty (30) day period, if
FiveCom shall proceed promptly to cure the same and prosecute such curing with
due diligence, the time for curing such breach shall be extended for such period
of time as may be necessary to complete such curing. Upon the failure by FiveCom
to timely cure any such breach after notice thereof from MCI, MCI shall have the
right in its sole discretion to take such action as it may determine, to be
necessary to cure the breach or to terminate this Agreement.
20.3 No remedy provided for herein is intended to be exclusive, but
each remedy shall be cumulative and in addition to and may be exercised
concurrently with any other remedy available to FiveCom or MCI at law or in
equity.
ARTICLE XXI NOTICES
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21.1 Unless otherwise provided herein, all notices and communications
concerning this Agreement shall be in writing and addressed as follows:
If to FIVECOM:
FiveCom, Inc,
391 Totten Pond Road, Suite 401
Waltham, MA 02154-2014
Attention: Michael A. Musen
Facsimile Number: (617) 890-8404
If to MCI: (One copy each to)
MCI Telecommunications Corporation
2400 North Glenville Drive
Richardson Texas 75082
Attention: Law and Public Policy
Network and Facilities
Facsimile Number: (972) 918-6927
and
MCI Telecommunications Corporation
2270 Lakeside Drive
Richardson, Texas 75082
Attention: Director, Systems Development
Facsimile Number: (972) 458-5888
or at such other address as may be designated in writing to the other party.
21.2 Unless otherwise provided herein, notices shall be sent by
certified U.S. Mail, return receipt requested, or by commercial overnight
delivery service, or by facsimile, and shall be deemed delivered: if sent by
U.S. Mail, five (5) days after deposit; if sent by facsimile, upon verification
of receipt; or, if sent by commercial overnight delivery service, one (1)
business day after deposit.
ARTICLE XXII ASSIGNMENT; SUCCESSION
22.1 Except as provided in this Subarticle 22.1, MCI shall not assign
or otherwise transfer this Agreement, in whole or in part, to any other party
without the prior written consent of FiveCom, which consent shall not be
unreasonably withheld or delayed; provided, however, that without such consent,
MCI shall have the right
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to assign, sublet or otherwise transfer this Agreement, in whole or in part, to
any parent, subsidiary or affiliate of MCI which shall control, be under the
control of or be under common control with MCI, or any corporation which
purchases all or substantially all of the assets of MCI. Any assignee or
transferee shall continue to perform the MCI obligations to FiveCom under this
Agreement. It will be reasonable for FiveCom to take into consideration the
financial stability and ability to pay of any assignee.
22.2 Except as provided in this Subarticle 22.2, FiveCom shall not
assign or otherwise transfer this Agreement, in whole or in part, to any other
party without the prior written consent of MCI, which consent shall not be
unreasonably withheld or delayed. It is expressly understood that MCI shall not
consent to any such assignment if MCI has reasonably determined that the
proposed assignee lacks appropriate financial viability and technical
capabilities suitable for providing maintenance and repair of the MCI Fibers and
is incapable of performing FiveCom's obligations under this Agreement to MCI'S
satisfaction. Notwithstanding the foregoing provisions of this Subarticle 22.2,
FiveCom shall have the right, without MCI's consent, to assign or otherwise
transfer this Agreement to any parent, subsidiary or affiliate of FiveCom which
shall control, be under the control of or be under common control with FiveCom,
or any corporation which purchases all or substantially all of the assets of
FiveCom. Any assignee or transferee shall continue to perform the FiveCom
obligations to MCI under the terms of this Agreement.
22.3 Subject to the provisions of this Article XXII, this Agreement,
and each of the parties' respective rights and obligations hereunder, shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective permitted successors and assigns.
ARTICLE XXIII VENDORS
23.1 MCI shall have the right to review FiveCom's list of proposed
vendors/suppliers/manufacturers of materials to be used in the installation and
construction of the MCI Fibers.
ARTICLE XXIV GOVERNING LAW
24.1 This Agreement shall be interpreted and construed in accordance
with the internal laws of the State of New York without giving effect to its
principles of conflicts of laws.
ARTICLE XXV DISPUTE RESOLUTION
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25.1 It is the intent of MCI and FiveCom that any disputes which may
arise between them, or between the employees of each of them, be resolved as
quickly as possible. Quick resolution may, in certain circumstances, involve
immediate decisions made by the parties' representatives. When such resolution
is not possible, and depending upon the nature of the dispute, the parties
hereto agree to resolve such disputes in accordance with the provisions of this
Article XXV.
25.2 FiveCom and MCI shall each designate, by separate letter,
representatives as points of contacts and decision making for the design,
construction, installation and testing phases of the MCI Fibers, said letters to
be furnished by each party to the other within thirty (30) days from the date of
this Agreement. Any disputed issues arising during the design, construction,
installation and testing phases of the MCI Fibers shall in all instances be
initially referred to the parties' designated representatives. The parties'
designated representatives shall render a mutually agreeable resolution of the
disputed issue, in writing, within seventy-two (72) hours of such referral.
25.3 Any claims or disputes arising under the terms and provisions of
this Agreement or any claims or disputes which the parties' representatives are
unable to resolve within the seventy-two (72) hour time period specified in
Subarticle 25.2, herein, shall be presented by the claimant in writing to the
other party within five (5) business days alter the circumstances which gave
rise to the claim or dispute took place or become known to the claimant,
whichever is later. The written notice shall contain a concise statement of the
claim or issue in dispute, together with relevant facts and data to support the
claim.
25.4 Any dispute arising out of or related to this Agreement, which
cannot be resolved by negotiation, shall be settled by binding arbitration in
accordance with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures
("Endispute Rules"). The costs of arbitration, including the fees and expenses
of the arbitrator, shall be shared equally by the parties unless the arbitration
award provides otherwise. Each party shall bear the cost of preparing and
presenting its case. The parties agree that this provision and the Arbitrator's
authority to grant relief shall be subject to the United States Arbitration Act,
9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this Agreement, and the
ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes. The parties agree
that the arbitrator shall have no power or authority to make awards or issue
orders of any kind except as expressly permitted by this Article 25.4, and in no
event shall the arbitrator have the authority to make any award that provides
for punitive or exemplary damages. The Arbitrator's decision shall follow the
plain meaning of the relevant documents, and shall be final and binding. The
award may be confirmed and enforced in any court of competent jurisdiction. All
post-award proceedings shall be governed by the USAA.
-15-
<PAGE>
25.5 FiveCom shall continue to provide the MCI Fibers pursuant to this
Agreement during the proceedings and litigation described in 25.4 and MCI shall
continue to make payments in accordance with this Agreement.
ARTICLE XXVI LIENS
26.1 In the event the MCI Fibers become subject to any mechanics',
artisans' or materialmen's lien, or other encumbrance chargeable to or through
FiveCom which interfere with the MCI Fibers or MCI's use of and IRU in the MCI
Fibers, FiveCom shall promptly cause such lien or encumbrance to be discharged
and released of record (by payment, posting of bond, court deposit or other
means) without cost to MCI and shall indemnify MCI against all costs and
expenses (including reasonable attorney's fees) incurred in discharging and
releasing such lien or encumbrance; provided, however, that if any such lien or
encumbrance is not so discharged and released within thirty (30) days after
written notice by MCI to FiveCom, then MCI may pay or secure the release or
discharge thereof at the expense of FiveCom.
26.2 In the event the FiveCom System becomes subject to any mechanics',
artisans' or materialmen's lien, or other encumbrances chargeable to or through
MCI which interfere with the MCI Fibers or the FiveCom System, MCI shall
promptly cause such lien or encumbrance to be discharged and released of record
(by payment, posting of bond, court deposit or other means) without cost to
FiveCom and shall indemnify FiveCom against all costs and expenses (including
reasonable attorney's fees) incurred in discharging and releasing such lien or
encumbrance; provided, however, that if any such lien or encumbrance is not so
discharged and released within thirty (30) days after written notice by FiveCom
to MCI, then FiveCom may pay or secure the release or discharge thereof at the
expense of MCI.
ARTICLE XXVII MISCELLANEOUS
27.1 The headings of the Articles in this Agreement are strictly for
convenience and shall not in any way be construed as amplifying or limiting any
of the terms, provisions or conditions of this Agreement.
27.2 In construction of this Agreement, words used in the singular
shall include the plural and the plural the singular, and "or" is used in the
inclusive sense, in all cases where such meanings would be appropriate.
27.3 In the event any term of this Agreement shall be held invalid,
illegal or unenforceable in whole or in part, neither the validity of the
remaining part of such term nor the validity of the remaining terms of this
Agreement shall in any way be affected thereby.
-16-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
27.4 This Agreement may be amended only by a written instrument
executed by the party against whom enforcement of the modification is sought.
27.5 No failure to exercise and no delay in exercising, on the part of
either party hereto, any right, power or privilege hereunder shall operate as a
waiver hereof, except as expressly provided herein.
ARTICLE XXVIII INSURANCE
28.1 Each party or its affiliates shall, at its own expense, secure and
maintain in force, throughout the term of this Agreement, General Liability
Insurance, with competent and qualified issuing insurance companies, including
the following coverages: Product Liability, Hazard of Premises/Operations
(including explosion, collapse and underground coverages); Independent
Contractors; Products and Completed Operations; Blanket Contractual Liability
(covering the liability assumed in this Agreement); Personal Injury (including
death); and Broad Form Property Damage in policy or policies of insurance such
that the total available limits to all insured will not be less than [**]
Combined Single Limit for each occurrence and [**] aggregated for each annual
period. Such insurance may be provided in policy or policies, primary and
excess, including the so-called Umbrella or Catastrophe forms. All policies
required by this Subarticle 28.1 shall, to the extent possible, be endorsed to
show the other party, as additional insured, as their interests may appear;
require the insurance companies to notify the other party at least thirty (30)
days prior to the effective date of any cancellation or material modification of
such policies; and shall specify that the policy shall apply without
consideration for other policies separately carried and shall state that each
insured is provided coverage as though a separate policy had been issued to
each, except the insurer's liability shall not be increased beyond the amount
for which the insurer would have been liable had only one insured been covered
and only one deductible shall apply regardless of the number of insured covered.
The parties shall also carry such insurance as will protect it from all claims
under any Worker's Compensation laws in effect that may be applicable to it. The
undertaking with respect to insurance shall not relieve either party of its
obligation in Article X.
ARTICLE XXIX ENTIRE AGREEMENT
29.1 This Agreement, and any Exhibits attached hereto or to be attached
hereto, constitute the entire agreement between the parties hereto with respect
to the
-17-
<PAGE>
subject matter hereof and supersede any and all prior negotiations,
understandings and agreements with respect hereto, whether oral or written.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: MCI TELECOMMUNICATIONS
CORPORATION
By:_______________________________ By: /s/__________________________
Name: Richard Strom Name:
Title: Assistant Secretary Title:
(Corporate Seal)
ATTEST: FIVECOM, INC.
By: /s/ William F. Fennell By: /s/ Victor Colantonio
----------------------------------- ------------------------------
Name: William F. Fennell Name: Victor Colantonio
Title: Corp. Controller/CFO Title: President
(Corporate Seal)
-18-
<PAGE>
EXHIBIT A
MAP OF LOCATION OF MCI FIBERS
<PAGE>
EXHIBIT B
Technical Specifications
1. The maximum bi-directional average splice loss shall not exceed 0.1 dB.
2. At each spice point, sheathing shall be bonded to a ground of not
greater than 20 Ohms.
3. All splices shall be sealed in water proof splice enclosures.
4. Between the wavelengths of 1300 nm and 1320 nm, fiber attenuation shall
not exceed 0.4 dB/km for standard single-mode fiber and shall not
exceed 0.5dB/km for True Wave, for temperatures between -40 and +65C.
5. Between the wavelengths of 1540 nm and 1560 nm, fiber attenuation shall
not exceed 0.3 dB/nm for temperatures between -40 and +65C and shall
not exceed 0.25 dB/nm for True Wave.
6. The wavelength of zero fiber dispersion shall be between 1300 nm and
1320 nm for unshifted single-mode fiber. The wavelength of zero fiber
dispersion shall be between 1535 nm and 1565 nm for True Wave. The
slope of the dispersion curve at the wavelength of zero dispersion
shall not exceed .10ps/nm/km.
7. The fiber dispersion at a wavelength of 1500 nm shall not exceed 5
ps/(nm*km).
8. The fiber cut-off wavelength shall be less than 1330 nm and greater
than 1130 nm.
9. Fiber attenuation shall be uniform along its entire cable length.
Attenuation discontinuities shall not exceed .1dB at either 1300 nm or
1550 nm as measured at any point along the fiber.
<PAGE>
EXHIBIT C
Acceptance Test Plan
FiveCom and MCI will conduct the following tests as part of its Acceptance Test
Plan:
1. Non-destructive Attenuation Tests (End-to-End)
2. Optical Time Reflectometer Tests (OTDR)
Fiber acceptance testing will be performed to ensure that the MCI fibers will
operate within the parameters of the Specifications set forth in Exhibit B to
this Agreement.
More specifically, fiber acceptance testing will include the following:
1) Continuity/Uniformity Tests:
All fibers shall be tested bi-directionally at 1310 nm or 1550 nm, as
applicable, with an OTDR; the subsequent traces shall be inspected for
end-to-end continuity and for uniform attenuation. These traces will be stored
on diskette and will be compatible with laser precision PC-OTDR software.
2) Optical Length
The OTDR will be used to determine the end-to-end optical length of the cable.
3) Splice Loss:
Splice loss will be measured bi-directionally with an OTDR using the Splice Loss
average method. The average splice loss shall be the measurement for splice loss
set forth in Exhibit B to this Agreement.
4) End-to-End Loss
Using a light source and a power meter, the bi-directional,
connector-to-connector attenuation will be measured for each fiber at 1310 nm
and 1550 nm, as applicable. The acceptance average attenuation per kilometer on
a per span basis shall be the attenuation set forth in Exhibit B to this
Agreement.
<PAGE>
EXHIBIT D
Acceptance Notice
Reference: That certain Fiber Optic Use Agreement between MCI
Telecommunications Corporation and FiveCom, LLC dated _______________.
This notice is provided in connection with Article III of the above referenced
agreement.
The MCI System has been accepted as of _____________________________.
MCI TELECOMMUNICATIONS CORPORATION
By:_________________________________________
(Signature)
Name:______________________________________
(Type or Print Name)
<PAGE>
EXHIBIT E
As-Built Drawing Specifications
FiveCom shall deliver As-built drawings in Microstation 5.0, or current release,
in either Autocadd or DXF format in addition to five (5) 11" by 17" hard copies.
At a minimum, FiveCom's As-built drawings will include:
1. A route diagram that illustrates the location of the:
End Locations
Splice Locations
Repeater Locations
2. Manufacturer, type of cable, fiber count, and reel numbers.
3. A summary of distances between the locations listed above and offset of
cable in relation to fixed objects.
4. The type of cable construction between locations (buried, aerial,
conduit) and any typicals or details needed for the specified type of
construction.
5. Any geographical information deemed necessary to further clarify the route.
6. Detailed route information that includes:
Street, road and highway names
Railroad and major highway crossings
Bridge Crossings
Manhole and pole identification
Pole-to-pole distances in feet
Manhole-to-manhole distances in feet
Distances along or between any other attachment points on the route
New conduit, manhole, and pole installations
Building riser and lateral conduit locations, if any
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT F
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Task Duration Start Finish Predecessor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 [**] 46 10/28/96 12/30/96
- --------------------------------------------------------------------------------------------------------------------
2 OPGW Construction 15 10/28/96 11/15/96
- --------------------------------------------------------------------------------------------------------------------
3 ADSS Construction 15 11/25/96 12/13/96
- --------------------------------------------------------------------------------------------------------------------
4 SPLICING 15 12/09/96 12/27/96 3SS+10d
- --------------------------------------------------------------------------------------------------------------------
5 Optronics 5 12/13/96 12/19/96
- --------------------------------------------------------------------------------------------------------------------
6 Segment Completion Complete 1 12/30/96 12/20/96 5,4
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
8 [**] 62 11/15/96 02/10/97
- --------------------------------------------------------------------------------------------------------------------
9 OPGW Construction 35 11/18/96 01/03/97 2
- --------------------------------------------------------------------------------------------------------------------
10 ADSS Construction 15 12/16/96 01/03/97 3
- --------------------------------------------------------------------------------------------------------------------
11 SPLICING 20 12/30/96 01/24/97 4,9SS+3w
- --------------------------------------------------------------------------------------------------------------------
12 Equipment Shelters 61 11/15/96 02/07/97
- --------------------------------------------------------------------------------------------------------------------
13 Complete Specification 1 11/15/96 11/15/96
- --------------------------------------------------------------------------------------------------------------------
14 Order Shelter 50 11/18/96 01/24/97 13
- --------------------------------------------------------------------------------------------------------------------
15 Complete Shelter Installation 10 01/27/97 02/07/97 14
- --------------------------------------------------------------------------------------------------------------------
16 Segment Completion Complete 1 02/10/97 02/10/97 11,15
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
18 [**] 86 11/13/96 03/12/97
- --------------------------------------------------------------------------------------------------------------------
19 Final PUC Approval 1 11/13/96 11/13/96
- --------------------------------------------------------------------------------------------------------------------
20 Complete Engineering Spec 20 11/13/96 12/10/96
- --------------------------------------------------------------------------------------------------------------------
21 Cable Vendor Selection 10 11/13/96 11/26/96
- --------------------------------------------------------------------------------------------------------------------
22 Order Cable & Hardware 30 11/27/96 01/07/97 21
- --------------------------------------------------------------------------------------------------------------------
23 Cable Deliver 30 01/08/97 02/18/97 22
- --------------------------------------------------------------------------------------------------------------------
24 Select Construction Contractor 20 11/29/96 12/26/96
- --------------------------------------------------------------------------------------------------------------------
25 Cable Placement (Transmission) 40 01/15/97 03/11/97 24FS+10d, 23SS+1w
- --------------------------------------------------------------------------------------------------------------------
26 Cable Placement (Urban Area) 20 01/15/97 02/11/97 23SS+2w
- --------------------------------------------------------------------------------------------------------------------
27 Portland Collocation 30 11/13/96 12/24/96
- --------------------------------------------------------------------------------------------------------------------
28 Splicing 30 01/29/97 03/11/97 25SS+2w
- --------------------------------------------------------------------------------------------------------------------
29 Project Completion 1 03/12/97 03/12/97 28
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT G
EMERGENCY MAINTENANCE PROCEDURES
A1. Notification
MCI shall notify FiveCom of interruption to service (signal loss,
service degradation, out of specification performance or other
conditions) to the fiber optic cable transmission system. FiveCom will
dispatch technicians, vehicles and equipment to initiate the repair of
such conditions and the restoration of service.
A2. FiveCom Contacts
In the event of a service interruption contact FiveCom by calling the
following numbers in the sequence listed below. If the first option is
not successful proceed to the second and so on.
a. Normal Hours
1-800-891-5080
b. After Hours
Digital Pager (617) 473-6590
c. Arthur E. Rivers
(617) 484-5884
weekends (Friday evening to Monday Morning)
(617) 773-4050
d. Michael A. Musen
(617) 527-0343
e. Victor Colantonio
(617) 965-7165
This listing is subject to change.
A3. Dispatch
FiveCom shall respond to the notification immediately upon taking the
call. For required emergency restoration Technicians and appropriate
equipment will report to the location controlling signals designated by
Customer. FiveCom will log in at the location and pick up needed
restoration materials.
<PAGE>
A4. Restoration Activities
Troubleshooting will continue until the problem is found.
The restoration sequence will be:
[bullet] Report of Damage
[bullet] Estimated time to repair
[bullet] Notification of Utilities if needed (i.e. down pole).
[bullet] Verbal report of tasks to repair given to the representative
of Customer and to MCI.
A5. Repair
a. Channel or Equipment Problems
FiveCom technicians will isolate the signal problem by
reviewing the following:
1. visible alarms on bay or terminal equipment.
2. computer generated equipment logs.
3. review of performance statistics for common and customer
equipment.
4. application of DS1 & DS3 test equipment, fiber optic
signal level meter and OTDR as required.
Testing and diagnostics will be coordinated with MCI
technicians. FiveCom technicians will remain on the
call until all alarm or signal problems have been
corrected.
b. Outside Plan Repairs
Commencing immediately FiveCom will restore service to the
link by fusion splice methods, as a first priority, or with
mechanical connectors as a second choice. FiveCom will use its
fusion splicer and OTDR, power meter and all other equipment
required, excluding only the parts in the restoration kit.
The link will be brought into service, tested and protected
until the cable can be placed on a permanent pole attachment
or in conduit. Restoration test reports will be furnished to
Customer after testing. The testing report includes end to end
attenuation and photos along with a text describing the outage
suitable for insurance purposes.
<PAGE>
A6. End of Outage
Upon the satisfactory completion and acceptance of the testing by
Customer, the service will be declared restored.
FIVECOM, INC. OUTAGE REPORT
CUSTOMER: DATE: / / TIME REPORTED:
LOCATION:
STREET: POLE/MANHOLE:
CAUSE OF OUTAGE:
ARRIVAL AT DESIGNATED LOCATION AM/PM
FIRST REPORT TO CUSTOMER AM/PM
ESTIMATED TIME TO REPAIR
UTILITIES NOTIFIED:
ELECTRIC: CONTACT:
TELEPHONE: CONTACT:
CATV: CONTACT:
OTHER: CONTACT:
ANTICIPATED ACTIVITIES PRIOR TO RESTORATION:
TIME OF RESTORATION: AM/PM
REPAIRS MADE:
CUSTOMER MATERIAL USED
DESCRIPTION QUANTITY
- -------------------------------------------
| | |
- -------------------------------------------
| | |
- -------------------------------------------
| | |
- -------------------------------------------
| | |
- -------------------------------------------
| | |
- -------------------------------------------
TESTS COMPLETED
DATE: TIME: AM/PM
TECHNICIAN IN CHARGE:
SIGNED:
<PAGE>
EXHIBIT H
ROUTINE MAINTENANCE STANDARDS
RIDEOUTS
Rideouts of the fiber plan will be done on the following schedule:
Transmission Lines Annual end to end surveillance
Splice Locations Quarterly inspections
Distribution Lines Semi Annual inspection
Should MCI require more frequent rideouts, they will be done at MCI's cost
unless technical performance data indicate cable deterioration or failure. These
rideouts will be documented and will contain notes concerning general condition
of right-of-way and plant. Items such as excavation activities, construction
work, broken lashing wire, tree trimming, and so on will be noted and dealt with
immediately. Follow up verification of corrective actions taken will be
documented.
FIBER TESTS
OTDR measurements will be performed at a minimum semi-annually on all inactive
fiber and compared against original installation readings to insure integrity.
Tests will be performed more frequently if tests and performance data warrant
additional measurements.
<PAGE>
EXHIBIT I
SHELTER EQUIPMENT LAYOUT
Diagram of Layout
<PAGE>
EXHIBIT J
Nondisclosure Agreement
<PAGE>
EXHIBIT H
Routine Maintenance Standards
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
BROOKS FIBER COMMUNICATIONS LETTERHEAD
March 1, 1996
Mr. Mike Musen
Vice President
FiveCom, Inc.
391 Totten Pond Road, Suite 401
Waltham, MA 02154
Dear Mike:
It is Brooks Fiber Communications' intention to enter into a fiber use agreement
with FiveCom, Inc., pursuant to the terms and conditions of Paragraph 3, Section
A of the [**] agreement dated July 22, 1994 between Brooks Fiber Communications
of Massachusetts, Inc. and Mr. Victor Colantonio. The fiber use agreement is
subject to the following terms and conditions.
1. Payment of a not-to-exceed price of [**] subject to final adjustment
based on actual invoices for labor and material.
2. [**] fibers between [**] including building entrance on both ends.
3. An option that expires on September 15, 1996, to lease [**]
additional fibers at the rates and terms quoted by FiveCom dated
February 23, 1996.
4. Bandwidth per fiber pair:
[bullet] Pair A and Pair B: 2.4 Gbs dim capacity
[bullet] Pair C: 1.2 Gbs dim capacity
5. Term co-terminus with the FiveCom right-of-way occupancy agreement due
to expire September 27, 2024 with an option to renew for an additional
25 years.
The following technical specifications must be met:
1. A test to verify the optical power loss of each fiber shall be
conducted using an OTDR, optical power meter and light sources. The
test shall be made at 1550 nanometers.
2. Splice optical fibers using the fusion method.
<PAGE>
3. The individual splice loss must be no greater than 0.02 db per slice.
4. Total end-to-end no greater than 24 db at 1550 nm. OTDR trace and bi-
directional power meter readings to be provided to Brooks.
5. Brooks reserves the right to verify the condition of each fiber before
making any final payment for the fiber use agreement.
Documentation required:
1. As-built drawings showing route and splice points.
2. Splice loss readings (splice log).
3. End-to-end OTDR signature traces.
4. End-to-end optical loss measurements.
A detailed breakdown of maintenance and operating expenses is required to verify
recurring expenses. Brooks also requires maintenance and repair procedures and
response time guarantees, plus a 5-year warranty on the installation and
materials.
Kindly confirm acceptance of the foregoing terms by signing in the space
provided below.
Sincerely,
BROOKS FIBER COMMUNICATIONS OF MASSACHUSETTS, INC.
By: /s/Robert J. Shanahan
---------------------
Robert J. Shanahan
Vice President
Acknowledged and agreed upon as of March 11, 1996
FIVECOM, INC.
By: /s/Michael Musen
----------------
Michael Musen
Vice President
2
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
FIBER OPTIC LEASE AGREEMENT
THIS FIBER OPTIC LEASE AGREEMENT ("Agreement"), made this 31st day of
March, 1998, between FiveCom LLC, a Massachusetts limited liability company,
("Vendor") having an office at 391 Totten Pond Road, Suite 401, Waltham, MA,
02154, and Sprint Communications Company L.P., a Delaware limited partnership
("Sprint"), having an office at 1200 Main, Kansas City, MO 64105, Vendor and
Sprint being collectively referred to as the "Parties."
BACKGROUND:
Vendor will lease to Sprint [**]
Sprint will accept the leased fibers in accordance with the terms and
conditions of this Agreement;
THEREFORE, the Parties agree as follows:
ARTICLE 1. DEFINITIONS
Unless otherwise defined herein, the terms used in this Agreement will have
their normal or customary meanings. In addition, for the purpose of this
Agreement, the following terms will have the meanings set forth:
Acceptance: Written notification issued to Vendor by Sprint,
stating Sprint's intent to receive with approval the
Route that is in conformance with this Agreement and
all product specifications.
Conditional Acceptance: Written notification issued to Vendor by Sprint,
stating Sprint's intent to receive the Route that is
not in conformance with this Agreement and all
product specifications, with the express condition
that all deficiencies impeding conformance will be
corrected.
Demarcation Point: The point which defines where issues of
ownership and maintenance begin and end, as set forth
in Article 2.5.
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
1
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Point of Presence (POP): The point of interface between the interexchange
network and the local network.
Right-of-Way (ROW): Easement or right to use real property owned
by native electric utilities, railroads, individuals,
or other entities. Vendor has or will acquire
appropriate interests in such real property, or other
rights as may be required to provide and maintain
Sprint Fibers and Vendor Sites.
Route: The Vendor-designed, engineered and constructed fiber
optic cable and facilities between the Sprint Sites,
including, but not limited to, Sprint Fibers, Vendor
Sites and Sprint Space.
Service-Affecting
Condition: Any Route failure causing loss of revenue bearing
traffic to Sprint.
Potential Service
Affecting Condition: Any deficiency that left unchecked and uncorrected
could become service affecting.
Sprint Electronics: The fiber optic or other telecommunications equipment
used to facilitate telecommunication services over
the Sprint Fibers.
Sprint Fibers: Six (6) single mode non-dispersion shifted fibers
within a fiber optic cable installed on the Route, as
set forth in Exhibit B.
Sprint Sites: The Sprint facilities located at [**]
Sprint Space: Floor space and facilities provided by Vendor
exclusively for Sprint's use during the Term hereof
and Renewals thereto, within or on the Vendor Sites
as further defined in Exhibit C.
Vendor Sites: The Vendor provided facilities identified on Exhibit
A used to house equipment to operate a
telecommunications network along the Route.
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
2
<PAGE>
ARTICLE 2. SCOPE OF AGREEMENT
2.1 Vendor has designed, engineered, constructed or will cause to be
constructed, facilities and has acquired appropriate Right-of-Way or other
rights, all as may be required to provide, and maintain the Route, as more fully
defined in the Exhibits of this Agreement. Any acts required of Vendor to be
performed for Sprint to Accept the Route will be completed by Vendor on or
before November 1, 1998. All of the Sprint Fibers will be engineered and
constructed for optimum operation at 1550 nanometers (nm). The following
Exhibits, attached hereto, are by this reference incorporated herein.
Exhibit A Preliminary Route/Engineering Diagram
Exhibit B Leased Fiber Specifications
Exhibit C Vendor Site Specifications
Exhibit D Maintenance Standards
Exhibit E Contact/Escalation List
Exhibit F Vendor Deliverables
Exhibit G Work Activity Scheduling
Exhibit H Access to Third Parties and Third Party Connections
2.2 Vendor will deliver to Sprint the information contained in Exhibit
A prior to execution of the Agreement. Vendor will provide to Sprint the
deliverables in Exhibit F within the time frames described therein.
2.3 Vendor must provide to Sprint the Sprint Space, as further defined
in Exhibit C, along the Route for the purposes of installing equipment to
operate a telecommunications network. Vendor will work with Sprint and obtain
Sprint's concurrence in acquiring any required Vendor Sites. Vendor hereby
grants to Sprint the right to operate its telecommunications network within the
Vendor Sites and to perform, unimpeded, all activities associated with such
operation, including access to third parties subject to Exhibit H hereof, for
the purpose of interconnecting with Sprint's network.
2.4 Vendor grants Sprint access to interconnect the Sprint Electronics
to the Sprint Fibers. The Sprint Electronics may be upgraded, rearranged,
maintained, repaired, replaced or otherwise changed at the sole discretion of
Sprint. Any such
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
3
<PAGE>
action described in the previous sentence relating to the Sprint Electronics
will not result in a modification of the payment obligations of Sprint to
Vendor, unless additional power or square footage would be required.
2.5 The demarcation points between Vendor and Sprint will be located
inside the Sprint Site or Sprint Space and are defined to be at the Fiber
Storage Panel (ADC FSP80) (FFSP). FC Ultra Physical Contact (FCUPC) factory
connectorized pigtails are to be used from the outside plant cable to the FSP.
Vendor shall furnish the connectorized pigtails in all locations for fiber cable
termination at the FSP. Vendor will maintain the FSP and pigtails. In order to
maintain acceptable loss limits on the Sprint fibers, there may not be any other
connections installed on the Sprint fibers in any sites without Sprint's express
written consent.
ARTICLE 3. ACCEPTANCE
3.1 During construction of the Route, Vendor will hold periodic
meetings with Sprint's Network Implementation Management Department to finalize
the engineering of the Route and inform Sprint of any proposed changes in
right-of-way configurations and obtain Sprint's concurrence in any such changes.
All meetings will be arranged on a time and location schedule acceptable to all
parties. Vendor will provide milestone schedules every two weeks to Sprint's
Network Implementation Management Department (901 E. 104th St., Kansas City,
Missouri 64131). At least fifteen (15) days prior to the anticipated Route
completion date, Vendor will provide written notice to Sprint's Network
Implementation Management Department in order to schedule a Route inspection.
Upon Route completion, Vendor will submit a written notice of completion along
with Optimal Time Domain Reflectometer (OTDR) traces and end-to-end loss
measurements at 1550 nm to Network Implementation Management Department. Sprint
will complete its Route and Sprint Space inspection within ten (10) business
days of receipt of Vendor's notice of completion. Based on Sprint's inspection
of the Route and Sprint Space, the Parties will mutually agree upon a list of
any items to be corrected. Vendor will correct any such items that are the
responsibility of Vendor pursuant to the terms and conditions hereof, at
Vendor's sole cost. Sprint will provide a notice of Acceptance of the Sprint
Fibers ("Acceptance"), in writing, when the Parties mutually agree the Route and
Sprint Space is in conformance with this Agreement and all product
specifications. Billing for the charges listed in this Agreement may begin as of
the date of Acceptance.
3.2 In the event deficiencies are identified, Sprint may, at its
option, Conditionally Accept the Sprint Fibers and Sprint Space and, upon such
Conditional Acceptance, will commence payment of an amount to be agreed upon by
both
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Parties. In no event, will the amount to be paid exceed [**] of the total
monthly recurring charges as set forth in Article 6 Vendor will correct any such
deficiencies within thirty (30) days of Conditional Acceptance. Should any such
identified deficiencies remain uncorrected at the end of the thirty (30) days
unless otherwise excused herein, then, Sprint may, at its discretion and at its
option, correct such deficiencies, at Vendor's sole expense. Sprint may offset
the reimbursement owed for correcting any deficiencies against the fees to be
paid under this Agreement. If Sprint is unable to correct the deficiencies or
chooses not to correct the deficiencies, Sprint may, at its option, 1) terminate
this Agreement upon written notice to Vendor without liability and obtain
reimbursement from Vendor for any amounts paid to Vendor up through the date of
termination, or 2) continue to use the Sprint Fibers and Sprint Space on a
Conditional Acceptance basis until all deficiencies are corrected.
3.3 If completion and Acceptance, or Conditional Acceptance of the
Route and Sprint Space does not occur by November 1, 1998, because of any
failure not otherwise excused of Vendor, and Sprint does not terminate this
Agreement, Vendor will pay to Sprint [**] until the Sprint Fibers and Sprint
Space are Accepted by Sprint as set forth herein.
3.4 The Vendor's completion and Acceptance, or Conditional Acceptance
of the Route and Sprint Space by Sprint on or before November 1, 1998 relies on
Sprint's provisioning of building entry facilities and conduit at [**] and [**].
The Vendor shall not be responsible, held liable or be subject to liquidated
damages in the event Sprint is unable to deliver such entry facilities and
conduit for Vendor's installation of the cable on or before August 15, 1998.
ARTICLE 4. MAINTENANCE
4.1 Vendor will construct, operate and maintain the Route in accordance
with industry standards and the terms of this Agreement, including the Exhibits.
Vendor will have obtained all required regulatory authorizations, construction
permits, and appropriate agreements for installation and use of the Route in
conduit, on poles, and/or in trenches on public or private property. It is
expressly understood that the Route may be installed in or on ROW, the use of
which is licensed or leased to Vendor by others. Vendor will have acquired such
ROW (including any necessary renewals or new licenses or leases) and obtain for
Sprint the right to use, maintain and access the Route without interruption and
a guarantee of non-disturbance during the Term of this Agreement and any
renewals. Vendor will
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immediately inform Sprint in the event that Vendor is unable, after diligent and
good faith efforts, to obtain renewals of existing licenses or leases, new
licenses or new leases, in order to enable Sprint to protect its rights to use,
maintain and access the Route provided during the Term of this Agreement.
4.2 Vendor will perform all routine and ordinary maintenance and
repairs, as well as emergency repairs to correct any failure, interruption or
impairment in the operation of the Route. In the case of Potential Service
Affecting Conditions, Vendor will 1) notify Sprint's Transmission Control Center
(see Exhibit E); and, 2) dispatch properly equipped and trained personnel to be
on-site within two (2) hours of notice of any emergency to take corrective
action. Once on-site, Vendor will repair the Route in accordance with the
maintenance standards outlined in Exhibit D. Sprint reserves the right to have
representatives available to monitor the progress of the restoration effort.
Vendor field forces will provide information on the progress as requested unless
providing the information will delay the restoration effort. Restoration of the
cable and any splicing of the Sprint Fibers will be completed by Vendor in a
systematic and rotational manner with Sprint Fibers having equal priority to
other fibers within the cable. Sprint reserves the right to perform or assist
with the cable restoration in the event that the Vendor is unable or unwilling
to perform the restoration effort.
4.3 Scheduled service-affecting work will only be performed upon
concurrence by Sprint's Scheduled Events Management Control Center and conducted
only at a time which will least affect Sprint's business (see Exhibit G). Vendor
will notify Sprint's Scheduled Events Management Control Center at (800)
892-0960 five (5) business days prior to any scheduled service-affecting work
and obtain Sprint's concurrence prior to the commencement of such work.
4.4 Vendor will obtain Sprint's consent, which shall not be
unreasonably withheld, for any Route relocation six months prior to relocation.
If Vendor does not have knowledge of the need to relocate six months prior, then
Vendor must obtain Sprint's consent at Vendor's first notification that
relocation is necessary, but in no case less than ninety (90) days prior to
relocation. Relocation of the Route will be at Vendor's sole expense. In
addition, Vendor will reimburse Sprint for any expenses incurred by Sprint as a
result of Route relocation. Emergency service affecting Route relocation will
only be performed after obtaining Sprint's consent. Consent will not be
unreasonably withheld by Sprint.
4.5 Vendor will, at the beginning of each quarter, provide Sprint's
Transmission Control Center (TCC), with an updated contact/escalation list to
aid in trouble reporting and resolution. The current list and the TCC address
and phone number are attached as Exhibit E and may be revised by either party
from time to time by written notice.
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4.6 Sprint may request that Vendor splice into the Sprint Fibers at
additional mutually agreed to points in the future. Sprint will schedule all
such splicing activities with Vendor at a mutually agreed-upon time. Vendor will
perform all such splicing at Sprint's sole cost.
4.7 Vendor will not outsource any services Vendor is required to
provide to Sprint other than construction, maintenance or repair services to
third party service providers or suppliers unless Vendor first obtains Sprint's
written consent to the suppliers' qualifications, which consent shall not be
unreasonably withheld.
4.8 The Parties expressly agree that Sprint may retest the Sprint
Fibers at any time during the Term of this Agreement, using its own equipment,
provided that such re-testing will be at Sprint's sole cost. If the Sprint
Fibers fail to meet or exceed the specifications set forth in Exhibit B, such
deficiencies found by Sprint will be corrected at Vendor's expense.
4.9 The Parties expressly agree that Sprint may inspect the Vendor
Sites at any time during the Term of this Agreement upon reasonable prior notice
to the Vendor provided that such inspection will be at Sprint's sole cost. If
the Vendor Sites fail to meet or exceed the specifications set forth in Exhibit
C, such deficiencies found by Sprint will be corrected at Vendor's expense.
4.10 Vendor will correct deficiencies pursuant to the following
parameters:
a) Service Affecting Condition- Correction will commence
immediately upon discovery. Corrections must be
completed within 24 hours or using Vendor's best
efforts. Failure to comply will constitute default as
stated in Article 12 and Vendor will be subject to
the remedies stated therein.
b) Potential Service Affecting Condition- Correction
will commence immediately upon notification by
Sprint. Corrections must be completed within five (5)
days or using Vendor's best efforts. Failure to
comply will constitute default as stated in Article
12 and Vendor will be subject to the remedies stated
in therein.
c) Other- Any deficiency not falling within the
parameters of 4.10(a) and (b) will be corrected
within 30 days of notification by Sprint. Failure to
comply will constitute default as stated in Article
12 and Vendor will be subject to the remedies stated
therein.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
4.11 A credit will be issued to Sprint when Service Affecting
Conditions arise on the Route as set forth in this Agreement for a time period
of [**] or more:
Less than [**]: Proportional credits for the time
period the Route did not meet the
specifications as set forth in this
Agreement.
More than [**]: [**] the proportional credit for the time period the
Route did not meet the specifications as set forth in
this Agreement.
Such time period begins when Vendor is notified that the Route fails to meet the
specifications outlined in this Agreement and ends when the Route resumes
operating in accordance with the specifications outlined herein.
ARTICLE 5. TERM/TERMINATION
The Agreement will commence as of the date and year above written and
will continue for a term of twenty (20) years after the date of Acceptance or
Conditional Acceptance of the Route by Sprint. Upon expiration of the initial
term, Sprint will have one (1) additional five (5) year option to extend the
Term and five (5) successive one (1) year options to extend the Term. Each
option to extend the Term will be exercisable by Sprint as set forth in Article
6.2.
ARTICLE 6. COMPENSATION
6.1 Lease of Dark Fiber
6.1(a) During the Term of this Agreement, Sprint will pay [**]
to Vendor in arrears beginning one hundred twenty (120) days after Acceptance,
and monthly thereafter for the term of the Agreement. If Acceptance or
termination occurs on other than the first day of the month, such payment due
will be pro-rated according to the number of days of service provided in that
month. Such monthly recurring charge will compensate Vendor for the provision
and maintenance of the Route. No other amounts will be charged to Sprint for the
use of the Route as contemplated under this Agreement unless agreed to by both
Parties.
6.1(b) Upon execution of this Agreement, Sprint will pay
Vendor the initial three (3) months of the monthly recurring fees, as set forth
in Article 6.1(a), or a total payment of [**].
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
6.1(c) Vendor will provide Tax ID numbers and W-9 forms to
Sprint before or in concurrence with issuance of the first invoice.
Vendor will send all invoices to:
Sprint Communications Company L.P.
Real Estate Finance
P.O. Box 12908
Shawnee Mission, KS 66282-2908
Sprint will send all payments payable hereunder to:
FiveCom LLC
391 Totten Pond Road
Suite 401
Waltham, MA 02154-2014
6.1(d) Any amounts not paid by Sprint within forty-five (45)
days after their due date will be subject to a late payment charge calculated
from the invoice due date to the date paid, at an interest rate of 1% per month.
6.1(e) Vendor warrants to Sprint that the prices charged to
Sprint are and will remain the lowest prices charged by Vendor to others for
dark fiber leases of similar term and fiber counts along this Route.
6.2 Options for Extension of Dark Fiber Lease
6.2(a) Sprint is granted [**] and [**] for renewal of this
Agreement upon the following terms and conditions:
6.2(b) Sprint will provide written notice to Vendor of its
intent to exercise an option to renew at least sixty (60) days in advance of the
expiration of the initial term or any renewal term.
6.2(c) Should Sprint elect to exercise any of its options to
renew, the lease price per month for the Route for the renewal term will be an
amount to be determined upon exercise of the option but not to exceed as
follows:
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Five Year Option To be determined but not exceeding [**]
One Year Options To be determined but not exceeding [**]
6.3 Notwithstanding the foregoing, Sprint's exercise of any one year
option shall be of no force or effect if Vendor has notified Sprint in writing
prior to such exercise that Vendor has received notice from Northeast Utilities
and its affiliates of their intention not to renew those certain agreements for
the provision of fiber optic facilities and services, dated as of September 27,
1994, and February 27, 1998, respectively, among Northeast Utilities, certain of
its affiliates and Vendor.
ARTICLE 7. CONFIDENTIAL INFORMATION
7.1 Each Party will preserve the other Party's confidential information
obtained in constructing and leasing Sprint the Route with the same degree of
care it takes in protecting its own confidential or proprietary information,
however in no event shall either party exercise less than reasonable care.
7.2 Vendor will not, without the prior written consent of Sprint, in
any manner advertise, publicize or publish the fact that Sprint has entered into
this Agreement.
7.3 It is understood and agreed by Sprint that Vendor has the right to
disclose this Agreement to governmental agencies having requisite governmental
authority over the terms of this Agreement, provided that Vendor has given
Sprint prior written notice of impending disclosure and Sprint has a reasonable
opportunity to seek confidential treatment or a protective order or other such
appropriate remedy.
ARTICLE 8. WARRANTIES
8.1 The Warranties and remedies set forth in this Agreement constitute
the only warranties and remedies with respect to this Agreement. Such Warranties
are in lieu of all other warranties, written or oral, statutory, express or
implied, including without limitation the Warranty of merchantability and the
Warranty of fitness for a particular purpose or use.
8.2 Vendor warrants to Sprint that it has the right to perform as
required under this Agreement and/or provide to Sprint the Sprint Fibers and
Sprint Space, and that it is an entity, duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, with all
requisite power to enter into and perform its obligations under this Agreement.
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8.3 Vendor warrants to Sprint that all performance obligations rendered
by it will be designed, produced, installed, furnished and in all respects
provided and maintained in conformance and compliance with applicable federal,
state and local laws, administrative and regulatory requirements, and any other
authorities having jurisdiction over the subject matter of this Agreement that
were in effect at the time of such design, production, installation or
furnishing, and it will be responsible for applying for, obtaining and
maintaining all registrations and certifications which may be required by such
authorities to the extent that failure to do so would materially and adversely
affect its obligations under this Agreement.
8.4 Vendor warrants to Sprint that the Route has been or will be
installed in a workmanlike manner and in accordance with industry standards in
all material respects and the specifications set forth in the Exhibits to this
Agreement. Vendor further warrants that the Route will operate and be maintained
in accordance with Article 4 for the term of this Agreement and any extensions.
8.5 Each Party represents that it is not aware of any facts that would
justify a complaint to the Federal Communications Commission or any state
regulatory authority concerning the prices, terms or conditions of the
transactions contemplated by this Agreement. The Parties also agree that in the
event of a decision by a telecommunications regulatory authority at the federal,
state or local level necessitates modifications in this Agreement, the Parties
will negotiate in good faith to modify this Agreement in light of such decision.
ARTICLE 9. INDEMNIFICATION
9.1 Vendor Indemnity. Vendor agrees to release Sprint, irrevocably and
forever, and will defend, pay all judgments, expenses, and costs (including
attorney's fees) and generally indemnify, defend and hold Sprint harmless from
all liability, suit, claim or proceeding ("claims") resulting from the
performance or non-performance of this Agreement brought against Sprint by any
person for any damage, loss or destruction of any kind, including, without
limitation, loss to any property or for any personal injury, including, without
limitation, death, defamation and invasion of privacy, to any person, including
without limitation any personnel of Sprint or Vendor, if the loss, destruction,
injury or death results or allegedly results, in whole or in part, from the act,
negligence, error, omission or willful misconduct or breach of this Agreement by
Vendor.
9.2 Sprint Indemnity. Sprint agrees to release Vendor, irrevocably and
forever, and will defend, pay all judgments, expenses, and costs (including
attorney's fees) and generally indemnify, defend and hold Vendor harmless from
all liability, suit, claim or proceeding ("claims") resulting from the
performance or
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
9.3 non-performance of this Agreement brought against Vendor by any
person for any damage, loss or destruction of any kind, including, without
limitation, loss to any property or for any personal injury, including, without
limitation, death, defamation and invasion of privacy, to any person, including
without limitation any personnel of Sprint or Vendor, if the loss, destruction,
injury or death results or allegedly results, in whole or in part, from the act,
negligence, error, omission or willful misconduct or breach of this Agreement by
Sprint.
ARTICLE 10. LIABILITIES
The Parties hereof shall not be liable to each other for any consequential,
incidental, indirect, special, or punitive damages, or for lost profits, except
as otherwise stated in this Agreement. This provision will not affect Sprint's
right to liquidated damages.
ARTICLE 11. INSURANCE
11.1 Vendor's Insurance to Sprint
(a) During the term of this Agreement, and for one year thereafter,
Vendor will obtain and maintain and shall cause any subcontractors to
obtain and maintain, at Vendor's sole expense, with financially
reputable insurers which are licensed to do business in all
jurisdictions where any work is performed and any Vendor equipment is
located along this Route; not less than the following insurance:
(i) Workers' Compensation as provided for under any
Worker's Compensation or similar law in the
jurisdiction where any work is performed with an
Employer's Liability limit of not less than [**] per
accident.
(ii) Commercial General Liability, including coverage for
Contractual Liability and Products/Completed
Operations Liability, with limit of not less than
[**] combined single limit per occurrence for bodily
injury, personal injury and property damage
liability, naming Sprint as an additional insured.
(iii) "All Risk" Property insurance covering not less than
the full replacement cost of Vendor's Property while
on a Sprint job site.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(iv) Business Auto Insurance covering the ownership,
maintenance or use of any owned, non-owned or hired
automobile with a limit of not less than [**]
combined single limit per accident for bodily injury
and property damage liability, naming Sprint as an
additional insured.
(v) Umbrella Excess Liability with the limits of not less
than [**] combined single limit in excess of the
above-referenced Employer's Liability, Commercial
General Liability and Business
Auto Liability.
11.2 Sprint's Insurance to Vendor
(a) During the term of this Agreement, and for one year thereafter,
Sprint will obtain and maintain and shall cause any subcontractors to
obtain and maintain, at Sprint's sole expense, with financially
reputable insurers which are licensed to do business in all
jurisdictions where any work is performed and any Sprint equipment is
located along this Route; not less than the following insurance:
(i) Workers' Compensation as provided for under any
Worker's Compensation or similar law in the
jurisdiction where any work is performed with an
Employer's Liability limit of not less than [**] per
accident.
(ii) Commercial General Liability, including coverage for
Contractual Liability and Products/Completed
Operations Liability, with limit of not less than
[**] combined single limit per occurrence for bodily
injury, personal injury and property damage
liability, naming Vendor as an additional insured.
(iii) "All Risk" Property insurance covering not less than
the full replacement cost of Sprint's Property while
on a Vendor's job site.
(iv) Business Auto Insurance covering the ownership,
maintenance or use of any owned, non-owned or hired
automobile with a limit of not less than [**]
combined single limit per accident for bodily injury
and property damage liability, naming Vendor as an
additional insured.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(v) Umbrella Excess Liability with the limits of not less
than [**] combined single limit in excess of the
above-referenced Employer's Liability, Commercial
General Liability and Business
Auto Liability.
11.3 Waiver of Subrogation.
(a) Each Party will look first to any insurance in their favor before
making any claim against the other Party for recovery resulting from
injury to any person (including their respective employees, if any) or
damage to any property arising from any cause, regardless of
negligence, and does hereby release and waive, and will cause their
respective insurers to waive, their rights of recovery by subrogation
against the other Party.
11.4 Certificates of Insurance.
(a) Each Party (including subcontractors, if any) must, as material
condition of this Agreement, prior to the commencement of any work and
prior to any renewal of insurance, deliver to the other Party a
certificates of insurance, satisfactory in form and content as
described in this section, evidencing that the above insurance,
including waiver of subrogation, is in force and will not be canceled
or materially altered without first giving the other Party thirty (30)
days prior written notice.
11.5 Nothing contained herein limits either Party's liability to the
other Party to the limits of insurance certified or carried.
ARTICLE 12. DEFAULT
12.1 Vendor will be in default of this Agreement after written notice
of event of default with no cure after thirty (30) days if: 1) Vendor becomes
insolvent, liquidates, is adjudicated as bankrupt, makes an assignment for the
benefit of creditors, invokes any provision of law for the relief of debtors, or
initiates any proceeding seeking protection from its creditors; or 2) Vendor
violates any applicable laws or other legal requirements which results in a
material adverse impact on the provision of services to Sprint hereunder; or 3)
Vendor fails to acquire and/or maintain necessary Right-of-Way for the
uninterrupted use of the Route as required under this Agreement; or 4) Vendor
fails to provide maintenance and/or repair services to the Route as outlined in
this Agreement; or 5) Vendor fails to perform any material obligation under this
Agreement; or as expressly provided in Article 4.10.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
12.2 In any event of Vendor's default, Sprint has the right, but not
the duty, and solely at its discretion, to initiate any of the actions that
follow:
(a) To terminate the Agreement. Termination will be immediate and
effective upon notice. In such event, Vendor will release and discharge
Sprint of and from any and all payment obligations, claims, causes of
action, damages or liabilities, known or unknown, incurred by reason
of, or in any way growing out of, the use of the Route or related to
this Agreement.
(b) To cure the event of default to the extent Sprint deems necessary
to allow for the continued use of the Route or to complete construction
of the Route for use by Sprint. In such event, Vendor appoints Sprint
as its authorized agent, with authority to negotiate and obtain
licenses, lease renewals, or ROW to allow for the completion of
construction or to allow for Sprint's uninterrupted use of the Route.
Vendor will reimburse Sprint for any costs associated with curing such
default at a rate of [**] Sprint's direct cost for labor and services
and [**] Sprint's direct costs for materials and fees which amounts are
agreed by the parties to include Sprint's indirect overhead and
administrative costs. Sprint may offset such reimbursement against any
fees due and owing by Sprint. Sprint shall provide an itemized invoice
to Vendor for any amount offset.
(c) Sprint may reduce its monthly payment to Vendor by up to [**], (not
including any offsets as described in 12.2 (b)), until the default is
cured by Vendor at Vendor's sole expense.
12.3 Sprint will be in default of this Agreement after written notice
of event of default with no cure after thirty (30) days if: 1) Sprint becomes
insolvent, liquidates, is adjudicated as bankrupt, makes an assignment for the
benefit of creditors, invokes any provision of law for the relief of debtors, or
initiates any proceeding seeking protection from its creditors; or 2) Sprint
violates any applicable laws or other legal requirements which results in a
material adverse impact on the provision of services to Sprint hereunder; or 3)
Sprint fails to perform any material obligation under this Agreement.
12.4 In any event of Sprint's default, Vendor has the right, but not
the duty, and solely at its discretion, to initiate any one of the actions that
follow:
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(a) To terminate the Agreement; termination will be effective upon 30
days prior written notice, if such default is not cured or not capable
of cure within such 30 days notice.
(b) To cure the event of default to the extent Vendor deems necessary.
ARTICLE 13. TAXES
Vendor will be fully responsible for the payment before delinquency of any and
all ad valorem, property, franchise, gross receipts, sales, use and other taxes
directly applicable to the leasing of the Route to Sprint.
ARTICLE 14. ARBITRATION
14.1 Any dispute arising out of or relating to this Agreement that
cannot be settled between the concerned parties, will be finally settled by
arbitration. The arbitration will be in accordance with the rules of the
American Arbitration Association applying the substantive law of Kansas without
regard to any conflict of law provision. The arbitration will be governed by the
United States Arbitration Act, 9 U.S.C. Section 1 et seq., and judgment upon the
award rendered by the arbitrator(s) may be entered by any court with
jurisdiction. The arbitration will be held in the New York City, or other
mutually agreeable city. The arbitrator(s) are not empowered to award damages in
excess of compensatory damages and each Party waives any damages in excess of
compensatory damages.
14.2 Notwithstanding the foregoing, either Party may bring a claim for
injunctive relief in any court of competent jurisdiction without first
submitting the claim to arbitration.
14.3 No claim may be brought by either Party more than one (1) year
after the claim has accrued.
ARTICLE 15. ASSIGNMENT
The Parties agree that this Agreement is personal in nature and neither
Party may assign this Agreement or any of its rights or delegate its obligations
without the prior written consent of the other Party, such consent shall not be
unreasonably withheld. However, Sprint may assign this Agreement to any Sprint
affiliate without notice or consent of Vendor.
ARTICLE 16. MISCELLANEOUS
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16.1 Any work performed by either Party on the premises of the other
Party will be performed while taking all necessary precautions to prevent the
occurrence of any injury to persons or property during the progress of such work
and will adhere to security procedures, policies and operation of the Party
controlling the premises where work is being performed. Vendor will not enter
upon Sprint Space and/or Sprint property without first notifying and obtaining
consent from the Sprint Field Operations Supervisor.
16.2 The failure of either Party to give notice of default or to
enforce or insist upon compliance with any of the terms or conditions of this
Agreement shall not be considered the waiver of any other term or condition of
this Agreement.
16.3 Vendor will immediately notify Sprint Transmission Control Center
by telephone (see Exhibit E), to be followed by written confirmation within
twenty-four hours, of the use of any product utilized in providing services,
which fails to comply with any applicable safety rules or standards of concerned
governmental agencies (including the Environmental Protection Agency), or which
contains a defect which could create or present a substantial risk to stored
data, software, or the public health, or of injury to the public or to the
environment.
16.4 This Agreement does not constitute either Party as the agent or
legal representative of the other Party, and does not create a partnership or
joint venture between the Parties. Each Party may engage in and possess other
business ventures that are competitive with the services under this Agreement.
This Agreement is not intended to be an exclusive Agreement for any services.
16.5 This Agreement, including all exhibits and attachments, sets forth
the entire Agreement between Sprint and Vendor with respect to the subject
matter contained and may not be amended or modified except by written document,
signed by both Parties.
16.6 If any provision of this Agreement is held to be unenforceable,
the remaining provisions will remain in effect, to be construed as if the
unenforceable provisions were originally deleted.
16.7 The rights and remedies of the Parties are cumulative and in
addition to any other rights and remedies provided by law or equity. A waiver of
a breach of any provision of this Agreement will not constitute a waiver of the
same or any other provision. The laws of the State of Kansas will govern this
Agreement.
16.8 Articles 6.1(c), 7, 8, 9, 10, 14, 16.8, as well as the rest of the
terms and provisions of this Agreement that by their sense and context are
intended to survive
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the performance thereof by the Parties will survive the completion of
performance and termination of this Agreement.
16.9 Each Party shall perform its obligations hereunder in such a
manner that its performance does not violate any governmental law, rule or
regulation.
ARTICLE 17. FORCE MAJEURE EVENTS
17.1 If either Party becomes unable, either wholly or in part, by an
event of Force Majeure, to fulfill its obligations under this Agreement, the
obligations affected by the event of Force Majeure will be suspended only during
the continuance of that inability. The Party so affected will give written
notice of the existence, extent, and nature of the event of Force Majeure to the
other Party within forty-eight (48) hours after the occurrence of the event. The
Party so affected will remedy its inability as soon as possible. Failure to give
notice will result in the continuance of the affected Party's obligations
regardless of the extent of any existing Force Majeure.
17.2 The term "Force Majeure" as used in this Agreement means acts of
God, strikes, lockouts, or other industrial disturbances, acts of public
enemies, wars, blockades, insurrections, riots, epidemics, earthquakes, fires,
floods, restraints or prohibitions by any court, board, department, commission,
or agency of the United States or any states, any arrests or restraints, civil
disturbances, or explosions. Rain, snow, ice, or other adverse, non-catastrophic
weather conditions will not be considered events of Force Majeure.
ARTICLE 18. NOTICES
Notices will be in writing, mailed certified with return receipt
requested, effective upon receipt and sent to:
Sprint: Sprint Communications Company L.P.
Attn.: Real Estate Acquisitions and Administration
1200 Main Street
Kansas City, Missouri 64105
Copy to: Sprint Communications Company L.P.
Attn.: Real Estate Counsel, General
Business Group
8140 Ward Parkway
Kansas City, Missouri 64114
Vendor: FiveCom LLC
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Attn: President
391 Totten Pond Road
Suite 401
Waltham, MA 02154-2014
Copy to: Hale and Dorr
Attn: Alexander Bernhard
60 State Street
Boston, MA 02109
or to replacement addresses that may be later designated in writing.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate
originals on the day and year below written, but effective as of the day and
year first set forth above.
FiveCom, LLC SPRINT COMMUNICATIONS
By it Manager, FiveCom, Inc. COMPANY L.P., A DELAWARE
by its President LIMITED PARTNERSHIP
By: /s/ Victor Colantonio By: /s/ James B. Farris
------------------------- ------------------------
Name: Victor Colantonio Name: James B. Farris
Title: President Title: Director, Real Estate Acquisition
& Administration
Date: 3/31/98 Date: 4/7/98
------------------------ ----------------------
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EXHIBIT A
PRELIMINARY ROUTE/ENGINEERING DIAGRAM
Preliminary Fiber Route Information Required From Vendor to be attached prior to
execution of Agreement:
1) Route Plan or Proposed Route Plan with Maps drawn to scale.
2) Fiber Type.
3) Fiber Cable Manufacturer.
4) Facilities Floor Plans (electronic and hard copies). The electronic
copies should be on compact disc or three and one half inch (3.5")
floppy diskettes in the following three formats: DGN (MicroStation);
DXF (Drawing Interchange Format); and DWG (AutoCad Drawing File Release
13) at Vendor's sole cost.
5) Bellcore CLLICode Information Requirements:
a) Site Name/Purpose-
b) Address:
i) Street and street number
ii) City
iii) State
iv) Zip
v) County
c) Longitude/Latitude Coordinates
d) NPA/NXX
e) Directions to the site
f) Lease effective date
g) Lease termination date
END EXHIBIT A
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EXHIBIT B
Leased Fiber Specifications
Sprint Network Span and Fiber Acceptance:
Span Requirements:
Span documentation must be performed using the two following methods, (i) OTDR
(optical time domain reflectometer) and (ii) insertion loss (stabilized light
source and power meter) measurement in each direction at 1550 nm wavelength.
1) Maximum total span loss must not exceed 35.0 dB at 1550 nm.
2) Maximum dB/km loss must not exceed 0.30 dB/km at 1550 nm.
3) Typical span scenario 30.0 dB = 120km X .30dB/km.
4) Maximum fiber loss scenario 35.0 dB = 100 km X .30 dB/km.
5) Maximum span dispersion = 2250 ps/nm.
6) All Connector Assemblies must be (FCUPC) physical contact
design, and must meet or exceed 50 dB return loss. Connectors
must have a mean insertion <0.4 dB with maximum insertion loss
<0.6 dB.
7) Fiber Protection for fan-out and terminating fibers must have
900 um tight buffer tube, a Kevlar strength member, a cable
jacket with an overall diameter 2.9 mm.
8) Performance levels must be maintained as accepted during the
entire duration of the agreement.
9) The splice loss will average .15dB. Splices shall be measured
using bi-directional methods to average absolute splice loss.
In no case shall a fiber show a point discontinuity greater
than 1.0 dB. Discontinuities (known as steps, splices, or
attenuation non-uniformity) shall be measured with an optical
time domain reflectometer (OTDR) to determine the loss of the
localized attenuation. The least squares fit method of
measurement must be used to determine the magnitude of the
loss of a point discontinuity.
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10) All fiber splices will be fiber to fiber fusion type.
11) Cable and pigtails will be fusion spliced.
12) Any mechanical connections in a span will be reviewed by
Sprint. If it is detrimental to the Sprint network, Sprint
reserves the right to remove the mechanical connection and
replace it with a fusion splice.
13) Test data including OTDR hard copies and electronic data must
be submitted to Network Implementation Management before Route
Acceptance. Data should be sent to:
Network Implementation Management
901 E 104th St.
Kansas City, MO 64131
14) Sprint, at its discretion, may choose to physically monitor
any or all testing associated with Acceptance of Fibers.
Key optical performance Characteristics For Single-Mode Optical Cables:
Attenuation Single Mode Non-Shifted:
1) The attenuation must not exceed 0.30 dB/km when measured at a
wavelength of 1.55 microns (1550 nm) using the two point
measurement.
2) The attenuation must not exceed 0.40 dB/km when measured at a
wavelength of 1.30 microns (1310 nm) using the two point
measurement.
Attenuation Versus Wavelength Single-Mode
1) The attenuation for the wavelength region from 1525 nm to 1575
nm must not exceed the attenuation at 1550 nm by more than
0.05 dB/km.
Chromatic Dispersion Non-Dispersion Shifted (ps/nm-km):
1) For conventional single mode fibers, the zero dispersion
wavelength must be 1301.5 to 1321.5 nm. The maximum dispersion
slope (SoMAX) must be no greater than 0.092ps/(km-nm2). The
nominal zero
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dispersion wavelength must be near 1310 nm zero dispersion
range. The dispersion between 1530 and 1570 nm must be less
than or equal to 18 ps/(nmo km).
Cutoff Wavelength:
1) The cutoff wavelength of cabled fiber must be less than 1260
nm.
Core Diameter:
1) The core diameter must be typically 8.7(plus/minus) 1.3 pm.
Temperature:
1) Operating Temperature Range -40(degree) C to +70(degree) C
(-40(degree)F to 167(degree)F).
Cable Installation Requirements:
Construction:
1) Cable must be constructed in accordance with sound commercial
practices. The National Electric Safety Code shall be followed
in every case except where local regulations are more
stringent, in which case local regulations shall govern.
2) Vendors cable shall be constructed and maintained so that it
is 100% diverse from any Sprint facilities. All construction
into Sprint sites must follow Sprint specifications for
diverse entrance. Any routing changes made after construction
must be approved by Sprint.
END EXHIBIT B
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EXHIBIT C
Vendor Site Specifications
Construction
1) Vendor will work with Sprint and obtain Sprint's concurrence in
determining the location of the Vendor Site.
a) The Vendor Site will be small-arms resistant.
b) The Vendor Site will be constructed to Sprint's
standards regarding Radio Frequency Interference
(RFI) and Electromagnetic Interference (EMI)
shielding. There should be 20-40dB of shielding at
each vendor site for frequencies of 1 mghz
and above.
2) Vendor will provide the following to Sprint:
a) At least 120 square feet of floor space at Sprint
Regenerator location for Sprint electronics which
shall be physically separated and secured according
to Sprint's specifications, with a separate entrance
for 24-hour Sprint access.
b) Additional square footage may be required at
specified sites for Sprint Electronics and
administrative purposes.
c) Access to the site for Sprint
technicians/representatives and vehicles, including
full rights of ingress and egress into the building
to the Sprint Space.
d) Fire suppression system, as approved by Sprint and
such approval shall not be unreasonably denied.
e) Security measures should be commensurate with the
area of the site and should include: Best Locks(TM)
and a motion detection lighting system outside the
site.
f) Vendor will provide unistrut mounted to the ceiling
above the Sprint Space per Sprint engineering
specifications.
g) All required Fiber Distribution Panels (FDPs) and
relay racks.
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h) AC overhead light fixtures, along with at least four
(4) 110 or 120 volt AC duplex outlets, to be located
within six (6) feet of Sprint Electronics within the
Sprint Space.
i) Adequate equipment egress to be provided for Sprint's
use.
j) Adequate parking for Sprint vehicles.
k) All doors will bear signs with the following
information: Emergency telephone numbers (police and
fire), and prohibition of the use of cellular devices
within the building.
l) Joslyn Electronics AC lightning arresters or
equivalent for protection of AC power entrances at
Vendor Sites and Sprint Space. Installation and
maintenance must meet Sprint engineering
specifications.
Power
1) Vendor will provide Sprint with all AC and DC power at the Vendor Site
required to operate Sprint's equipment, to include the following:
a) An emergency backup generator is required. The generator must
be permanently installed at the Vendor Site. The generator
system must be sized to carry the full AC electrical load of
the site, including all air conditioning and DC rectifiers.
The generator system must be designed and maintained so as to
carry the full AC electrical load of the site continuously for
seventy-two (72) hours and have auto-transfer switching the
capacity.
b) A redundant -48V nominal, 100 A DC electrical feed is required
at regenerator sites. A redundant -48V nominal, 200 A DC
electrical feed is required at POP and or Regen sites. These
feeds will terminate at a Battery Distribution Circuit Breaker
Board (BDCBB). The DC power plant will be equipped with
redundant rectifiers so that the loss of one rectifier will
not impede the delivery of Sprint's required current ratings.
The 100 A redundant feed requires two (2) separate circuits to
the BDCBB. Each circuit should be protected by an over-current
protection device rated at 100 A. Each feed should be designed
with a maximum loop voltage drop of one volt (1 V) at the full
100 A. The 200 A redundant feed requires two separate circuits
to the BDCBB. Each circuit should be protected by a
over-current protection device rated at 200 A. Each feed
should be designed with a maximum loop voltage
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drop of one volt (1 V) at the full 200 A. The BDCBB will be
installed in a relay rack separate from other equipment. The
BDCBB will be equipped with ten (10) 20 A circuit breakers,
ten (10) 30 A circuit breakers and four (4) 50 A breakers. The
breakers must be alarmable.
c) There will be no point in the DC electrical system past the
site main AC disconnect to the BDCBB where AC or DC current
must flow through a single over-current protection device.
This requires that there must be more than one AC source to
the rectifiers and there must be more than one rectifier. If
battery disconnects are used there must be more than one
battery system. If the Sprint BDCBB is fed from a Secondary
Power Distribution Unit (SPDU), said SPDU must be fed with
redundant, parallel feeds, each capable of supporting the full
load of the SPDU. The redundant feeds described above fulfill
this requirement for the system from the primary DC bus bars
or SPDU to the Sprint BDCBB.
d) The Vendor's battery plant will be engineered and maintained
so as to provide eight (8) hours reserve time for Sprint
Electronics. This will require the Vendor's DC power feeds to
be able to provide the full DC current load (100 A for
regenerator sites and 200 A for POP sites) at a voltage no
smaller in magnitude than 43.44V continuously for eight (8)
hours with no commercial or generator AC power.
e) Vendor will provide to Sprint wire termination access to the
office principal ground bar of the Vendor Site.
Entrance
1) Vendor will follow Sprint's specifications for diverse entrance when
bringing the Sprint Fibers into the Vendor Site.
2) Sprint will have the right to bring in additional cables pursuant to
Exhibit H, and/or conduit to the Sprint Space and Vendor will work with
Sprint to facilitate construction and/or installation for such
activities. Vendor will not charge any additional charges for the
additional cable.
3) Sprint will have the right to upgrade the Vendor Site in the future to
a POP site. Sprint will provide notice to Vendor of its intent to
upgrade and will provide information regarding any additional facility
requirements.
Maintenance
1) Vendor will monitor and maintain the Vendor Sites on a twenty-four (24)
hour a day, seven (7) days a week basis.
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2) Vendor will notify Sprint immediately upon Vendor becoming aware of any
potential service affecting condition(s).
3) Vendor will maintain the grounds and exterior/interior of the building
so as to provide an appropriate environment for housing
telecommunications equipment. The facility must be clean and free of
debris, the grounds must be free of weeds and trash, but in any case
the facility shall be kept in a condition that meets no less than
industry standards.
4) Vendor will maintain batteries within the DC power plant in accordance
with manufacturers' recommendations.
Environmental Conditioning
1) Vendor will maintain the environmental temperature inside the Vendor Sites at
seventy-three degrees (73(degree)), plus or minus five degrees ((plus/minus)
5(degree)). Humidity must not exceed 55%. Environmental conditions within the
Vendor Sites will be maintained at a level which is appropriate for the
operation of telecommunications equipment, which in any case shall be no less
than manufacturer's or industry standards.
Alarms
Vendor will provide to Sprint visibility to Vendor Site environmental and power
alarms. These alarms should be dry-contact, normally open. All alarms will be
collected and brought into Sprint Space. When Sprint sees an alarm condition,
Sprint will notify Vendor and if appropriate, request Vendor to dispatch
personnel immediately. The necessary alarms for a POP site and a regenerator
site are as follows:
<TABLE>
<CAPTION>
Above Ground Below Ground
<S> <C>
1) Building Door 1) Building Door
2) Building Temperature 2) Building Temperature
3) Commercial AC Power 3) Commercial AC Power
4) Fire & Smoke 4) Fire & Smoke
5) Charger Major 5) Charger Major
6) Charger Minor 6) Charger Minor
7) Breaker Fuse 7) Breaker Fuse
8) Charger High/Low 8) Charger High/Low
9) Generator Run 9) High Humidity, if needed
10) Generator Fail 10) Toxic Gas
11) Halon Discharge 11) Explosive Gas
12) Halon Trouble 12) Sump Pump
</TABLE>
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<TABLE>
<S> <C>
13) High Water Level
14) Fresh Air Exchange
15) Generator Run
16) Generator Fail
</TABLE>
Utilities/lnsurance/Taxes
1) Vendor will pay any and all charges for utility services at the Vendor
Site. Charges can include, but are not limited to, electric power
necessary for common alarms, interior and exterior lighting,
environmental systems, Sprint Equipment, Vendor equipment; any water or
sewer charges necessary for the operation of the Vendor Site.
2) Vendor will be responsible for obtaining any insurance required for the
Vendor Site, except that Vendor will not be responsible for providing
insurance for the Sprint Electronics.
3) Vendor will pay any and all taxes, assessments or fees, including but
not limited to, ad valorem, real and/or personal property taxes,
special assessments, permit fees, franchise, gross receipts, use and
other taxes associated with the Vendor Site. Sprint will pay any fees
or assessments directly assessed against Sprint Electronics.
END EXHIBIT C
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EXHIBIT D
Maintenance Standards
I. Cable Route Maintenance (Buried Plant)
Vendor will operate according to the following industry standards:
1) Rural Telephone Association
2) National Electric Safety Codes
3) Fire Code
4) One Call-Vendor will maintain membership in and respond to tickets from
the appropriate one call agency, taking appropriate/prudent measures to
ensure digging activity does not jeopardize the cable
5) Participation in a cable awareness program with contractors, local,
city, country, and state officials.
6) Place Industry Standards High Visibility Signs at all prominent
locations along the cable route, to include, but not limited to:
a) One sign on each side of all road crossings.
b) At the beginning and end of all cable deviations.
c) At all splice locations.
d) All river, creek, and major culvert crossings.
e) Provide large cable crossing signs, as necessary, on
rivers with commercial traffic.
f) Place signs along all portions of the route with a
maximum spacing of 1000 feet.
7) Provide adequate surveillance along the right of way to prevent cable
damage due to erosion or man made activities. This should also include:
a) Maintenance of the right of way so that signs are
always visible
b) Mark and maintain all splice points and ground
connections.
c) Periodically inspect and correct any problems on all
bridge attachments.
II. Cable Route Maintenance (Aerial Plant)
1) Visual Inspection once every six (6) months of:
a) aerial cable
b) electricity poles
c) transmission towers
2) ADSS Fiber Route Requirements:
a) ADSS cable will have clearance/separation from
electrical power as stated in the National Electrical
Standards.
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b) ADSS routes will have routine maintenance to clear
trees and brush from right-of-way in accordance with
Telephone Industry Standards.
c) Preventative Maintenance Program as per Telephone
Industry Standards to include periodic inspection and
replacement of any and all damaged/defective hardware
including, but not limited to, lashing wire, strand,
down guys, clamps, bolts, washers and nuts. This
would also include periodic inspection and
replacement of damaged/defective wooden, concrete or
metal poles.
d) The overhead clearance between the ADSS Fiber Cable
crossing over Rural Roads, Interstate Highway, Rail
Road Tracks, Pedestrian Crossing and all other
crossings would be in accordance with Telephone
Industry Standards.
III. Materials Readily Available to Technicians
The list below only serves as a reference and is not all inclusive:
Tools, equipment, and sufficiently qualified personnel necessary to effect a
cable restoration.
1) Any equipment necessary for inclement/cold weather and night work.
2) Test equipment (OTDR) to identify fault location of cable.
3) 100 M emergency restoration cable.
4) Splicing equipment and equipment necessary to provide communications
from the damage location, for coordination purposes and speed
restoration activities.
IV. Materials Available at a Central Location:
The list below only serves as a reference and is not all inclusive:
1) Cable reel with extended length of cable necessary to repair any type
of outage.
2) Handholes, Manholes, pipe, duct. (If Applicable)
3) Materials required for pole attachments, messenger, lashing wire, guy
anchors.
(If Applicable)
4) Specialized equipment to repair OPGW and ADSS cable. (If applicable)
V. Training
The training listed below only serves as a reference and is not all inclusive:
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1) Safety training as required, for the particular type of cable
installation.
2) Hold periodic restoration exercises, as necessary, to maintain
technician proficiency at cable repair. Sprint will be kept apprised of
the current scheduling in advance and may choose to participate in or
witness exercises to be sure personnel are adequately trained.
3) Cable fault isolation, using test equipment, span correlation and
as-built drawings.
4) Cable preparation and splicing exercises. Contract employees would be
required to meet the above standards as well, if they are expected to
perform the job function.
VI. Contractors:
The Vendor must certify that its contractors are capable of performing all the
tasks they are required to perform. This would include, as applicable, cable
location proficiency, excavation, and general safety.
Sprint must certify that its contractors are capable of performing all the tasks
they are required to perform. This would include, as applicable, proficiency,
and general safety.
VII. Battery Maintenance Standards:
1) Sealed cell battery technology is relatively new and we have
encountered a number of outages that could have been identified using
new generation battery testing methods. (Ex: Biddle Bite Battery
Impedance Testing Equipment. Unit #4697134, catalog #246002.)
2) Vendor will provide periodic impedance testing of sealed cell battery
plants, when the plants are provided by vendor, in addition to normal
industry standard battery maintenance.
3) Vendor will provide to their employees or contractors any training
required to ensure the continued reliability of the DC power plant, as
well as any other site equipment maintained by Vendor.
END EXHIBIT D
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ORIGINAL
Contact/Escalation List
1) Each Party agrees to provide a current Contact List to the other, upon
request
VENDOR:
Vendor Contact for Emergency Repairs
800-891-5080 Main Number (24 hours)
888-886-3123 Michael Musen
603-596-5100 James Harmon
603-746-9961 Fast Center (Surveillance)
SPRINT:
1. Sprint Contact for Emergency Repairs
For demand/emergency activity, contact Sprint's "Transmission
Control Center" at 1-800-877-6627. Address is 9350 Metcalf,
Overland Park, KS 66212.
2. Sprint Contact for Scheduled Maintenance
Service affecting work should be scheduled through Sprint's
"Scheduled Event Management Center" at 1-800-829-0960. The fax
number is 1-800- 988-4347.
END EXHIBIT E
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EXHIBIT F
WORK ACTIVITY SCHEDULING
DEFINITIONS:
1. BUSINESS DAY: From 0700 - 1700 Local Time, Monday - Friday
2. LATE DAY: From 1700 - 2300 Local Time, All Days
3. OFF DAY: From 0700 - 1700 Local Time, During Non-Critical
Weekends (Sat/Sun) or Holidays
4. MAINTENANCE WINDOW: From 2300-0700 Local Time, All Days
5. INTL. MAINT. WINDOW: Will be determined on a case-by-case basis
A PLANNED SYSTEM WORK PERIOD REQUEST SUBMITTED FIVE (5) DAYS IN ADVANCE (NOT
INCLUDING WEEKENDS OR HOLIDAYS) IS REQUIRED TO PERFORM ALL ITEMS IN BOLD-FACED
PRINT. NOTIFICATION OF PLANNED SYSTEM WORK SHOULD BE DONE THROUGH THE TELEPHONE
NUMBER LISTED IN EXHIBIT E.
A. ACTIVITIES AUTHORIZED DURING BUSINESS DAY:
1. Testing, troubleshooting and repair of any circuit or related
equipment item that is required immediately to provide
satisfactory customer service levels.
2. Testing, troubleshooting and repair of a customer
out-of-service trouble condition for which there is an open
trouble ticket.
3. Normal DS1 level facility activations or deactivations within
the network, up to and including non-service affecting
cross-connect work in associated DSX bays.
4. Testing, troubleshooting and repair of any circuit or service
turn up which involves active work, at that time, with
departments other than Operations or with other carriers,
companies and vendors.
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5. Work on individual SS7 linksets that are out of service, and
work to rediversify linksets in coordination with the
NOCC/OSSC and applicable RCC.
6. Routine access to systems in order to perform analysis, gather
data, or determine if a trouble condition exists (if this work
presents no danger to working systems nor any loss of
redundancy).
7. Activities required to maintain, collect or provide billing,
traffic and other data (provided CPU usage is not critical and
there are no concerns relating to same).
8. Installation or removal of frames that are not powered, cabled
or otherwise electrically connected. Installation or removal
of any shelves, drawers, backplanes, cable, or cross-connects
that are not connected to working equipment.
9. Equipment alarm verification on non-working routes (not
authorized during this time frame on overbuilds of existing
routes).
10. All permanent cable restoration up to, but not including
opening the sheath.
11. Monthly and quarterly preventive maintenance inspections on
battery banks, to include verification of associated
housekeeping alarms during the Quarterly PMI.
Annualized PMIs (annual/semi-annual), major power
inspections and all major repair requirements
detected during these inspections (e.g., any
corrective action on intercell connectors or actual
cell replacement) must be performed during the
maintenance window.
12. Routine preventive maintenance inspections on generators at
non-switch sites.
Annualized PMIs (annual/semi-annual), non-routine
repairs and associated power exercises must be
pre-scheduled with, and approved by Scheduled Events
Maintenance (SEM), before they are accomplished.
13. Supervisory system repairs, upgrades, cutovers and conversions
will be considered during this timeframe due to better
technical/vendor support
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and personnel availability for monitoring purposes during the
day. Final decision will be based upon customer
considerations, risk factors involved, and NTAC/RCC/NOCC/TCC
concurrence. All requests of this nature must include an
alternate date/time for performance during the maintenance
window.
14. Day work necessary to complete special requirements that are
imposed by federal, state, city or railroad right-of-way
authorities. Each case must be reviewed on its own individual
merit and should be performed during the maintenance window if
at all possible.
15. All demand maintenance that has been confirmed by NTAC and
pre-approved by the controlling RCC/IMCC/NOCC/TCC (actions
that must be accomplished immediately to prevent degradation
or imminent loss of customer service).
WORK OTHER THAN THE ABOVE THAT HAS BEEN PRE-APPROVED BY SEM
B. ACTIVITIES AUTHORIZED DURING OFF DAY:
ITEMS 1-15: SAME AS DURING BUSINESS DAY
16. Sheath preparation for "Hot Cuts." If there is any requirement
for protection switching, customer pre-approval must be
obtained before requested activity may proceed (otherwise
event must be accomplished during the maintenance window).
WORK OTHER THAN THE ABOVE THAT HAS BEEN PRE-APPROVED BY SEM
C. ACTIVITIES AUTHORIZED DURING LATE DAY:
ITEMS 1-15: SAME AS DURING BUSINESS DAY
17. Work necessary to turnup and alarm new DS3s that does not
cause a loss of redundancy (except for the short duration
lockout necessary on some equipment types) or affect customer
service is also permissible. Any activation of this nature
that has the clear potential to interrupt service, or involves
an extended loss of redundancy (in excess of 5 minutes) must
wait until the Maintenance Window.
18. Rearrangement (encompasses facility rolls, circuit grooming,
etc.) and routine repair/maintenance of multiplexed facilities
(DS3 or lower) and
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their associated circuits, components or equipment, when LESS
THAN 10% of total circuit capacity is involved, and "mature
judgment" dictates that customer service will not be affected.
19. Non-service threatening work on permanent splices (rolls,
splicing of non-working fibers, work within small office
termination [SOT] box and other work that could cause switches
or hits on the network must be performed during the
maintenance window).
WORK OTHER THAN THE ABOVE THAT HAS BEEN PRE-APPROVED BY SME
D. ACTIVITIES AUTHORIZED DURING MAINTENANCE WINDOW:
ITEMS 1-16: SAME AS DURING BUSINESS/OFF DAY
ITEMS 17-21: SAME AS DURING LATE DAY
E. ACTIVITIES THAT MUST BE PERFORMED DURING THE
MAINTENANCE WINDOW:
ALL OF THE FOLLOWING ACTIVITIES REQUIRE A JEOPARDY
REQUEST TO BE SUBMITTED AT LEAST FIVE (5) DAYS IN ADVANCE
(not including weekends or holidays) OF THE DESIRED DATE
20. Work activities that "could cause" a power disruption, loss of
redundancy, switch to protect, cutoff or other customer
service "hit."
21. Work "pre-concurred" with by the TCC (such as circuit rolls or
grooming), that requires removal from service of "more than
10%" of the total circuit capacity of any multiplexed facility
(DS3 or higher), or in-depth maintenance and repair of the
facilities associated components or equipment.
22. Work "pre-concurred" with by the TCC, that "will cause" a
power disruption, loss of redundancy, switch to protect,
cutoff, or other customer service "hit."
23. Any "non-demand" switch activity that could cause a loss of
redundancy, restart or swact.
24. Any DMS patch application/removal or office table parameter
change that requires a restart (NTAC concurrence is required
prior to SME approval).
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25. Isolation of any component of the SS7 network (i.e., STPs,
SCPs).
END EXHIBIT F
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EXHIBIT G
VENDOR DELIVERABLES
Vendor will provide the following items to Sprint in the timeframes indicated:
1) Vendor's construction schedule beginning thirty (30) days after
execution of the Agreement (where applicable), with updates every two
(2) weeks.
2) Upon Route completion, Vendor will submit a written notice of
completion along with OTDR traces, end-to-end loss measurements at 1550
nm and access (keys) to Vendor Sites to Network Implementation
Management Department.
3) Keys or access codes to vendor sites.
4) Fiber assignments within cable.
5) Copies of the as-builts within sixty (60) days of Sprint's Acceptance
of the Route.
6) Final Route Maps drawn to scale with miles and linear feet between each
site location.
END EXHIBIT G
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
39
<PAGE>
EXHIBIT H
ACCESS TO THIRD PARTIES AND THIRD PARTY CONNECTIONS
1. Vendor hereby grants Sprint the right to install, maintain and operate
the connections to the Sprint Fibers and the Sprint Space as follows:
a. Third Party Connections. In the event Sprint intends to make
Third Party connections at the Vendor's Sites, the Sprint
Space and or to the Sprint Fibers, Sprint shall designate the
location and manner by which the Third Party connection,
including cable shall enter and exit Vendor's property, the
Vendor's Site, the Sprint Space and connect to the Sprint
Fibers at the FDP. Sprint may connect such Third Parties to
the Sprint Fibers in the Sprint Space subject to the approval
by Vendor of Sprint's connection plans. Sprint shall provide
such specifications as are needed by Vendor for Vendor's
approval of Third Party connections, such Vendor approval
shall not be unreasonably withheld.
b. Sprint's Right to Build and connect Third Party Segments. In
the event that the Vendor does not have property and/or
right-of-way available for Sprint to make Third Party
connections. Sprint shall have the right to build or otherwise
obtain such property from others, at Sprint's sole cost and
expense.
c. Work. The Vendor shall perform all Third Party connections on
the Vendor's property. Sprint shall pay Vendor's costs to
review connection plans and to oversee construction and
installation of Third Party connections.
d. Notice by Sprint. Sprint shall provide immediate written
notice to Vendor if Sprint undertakes to connect to Third
Parties at Vendor Sites.
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
40
<PAGE>
MAP OF SPRINT ROUTE PLAN
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
41
<PAGE>
DRAWING OF FIBER ROUTE
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
42
<PAGE>
TABLE OF LATITITUDE AND LONGITUDE OF
LOCATION OF EQUIPMENT SHELTERS
END EXHIBIT H
FiveCom LLC Agreement PROPRIETARY INFORMATION
03/31/98 -- v4.0
43
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
AERIAL LICENSE AGREEMENT
DATED OCTOBER 28, 1996
BETWEEN
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
d/b/a NYNEX
(LICENSOR)
AND
WESTERN MASSACHUSETTS ELECTRIC COMPANY
(LICENSOR)
AND
NECOM LLC
(LICENSEE)
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS.....................................................................................1
ARTICLE II SCOPE OF AGREEMENT..............................................................................3
ARTICLE III FEES AND CHARGES................................................................................4
ARTICLE IV ADVANCE PAYMENT.................................................................................4
ARTICLE V SPECIFICATIONS..................................................................................5
ARTICLE VI LEGAL REQUIREMENTS..............................................................................6
ARTICLE VII ISSUANCE OF LICENSES............................................................................7
ARTICLE VIII POLE MAKE-READY WORK............................................................................7
ARTICLE IX CONSTRUCTION, MAINTENANCE AND REMOVAL OF
ATTACHMENTS.....................................................................................9
ARTICLE X TERMINATION OF LICENS...........................................................................9
ARTICLE XI INSPECTIONS OF LICENSEE'S ATTACHMENTS..........................................................10
ARTICLE XII UNAUTHORIZED ATTACHMENTS.......................................................................10
ARTICLE XIII LIABILITY AND DAMAGES..........................................................................11
ARTICLE XIV INSURANCE......................................................................................12
ARTICLE XV AUTHORIZATION NOT EXCLUSIVE....................................................................13
ARTICLE XVI ASSIGNMENT OF RIGHTS...........................................................................13
ARTICLE XVII FAILURE TO ENFORCE.............................................................................14
ARTICLE XVIII TERMINATION OF AGREEMENT.......................................................................14
ARTICLE XIX TERM OF AGREEMENT..............................................................................15
ARTICLE XX NOTICES........................................................................................15
<PAGE>
APPENDIXES
I Schedule of Fees and Charges
II Multiple Pole Attachment License Applications
III Administrative Forms and Notice
</TABLE>
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT, made this 28th day of October, 1996 by and between
Western Massachusetts Electric Company a corporation organized and existing
under the laws of the Commonwealth of Massachusetts, having its principal office
in Town of West Springfield, Massachusetts, and New England Telephone and
Telegraph Company d/b/a NYNEX, a corporation organized and existing under the
laws of the State of New York, having its principal office in the City of
Boston, Massachusetts (either or both hereinafter referred to as the "Licensor")
and NECOM LLC, a Massachusetts LLC, a subsidiary company of FiveCom, Inc.,
organized and existing under the laws of the Commonwealth of Massachusetts,
having a place of business in Waltham, Massachusetts, hereinafter called the
Licensee.
W I T N E S S E T H
WHEREAS, Licensee proposes to furnish communications services in
Springfield in the Commonwealth of Massachusetts; and
WHEREAS, Licensee will need to place and maintain attachments within
the area described above and desires to place such attachments on poles of
Licensor; which poles are either jointly or solely owned by the Licensors; and
WHEREAS, Licensor is willing to permit, to the extent they may lawfully
do so, the placement of said attachments on Licensor's facilities where
reasonably available and where such use will not interfere with Licensor's
service requirements or the use of its facilities by others subject to the terms
of this agreement;
NOW THEREFORE, in consideration of the mutual covenants, terms and
conditions herein contained, the parties do hereby mutually covenant and agree
as follows:
ARTICLE I
DEFINITIONS
As Used in This Agreement
A) Anchor Rod
A metal rod connected to an anchor and to which a guy strand is
attached. Also known as a "guy rod".
<PAGE>
B) Attachment
Any single strand, hardware, cable, wires and/or apparatus attached to
a pole and owned by the Licensee.
C) Guy Strand
A metal cable of high tensile strength which is attached to a pole and
anchor rod (or another pole) for the purpose of reducing pole stress.
D) Joint Owner
A person, firm or corporation having an ownership interest in a pole
and/or anchor rod with Licensor.
E) Make-Ready Work
The work required (rearrangement and/or transfer of existing facilities
on a pole, replacement of pole or any other changes) to accommodate the
Licensee's attachments on Licensor's pole.
F) Field Survey Work or Survey Work
A survey of the poles on which Licensee wishes to attach in order to
determine what work, if any, is required to make the pole ready to
accommodate the required attachment, and to provide the basis for
estimating the cost of this work.
G) Other Licensee
Any entity, other than Licensee herein or a joint user, to whom
Licensor has or hereafter shall extend the privilege of attaching
communications facilities to Licensor's poles.
H) Joint User
A party with whom Licensor has entered into, or may hereafter enter
into, a written agreement covering the rights and obligations of the
parties thereto with respect to the use of poles and anchor rods owned
by each party.
I) Suspension Strand
A metal cable of high tensile strength attached to pole and used to
support communications facilities. Also known as "Messenger Cable".
-2-
<PAGE>
J) Identification Tags
Identification tags are used to identify Licensee's plant.
Identification tags shall be made of polyethylene and polyvinyl
chloride with ultraviolet inhibitors. The two types of Identification
tags are cable and apparatus tags as described in Appendix III, Form G.
K) Overlash
Any single strand, hardware, cable, wires and/or apparatus owned by
Licensee which is attached to any strand, hardware, cable, wires and/or
apparatus which is owned by either the individual licensee or another
licensee.
ARTICLE II
SCOPE OF AGREEMENT
A) Subject to the provisions of this Agreement, Licensor agrees to issue
to Licensee for any lawful communications purpose, revocable,
non-exclusive licenses authorizing the attachment of Licensee's
attachments to Licensor's poles within the Town of Springfield,
Massachusetts, specifically as detailed on Attachment #1, hereto
attached and made a part hereof.
B) No use, however extended, of Licensor's poles or payment of any fees or
charges required under this Agreement shall create or vest in Licensee
any ownership or property rights in such poles. Licensee's rights
herein shall be and remain a license. Neither this Agreement nor any
license granted hereunder shall constitute an assignment of any of
Licensor's rights to use the public or private property at the location
of Licensor's poles.
C) Nothing contained in this Agreement shall be construed to compel
Licensor to construct, retain, extend, place or maintain any pole, or
other facilities not needed for Licensor's own service requirements.
D) Nothing contained in this Agreement shall be construed as a limitation,
restriction, or prohibition against Licensor with respect to any
agreement(s) and arrangement(s) which Licensor has heretofore entered
into, or may in the future enter into with others not parties to this
Agreement regarding the poles covered by this Agreement. The rights of
Licensee shall at all times be subject to any such existing
agreement(s) or arrangement(s) between Licensor and any joint owner(s)
or joint user(s) of Licensor's poles.
-3-
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
ARTICLE III
FEES AND CHARGES
A) Licensee agrees to pay to Licensor the fees and charges as specified in
and in accordance with the terms and conditions of APPENDIX I, attached
hereto and made a part hereof.
B) Nonpayment of any amount due under this Agreement shall constitute a
default of this Agreement.
C) Licensee shall furnish bond or other satisfactory evidence of financial
security in such form (Appendix III Form F hereto attached) and amount
as Licensor from time to time may require, in an initial amount of
[**], but not exceeding [**], to guarantee the payment of any sums
which may become due to Licensor for fees due hereunder or charges for
work performed for the benefit of Licensee under this Agreement,
including the removal of Licensee's attachments upon termination of
this Agreement or upon termination of any License issued hereunder. The
financial security requirement may be waived in writing by Licensor or
either of them and reinstated if waived.
D) The Licensor may change the amount of fees and charges specified in
Appendix I by giving the Licensee not less than sixty (60) days'
written notice prior to the date the change is to become effective.
Notwithstanding any other provision of this Agreement, Licensee may
terminate this Agreement at the end of such sixty-day notice period if
the change in fees and charges is not acceptable to Licensee; provided
Licensee gives Licensor written notice of its election to terminate
this Agreement at least thirty (30) days prior to the end of such
sixty-day period.
E) Changes or amendments to APPENDIX I shall be effected by the separate
execution of APPENDIX I as so modified. The separately executed
APPENDIX I shall become a part of and be governed by the terms and
conditions of this Agreement. Such changes or amendments shall become
effective within sixty (60) days and shall be presumed acceptable
unless within that period Licensee advises Licensor in writing that the
changes and amendments are unacceptable and, in addition, within thirty
(30) days thereafter submits the issue to the regulatory body asserting
jurisdiction over this agreement for decision.
-4-
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
u
ARTICLE IV
ADVANCE PAYMENT
A) Licensee shall make an advance payment to the Licensor prior to:
1. any undertaking by Licensor of the required field survey [See
Article VIII par. (A)] in an amount specified by Licensor
sufficient to cover the estimated cost to be incurred by
Licensor to complete such survey.
2. any performance by Licensor of any make-ready work required in
an amount specified by Licensor sufficient to cover the
estimated cost to be incurred by Licensor to complete the
required make-ready work.
B) The amount of the advance payment required will be credited against the
full cost to Licensor for performing such work or having such work
performed by others plus, unless waived by Licensor or either of them,
an amount equal to [**] of Licensor's full cost.
C) Where the advance payment made by Licensee to Licensor for field survey
or make-ready work is less than the full cost to Licensor for such
work, Licensee agrees to pay Licensor all sums due in excess of the
amount of the advance payment
D) Where the advance payment made by Licensee to Licensor for field survey
or make-ready work exceeds the full cost to Licensor for such work,
Licensor shall refund the difference to Licensee.
ARTICLE V
SPECIFICATIONS
A) Licensee's attachments shall be placed and maintained in accordance
with the requirements and specifications of the latest editions of the
Manual of Construction Procedures (Blue Book), Electric Company
Standards, the National Electrical Code (NEC), the National Electrical
Safety Code (NESC) and rules and regulations of the Occupational Safety
and Health Act (OSHA) or any governing authority having jurisdiction
over the subject matter. Where a difference in specifications may
exist, the more stringent shall apply.
-5-
<PAGE>
B) If any part of Licensee's attachments is not so placed and maintained,
Licensor may upon ten (10) days written notice to Licensee and in
addition to any other remedies Licensor may have hereunder, remove
Licensee's attachments from any or all of the Licensor's poles or
perform such other work and take such other action in connection with
said attachments that Licensor deems necessary or advisable to provide
for the safety of Licensor's employees or performance of Licensor's
service obligations at the cost and expense to Licensee and without any
liability therefor; provided, however, that when in the sole judgment
of Licensor such a condition may endanger the safety of Licensor's
employees or interfere with the performance of Licensor's service
obligations, Licensor may take such action without prior notice to
Licensee.
C) As described in Appendix III, Form G, Licensee shall place
Identification cable tags on cables located on poles and Identification
Apparatus tags on any associated items of Licensee's Plant, e.g., guys,
anchors or terminals. The Telephone Company, in its sole determination,
has the right to approve all identification tags that are different
than those described in Appendix III, Section G.
ARTICLE VI
LEGAL REQUIREMENTS
A) Licensee shall be responsible for obtaining from the appropriate public
and/or private authority any required authorization to construct,
operate and/or maintain its attachment on public and private property
at the location of Licensor's poles which Licensee uses and shall
submit to Licensor evidence of such authority before making attachments
on such public and/or private property.
B) The applicable provisions in the attachment entitled
"Non-Discrimination Compliance Agreement" shall form a part of this
agreement and any amendments thereto. (Attachment A)
C) The parties hereto shall at all times observe and comply with, and the
provisions of the Agreement are subject to, all laws, ordinances, and
regulations which in any manner affect the rights and obligations of
the parties hereto under this Agreement, so long as such laws,
ordinances or regulations remain in effect.
D) No license granted under this Agreement shall extend to any of
Licensor's poles where the placement of Licensee's attachments would
result in a forfeiture of the rights of Licensor or joint users to
occupy the property on which such poles are located. If placement of
Licensee's attachments would
-6-
<PAGE>
result in a forfeiture of the rights of Licensor or joint users, or
both, to occupy such property, Licensee agrees to remove its
attachments forthwith; and Licensee agrees to pay Licensor or joint
users, or both, all losses, damages, and costs incurred as a result
thereof.
ARTICLE VII
ISSUANCE OF LICENSES
A) Before Licensee shall attach to any pole, Licensee shall make
application for and have received a license therefor in the form of
APPENDIX III, Forms A-l and A-2.
B) Licensee agrees to limit the filing of applications for pole attachment
licenses to include not more than 200 poles on any one application and
2,000 poles on all applications which are pending approval by Licensor
at any one time. Such limitations will apply to Licensor's poles
located within a single plant construction district of Licensor.
Licensee further agrees to designate a desired priority of completion
of the field survey and make-ready work for each application relative
to all other of its applications on file with Licensor at the same
time.
ARTICLE VIII
POLE MAKE-READY WORK
A) A field survey will be required for each pole for which attachment is
requested to determine the adequacy of the pole to accommodate
Licensee's attachments. The field survey will be performed jointly by
representatives of Licensor, joint owner and/or joint user and
Licensee.
B) Licensor reserves the right to refuse to grant a license for attachment
to a pole when Licensor determines that the communications space on
such pole is required for its exclusive use or that the pole may not
reasonably be rearranged or replaced to accommodate Licensee's
attachments.
C) In the event Licensor determines that a pole to which Licensee desires
to make attachments is inadequate or otherwise needs rearrangement of
the existing facilities thereon to accommodate the attachments of
Licensee in accordance with the specifications set forth in Article V,
Licensor will indicate on the Authorization for Pole Make-Ready Work
(Appendix III, Form B2) the estimated cost of the required make-ready
work and return it to Licensee.
-7-
<PAGE>
D) Any required make-ready work will be performed following receipt by
Licensor of completed Form B2. Licensee shall pay Licensor for all
make-ready work completed in accordance with the provisions of APPENDIX
I, and shall also reimburse the owner(s) of other facilities attached
to said poles for any expense incurred by it or them in transferring or
rearranging such facilities to accommodate Licensee's pole attachments.
Licensee shall not be entitled to reimbursement of any amounts paid to
Licensor for pole replacements or for rearrangement of attachments on
Licensor's poles by reason of the use by the Licensor or other
authorized user(s) of any additional space resulting from such
replacement or rearrangement.
E) Should Licensor, or another party with whom it has a joint use
agreement, for its own service requirements, need to attach additional
facilities to any of Licensor's poles, to which Licensee is attached,
Licensee will either rearrange its attachments on the pole or transfer
them to a replacement pole as determined by Licensor so that the
additional facilities of Licensor or joint user may be attached. The
rearrangement or transfer of Licensee's attachments will be made at
Licensee's sole expense. If Licensee does not rearrange or transfer its
attachments within fifteen (15) days after receipt of written notice
from Licensor requesting such rearrangement or transfer, Licensor or
joint user may perform or have performed such rearrangement or transfer
and Licensee agrees to pay the costs thereof.
F) Licensor may, when it deems an emergency to exist, rearrange, transfer
or remove Licensee's attachments to Licensor's poles, at Licensee's
expense, and without any liability on the part of the Licensor for
damage or injury to Licensee's attachments.
G) License applications received by Licensor from two or more licensees
for attachment accommodations on the same pole, prior to the
commencement of any field survey or make-ready work required to
accommodate any licensee, will be processed by Licensor in accordance
with the procedures detailed in APPENDIX II attached hereto.
H) In performing all make-ready work to accommodate Licensee's
attachments, Licensor will endeavor to include such work in its normal
work load schedule.
I) Licensee may attach its guy strand to Licensor's existing anchor rod at
no charge where Licensor determines that adequate capacity is
available; provided that Licensee agrees to secure any necessary
right-of-way therefore from the appropriate property owner. Should
Licensor, or joint user, if any, for its own service requirements, need
to increase its load on the anchor rod to which Licensee's guy is
attached, Licensee will either rearrange its guy strand on the anchor
rod or transfer it to a replacement anchor as determined by Licensor.
-8-
<PAGE>
The cost of such rearrangement and/or transfer, and the placement of a
new or replacing anchor will be at the sole expense of Licensee, which
Licensee agrees to pay. If Licensee does not rearrange or transfer its
guy strand within fifteen (15) days after receipt of written notice
from Licensor regarding such requirement, Licensor or joint user may
perform, or have performed, the work involved and Licensee agrees to
pay the full costs thereof.
ARTICLE IX
CONSTRUCTION, MAINTENANCE AND REMOVAL OF ATTACHMENTS
A) Licensee shall, at its own expense, construct and maintain its
attachments on Licensor's poles in a safe condition and in a manner
acceptable to Licensor, so as not to conflict with the use of the
Licensor's poles by Licensor or by other authorized users of Licensor's
poles, nor electrically interfere with Licensor's facilities attached
thereon.
B) Licensor shall specify the point of attachment on each of Licensor's
poles to be occupied by Licensee's attachments. Where multiple
licensees' attachments are involved, Licensor will attempt to the
extent practical, to designate the same relative position on each pole
for each licensee's attachments.
C) Licensee shall obtain specific written authorization from Licensor
before relocating materially altering or replacing its attachments or
overlapping its own cable on Licensor's poles.
D) All tree trimming made necessary, in the opinion of the Licensors, by
reason of the Licensee's proposed attachments at the time of attachment
or thereafter, provided the owner(s) of such trees grants permission to
the Licensee, shall be performed by contractors approved by Licensors,
at the sole cost, expense and direction of the Licensee, except such
trimming as may be required on Licensee's customers' premises, to clear
Licensee's cable drops, which trimming shall be done by the Licensee at
its expense.
E) Licensee, at its expense, will remove its attachments from any of
Licensor's poles within fifteen (15) days after termination of the
license covering such attachments.
If Licensee fails to remove its attachments within such fifteen (15)
day period, Licensor shall have the right to remove such attachments at
Licensee's expense and without any liability on the part of the
Licensor for damage or injury to Licensee's attachments.
ARTICLE X
-9-
<PAGE>
TERMINATION OF LICENSE
A) Any license issued under this Agreement shall automatically terminate
when Licensee ceases to have authority to construct, operate and/or
maintain its attachments on the public or private property at the
location of the particular pole covered by the license.
B) Licensee may at any time remove its attachments from a pole after first
giving Licensor written notice of such removal (APPENDIX III, Form D).
Following such removal, no attachment shall again be made to such pole
until Licensee shall have first complied with all of the provisions of
this Agreement as though no such attachment had previously been made.
ARTICLE XI
INSPECTIONS OF LICENSEE'S ATTACHMENTS
A) Licensor reserves the right to make periodic inspections of any part of
Licensee's attachments, including guying, attached to Licensor's poles,
and Licensee shall reimburse Licensor for the expense of such
inspections.
B) The frequency and extent of such inspections by Licensor will depend
upon Licensee's adherence to the requirements of Articles V and VII
herein.
C) Licensor will give Licensee advance written notice of such inspections,
except in those instances where, in the sole judgment of Licensor,
safety considerations justify the need for such an inspection without
the delay of waiting until a written notice has been forwarded to
Licensee.
D) The making of periodic inspections or the failure to do so shall not
operate to relieve Licensee of any responsibility, obligation or
liability assumed under this Agreement.
E) Any charge imposed by Licensor for such inspections shall be in
addition to any other sums due and payable by Licensee under this
Agreement. No act or failure to act by Licensor with regard to said
charge or any unlicensed use by Licensee shall be deemed as a
ratification or the licensing of the unlicensed use; and if any license
should subsequently be issued, said license shall not operate
retroactively or constitute a waiver by Licensor of any of its rights
or privileges under this Agreement or otherwise.
ARTICLE XII
-10-
<PAGE>
UNAUTHORIZED ATTACHMENTS
A) If any of Licensee's attachments shall be found attached to Licensor's
poles for which no license is outstanding, Licensor, without prejudice
to its other rights or remedies under this Agreement (including
termination) or otherwise, may impose a charge and require Licensee to
submit in writing, within fifteen (15) days after receipt of written
notification from Licensor of the unauthorized attachment, a pole
attachment application. If such application is not received by the
Licensor within the specified time period, Licensee shall remove its
unauthorized attachment within fifteen (15) days of the final date for
submitting the required application, or Licensor may remove Licensee's
facilities without liability, and the expense of such removal shall be
borne by Licensee.
B) For the purpose of determining the applicable charge, absent
satisfactory evidence to the contrary, the unauthorized pole attachment
shall be deemed as having existed since the date of this agreement, and
the fees and charges as specified in APPENDIX I, shall be applicable
thereto and due and payable forthwith whether or not Licensee is
permitted to continue the pole attachment.
ARTICLE XIII
LIABILITY AND DAMAGES
A) Licensor reserves to itself, its successors and assigns, the right to
locate and maintain its poles and to operate its facilities in
conjunction therewith in such a manner as will best enable it to
fulfill its own service requirements. Licensor shall not be liable to
Licensee for any interruption of Licensee's service or for interference
with the operation of Licensee's communications services arising in any
manner, except from Licensor's sole negligence, out of the use of
Licensor's poles.
B) Licensee shall exercise precaution to avoid damaging the facilities of
Licensor and of others attached to Licensor's poles, and Licensee
assumes all responsibility for any and all loss from such damage caused
by Licensee's employees, agents or contractors. Licensee shall make an
immediate report to Licensor and any other user of the occurrence of
any such damage and agrees to reimburse the respective parties for all
costs included in making repairs.
C) Except, as may be caused by the sole negligence of Licensor, or either
of them, Licensee shall defend, indemnify and save harmless Licensor,
or either of them, against and from any and all liabilities, claims,
suits, fines, penalties, damages, losses, fees, costs and expenses
arising from or in connection with
-11-
<PAGE>
this Agreement (including reasonable attorneys' fees) including, but
not limited to, those which may be imposed upon, incurred by or
asserted against Licensor, or either of them by reason of (a) any work
or thing done upon the poles licensed hereunder or any part thereof
performed by Licensee or any of its agents, contractors, servants, or
employees; (b) any use, occupation, condition, operation of said poles
or any part thereof by Licensee or any of its agents, contractors,
servants, or employees; (c) any act or omission on the part of Licensee
or any of its agents, contractors, servants, or employees, for which
Licensor may be found liable; (d) any accident, injury (including
death) or damage to any person or property occurring upon said poles or
any part thereof arising out of any use thereof by Licensee or any of
its agents, contractors, servants, or employees; (e) any failure on the
part of Licensee to perform or comply with any of the covenants,
agreements, terms or conditions contained in this Agreement, (f)
payments made under any Workers' Compensation Law or under any plan for
employees disability and death benefits arising out of any use of the
poles by Licensee or any of its agents, contractors, servants,
employees or by (g) the erection, maintenance, presence, use, occupancy
or removal of Licensee's attachments by Licensee or any of its agents,
contractors, servants or employees or by their proximity to the
facilities of other parties attached to Licensor's poles.
D) Licensee shall indemnity, save harmless and defend Licensor from any
and all claims and demands of whatever kind which arise directly or
indirectly from the operation of Licensee's attachments, including
taxes, special charges by others, claims and demands for damages or
loss for infringement of copyright, for libel and slander, for
unauthorized use of television broadcast programs, and for unauthorized
use of other program material, and from and against all claims and
demands for infringement of patents with respect to the manufacture,
use and operation of Licensee's attachments in combination with
Licensor's poles, or otherwise.
The provisions of this Article shall survive the expiration or earlier
termination of this Agreement or any license issued thereunder.
ARTICLE XIV
INSURANCE
A) Licensee shall carry insurance issued by an insurance carrier
satisfactory to Licensor to protect the parties hereto from and against
any and all claims, demands, actions, judgments, costs, expenses and
liabilities of every kind and nature which may arise or result,
directly or indirectly from or by reason of such loss, injury or damage
as covered in Article XIII preceding.
-12-
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
B) The amounts of such insurance, without deductibles:
1. against liability due to damage to property shall not be less
than [**] as to any one occurrence and [**] aggregate, and
2. against liability due to injury to or death of persons shall
be not less than [**] as to any one person and [**] as to any
one occurrence.
C) Licensee shall also carry such insurance as will protect it from all
claims under any Workers' Compensation Law in effect that may be
applicable to it.
D) All insurance must be effective before Licensor will authorize Licensee
to make attachments to any pole and shall remain in force until such
attachments have been removed from all such poles.
E) Licensee shall submit to Licensor certificates of insurance including
renewal thereof, by each company insuring Licensee to the effect that
it has insured Licensee for at liabilities of Licensee covered by this
Agreement; and that such certificates will name the Licensor as an
additional insured under the public liability policy and that it will
not cancel or change any such policy of insurance issued to Licensee
except after the giving of not less than 30 days' written notice to
Licensor.
ARTICLE XV
AUTHORIZATION NOT EXCLUSIVE
Nothing herein contained shall be construed as a grant of any exclusive
authorization, right or privilege to Licensee. Licensor shall have the right to
grant, renew and extend rights and privileges to others not parties to this
Agreement, by contract or otherwise, to use any pole covered by this Agreement.
ARTICLE XVI
ASSIGNMENT OF RIGHTS
A) Licensee shall not assign or transfer this Agreement or any
authorization granted hereunder, and this Agreement shall not inure to
the benefit of Licensee's successors, without the prior written consent
of Licensor.
-13-
<PAGE>
B) In the event such consent or consents are granted by Licensor, then
this Agreement shall extend to and bind the successors and assigns of
the parties hereto.
C) Pole space licensed to Licensee hereunder is for Licensee's use only,
and Licensee shall not lease, sublicense, share with, convey or resell
to others any such space or rights granted hereunder.
ARTICLE XVII
FAILURE TO ENFORCE
Failure of Licensor to enforce or insist upon compliance with any of the terms
or conditions of this Agreement or to give notice or declare this Agreement or
any authorization granted hereunder terminated shall not constitute a general
waiver or relinquishment of any term or condition of this Agreement, but the
same shall be and remain at all times in full force and effect.
ARTICLE XVIII
TERMINATION OF AGREEMENT
A) If Licensee shall fail to comply with any of the terms or conditions of
this Agreement or default in any of its obligations under this
Agreement, or if Licensee's facilities are maintained or used in
violation of any law and Licensee shall fail within thirty (30) days
after written notice from Licensor to correct such default or
noncompliance, Licensor may at its option forthwith terminate this
Agreement and all authorizations granted hereunder, or the
authorizations covering the poles as to which such default or
noncompliance shall have occurred.
B) If an insurance carrier shall at any time notify Licensor that the
policy or policies of insurance, required under ARTICLE XIV hereof,
will be canceled or changed so that the requirements of ARTICLE XIV
will no longer be satisfied, then this Agreement terminates unless
prior to effective date thereof Licensee shall furnish to Licensor
certificates of insurance including insurance coverage in accordance
with the provisions of ARTICLE XIV hereof.
C) In the event of termination of this Agreement Licensee shall remove its
attachments from Licensor's poles within six (6) months from date of
termination; provided, however, that Licensee shall be liable for and
pay all fees pursuant to the terms of this Agreement to Licensor until
Licensee's attachments are removed from Licensor's poles.
-14-
<PAGE>
D) If Licensee does not remove its attachments from Licensor's poles
within the applicable time periods specified in this Agreement,
Licensor shall have the right to remove them at the expense of Licensee
and without any liability on the part of Licensor to Licensee therefor,
and Licensee shall be liable for and pay all fees pursuant to the terms
of this Agreement to Licensor until such attachments are removed.
ARTICLE XIX
TERM OF AGREEMENT
A) This Agreement shall remain in effect for a term of one (1) year from
the date hereof.
B) Termination of this Agreement or any licenses issued hereunder shall
not affect Licensee's liabilities and obligations incurred hereunder
prior to the effective date of such termination.
ARTICLE XX
NOTICES
All written notices required under this Agreement shall be given by posting the
same in first class mail as follows:
<TABLE>
<S> <C>
To Licensee: NECOM LLC
Attention: Michael A. Musen
391 Totten Pond Road, Suite 401
Waltham, Massachusetts 02154
To Licensor: For Licenses:
New England Telephone and Telegraph Company
d/b/a NYNEX
c/o Reimbursable Construction
(same as above)
To Licensor: Western Massachusetts Electric Company
300 Cadwell Drive
Springfield, Massachusetts 01104
</TABLE>
This agreement cancels and supersedes any and all previous poles
attachment agreements between the Licensors and Licensee insofar as the
aforementioned municipalities are concerned except as to liabilities already
accrued, if any.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate on the day and year first above written.
NECOM LLC
By /s/ Michael A. Musen
-------------------------------
(Title) Manager
-------------------------------
Date of Execution: 8/29/96
-----------------
NEW ENGLAND TELEPHONE AND
TELEGRAPH COMPANY d/b/a NYNEX
By/s/ R. Gomes
-------------------------------
(Title) General Manager
-------------------------------
Date of Execution: 10/28/96
-----------------
WESTERN MASSACHUSETTS ELECTRIC
COMPANY
By/s/ J L Lanta
-------------------------------
(Title) Regional Director of Custumer
-------------------------------
Service Operations
-------------------------------
Date of Execution: 10/23/96
-----------------
-16-
<PAGE>
Confiential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
APPENDIX I
SCHEDULE OF FEES AND CHARGES
Pole Attachments
A) Attachment
1. General
(a) Attachment fees commence on the first day of the
month following the date the license is issued.
(b) Fees shall be payable yearly in advance on the first
day of January.
(c) For the purpose of computing the attachment fees due
hereunder, the fee shall be based upon the number of
poles for which licenses have been issued. The
advance payment of the fee for licenses under this
Agreement shall include a proration from the first
day of the month following the date the license was
issued.
2. Annual Attachment Fee
For each pole solely owned by the Licensor and on which space
has been reserved or occupied by the Licensee pursuant to this
Agreement payment shall be as follows:
MAY 1, 1995 AND PRIOR
[**] per attachment per solely owned Western
Massachusetts Company pole
[**] per attachment per solely owned Telephone Company
pole
[**] per attachment per pole on jointly owned or used
Telephone Company and Western Massachusetts Company
poles; [**] of which is to be paid to the Western
Massachusetts Company and [**] to be paid to the
Telephone Company
App. I-1
<PAGE>
Appendix I
Confiential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
MAY 1, 1995 - DECEMBER 31, 1995
[**] per attachment per solely owned Western Massachusetts
Company pole
[**] per attachment per solely owned Telephone Company
pole
[**] per attachment per pole on jointly owned or used
Telephone Company and Western Massachusetts Company
poles; [**] of which is to be paid to the Western
Massachusetts Company and [**] to be paid to the
Telephone Company
JANUARY 1, 1996 - DECEMBER 31, 1996
[**] per attachment per solely owned Western Massachusetts
Company pole
[**] per attachment per solely owned Telephone Company
pole
[**] per attachment per pole on jointly owned or used
Telephone Company and Western Massachusetts Company
poles; [**] of which is to be paid to the Western
Massachusetts Company and [**] to be paid to the
Telephone Company
JANUARY 1, 1997 - DECEMBER 31, 1997
[**] per attachment per solely owned Western Massachusetts
Company pole
[**] per attachment per solely owned Telephone Company
pole
[**] per attachment per pole on jointly owned or used
Telephone Company and Western Massachusetts Company
poles; [**] of which is to be paid to the Western
Massachusetts Company and [**] to be paid to the
Telephone Company
App. I-2
<PAGE>
Appendix I
Confiential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
JANUARY 1, 1998 - DECEMBER 31, 1998
[**] per attachment per solely owned Western
Massachusetts Company pole
[**] per attachment per solely owned Telephone
Company pole
[**] per attachment per pole on jointly owned or
used Telephone Company and Western
Massachusetts Company poles; [**] of which
is to be paid to the Western Massachusetts
Company and [**] to be paid to the Telephone
Company
JANUARY 1, 1999 - DECEMBER 31, 1999 AND THEREAFTER
(UNLESS NOTICE OF INCREASE IS ISSUED)
[**] per attachment per solely owned Western
Massachusetts Company pole
[**] per attachment per solely owned Telephone
Company pole
[**] per attachment per pole on jointly owned or
used Telephone Company and Western
Massachusetts Company poles; [**] of which
is to be paid to the Western Massachusetts
Company and [**] to be paid to the Telephone
Company
B) Other Charges
Computation
All charges for field survey, inspections, removal of
Licensee's facilities from Licensor's poles and any other work
performed for Licensee shall be based upon the full cost and
expense to Licensor of such work or for having such work
performed by an authorized representative plus, unless waived
by Licensor or either of them, an amount equal to [**] of
Licensor's full cost.
App. I-3
<PAGE>
Appendix I
C) Cost of Pole Replacements, Rearrangements and Changes
1. Whenever any pole is, or becomes, after initial Licensee's
attachments, in the opinion of the Licensor, insufficient in
height or strength for the Licensee's proposed attachments
thereon in addition to the existing attachments of the
Licensor and municipality the Licensor shall replace such pole
with a new pole of the necessary height and class and shall
make such other changes in the existing pole line in which
such pole is included as the conditions may then require. The
Licensee shall pay the Licensor for the expense thereof,
including, but not limited, to the following:
(a) The net loss to the Licensor on the replaced pole
based on its reproduction cost less depreciation plus
cost of removal.
(b) Excess height or strength of the new pole over the
existing pole necessary by reason of the Licensee's
attachments.
(c) Transferring Licensor's attachments from the old to the
new pole.
(d) Any other rearrangements and changes necessary by
reason of the Licensee's proposed or existing
attachments.
2. In the event that the Licensors or either of them shall permit
the Licensee to place its attachments in space reserved by
either of them or for any municipality and the Licensors or
either of them or any municipality shall deem it necessary to
use such space, or the pole is to be replaced at any time
because of obsolescence, public requirement or other reason,
then the Licensors shall replace the pole with a suitable pole
to provide the basic space reservation where necessary, and
the Licensee shall be billed, as provided for in Section (C)1,
a-d, inclusive, above.
D) Payment Date
Failure to pay all fees and charges within 30 days after presentment of
the bill therefore or on the specified payment date, whichever is
later, shall constitute a default of this Agreement.
For bills rendered by Licensor, New England Telephone and Telegraph
Company, the following shall be applicable:
App. I-4
<PAGE>
Appendix I
"Interest shall accrue and be payable to Licensor at the rate set by
the Commissioner of Internal Revenue pursuant to Internal Revenue Code,
Section 6621; Treasury Regulations Section 301.6621-1, from and after
the payment date of any payment required by this License. The payment
of any interest shall not cure or excuse any default by Licensee under
this License."
App. I-5
<PAGE>
Appendix II
APPENDIX II
MULTIPLE POLE ATTACHMENT LICENSE APPLICATIONS
App. II-1
<PAGE>
Appendix II
Procedure for Processing
Multiple Pole Attachment License Applications
The following procedure shall be adhered to in processing applications to attach
to Licensor's poles by multiple licensees.
A) DEFINITIONS
Simultaneous license applications
Properly completed pole license applications relative to the
same pole which are received by the Licensor from multiple
applicants on the same business day.
Non-Simultaneous license applications
Properly completed pole license applications relative to the
same pole which are received by the Licensor from multiple
applicants on different business days.
Initial applicant
The applicant filing the first properly completed license
application (non-simultaneous) for attachment to a specific
pole.
Additional applicant
Each applicant filing a properly completed license application
(non-simultaneous) for attachment to a specific pole for which
a prior license application has been received by the Licensor.
Make-Ready Work
The work required (including rearrangement and transfer of
existing facilities on a pole, replacement of poles or any
other changes) to accommodate the Licensee's attachments on
Licensor's pole.
App. II-2
<PAGE>
Appendix II
Option 1
An arrangement whereby Licensor will process the license
application of initial applicant as if there is no other
license application on file for the same pole.
Option 2
An arrangement whereby Licensor will process license
applications of initial and additional applicant in accordance
with the procedure applicable for simultaneous multiple
license applications.
B) MULTIPLE LICENSE APPLICATION PROCESSING
Both simultaneous and non-simultaneous multiple license
applications for the same pole will be processed by the
Licensor in accordance with the procedures set forth in the
flow chart which comprises pages 5 to 7 inclusive, of this
Appendix.
C) OPTION ARRANGEMENTS
1. Upon being offered Options 1 and 2, the initial applicant will
be advised that he may make an immediate selection of the
option he desires or he may delay his selection until the
required make-ready survey work has been completed and the
estimate of make-ready charges quoted by the Licensor. Where
the initial applicant elects to delay his decision, he shall
be required to indicate the option he desires within 15 days
after the Licensor has quoted the estimate of the make-ready
charges that will apply, otherwise, the Licensor will deem the
initial applicant to have selected Option 1.
2. The license application processing procedure to be adhered to
in accordance with Option 2 will be subject to acceptance by
all of the multiple applicants involved. The additional
applicant(s) will have 15 days from the date he is advised by
the Licensor that the initial applicant has selected Option 2
to accept or reject the conditions applicable under Option 2,
otherwise, the Licensor will deem the additional applicant(s)
to have rejected such conditions.
3. All work in progress on the initial applicant's license
application involving multiple pole attachments will be
suspended by the Licensor from the time that the initial
applicant is offered Options 1 and 2 until
App. II-3
<PAGE>
Appendix II
he notifies the Licensor of the option he elects in accordance
with C.1. above.
D) MAKE-READY SURVEY REQUIREMENT
1. Where required make-ready survey is to be completed on two
bases, the multiple applicants shall be so advised before such
survey is commenced.
2. The make-ready survey required to develop the estimated
charges applicable for Options 1 and 2 will include a
determination of the work requirements necessary to:
(a) issue licenses simultaneously to the multiple
applicants and,
(b) issue licenses to the initial applicant before
commencing the required make-ready work necessary to
accommodate the additional applicant(s).
3. Licensor will consider any license application involving
simultaneous multiple attachments as canceled upon the failure
of an applicant to notify the Licensor in writing of his
acceptance of the estimate of make-ready charges and accompany
such acceptance with the advance payment within 15 days
following his receipt of such estimate from the Licensor.
4. Licensor or his authorized representative will perform the
make-ready survey in all situations involving simultaneous
license applications.
5. Where an initial applicant has been authorized by Licensor to
perform its own make-ready survey, and properly completed pole
applications are received from an additional applicant(s),
establishing a non-simultaneous license application situation,
the conditions of Option 1 will automatically apply and the
option arrangements, detailed in Section C of this Appendix,
will not be applicable.
E) MAKE-READY WORK SCHEDULE
Any simultaneous multiple applicant who cannot agree with the
alternative arrangement that provides for the Licensor to complete ALL
make-ready work before simultaneously granting licenses to all multiple
applicants will be deemed by the Licensor to have canceled his
application.
App. II-4
<PAGE>
Appendix II
F) CHANGES IN APPENDIX
This Appendix may be changed in whole or in part at any time during the
term of this Agreement at the sole option of the Licensor upon the
giving of not less than 30 days written notice thereof to the
Licensee(s) and to substitute in place thereof such other provisions as
the Licensor may deem necessary as relative to multiple attachments to
poles of the Licensor.
App. II-5
<PAGE>
PROCEDURE FOR PROCESSING
MULTIPLE POLE ATTACHMENT LICENSE APPLICATIONS
<TABLE>
<S> <C> <C> <C> <C>
1. WHERE NO-MAKE
READY SURVEY
EXPENSE HAS
BEEN INCURRED
BY LICENSOR
MAKE-READY SURVEY MAKE-READY SURVEY MAKE-READY WORK SCHEDULE MAKE-READY COST ALLOCATIONS
REQUIREMENT COST ALLOCATION
MULTIPLE APPLICANTS MUST TOTAL COST SHARED EQUALLY BY
TO BE DONE ON TWO DEVELOP MUTUALLY MULTIPLE APPLICANTS.
BASES TO DETERMINE AGREEABLE:
ACCOMMODATION - IF ONLY ONE APPLICANT
REQUIREMENTS FOR: 1. order of pole AGREES TO ESTIMATED
availability and SHARED PORTION OF TOTAL
2. overall completion COST, THAT APPLICANT
1. attachment by single schedule WILL BE QUOTED TPE COST
licensee APPLICABLE TO ACCOMMODATE
A. SIMULTANEOUS TOTAL COST TO BE - WHERE MULTIPLE A SINGLE LICENSEE (SEE 1.
APPLICATIONS 2. attachment by multiple SHARED EQUALLY BY APPLICANTS CANNOT AGREE UNDER MAKE-READY SURVEY
licensees MULTIPLE APPLICANTS WITHIN 15 DAYS FROM REQUIREMENT)
RECEIPT OF ESTIMATE FROM
LICENSOR, LICENSOR WILL
OFFER AS AN ALTERNATIVE,
TO COMPLETE ALL MAKE-
---
READY WORK INVOLVED
BEFORE SIMULTANEOUSLY
GRANTING LICENSES TO
MULTIPLE APPLICANTS.
</TABLE>
App. II-6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
B. NON-
SIMULTANEOUS
APPLICATIONS INITIAL APPLICANT INITIAL APPLICANT
OPTIONS AVAILABLE
INITIAL APPLICANT LICENSOR WILL TREAT AS A IS CHARGED THE COST
NON-MULTIPLE APPLICANT ATTRIBUTABLE TO THE WORK
OPTION 1 INVOLVED TO ACCOMMODATE
- ANY CHANGE OF PRIORITY ATTACHMENT BY ONE LICENSEE.
(LICENSOR WILL OF POLE AVAILABILITY OR
PROCESS AS IF NO OVERALL COMPLETION
MULTIPLE LICENSE SCHEDULE THAT IS DESIRED ADDITIONAL APPLICANT
APPLICATION TO BE DONE ON TWO AFTER EITHER HAS BEEN
EXIST.) BASIS TO DETERMINE INITIALLY AGREED UPON IS CHARGED THE COST
ACCOMMODATION WITH THE LICENSOR IS ATTRIBUTABLE TO THE WORK
REQUIREMENTS FOR: SUBJECT TO LICENSOR'S INVOLVED TO ACCOMMODATE
ABILITY TO ACCOMMODATE ATTACHMENT BY AN ADDITIONAL
_________________ 1. attachment by TOTAL COST TO IN ITS ESTABLISHED WORK LICENSEE ON A POLE ALREADY
OPTION 2 single licensee BE SHARED SCHEDULE. ATTACHED BY INITIAL LICENSEE.
EQUALLY BY
(LICENSOR WILL 2. attachment by MULTIPLE ADDITIONAL APPLICANT
PROCESS AS multiple licensees APPLICANTS
SIMULTANEOUS REQUIRED MAKE-READY WORK
LICENSE (a) simultaneously WILL NOT BE PERFORMED UNTIL
APPLICATIONS) (b) non-simultaneously LICENSES HAVE BEEN GRANTED
TO INITIAL APPLICANT UNLESS
THE PERFORMANCE OF SUCH
WORK WILL NOT DELAY THE
COMPLETION OF THE
MAKE-READY WORK REQUIRED TO
ACCOMMODATE THE INITIAL
APPLICANT.
__________________________________________________________
SAME AS I.A. SAME AS I.A.
</TABLE>
App. II-7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
II. WHERE PARTIAL
MAKE-READY
SURVEY EXPENSE
HAS BEEN
INCURRED BY
LICENSOR
MAKE-READY SURVEY MAKE-READY SURVEY MAKE-READY WORK SCHEDULE MAKE-READY COST ALLOCATIONS
TO REQUIREMENT COST ALLOCATION
OPTIONS INITIAL APPLICANT
AVAILABLE
TO INITIAL BALANCE OF REQUIRED WILL BE CHARGED THE
APPLICANT SURVEY TO BE COST INCURRED FOR
COMPLETED ON TWO THAT PORTION OF THE
OPTION 1 SURVEY WHICH HAS
ACCOMMODATION BASES DETERMINE
(LICENSOR WILL REQUIREMENTS FOR: ALREADY BEEN
PROCESS AS IF NO COMPLETED.
MULTIPLE LICENSE 1. attachment by single
APPLICATIONS licensee ADDITIONAL APPLICANT
EXIST)
2. attachment by WILL BE CHARGED THE
multiple licensees COST INCURRED TO
RESURVEY THE SAME AS I.B. SAME AS I.B.
_________________ (a) simultaneously COMPLETED PORTION OF
(b) non-simultaneously THE SURVEY TO
DETERMINE THE _____________________________________________________________
OPTION 2 PORTION OF SURVEY REQUIREMENTS TO
ALREADY COMPLETED ACCOMMODATE
(LICENSOR WILL FOR INITIAL APPLICANT ATTACHMENT BY
PROCESS AS WILL BE RESURVEYED TO MULTIPLE LICENSEES.
"SIMULTANEOUS" DETERMINE THE SAME AS I.A. SAME AS I.A.
LICENSE REQUIREMENTS TO TOTAL COST OF THE
APPLICATIONS). ACCOMMODATE AN BALANCE OF THE
ADDITIONAL LICENSEE REQUIRED SURVEY WILL
BE SHARED EQUALLY BY
THE MULTIPLE
APPLICANTS.
</TABLE>
App. II-8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
II. WHERE MAKE-
READY SURVEY
IS COMPLETE
BUT MAKE-READY
WORK HAS NOT
PHYSICALLY
COMMENCED
MAKE-READY SURVEY MAKE-READY SURVEY MAKE-READY WORK SCHEDULE MAKE-READY COST ALLOCATIONS
REQUIREMENT COST ALLOCATION
INITIAL APPLICANT
WILL BE CHARGED THE
OPTIONS RESURVEY REQUIRED TO COST OF THE SURVEY
AVAILABLE DETERMINE WHICH HAS ALREADY
TO INITIAL ACCOMMODATION BEEN COMPLETED.
APPLICANT REQUIREMENTS FOR
ATTACHMENT BY ADDITIONAL APPLICANT SAME AS I.B. SAME AS I.B.
OPTION 1 --------------------
-------- MULTIPLE LICENSEES:
WILL BE CHARGED THE
(LICENSOR WILL 1. SIMULTANEOUSLY COST TO RESURVEY TO
PROCESS AS IF NO 2. NON- DETERMINE THE
MULTIPLE LICENSE SIMULTANEOUSLY REQUIREMENTS FOR
APPLICATIONS ACCOMMODATING
EXIST) MULTIPLE LICENSEES.
_____________________________________________________________
_________________ SAME AS I.A. SAME AS I.A.
OPTION 2
--------
(LICENSOR WILL
PROCESS AS
"SIMULTANEOUS"
MULTIPLE LICENSE
APPLICATIONS)
</TABLE>
App. II-9
<PAGE>
REVISED 5-11-94
APPENDIX III
Index of License Application Forms
<TABLE>
<S> <C>
Application and Pole Attachment License A-1
Pole Details A-2
Authorization for Field Survey Work B-1
Authorization for Pole Make-Ready Work B-2
Itemized Pole Make-Ready Work and Charges C
Notification of Discontinuance of Use of Poles D
</TABLE>
App. III-1
<PAGE>
EXPLANATION OF THE USE OF APPENDIX III
ADMINISTRATIVE FORMS
1. At the time any Licensee anticipates a request for a new license, it
should (pursuant to Article VII) submit to each Licensor: Form A-1
(Application and Pole Attachment License) and Form A-2 (Pole Details) -
(pursuant to Article VIII) Form B-1 (Authorization for Field Survey
Work), Form B-2 (Authorization for Pole Make-Ready Work) and Form C
(Itemized Estimate of Pole Make-Ready Work and Charges, which will be
completed by New England Telephone.
2. Each Licensor shall fill out Part I of Form B-1 (Authorization for
Field Survey Work). If Licensee agrees to the field survey estimate, it
will fill out, execute and return the form to the Licensor with the
appropriate fee.
3. Each Licensor shall fill out Form B-2 (Authorization for Pole Make
Ready Work) when appropriate. If Licensee agrees to the make ready
changes, it will execute and return to the Licensor with the
appropriate fee. (See Article VIII, par. D.)
4. Form C is used by New England Telephone to more fully explain the
estimated charges. When requested by the Licensee, this breakdown of
charges may be sent by New England Telephone.
5. After the completion of the Make Ready Work, the Licensor shall
complete Form A-1 with a license number, date and signature. Licensee's
receipt of this executed A-1 is its authorization to make the
attachments described in the application.
6. Any time a Licensee discontinues the use of a pole or poles upon which
it has a license, it shall submit Form D (Notification of
Discontinuance of the Use of Poles) to each Licensor.
7. Form F (Bond) will be submitted by the Licensee to the appropriate
Licensor from time to time as specified in Article III, par. C.
8. Form E (Certificate of Insurance) will be submitted by Licensee prior
to the execution of the License Agreement.
App. III-2
<PAGE>
Appendix III
Form A-1
Revised 5-11-94
APPLICATION AND POLE ATTACHMENT LICENSE
Licensee NECOM LLC
Street Address_____________________________________
City and State _________________________________
Date_______________________________________________
In accordance with the terms and conditions of the License
Agreement between us, dated October 28, 1996, application is hereby made for a
license to make _____________ attachments to JO poles, ______ attachments to FO
poles, ____________ attachments to JU poles and _____________ Power Supply
attachments located in the municipality of ________________, as indicated on
Form A-2. This request will be designated Pole Attachment License Application
Number ___________.
Licensee's Name (Print)___________________________________
- -- W.Ma.Elec.Co. -- Signature __________________________________________
Power Company
Title __________________________________________
Tel. No. __________________________________________
Fax No. __________________________________________
*****************For license use, do not write below this line******************
Pole Attachment License Application Number ____ is hereby
granted to make the attachments described in this application to ______
attachments to JO poles, _______ attachments to FO poles, _______ attachments to
JU poles and _______________ Power Supply attachments located in the
municipality of _____________________, as indicated on the attached Form A-2.
This request will be designated Pole Attachment License Application Number
______________.
Licensee's Name (Print)___________________________________
Signature __________________________________________
__________________ Title __________________________________________
(AGREEMENT ID#)
Tel. No. __________________________________________
Fax No. __________________________________________
App. III-3
<PAGE>
Appendix III
Form A-1
Revised 5-11-94
It is the Licensee's responsibility to submit an original copy of this
application to New England Telephone and Telegraph Company d/b/a NYNEX and the
appropriate Power Company.
Individual applications to be numbered in sequential ascending order by Licensee
for each License Agreement. Licensor will process applications in sequential
ascending order according to the application numbers assigned by the Licensee.
App. III-4
<PAGE>
Appendix III
Form B-1
Revised 5-11-94
POLE DETAILS
License Application Number ____
Licensee NECOM LLC
--------------------------
- ----------------------------------------
Power Company Involved
- ----------------------------------------
Municipality where poles are located (Note: Provide separate applications for
each municipality)
<TABLE>
<S> <C> <C> <C>
Pole No. Location(1) Attach.(2) _________________________(3)
Tax Lic. Lic.
Dist. No. Date
-------- ------- --------
LICENSOR WILL PROVIDE AN
ITEMIZED ESTIMATE OF POLE
MAKE READY WORK REQUIRED AND
ASSOCIATED CHARGES (APPENDIX
III FORM C).
</TABLE>
Licensee's Signature _____________________________________
Title _____________________________________
- --------
(1) Indicate location by providing name of street, highway, route, etc., e.g.,
South Street, north of (N/O) Jones Road. Private Property Poles should be
identified as such e.g., P.P. (lead off pole 1234 South Street).
(2) A complete description of all facilities shall be given including
quantities, sizes and types of all cables and equipment.
(3) Completed by Licensor.
Note: Attach Additional sheets if necessary.
App. III-5
<PAGE>
Appendix III
Form B-1
Revised 5-11-94
AUTHORIZATION FOR FIELD SURVEY WORK
Licensee NECOM LLC
----------------
In accordance with Article IV, Paragraph (A)(1) of the License Agreement,
following is a summary of the estimated charges which will apply to complete a
field survey covering Pole Attachment License Application Number _____________.
<TABLE>
<CAPTION>
Hours Rate/Hour Total
<S> <C> <C> <C>
Field Survey $
--------- ------------ ---------
Plus 10% Administrative Compensation $
---------
TOTAL $
---------
</TABLE>
If you wish us to complete the required field survey, please sign this copy
below and return with an advance payment in the amount of $________________.
Please note, this quote is only valid for 30 days.
Licensee's Name (Print)___________________________________
Signature __________________________________________
Title __________________________________________
Date __________________________________________
The required field survey covering License Application No. _______ is authorized
and the costs therefore will be paid to Licensor in accordance with Appendix I
to License Agreement.
App. III-6
<PAGE>
Appendix III
Form B-1
Revised 5-11-94
My anticipated date of attachment is _______________________.
Licensee's Name (Print)___________________________________
Signature __________________________________________
Title __________________________________________
Date __________________________________________
App. III-7
<PAGE>
Appendix III
Form B-2
Revised 5-11-94
AUTHORIZATION FOR POLE MAKE READY WORK
Licensee NECOM LLC
----------------------
Field survey work associated with your License Application No. __________ dated,
________________ 19__, for attachment to poles has been completed.
Following is a summary of the make ready charges which will apply.
<TABLE>
<CAPTION>
Hours Rate/Hour Total
<S> <C> <C> <C>
Field Survey $
--------- ------------ ---------
Plus 10% Administrative Compensation $
---------
TOTAL $
---------
</TABLE>
<TABLE>
<CAPTION>
Make-Ready Work Hours Rate/Hour Total
<S> <C> <C> <C>
Labor $
--------- ------------ ---------
Material $
---------
Sub Total $
---------
Plus 10% Administrative Compensation $
---------
Total $
---------
</TABLE>
Attached is an itemized summary (Form C) of required make-ready work and
associated charges. If you wish us to complete the required make-ready work,
please sign this copy below and return with an advance payment in the amount of
$-----------------.
Licensor's Name (Print)___________________________________
Signature __________________________________________
Title __________________________________________
Address __________________________________________
__________________________________________
Tel. No. __________________________________________
Date __________________________________________
The replacements and rearrangements included in License Application No. ________
are authorized and the costs therefore will be paid to Licensor in accordance
with Appendix I to License Agreement.
Licensee's Name (Print)________________________
Tel. No. ______________________
Signature _______________________________
Date ______________________
Title _______________________________
App. III-8
<PAGE>
Appendix III
Form C
Revised 2/7/94
ITEMIZED SUMMARY OF POLE MAKE READY WORK AND CHARGES
<TABLE>
<S> <C> <C>
- ------------------------------------ Sheet _______ of ________
Licensee
- ------------------------------------ --------------------------------------
Polos Located in Municipality, State Date Prepared
------------------------------------- KC#_____________________
- ------------------------------------ Exchange or Wire Center Keep Cost Order Number
License Application Number
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
POLE INFORMATION MAKE READY WORK MATERIAL (5) LABOR (6)
REQUIREMENTS
- --------------------- ------------------- --------- ---------------------------- ------------------------------
Licensor Performed No. & Unit
Pole No. Location Description of Work by Item Cost Total Hours Rate/Hour Total
(1) (2) (3) (4)
- ----------------------------------------------------------------------------------------------------------------------------
- --------
- ----------------------------------------------------------------------------------------------------------------------------
- --------
- ----------------------------------------------------------------------------------------------------------------------------
- --------
- ----------------------------------------------------------------------------------------------------------------------------
- --------
- ----------------------------------------------------------------------------------------------------------------------------
- --------
- ----------------------------------------------------------------------------------------------------------------------------
- --------
- ----------------------------------------------------------------------------------------------------------------------------
- --------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(see next page)
App. III-9
<PAGE>
EXPLANATION OF COLUMNS FOR FORM C
To be filled in by Licensee:
(1) Designate pole number assigned by each utility company
T -- Telephone E -- Electric
(2) Name of Street, Road, Highway, Route, etc.
To be filled in by Licensor:
(3) Work Operation Description, e.g. Lwr 2 Ca 1' Rse Rack 2'
Lwr Top Ca 1' Plc A&G
Lwr Ca & Term 18" Lwr Fire Alm 1'
Rpl Pole Rse Trnsf 1'
(4) Indicate Company to perform work operation, e.g.
T-- Telephone P-- Police
E -- Electric M -- Municipality
C -- CATV O -- Other License
F -- Fire
T/C -- Option-- Either Telephone or CATV
(5) List Non-exempt Material Only
(6) Indicate labor hours and costs required to perform work
operations listed in (3).
App. III-10
<PAGE>
Appendix III
Form D
Revised 5/11/94
NOTIFICATION OF DISCONTINUANCE OF USE OF POLES
Licensee NECOM LLC
-----------------------------------------
Street Address ____________________________________
City and State ____________________________________
Date ______________________________________________
In accordance with the terms of License Agreement dated October 28,
1996, notice is hereby given that attachments to the following poles in the
municipality of _________________ covered by permit number ____________________
were removed on , 19__.
Pole Number Location Attachment
- ----------- -------- ----------
___________ _________________________________ ____________________________
___________ _________________________________ ____________________________
___________ _________________________________ ____________________________
___________ _________________________________ ____________________________
Total number of attachments to JO poles to be discontinued ____________________
Total number of attachments to FO poles to be discontinued ____________________
Total number of attachments to JU poles to be discontinued ____________________
Total number of Power Supplies to be discontinued ____________________
Said permit is to be cancelled in its entirety/partially as above.
(circle one)
Licensee _____________________________________ Print Name _________________
Signature ____________________________________ Tel. No. _________________
Title ______________________________________ Date _________________
................................................................................
Use of poles has been discontinued as above.
____________________________________________________ __________________________
Licensor's Name (Print) Signature
____________________________________________________ __________________________
Title Date
____________________________________________________
Tel. No.
It is the Licensee's responsibility to submit an original copy of this form to
New England Telephone and Telegraph Company d/b/a NYNEX, and the appropriate
Power Company.
App. III-11
<PAGE>
Appendix III
Form E, 2180AL
REV. 12-88
OMITTED 11/18/94
App. III-12
<PAGE>
APPENDIX III
Form F
REVISED 6-88
(NAME OF INSURANCE COMPANY)
BOND
Bond No. ______________________
KNOW ALL MEN BY THESE PRESENTS, THAT ________________________________ a
corporation of the _________________________________________________, located at
_______________________________________________ (hereinafter called the
Principal), as the Principal and the
____________________________________________________, a corporation organized
under the laws of ________________________________________ and authorized to do
business in the State/Commonwealth of _____________________ and having its
office at _____________________________________________ (hereinafter called the
Surety), as Surety, are held firmly bound unto the ____________________
____________________________ Corporation, and NEW ENGLAND TELEPHONE AND
TELEGRAPH COMPANY d/b/a NYNEX, New York corporation, hereinafter referred to as
Obligee, in the full and just sum of ________________________ to the payment of
which sum well and truly to be made, the Principal and Surety bind themselves,
and each of their successors and assigns, jointly and severally, firmly by these
presents.
WHEREAS, the Principal has entered into a written Agreement wherein the Obligees
have granted permission to the Principal to make attachment of Cables together
with the necessary Appurtenant Facilities including attachments for service
wires leading from poles to Principal's customers, to certain poles of the
Obligees, located in the City/Town of
____________________________________________.
WHEREAS, THE OBLIGEES are willing to permit such attachments to be made subject
to the terms and conditions of the aforesaid Agreement and providing a bond is
given by the Principal covering the true and faithful performance of said
Agreement, which Agreement is or may be attached hereto for reference.
NOW THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH, that if the Principal
shall well and truly perform and carry out the covenants, terms and conditions
of said agreement, then this obligation shall be void; otherwise it shall remain
in full force and effect.
The surety may cancel and terminate this Bond by giving thirty (30) days written
notice thereof by the Registered Mail to the Obligee, in which event the
cancellation and termination shall be effected thirty (30) days after said
obligees received such notice, but notwithstanding said cancellation or said
expiration date, this bond shall remain in full force and effect as to
attachments authorized under said agreement prior to the effective date of
cancellation or expiration date until all of said attachments shall have been
removed and as to any other obligations or responsibilities accrued prior to
said cancellation date or said expiration date.
App. III-13
<PAGE>
APPENDIX III
Form F
REVISED 6-88
SIGNED, SEALED AND DATED this ______________ day of ___________, 19 ___
(PRINCIPAL)
By ____________________________________________
ATTEST: (SURETY)
_____________________________ _______________________________________________
App. III-14
<PAGE>
APPENDIX III
Form G
IDENTIFICATION TAGS
1. GENERAL
This Appendix provides a method for Licensee to follow in attaching
identification tags to cables and other apparatus so that ownership of such
cable and apparatus can be readily determined.
2. DESCRIPTION OF TAGS
- - - + +
CAUTION CAUTION
NON-NET CABLE NON-NET APPARATUS
CUSTOMER OWNED CUSTOMER OWNED
- - - + +
- ------------------------ ---------------------------
Figure I Figure II
Identification Cable Tags Identification Apparatus Tags
The Identification Cable Tags, shown in Figure I are made of polyethylene and
polyvinyl chloride and have ultraviolet inhibitors. The tags will be yellow with
black lettering. The respective sizes are 1-3/4" x 4" and 1-1/4" x 3".
The cable tag will be used on cables, and will read as follows:
"CAUTION: NON-NET CABLE. CUSTOMER OWNED." There will be a section at
the bottom of the tag to place the owner's name, using indelible ink.
The apparatus tags will be place on Licensee's Plant, other than cables,
including, but not limited to, guys, terminals, and terminal closures. The
Identification Apparatus tag will read as follows: "CAUTION: NON-NET APPARATUS.
CUSTOMER OWNED." This tag will also have a place at the bottom on the tag to
write the owner's name using indelible ink.
3. PROCUREMENT OF TAGS
It is the responsibility of the Licensee to obtain, place and maintain
Identification tags.
4. INSTALLATION OF CABLE TAGS - AERIAL APPLICATION
The cable tag shall be placed on the bottom of the cable at the pole either
under the suspension clamp or just between the suspension clamp and cable
spacer. Such placement will make it visible from the ground that the cable is
not owned by the
App. III-15
<PAGE>
APPENDIX III
Form G
Telephone Company. An E-Z twist cable tie shall be used to attach the cable tag.
At anchor and guy locations, the apparatus tag shall be placed between the
device used to secure the strand (i.e., strandvise, guy, grips or clamps) and
the eye of the rod. If a guy shields is in place, the apparatus tag can be
attached at the top of the guy shield on the strand.
At terminal locations, the Identification tag shall be placed around the neck of
the terminal, on the stub, An E-Z twist tie shall be used to attach this tag.
An Identification tag shall be placed on each cable at each pole that is on a
separate suspension strand, if the lead is ten poles or less. If the lead is
more than ten poles, it is permissible to place a tag on every fourth pole.
App. III-16
<PAGE>
Attachment A
NON-DISCRIMINATION SERVICE AGREEMENT
To the extent that this contract is subject to them, contractor shall comply
with the applicable provisions of the following: Exec. Order No. 11246, Exec.
Order No. 11625, Exec. Order No. 12138, Exec. Order No. 11701, Exec. Order
11758, Section 503 of the Rehabilitation Act of 1973 as amended by PL93-616,
Vietnam Era Veteran's Readjustment Assistance Act of 1974 and the rules,
regulations and relevant Orders of the Secretary of Labor pertaining to the
Executive Orders and Statutes listed above.
Monetary amounts or contractual or purchasing relationships, together with the
number of the contractors employees, determine which Executive Order provisions
are applicable. For contracts valued at less than $2,500, none of the clauses
shall be considered a part of this contract. However, for contracts of or which
aggregate to 2,500 or more annually, the following table describes the clauses
which are included in the contract.
1. Inclusion of the "Equal Employment Opportunity" clauses in all contracts and
orders.
2. Certification of non-segregated facilities. 3. Certification that an
Affirmative Action program has been developed and is being followed.
4. Certification that an annual Employers Information Report (EEO-1 Standard
Form 100) is being filed.
5. Inclusion of the "Utilization of Minority And Women's Business Enterprises"
clause in all contracts and orders.
6. Inclusion of the "Minority and Women's Business Contracting Program" clause
in all contracts and orders.
7. Inclusion of the "Listing of Employment Openings" clause in all contracts
and orders.
8. Inclusion of the "Employment of the Handicapped" clause in all contracts and
orders.
$2,500 to $5,000 $5,000 to $10,000 $10,000 to $50,000
8 8 1, 2, 5, 6, 7, 8
$50,000 to $500,000 $500,000 or more
1, 2, 3*, 4*, 5, 6, 7, 8 1, 2, 3*, 4*, 5, 6, 7, 8
*Applies only for businesses with 50 or more employees.
1. Equal Employment Opportunity Provisions
In accordance with Executive Order 11246, dated September 24, 1965 and
Part 60-1 of Title 41 of the codes of Federal Regulations (Public
Contracts and Property Management, Office of Federal Contract
Compliance, Obligations of Contractors and Subcontractors), as may be
amended from time to time, the parties incorporate herein by this
reference the regulations and contract clauses required by those
provisions to be made a part of Government contracts and subcontracts.
2. Certification of Non-segregated Facilities
The contractor certifies that it does not and will not maintain any
facilities it provides for its employees in a segregated manner, or
permit its employees to perform their services at any location under
its control, where segregated facilities are maintained; and that it
will obtain a similar certification, prior to the award of any
nonexempt subcontract.
App. III-17
<PAGE>
Attachment A
3. Certification of Affirmative Action Program
The contractor affirms that it has developed and is maintaining an
Affirmative Action Plan as required by Part 60-2 of Title 41 of the
codes of Federal Regulation.
4. Certification of Filing Employers Information Reports
The contractor agrees to file annually on or before the 31st day of
March complete and accurate reports on Standard Form 100 (EEO-1) or
such forms as may be promulgated in its place.
5. Utilization of Minority and Women's Business Enterprises
(a) It is the policy of the Government that minority and women's
business enterprises shall have the maximum practicable
opportunity to participate in the performance of the contract.
(b) The contractor agrees to use his best effort to carry
out this policy in the award of his subcontracts to
the fullest extent consistent with the efficient
performance of this contract. As used in this
contract the term "minority or women's business
enterprise" means a business, at least 50 percent of
which is owned, controlled and operated by
minority group members or women, or in the case
of publicly owned businesses, at least 51 percent of
the stock which is owned by minorities or women.
For the purposes of this definition, minority group
members are American: Blacks, Hispanics, Asians,
Pacific Islanders, American Indians and Alaskan
Natives. Contractors may rely on written
representations by subcontractors regarding their
status as minority or women's business enterprises
in lieu of an independent investigation.
6. Minority and Women's Business Enterprises
Subcontracting Program
(a) The contractor agrees to establish and conduct a program which
will enable minority and women's business enterprises (as
defined in paragraph 5) to be considered fairly as
subcontractors and suppliers under the contract. In this
connection, the Contractor shall:
(1) Designate a liaison officer who will administer the
contractor's minority and women's business
enterprises programs.
(2) Provide adequate and timely consideration of the
potentialities of known minority and women's business
enterprises in all "make or buy" decisions.
(3) Assure that known minority and women's
business enterprises will have an equitable
opportunity to compete for subcontracts,
particularly by arranging solicitations, time
for preparation of bids, quantities,
specifications, and delivery schedules so as
to facilitate the participation of minority and
women's business enterprises.
(4) Maintain records showing (I) procedures
which have been adopted to comply with the
policies set forth in this clause, including the
establishment of a source list of minority and
women's business enterprises, (II) awards to
minority and women's business enterprises
on the source list, and (III) specific efforts to
identify and award contracts to minority and
women's business enterprises.
App. III-18
<PAGE>
Attachment A
(5) Include the Utilization Of Minority and Women's
Business Enterprises clause in subcontracts which
offer substantial minority and women's business
enterprises subcontracting opportunities.
(6) Cooperate with the Government's's Contracting Officer
in any studies and surveys of the Contractor's
minority and women's business enterprises procedures
and practices that the Contracting Officer may from
time to time conduct.
(7) Submit periodic reports of subcontracting to
known minority and women's business
enterprises with respect to the records
referred to in subparagraph (4) above, in
such a form and manner and at such time
(not more often than quarterly) as the
Contracting Officer may prescribe.
(b) The contractor further agrees to insert, in any
subcontract hereunder which may exceed $500,000
(or in the case of WBE, $1,000,000 in the case of
contracts for the construction of any public facility
and which offer substantial subcontracting
possibilities) provisions which shall conform
substantially to the language of this agreement,
including this paragraph (b).
7. List of Employment Openings for Veterans
In accordance with Exec. Order 11701, dated January 24, 1973, and Part
60-250 of Title 41 of the Code of Federal Regulations, as may be
amended from time to time, the parties incorporate herein by this
reference the regulations and contract clauses required by those
provisions to be made a part of Government contracts and subcontracts.
8. Employment of the Handicapped
In accordance with Exec. Order 11758, dated January 15, 1974, and Part
60-741 of Title 41 of the Code of Federal Regulations as may be amended
from time to time, the parties incorporate herein by this reference the
regulations and contract clauses required by those provisions to be
made a part of Government contracts and subcontracts.
App. III-19
<PAGE>
Attachment #1
Page 1 of 3
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
NECOM LLC
Attachments to approximately sixteen (16) poles from the Chicopee boundary to
American International College, Springfield College, Western New England
College, 400 Taylor Street, Marriott Hotel and 351 Bridge. Cable to service said
locations only.
App. III-20
<PAGE>
Attachment #1
Page 2 of 3
Map of Network Backbone
App. III-21
<PAGE>
Attachment #1
Page 3 of 3
Fiber Optic Cable One-Line Routing Diagram
App. III-22
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
FIBER OPTIC USE AGREEMENT
BETWEEN
FIVECOM LLC
AND
NEW ENGLAND FIBER COMMUNICATIONS LLC
September 10, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. ARTICLE 1 - FIVECOM NETWORK AND NEW ENGLAND FIBER
FIBERS...................................................................................................4
2. ARTICLE II - SCHEDULE....................................................................................5
3. ARTICLE III - ACCEPTANCE.................................................................................5
4. ARTICLE IV - DELIVERABLES................................................................................7
5. ARTICLE V - TERM AND INDEFEASIBLE RIGHT OF USE...........................................................7
6. ARTICLE VI - TERMS OF PAYMENT............................................................................8
7. ARTICLE VII - MAINTENANCE AND REPAIR OF THE NEW
ENGLAND FIBER FIBERS.....................................................................................8
8. ARTICLE VIII - WARRANTIES...............................................................................10
9. ARTICLE IX - TAXES......................................................................................11
10. ARTICLE X - LIABILITY...................................................................................11
11. ARTICLE XI - FORCE MAJEURE..............................................................................12
12. ARTICLE XII - PERMITS AND REQUIRED RIGHTS-OF-WAY........................................................12
13. ARTICLE XIII - RELOCATION OF THE NEW ENGLAND FIBER FIBERS...............................................13
14. ARTICLE XIV - CONDEMNATION..............................................................................13
15. ARTICLE XV - USE OF THE NEW ENGLAND FIBER FIBERS........................................................14
16. ARTICLE XVI - OWNERSHIP OF THE NEW ENGLAND FIBER FIBERS.................................................14
17. ARTICLE XVII - DELIBERATELY OMITTED.....................................................................14
18. ARTICLE XVIII - DELIBERATELY OMITTED....................................................................14
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
19. ARTICLE XIX - CONFIDENTIALITY...........................................................................14
20. ARTICLE XX - DEFAULT....................................................................................15
21. ARTICLE XXI - NOTICES...................................................................................15
22. ARTICLE XXII - ASSIGNMENT: SUCCESSION...................................................................16
23. ARTICLE XXIII - VENDORS.................................................................................17
24. ARTICLE XXIV - GOVERNING LAW............................................................................17
25. ARTICLE XXV - DISPUTE RESOLUTION........................................................................17
26. ARTICLE XXVI - LIENS....................................................................................18
27. ARTICLE XXVII - MISCELLANEOUS...........................................................................19
28. ARTICLE XXVIII - INSURANCE..............................................................................20
29. ARTICLE XXIX - ENTIRE AGREEMENT.........................................................................20
</TABLE>
-3-
<PAGE>
1. ARTICLE 1 - FIVECOM NETWORK AND NEW ENGLAND FIBER FIBERS
PAGE MISSING
-4-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2. ARTICLE II - SCHEDULE
2.1. FiveCom shall use its best efforts to complete construction and
installation and have the New England Fiber Fibers ready for testing no later
than September 26, 1997.
2.2. In the event the New England Fiber Fibers are not made available
for New England Fiber testing by September 26, 1997 then, New England Fiber, in
its sole discretion, may deduct the sum of [**] from the payment described in
Article VI for each day beyond September 12, 1997, that the New England Fiber
Fibers are not ready for testing. This deduction will be taken as a credit on
the front end of the contract. In the event the New England Fiber Fibers are not
made available for testing by October 12, 1997, New England Fiber may choose to
continue the [**] deduction or to terminate this agreement.
2.3. In the event the New England Fiber Fibers are made available for
New England Fiber testing by September 26, 1997 FiveCom shall invoice New
England Fiber for service provided herein commencing on September 26, 1997.
3. ARTICLE III - ACCEPTANCE
3.1. Upon installation of the New England Fiber Fibers, FiveCom shall
conduct acceptance tests in accordance with the Acceptance Test Plan ("ATP")
described in Exhibit C attached hereto and incorporated herein. FiveCom shall
provide New England Fiber with notice of the commencement of the acceptance
testing at least five (5) days prior to said commencement date. New England
Fiber shall have the right, at its sole expense, to have a person or persons
present to observe any tests conducted by FiveCom as a part of the ATP. Within
ten (10) days of the conclusion of the acceptance testing, FiveCom shall provide
New England Fiber with certified test results in accordance with the ATP. In the
event New England Fiber does not have observers present at the time FiveCom
conducts the acceptance tests, the results of the tests conducted thereunder as
certified by FiveCom to New England Fiber shall be deemed valid and binding upon
New England Fiber and the New England Fiber Fibers shall be deemed
unconditionally accepted by New England Fiber upon receipt of the certified test
results and New England Fiber shall provide a written Acceptance Notice within
ten (10) days of receipt of such certified test results, provided such certified
test results are within the parameters of the Specifications.
-5-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3.2. In the event New England Fiber has observers present to witness
the acceptance tests, New England Fiber and FiveCom shall then jointly evaluate
the measured results of the tests section by section. If the measured test
results are within the parameters of the Specifications, then and in such event,
New England Fiber shall unconditionally accept the test results and the New
England Fiber Fibers and provide a written Acceptance Notice.
3.3. In the event the measured test results are not within the
parameters of the Specifications, then within ten (10) days of its receipt of
the certified results from FiveCom, New England Fiber shall notify FiveCom in
writing that such results are unacceptable and shall specify in reasonable
detail the portions of the New England Fiber Fibers that are not within the
parameters of the Specifications. Thereupon, FiveCom shall use its best efforts
to take such action as shall be necessary to bring the operating standards of
the unacceptable portions of the New England Fiber Fibers within the parameters
of the Specifications. If FiveCom shall not have completed corrective action and
brought the operating standards of such portions of the New England Fiber Fibers
within the parameters of the Specifications within thirty (30) days of said
written notice from New England Fiber that such measured test results are
unacceptable, New England Fiber shall have the right, in its sole discretion, to
deduct the sum of [**] from the monthly payment described in Article VI for each
day necessary to bring the operating standards of the New England Fiber Fibers
within the parameters of the Specifications. Upon completion of corrective
action by FiveCom, New England Fiber shall provide FiveCom with an Acceptance
Notice within ten (10) days of completion of such corrective action. If FiveCom
shall not have completed corrective action within 60 days of said written notice
New England Fibers shall have the right to terminate this Agreement upon the
expiration of such 60 day period. If New England Fibers has not exercised its
right to terminate under the proceeding clause it shall be deemed to have
accepted the system and shall provide FiveCom with an Acceptance Notice within
10 days of the expiration of such 120 day period.
3.4. Upon acceptance by New England Fiber of all the optical fiber
strands comprising the New England Fiber Fibers, the New England Fiber Fibers
shall be deemed to be installed by FiveCom in accordance with the
Specifications, and FiveCom shall have no further liability therefore, except as
provided for under the provisions of Articles VII and VIII, herein.
3.5. Upon successful completion of the ATP and acceptance of the New
England Fiber Fibers by New England Fiber, New England Fiber shall provide
-6-
<PAGE>
FiveCom with an "Acceptance Notice" within any applicable period specified by
this Article III in the form attached hereto as Exhibit D. The date of
acceptance set forth in the Acceptance Notice shall be hereinafter referred to
as the "Acceptance Date". In the event New England Fiber fails to provide the
Acceptance Notice or fails to specify the Acceptance Date, the Acceptance Date
shall be deemed to be the date of acceptance as determined pursuant to this
Article III or, in the event a date of acceptance is not specified, the
Acceptance Date shall be deemed to be the last day of any Acceptance Notice
period required by this Article III. Upon execution, the Acceptance Notice shall
be attached to this Agreement as Exhibit D and shall be incorporated herein by
reference.
4. ARTICLE IV - DELIVERABLES
4.1 In accordance with the time frame set forth in Subarticle 4.2,
herein, FiveCom shall deliver to New England Fiber complete documentation
regarding the as-built condition of the New England Fiber Fibers. This
documentation (hereinafter referred to as the "Deliverables") shall consist of
the following:
4.1.1. As-Built Drawings prepared in accordance with the
specifications set forth in Exhibit E, attached hereto and incorporated herein.
4.1.2. Names of all manufacturers whose optical fiber cable,
associated splices and other equipment are used in installing and providing the
New England Fiber Fibers.
4.1.3. Technical specifications of the optical fiber cable,
associated splices and other equipment used in installing and providing the New
England Fiber Fibers.
4.1.4. List of names and 7 X 24 telephone numbers for FiveCom
personnel responsible for maintaining and repairing the New England Fiber
Fibers.
4.2. FiveCom shall provide two (2) copies of the Deliverables to New
England Fiber within thirty (30) days after the Acceptance Date.
5. ARTICLE V - TERM AND INDEFEASIBLE RIGHT OF USE
5.1. Unless sooner terminated in accordance with the terms of this
Agreement, FiveCom hereby grants to New England Fiber an Indefeasible Right of
Use ("IRU") in the New England Fiber Fibers for an initial term of twenty (20)
years, hereinafter referred to as the "Initial Term", commencing on the
Acceptance Date.
5.2. New England Fiber shall have the option to renew this Agreement
for one (1) five (5) year period ("Extension Term") commencing at the expiration
of the
-7-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Initial Term, the lease rate for the Extension Term shall be negotiated by the
parties, but will in no event be more than the then prevailing market rate on
the system for dark fibers excluding any amortization for system construction
costs.
5.3. Notwithstanding any provision contained in this Agreement to the
contrary, at any time after the Acceptance Date, and after having satisfied the
provisions of ARTICLE VI, New England Fiber shall have the option, in its sole
discretion and for any reason to terminate this Agreement upon one hundred
eighty (180) days prior written notice to FiveCom.
6. ARTICLE VI - TERMS OF PAYMENT
6.1. Within 30 days of the Acceptance Date, and after delivery by
FiveCom of the deliverables in Article IV, New England Fiber shall deliver [**]
to FiveCom in immediately available funds as payment for the Initial Term.
6.2. If New England Fibers shall have elected to terminate under
Section 5.3 and shall not be otherwise in default under this Agreement upon the
expiration of the 180 days specified in that section FiveCom shall pay to it the
lesser of (i) [**] or (ii) [**] remaining in the Initial Term upon the
expiration of that 180 day period.
6.3. If FiveCom shall [**] other than affiliates and other then to
public utilities and their affiliates [**] FiveCom shall [**].
7. ARTICLE VII - MAINTENANCE AND REPAIR OF THE NEW ENGLAND
FIBER FIBERS
7.1. All routine maintenance and repair functions and emergency
maintenance and repair functions, including "One-Call" responses and cable
locate services for the New England Fiber Fibers shall be performed by or under
the direction of FiveCom, at FiveCom's sole cost and expense. New England Fiber
shall have the right to have an employee or representative available, at New
England Fiber's sole cost and expense, to assist FiveCom in any maintenance or
repair of the New England Fiber Fibers. FiveCom shall use best efforts to
provide New England Fiber with forty-eight (48) hours advance notice for routine
maintenance and routine repair functions by notifying New England Fiber's
national transmission surveillance center at [1-800-799-8914]. In the event of
an emergency, similar notice shall be given to New England Fiber as soon as the
emergency is discovered.
-8-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
7.2. Emergency Maintenance. FiveCom shall use best efforts to respond
to any failure, interruption or impairment in the operation of the New England
Fiber Fibers within [**] after receiving a report from New England Fiber of any
such failure, interruption or impairment and New England Fiber reserves the
right to have a representative present to assist in any maintenance or repair.
FiveCom recognizes that New England Fiber's company objective is to have all
fibers restored within six (6) hours of any failure, interruption or impairment
and FiveCom will use its best efforts to accomplish this objective. When trouble
is encountered on the New England Fiber Fibers, New England Fiber, to assist
FiveCom in its emergency maintenance activities, will diagnose the trouble
through OTDR testing, if possible, and ascertain and notify FiveCom of the
location address to the nearest cross street. FiveCom shall use its best efforts
to perform maintenance and repair to correct any failure, interruption or
impairment in the operation of the New England Fiber Fibers in accordance with
the procedures set forth in Exhibit F attached hereto and incorporated herein.
In the event FiveCom fails to perform any emergency maintenance in accordance
with FiveCom's emergency maintenance standards, after written notice by New
England Fiber, New England Fiber shall have the right but not the obligation, to
undertake such Routine Maintenance of the New England Fiber Fibers, at FiveCom's
sole cost and expense, using contractors pre-approved by FiveCom.
7.3. Routine Maintenance. FiveCom will schedule and perform specific
periodic maintenance and repair and services, as set forth in FiveCom's Routine
Maintenance Standards attached hereto as part of Exhibit G, from time to time on
the New England Fiber Fibers, at FiveCom's reasonable discretion, upon adequate
advance notice to New England Fiber, or at New England Fiber's reasonable
request. New England Fiber may request additional reasonable routine maintenance
by delivering to FiveCom, not more than twice per year, for FiveCom's approval,
a statement detailing the maintenance and services New England Fiber desires to
be performed on the New England Fiber Fibers. The cost for such additional
routine maintenance shall be negotiated by the parties. In the event FiveCom
fails to perform any Routine Maintenance in accordance with FiveCom's Routine
Maintenance Standards, after written notice by New England Fiber, New England
Fiber shall have the right, but not the obligation, to undertake such Routine
Maintenance of the New England Fiber Fibers, at FiveCom's sole cost and expense,
using contractors pre-approved by FiveCom.
7.4. New England Fiber shall furnish to FiveCom one day during six (6)
consecutive hours each calendar quarter which shall be available for FiveCom to
schedule and perform specific periodic maintenance and repair and services on
the New England Fiber Fibers.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
7.5. New England Fiber shall receive a credit ("Outage Credit") against
the fiber lease rate owed FiveCom hereunder in the event that the New England
Fiber Fibers do not operate within the parameters of the Specifications. The
Outage Credit shall be [**] for each hour or portion thereof during which any
fiber does not meet such specifications, as measured from the time New England
Fiber notifies FiveCom of the problem until the time FiveCom, or New England
Fiber in the event of self help has corrected the problem.
7.6. In the event FiveCom, or others acting in FiveCom's behalf after
written notice to New England Fiber, at any time during the term of this
Agreement discontinues maintenance and/or repair of the New England Fiber
Fibers, New England Fiber, or others acting in New England Fiber's behalf, shall
have the right, but not the obligation, to thereafter provide for the
maintenance and repair of the New England Fiber Fibers, at FiveCom's sole cost
and expense. Any such discontinuance shall be upon no less than six (6) months
prior written notice to New England Fiber. In the event of such discontinuance,
FiveCom shall obtain for New England Fiber, or others acting in New England
Fiber's behalf adequate access to the Rights-of-Way (as hereinafter defined) on
or within which the New England Fiber Fibers are located, for the purpose of
permitting New England Fiber, or others acting in New England Fiber's behalf, to
undertake such maintenance and repair of the New England Fiber Fibers.
7.7. In the event all or any part of the New England Fiber Fibers shall
require replacement during the Initial Term of this Agreement, such replacement
shall be made as soon as reasonably practical, at FiveCom's sole cost and
expense. If replacement of the New England Fiber Fibers is required in
accordance with the preceding sentence, FiveCom shall give New England Fiber
written notice of such replacement as soon as reasonably practical before the
replacement optical fiber cable is ordered from the manufacturer. New England
Fiber shall have the option, in its sole discretion, to be exercised by written
notice to FiveCom within twenty (20) days of New England Fiber's receipt of
notice from FiveCom to: (a) accept the proposed replacement optical fiber cable
per Specifications or; (b) increase the number of optical fiber strands to be
installed in such new cable for New England Fiber's use at New England Fiber's
incremental cost.
8. ARTICLE VIII - WARRANTIES
8.1. FiveCom warrants for the Initial Term of this Agreement that the
FiveCom System shall be in full compliance with and operate within the
parameters of the Specifications provided, however, that such warranties shall
in no way be
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
deemed to be a limitation on or in derogation of FiveCom's obligations under
Article VII, herein. Any maintenance or repairs to the FiveCom System required
as a result of a breach of the foregoing warranties shall be performed at
FiveCom's sole cost and expense.
8.2. FiveCom represents and warrants to New England Fiber that it has
full Corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
FiveCom have been duly and validly authorized by all necessary Corporate action
on the part of FiveCom.
8.3. New England Fiber represents and warrants to FiveCom that it has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
New England Fiber have been duly and validly authorized by all necessary
corporate action on the part of New England Fiber.
9. ARTICLE IX - TAXES
9.1. [**], of any and all taxes (other than taxes based on income)
and [**].
9.2. If at any time during the Initial Term a federal, state or local
government authority seeks to impose any new taxes, franchise, license or permit
fees on FiveCom because of FiveCom's provision of the New England Fiber Fibers
pursuant to this Agreement, other than taxes based on income, New England Fiber
shall be responsible to pay FiveCom for such charges either with or without a
protest to the appropriate administrative jurisdiction or administrative forum.
10. ARTICLE X - LIABILITY
10.1. Neither New England Fiber nor FiveCom shall be liable to the
other for any indirect, special, punitive or consequential damages (including,
but not limited to) any claim from any customer for loss of services) arising
under this Agreement or from any breach or partial breach of the provisions of
this Agreement or arising out of any act or omission of either party hereto, its
employees, servants, contractors and/or agents. Both FiveCom and New England
Fiber shall use their best efforts to include in any agreement with any third
party relating to the use of the FiveCom System or the New England Fiber Fibers
a waiver by such third party of any claim
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for indirect, special, punitive or consequential damages (including, but not
limited to, any claim from any client or customer for loss of services) arising
out of or as a result of any act or omission by either party hereto, its
employees, servants, contractors and/or agents.
10.2. Each party hereto agrees to indemnify, defend, protect and save
the other harmless from and against any claim, damage, loss, liability, cost and
expense (including reasonable attorney's fees) in connection with any personal
injury, including death, loss or damage to any property, or facilities of any
party (including FiveCom, New England Fiber or any other party operating or
using any part of the FiveCom System or the New England Fiber Fibers) arising
out of or resulting in any way from the acts or omissions to act, negligent or
otherwise, of such party, its employees, servants, contractors and/or agents in
connection with the exercise of its rights and obligations under the terms of
this Agreement or any breach by such party of any obligation contained herein.
10.3. Nothing contained herein shall operate as a limitation on the
right of either party hereto to bring an action for damages, including
consequential damages, against any third party based on any acts or omissions of
such third party as such acts or omissions may affect the construction,
operation or use of the New England Fiber System or the New England Fiber
Fibers, provided, however, that each party hereto shall assign such rights or
claims, execute such documents and do whatever else may be reasonably necessary
to enable the injured party to pursue any such action against such third party.
11. ARTICLE XI - FORCE MAJEURE
11.1. The obligations of the parties hereto are subject to force
majeure and neither party shall be in default under this Agreement if any
failure or delay in performance is caused by strike or other labor problems;
accidents not the result of negligence of the party seeking relief under this
Article; acts of God; fire; flood; adverse weather conditions; material or
facility shortages or unavailability not resulting from such party's failure to
timely place orders therefore; lack of transportation; the imposition of any
governmental codes, ordinances, laws, rules, regulations or restrictions;
condemnation or the exercise of rights of eminent domain; war or civil disorder;
or any other cause beyond the reasonable control of either party hereto;
provided, however, that the incidence of strikes or other labor unrest shall not
delay commencement of the running of time periods which must expire before New
England Fiber shall be entitled to itself take corrective action under the terms
of this Agreement; provided, further, however, that delays in FiveCom securing
the necessary Rights-of-Way for installation of the New England Fiber Fibers
shall not be deemed to be a force majeure, such delays being otherwise provided
for in Article XII, herein.
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12. ARTICLE XII - PERMITS AND REQUIRED RIGHTS-OF-WAY
12.1. FiveCom represents that, to the best of its knowledge and belief
FiveCom owns, has obtained or can and will obtain all rights, licenses,
franchises, governmental regulatory approvals, authorizations, rights-of-way,
permits and other agreements necessary for the use of poles, conduit, cable,
wire or other physical plant facilities, as well as any other such rights,
licenses, authorizations, rights-of-way and other agreements necessary for the
installation and use of the New England Fiber Fibers (all of which are herein
collectively referred to as the "Rights-of-Way"). It is expressly understood
that FiveCom's obligations under this Agreement are conditioned upon and shall
in all respects be subject to the continuation or acquisition of such
rights-of-way. FiveCom shall use its best efforts to obtain or to cause such
rights-of-way to remain effective through the Initial Term of this Agreement.
New England Fiber will be notified in writing by FiveCom concerning any delays
in obtaining any approval described in Subarticle 12.1.
13. ARTICLE XIII - RELOCATION OF THE NEW ENGLAND FIBER FIBERS
13.1. It for any reason, FiveCom is required by any third party,
including, but not limited to, a governmental entity, to relocate any of the
facilities used or required in providing the FiveCom System and the New England
Fiber Fibers, FiveCom shall give New England Fiber at least sixty (60) days (or
such lesser period of notice that FiveCom may have received) prior written
notice of any such relocation and New England Fiber shall be entitled to
terminate this Agreement, in accordance with the provisions, excluding the
notification period, of Subarticle 5.3, herein, by giving at least thirty (30)
days prior written notice to FiveCom. In the event this Agreement is not
terminated, FiveCom shall relocate the New England Fiber Fibers and, to the
extent FiveCom is not reimbursed for the cost of such relocation by a third
party, governmental entity or otherwise, FiveCom shall be responsible for all
the costs associated with the relocation of the New England Fiber Fibers. If
FiveCom desires, for any other reason, to relocate any of the facilities used or
required in providing the New England Fiber Fibers, such relocation shall be
undertaken at FiveCom's sole cost and expense.
14. ARTICLE XIV - CONDEMNATION
14.1. In the event any portion of the FiveCom System containing the New
England Fiber Fibers, or the rights-of-way in or upon which they shall have been
installed, become the subject of a condemnation proceeding which is not
dismissed within one hundred eighty (180) days of the date of filing of such
proceeding and which could reasonably be expected to result in a taking, by any
governmental agency or other party cloaked with the power of eminent domain for
public purpose or use, then and in such event it is agreed that New England
Fiber shall be entitled to terminate this Agreement by giving at least thirty
(30) days prior written notice to
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FiveCom and, in that event, both parties shall be entitled, to the extent
permitted under applicable law, to participate in any condemnation proceedings
to seek to obtain compensation by either joint or separate awards for the
economic value of their respective interests. In the event that New England
Fiber is unable to obtain separate compensation for the lost value of its rights
under this Agreement, FiveCom agrees to refund to New England Fiber a pro rata
amount of the payment made pursuant to Section 6.1.
14.2. Upon its receipt of a formal notice of condemnation or taking,
FiveCom shall notify New England Fiber immediately of any condemnation
proceeding filed against the New England Fiber System, including the New England
Fiber Fibers, or the rights-of-way upon which the New England Fiber Fibers shall
have been installed. FiveCom shall also notify New England Fiber of any similar
threatened condemnation proceeding and agrees not to sell the New England Fiber
Fibers or rights-of-way to such acquiring agency, authority or other party in
lieu of condemnation without prior written notice to New England Fiber.
14.3. If the taking or condemnation requires relocation of the New
England Fiber Fibers, FiveCom shall use its best efforts to obtain an
alternative route over which the New England Fiber Fibers may be relocated, at
no cost to New England Fiber.
15. ARTICLE XV - USE OF THE NEW ENGLAND FIBER FIBERS
15.1. New England Fiber shall not use the New England Fiber Fibers in
any way which fails to comply with any applicable federal, state or local code,
ordinance, law, rule, regulation or restriction or any policy of insurance. New
England Fiber shall use the New England Fiber Fibers for New England Fiber's
network services and not for resale or transfer in bulk.
16. ARTICLE XVI - OWNERSHIP OF THE NEW ENGLAND FIBER FIBERS
16.1. New England Fiber shall have an undivided right of use of the New
England Fiber Fibers. FiveCom shall have an undivided, absolute and legal title
to ownership in the New England Fiber Fibers.
16.2. Except as otherwise provided in this Agreement, New England Fiber
shall not represent to any third party that any party other than FiveCom is the
legal owner of the New England Fiber Fibers. FiveCom acknowledges that New
England Fiber has contracted for the purchase of an IRU in the New England Fiber
Fibers and agrees that it will not take any action which is inconsistent with
New England Fiber's position.
17. ARTICLE XVII - DELIBERATELY OMITTED
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18. ARTICLE XVIII - DELIBERATELY OMITTED
19. ARTICLE XIX - CONFIDENTIALITY
If either party provides confidential information to the other in
writing and identified as such, the receiving party shall protect the
confidential information from disclosure to third parties with the same degree
of care accorded its own confidential and proprietary information. Neither party
shall be required to hold confidential any informational: 1) which becomes
publicly available other than through the recipient, 2) which is required to be
disclosed by a governmental or judicial order, 3) which is independently
developed by the disclosing party or 4) which becomes available to the
disclosing party without restriction from a third party. These obligations shall
survive expiration or termination of this Agreement for a period of two (2)
years.
20. ARTICLE XX - DEFAULT
20.1. New England Fiber shall not be in default under this Agreement,
or in breach of any provision hereof unless and until FiveCom shall have given
New England Fiber written notice of such breach and New England Fiber shall have
failed to cure the same within thirty (30) days after receipt of such notice;
provided, however, that where such breach cannot reasonably be cured within such
thirty (30) day period, if New England Fiber shall proceed promptly to cure the
same and prosecute such curing with due diligence, the time for curing such
breach shall be extended for such period of time as may be necessary to complete
such curing. Upon the failure by New England Fiber to timely cure any such
breach after notice thereof from FiveCom, FiveCom shall have the right, in its
sole discretion, to take such action as it may determine, to be necessary to
cure the breach or to terminate this Agreement upon written notice to New
England Fiber.
20.2. FiveCom shall not be in default under this Agreement or in breach
of any provision hereof unless and until New England Fiber shall have given
FiveCom written notice of such breach and FiveCom shall have failed to cure the
same within thirty (30) days after receipt of such notice; provided, however,
that where such breach cannot reasonably be cured within such thirty (30) day
period, if FiveCom shall proceed promptly to cure the same and prosecute such
curing with due diligence, the time for curing such breach shall be extended for
such period of time as may be necessary to complete such curing. Upon the
failure by FiveCom to timely cure any such breach after notice thereof from New
England Fiber, New England Fiber shall have the right in its sole discretion to
take such action as it may determine to be necessary to cure the breach or to
terminate this Agreement.
20.3. No remedy provided for herein is intended to be exclusive but
each remedy shall be cumulative and in addition to and may be exercised
concurrently
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with any other remedy available to FiveCom or New England Fiber at law or in
equity.
21. ARTICLE XXI - NOTICES
21.1. Unless otherwise provided herein, all notices and communications
concerning this Agreement shall be in writing and addressed as follows:
If to FIVECOM:
FiveCom, Inc.
391 Totten Pond Road, Suite 401
Waltham, MA 02154-2014
Attention: Michael A. Musen
Facsimile Number: (617) 890-8404
If to New England Fiber: (One copy each to)
New England Fiber Telecommunications LLC
425 Woods Mill Rd. South
Suite 300
Town & Country, MO 63017
Facsimile Number: 314 275-4975
Attention General Counsel
or at such other address as may be designated in writing to the other party.
21.2. Unless otherwise provided herein, notices shall be sent by
certified U.S. Mail, return receipt requested, or by commercial overnight
delivery service, or by facsimile, and shall be deemed delivered: if sent by
U.S. Mail, five (5) days after deposit; if sent by facsimile, upon verification
of receipt; or, if sent by commercial overnight delivery service, one (1)
business day after deposit.
22. ARTICLE XXII - ASSIGNMENT: SUCCESSION
22.1. Except as provided in this Subarticle 22.1, New England Fiber
shall not assign or otherwise transfer this Agreement, in whole or in part, to
any other party without the prior written consent of FiveCom, which consent
shall not be unreasonably withheld or delayed; provided, however, that without
such consent, New England Fiber shall have the right to assign, sublet or
otherwise transfer this Agreement, in whole or in part, to any parent,
subsidiary or affiliate of New England Fiber which shall control, be under the
control of or be under common control with New England Fiber, or any corporation
which purchases all or substantially all of the assets of New England Fiber. Any
assignee or transferee shall continue to perform
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the New England Fiber obligations to FiveCom under this Agreement. It will be
reasonable for FiveCom to take into consideration the financial stability and
ability to pay of any assignee.
22.2. Except as provided in this Subarticle 22.2, FiveCom shall not
assign or otherwise transfer this Agreement, in whole or in part, to any other
party without the prior written consent of New England Fiber, which consent
shall not be unreasonably withheld or delayed. It is expressly understood that
New England Fiber shall not consent to any such assignment if New England Fiber
has reasonably determined that the proposed assignee lacks appropriate financial
viability and technical capabilities suitable for providing maintenance and
repair of the New England Fiber Fibers and is incapable of performing FiveCom's
obligations under this Agreement to New England Fiber's satisfaction.
Notwithstanding the foregoing provisions of this Subarticle 22.2, FiveCom shall
have the right without New England Fiber's consent, to assign or otherwise
transfer this Agreement to any parent, subsidiary or affiliate of FiveCom which
shall control, be under the control of or be under common control with FiveCom,
or any corporation which purchases all or substantially all of the assets of
FiveCom, or to grant a security interest in this agreement securing any of
FiveCom's obligations. Any assignee or transferee shall continue to perform the
FiveCom obligations to New England Fiber under the terms of this Agreement.
22.3. Subject to the provisions of this Article XXII, this Agreement,
and each parties' respective rights and obligations hereunder, shall be binding
upon and shall inure to the benefit of the parties hereto and each of their
respective permitted successors and assigns.
23. ARTICLE XXIII - VENDORS
23.1. New England Fiber shall have the right to review FiveCom's list
of proposed vendors, suppliers and manufacturers of materials to be used in the
installation and construction of the New England Fiber Fibers.
24. ARTICLE XXIV - GOVERNING LAW
24.1. This Agreement shall be interpreted and construed in accordance
with the internal laws of the Commonwealth of Massachusetts without giving
effect to its principles of conflicts of laws.
25. ARTICLE XXV - DISPUTE RESOLUTION
25.1. It is the intent of New England Fiber and FiveCom that any
disputes which may arise between them, or between the employees of each of them
be resolved as quickly as possible. Quick resolution may, in certain
circumstances, involve immediate decisions made by the parties' representatives.
When such
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resolution is not possible, and depending upon the nature of the dispute, the
parties hereto agree to resolve such disputes in accordance with the provisions
of this Article.
25.2. FiveCom and New England Fiber shall each designate, by separate
letter, representatives as points of contacts and decision making for the
design, construction, installation and testing phases, of the New England Fiber
Fiber Network, said letters to be furnished by each parry to the other within 15
days from the date of this Agreement. Any disputed issues arising during the
design, construction, installation and testing phases of the New England Fiber
Fiber Network shall in all instances, be initially referred to the parties'
designated representatives. The parties' designated representatives shall render
a mutually agreeable resolution of the disputed issue, in writing, within 72
hours of such referral.
25.3. Any claims or disputes arising under the terms and provisions of
this Agreement, or any claims or disputes which the parties' representatives are
unable to resolve within the seventy-two (72) hour time period specified in
Section 21.2, herein, shall be presented by the claimant in writing to the other
party within five (5) business days after the circumstances which gave rise to
the claim or dispute took place or become known to the claimant, whichever is
later. The written notice shall contain a concise statement of the claim or
issue in dispute, together with relevant facts and data to support the claim.
25.4. Any dispute arising out of or related to this Agreement, which
cannot be resolved by negotiation, shall be settled in Boston, Massachusetts by
binding arbitration in accordance with the arbitration rules and procedures of
the American Arbitration Association. The costs of arbitration, including the
fees and expenses of the arbitrator, shall be shared equally by the parties
unless the arbitration award provides otherwise. Each party shall bear the cost
of preparing and presenting its case. The parties agree that this provision and
the Arbitrator's authority to grant relief shall be subject to the United States
Arbitration Act 9 U.S.C. 1-16 et seq. ("USAA") the provisions of this Agreement,
and the ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes. The
parties agree that the arbitrator shall have no power or authority to make
awards or issue orders of any kind except as expressly permitted by this Section
21.4, and in no event shall the arbitrator have the authority to make any award
that provides for punitive or exemplary damages. The Arbitrator's decision shall
follow the plain meaning of the relevant documents, and shall be final and
binding. The award may be confirmed and enforced in any court of competent
jurisdiction. All post-award proceedings shall be governed by the USAA.
25.5. FiveCom shall continue to provide the New England Fiber fibers
pursuant to this Agreement during the proceedings and litigation described in
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Section 25 and New England Fiber shall continue to make payments in accordance
with this Agreement.
26. ARTICLE XXVI - LIENS
26.1. In the event the New England Fiber Fibers become subject to any
mechanics', artisans' or materialmen's lien, or other encumbrance chargeable to
or through FiveCom which interfere with the New England Fiber Fibers or New
England Fiber' use of and IRU in the New England Fiber Fibers, FiveCom shall
promptly cause such lien or encumbrance to be discharged and released of record
(by payment, posting of bond, court deposit or other means) without cost to New
England Fiber and shall indemnify New England Fiber against all costs and
expenses (including reasonable attorney's fees) incurred in discharging and
releasing such lien or encumbrance; provided, however, that if any such lien or
encumbrance is not so discharged and released within thirty (30) days after
written notice by New England Fiber to FiveCom, then New England Fiber may pay
or secure the release or discharge thereof at the expense of FiveCom.
26.2. In the event the FiveCom System becomes subject to any
mechanics', artisans' or materialmen's lien, or other encumbrances chargeable to
or through New England Fiber which interfere with the New England Fiber Fibers
or the FiveCom System, New England Fiber shall promptly cause such lien or
encumbrance to be discharged and released of record (by payment, posting of
bond, court deposit or other means) without cost to FiveCom and shall indemnify
FiveCom against all costs and expenses (including reasonable attorney's fees)
incurred in discharging and releasing such lien or encumbrance; provided,
however, that if any such lien or encumbrance is not so discharged and released
within thirty (30) days after written notice by FiveCom to New England Fiber,
then FiveCom may pay or secure the release or discharge thereof at the expense
of New England Fiber.
27. ARTICLE XXVII - MISCELLANEOUS
27.1. The headings of the Articles in this Agreement are strictly for
convenience and shall not in any way be construed as amplifying or limiting any
of the terms, provisions or conditions of this Agreement.
27.2. In construction of this Agreement, words used in the singular
shall include the plural and the plural the singular, and "or" is used in the
inclusive sense, in all cases where such meanings would be appropriate.
27.3. In the event any term of this Agreement shall be held invalid,
illegal or unenforceable in whole or in part, neither the validity of the
remaining part of such term nor the validity of the remaining terms of this
Agreement shall in any way be affected thereby.
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27.4. This Agreement may be amended only by a written instrument
executed by the party against whom enforcement of the modification is sought.
27.5. No failure to exercise and no delay in exercising, on the part of
either party hereto, any right, power or privilege hereunder shall operate as a
waiver hereof, except as expressly provided herein.
28. ARTICLE XXVIII - INSURANCE
28.1. Each party or its affiliates shall, at its own expense, secure
and maintain in force, throughout the term of this Agreement, General Liability
Insurance, with competent and qualified issuing insurance companies, including
the following coverages: Product Liability, Hazard of Premises/Operations
(including explosion, collapse and underground coverages); Independent
Contractors; Products and Completed Operations; Blanket Contractual Liability
(covering the liability assumed in this Agreement); Personal Injury (including
death); and Broad Form Property Damage in policy or policies of insurance such
that the total available limits to all injured will not be less than [**]
Combined Single Limit for each occurrence and [**] aggregated for each annual
period. Such insurance may be provided in policy or polices, primary and excess,
including the so called Umbrella or Catastrophe forms. All policies required by
this Subarticle 28.1 shall, to the extent possible, be endorsed to show the
other party, as additional insured, as their interests may appear; require the
insurance companies to notify the other party at least thirty (30) days prior to
the effective date of any cancellation or material modification of such
policies; and shall specify that the policy shall apply without consideration
for other policies separately carried and shall state that each insured is
provided coverage as though a separate policy had been issued to each, except
the insurers liability shall not be increased beyond the amount for which the
insurer would have been liable had only one insured been covered and only one
deductible shall apply regardless of the number of insured covered. The parties
shall also carry such insurance as will protect it from all claims under any
Worker's Compensation laws in effect that may be applicable to it. The
undertaking with respect to insurance shall not relieve either party of its
obligation in Article X.
29. ARTICLE XXIX - ENTIRE AGREEMENT
29.1. This Agreement, and any Exhibits attached hereto or to be
attached hereto, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede any and all prior
negotiations, understandings and agreements with respect hereto, whether oral or
written.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written as an agreement under seal.
FIVECOM LLC: NEW ENGLAND FIBER
COMMUNICATIONS LLC
By: FiveCom Inc. By: /s/ D. Craig Young
-----------------------
Name: D. Craig Young
By: /s/ Victor Colantonio Title: President
-------------------------
Victor Colantonio
Title: President of
FiveCom, Inc. as Manager
of FiveCom LLC
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT A
Scope of Work
[**]
This scope of work describes the construction required by New England Fiber
Communications to lease fiber from FiveCom to connect [**].
[**]
There will be two connections to the FiveCom cable in [**]. The first location
[**]. New England Fiber proposes to place one 4 inch conduit from New England
Fiber's MH [**] to the power company's MH [**]. New England Fiber will then pull
a fiber cable from their hub to the power company's MH. FiveCom will pull the
cable [**] and splice it to their cable. This connection will be a temporary
connection until the rest of the New England Fiber's backbone is in place. The
power company will be notified two weeks in advance when New England Fiber's
contractor plans to connect the conduit to the power MH.
The permanent connection to FiveCom will be an aerial cable from the New England
Fiber backbone cable [**]. This will connect to the FiveCom cable. New England
Fiber will place the aerial cable [**] the power company will place the rest of
the cable on poles to their substation building and FiveCom will splice it to
their cable.
[**]
The [**] connection will be a permanent connection [**]. New England Fiber will
place new conduit from a New England Fiber MH [**]. New England Fiber will then
place a 3 inch steel pipe [**]. FiveCom will be notified two weeks in advance
when New England Fiber's contractor plans to connect the conduit [**]. FiveCom
will splice New England Fiber's cable to their cable.
The completion date for the above work is September 26, 1997.
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EXHIBIT B
Technical Specifications
1. The maximum bi-directional average splice loss shall not exceed 0.1 dB.
2. All splices shall be sealed in water proof splice enclosures.
3. Between the wavelengths of 1300nm and 1320nm, fiber attenuation shall
not exceed 0.4 dB/km for standard single-mode fiber and shall not
exceed 0.5dB/km for TrueWave, from temperatures between -40 and +65C.
4. Between the wavelengths of 1540nm and 1560nm, fiber attenuation shall
not exceed 0.3 dB/km for temperatures between -40 and +65 and shall
not exceed 0.25 dB/nm for TrueWave.
5. The wavelength of zero fiber dispersion shall be between 1300nm and
1320nm for unshifted single-mode fiber. The wavelength of zero fiber
dispersion shall be between 1535nm and 1565nm for TrueWave. The slope
of the dispersion curve at the wavelength of zero dispersion shall
not exceed .1 .10ps/nm/km.
6. The fiber dispersion at a wavelength of 1500nm shall not exceed 5
ps/(nm(bullet)km).
7. The fiber cut-off wavelength shall be less than 1330nm and greater
than 1130 nm.
8. Fiber attenuation shall be uniform along its entire cable length.
Attenuation discontinuities shall not exceed .1 dB at either 1300 nm
or 1550 nm as measured at any point along the fiber.
-23-
<PAGE>
EXHIBIT C
Acceptance Test Plan
FiveCom and New England Fiber will conduct the following tests as part of its
Acceptance Test Plan:
1. Non-destructive Attenuation Tests (End-to-End)
2. Optical Time Reflectometer Tests (OTDR)
Fiber acceptance testing will be performed to ensure that the New England Fiber
fibers will operate within the parameters of the Specifications set forth in
Exhibit B to this Agreement.
More specifically, fiber acceptance testing will include the
following:
3. Continuity Uniformity Tests:
All fibers shall be tested bi-directionally at 1310 nm or 1550 nm, as
applicable, with an OTDR, the subsequent traces shall be inspected
for end-to end continuity and for uniform attenuation. These traces
will be stored on diskette and will be compatible with laser
precision PC-OTDR software.
4. Optical Length:
The OTDR will be used to determine the end-to end optical length of
the cable.
5. Splice Loss:
Splice loss will be measured bi-directionally with an OTDR using the
Splice Loss average method. The average splice loss shall be the
measurement for splice loss set forth in Exhibit B to this Agreement.
6. End-to-End Loss:
Using a light source and a power meter, the bi-directional
connector-to-connector attenuation will be measured for each fiber at
1310 nm and 1550 nm, as applicable. The acceptance average
attenuation per kilometer on a per span basis shall be the
attenuation set forth in Exhibit B to this Agreement.
-24-
<PAGE>
EXHIBIT D
Acceptance Notice
Reference: That certain Fiber Optic Use Agreement between New England Fiber
Telecommunications Corporation and FiveCom, LLC dated _______________________.
This notice is provided in connection with Article III of the above referenced
agreement.
The New England Fiber System has been accepted as of ________________________.
New England Fiber Fiber Communications
By: __________________________________
(Signature)
Name: ________________________________
(Type or Print Name)
-25-
<PAGE>
EXHIBIT E
As-Built Drawing Specifications
FiveCom shall deliver As-built drawings in either Autocad or DXF format in
addition to five (5) "11 by 17" hard copies.
At a minimum. FiveCom's As-built drawings will include:
1. A route diagram that illustrates the location of the:
End Locations
Splice Locations
Repeater Locations
2. Manufacturer, type of cable, fiber count, and reel numbers.
3. A summary of distances between the locations listed above and offset
of cable in relation to fixed objects.
4. The type of cable construction between locations, (buried, aerial,
conduit) and any typicals or details needed for the specified type of
construction.
5. Any geographic information deemed necessary to further clarify the route.
6. Detailed route information that includes:
Street, road and highway names
Railroad and or highway crossings
Bridge Crossings
Manhole and pole identification
Pole-to-pole-pole distances in feet
Manhole-to-manhole distances in feet
Distances along or between any other attachment points on
the route
New conduit, manhole, and pole installations
Building riser and lateral conduit locations, if any
-26-
<PAGE>
EXHIBIT F
EMERGENCY MAINTENANCE PROCEDURES
F1. Notification
New England Fiber shall notify FiveCom of interruption to service (signal loss,
service degradation, out of specification performance or other conditions) to
the fiber optic cable transmission system. FiveCom will dispatch technicians,
vehicles and equipment to initiate the repair of such conditions and the
restoration of service.
F2. FiveCom Contacts
In the event of a service interruption contact FiveCom by calling the following
numbers in the sequence listed below. If the first option is not successful
proceed to the second and so on.
a. Normal Hours
1-800-891-5080
b. Network Monitoring Service
1-603-746-9931
c. After Hours Digital Pager
617-562-9678
d. Arthur E. Rivers 484-5884 weekends,
Friday evening to Monday morning - Sunday
773-4050
e. Michael A. Musen
617-527-0343
f. Victor Colantonio
617-965-7165
This listing is subject to change.
F3. Dispatch
FiveCom shall respond to the notification immediately upon taking the call. For
required emergency restoration. Technicians and appropriate equipment will
report
-27-
<PAGE>
to the location controlling signals designated by Customer. FiveCom will log in
at the location and pick up needed restoration materials.
Restoration Activities: Troubleshooting will continue until the problem is
found.
The restoration sequence will be:
[bullet] Report of Damage
[bullet] Estimate time to repair
[bullet] Notification of Utilities if needed (i.e. down pole).
[bullet] Verbal report of tasks to repair given to the
representative of Customer and to New England Fiber.
F4. Repair
a. Channel or End Equipment Problems:
FiveCom technicians will isolate the signal problem by reviewing the
following:
1. visible alarms on bay or terminal equipment
2. computer generated equipment logs.
3. review of performance statistics for common and customer
equipment.
4. application of DS1 & DS3 test equipment, fiber optic signal
level meter and OTDR as required.
Testing and diagnostics will be coordinated with New England
Fiber technicians. FiveCom technicians will remain on the call
until all alarm or signal problems have been corrected.
b. Outside Plant Repairs
Commencing immediately FiveCom will restore service to the
link by fusion splice methods, as a first priority, or with
mechanical connectors as a second choice. FiveCom will use its
fusion splicer and OTDR power meter and all other equipment
required, excluding only the parts in the restoration kit.
The link will be brought into service, tested and protected
until the cable can be placed on a permanent pole attachment
or in conduit. Restoration test reports will be furnished to
Customer after testing. The testing report includes end to end
attenuation and photos along with a text describing the outage
suitable for insurance purposes.
-28-
<PAGE>
Upon the satisfactory completion and acceptance of the testing
by Customer, the service will be declared restored.
F5. End of Outage
FIVECOM, INC. ______________________________________ OUTAGE REPORT
CUSTOMER: ___________ DATE ___/___/___ TIME
REPORTED _________________
LOCATION: ____________________________
STREET: ____________________________________ POLE/MANHOLE: ____________
CAUSE OF OUTAGE: ___________________________
ARRIVAL AT DESIGNATED LOCATION: _________________________________ AM/PM
FIRST REPORT TO CUSTOMER: _______________________________________ AM/PM
ESTIMATED TIME TO REPAIR: _______________________________________
UTILITIES NOTIFIED:
ELECTRIC: __________________________ CONTACT: _________________
TELEPHONE: _________________________ CONTACT: _________________
CATV: ______________________________ CONTACT: _________________
OTHER: _____________________________ CONTACT: _________________
ANTICIPATED ACTIVITIES PRIOR TO RESTORATION:
TIME OF RESTORATION: AM/PM
REPAIRS MADE
CUSTOMER MATERIAL USED
DESCRIPTION: QUANTITY:
_______________________________________________ __________________________
_______________________________________________ __________________________
_______________________________________________ __________________________
_______________________________________________ __________________________
_______________________________________________ __________________________
TESTS COMPLETED
DATE: TIME: AM/PM
TECHNICIAN IN CHARGE:
SIGNED: ____________________________________________ FIVECOM, INC.
CUSTOMER:
LOCATION:
STREET:
CAUSE OF OUTAGE:
-29-
<PAGE>
EXHIBIT G
ROUTINE MAINTENANCE STANDARDS
RIDEOUTS
Ride-outs of the fiber plant will be done on the following schedule:
Transmission Lines Annual end to end surveillance
Splice Locations Quarterly inspections
Distribution Lines Semi Annual inspection
Should New England Fiber require more frequent ride-outs, they will be done at
New England Fiber's cost unless technical performance data indicate cable
deterioration or failure. These ride-outs will be documented and will contain
notes concerning general condition of Right-of-Way and plant. Items such as
excavation activities, construction work, broken lashing wire, free trimming,
and so on will be noted and dealt with immediately. Follow up verification of
corrective actions taken will be documented.
FIBER TESTS
OTDR measurements will be performed at a minimum semi-annually on all inactive
fiber and compared against original installation readings to insure integrity.
Tests will be performed more frequently if tests and performance data warrant
additional measurements.
-30-
Execution Version of 11/17/97
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
FIBER OPTIC USE AGREEMENT
between
FIVECOM LLC
and
TELEPORT COMMUNICATIONS BOSTON
November 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. TCG Fibers...............................................................................................1
1.1 Route...........................................................................................1
1.2 Specifications..................................................................................1
1.3 Completion......................................................................................1
2. Completion...............................................................................................2
2.1 Testing and Completion..........................................................................2
2.2 Failure to Meet Specifications..................................................................2
3. Deliverables.............................................................................................2
4. Term.....................................................................................................2
4.1 Initial Term....................................................................................2
4.2 Extension.......................................................................................2
5. Payments By TCG..........................................................................................3
5.1 Basic Rate and First Payment for TCG Fibers.....................................................3
5.2 Reduction.......................................................................................3
5.3 Outage Credit...................................................................................3
5.4 Payment for TCG Built Fiber.....................................................................3
6. Maintenance and Repair of the TCG Fibers.................................................................3
6.1 FiveCom's Obligations...........................................................................3
6.2 Emergency Maintenance...........................................................................4
6.3 Routine Maintenance.............................................................................4
6.4 Availability of TCG Fibers......................................................................4
6.5 Discontinuance by FiveCom.......................................................................4
6.6 Replacement.....................................................................................5
7. Representations..........................................................................................5
7.1 By FiveCom......................................................................................5
7.2 By TCG..........................................................................................5
8. Taxes....................................................................................................5
9. Limitation on Liability; Indemnification.................................................................6
9.1 Consequential Damages...........................................................................6
9.2 Indemnification.................................................................................6
9.3 Third Parties...................................................................................6
10. Force Majeure............................................................................................6
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
11. Permits and Required Rights-of-way.......................................................................7
12. Relocation of TCG Fibers.................................................................................7
13. Use of the TCG Fibers....................................................................................7
14. Confidentiality..........................................................................................7
15. Default and Termination..................................................................................7
15.1 By TCG..........................................................................................7
15.2 By FiveCom......................................................................................8
15.3 Remedies Cumulative.............................................................................8
15.4 Optional Termination by TCG.....................................................................8
16. Notices..................................................................................................8
17. Assignment; Succession...................................................................................9
17.1 By TCG..........................................................................................9
17.2 By FiveCom......................................................................................9
18. Vendors.................................................................................................10
19. Governing Law...........................................................................................10
20. Dispute Resolution......................................................................................10
20.1 Arbitration....................................................................................10
20.2 Continuation of Service........................................................................10
21. Miscellaneous...........................................................................................11
21.1 Headings.......................................................................................11
21.2 Amendments.....................................................................................11
21.3 No Waiver......................................................................................11
22. Defined Terms...........................................................................................11
23. Entire Agreement........................................................................................11
EXHIBIT 1.1(a) Route and Demarcation Points for TCG Fibers
EXHIBIT 1.1(b) TZG Built Fibers
EXHIBIT 1.2 Technical Specifications
EXHIBIT 2.1 Completion Test Plan
EXHIBIT 3 As-Built Drawing Specifications
EXHIBIT 6.2 Emergency Maintenance Procedures
EXHIBIT 6.3 Routine Maintenance Standards
</TABLE>
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
FIBER OPTIC USE AGREEMENT
THIS IS AN AGREEMENT (the "Agreement") entered into as of November 18,
1997, between FiveCom, LLC ("FiveCom"), a Massachusetts limited liability
company, and Teleport Communications Boston (the "TCG"), a Massachusetts general
partnership.
Background. TCG is in the business of providing local
telecommunications services and desires to lease a portion of FiveCom's fiber
optic network and to utilize certain of FiveCom's services for the purpose of
providing local and long distance telecommunications services by TCG. FiveCom is
willing to lease a portion of its fiber optic network and to provide such
services to TCG for that purpose. Based on these facts and the following mutual
covenants and agreements, the parties agree as follows:
1. TCG Fibers
1.1 Route. TCG hereby leases from FiveCom the three fiber optic route
segments shown in Exhibit 1.1(a) as "Segment 1," "Segment 2" and "Segment 3"
(collectively the "TCG Fibers"). Segment 1 consists of [**]. Segment 2 consists
of [**]. Segment 3 consists of [**]. The two points of Segment 3 will be spliced
to two fibers provided by TCG on the [**] property. In addition, FiveCom shall
construct, in accordance with Exhibit 1.1(b), an additional fiber optic line for
TCG as described in Exhibit 1.1(b) (the "TCG Built Fibers"). FiveCom will
provide and TCG agrees to accept a temporary alternative route for Segment 1
identified in Exhibit 1.1 as "temporary TCG route" until Segment 1 is completed
pursuant to Section 1.3.
1.2 Specifications. Both the TCG Fibers and the TCG Built Fibers shall
satisfy the technical specifications (the "Specifications") set forth in Exhibit
1.2.
1.3 Completion. FiveCom shall use its best efforts to complete
construction and installation and have the TCG Fibers and the temporary TCG
route fibers ready for testing pursuant to Section 2.1 no later than December 1,
1997 except for Segment 1 in its final form for which construction shall be
completed and the Segment ready for testing no later than March 1, 1998. The TCG
Built Fiber shall be available for testing pursuant to Section 2.1 on the date
specified in Exhibit 1.1(b).
2. Completion
2.1 Testing and Completion. After installation of the TCG Fiber and
also following the installation of the TCG Built Fibers, FiveCom shall conduct
separate acceptance tests in accordance with the Acceptance Test Plan ("ATP")
described in
<PAGE>
Exhibit 2.1. FiveCom shall provide TCG with at least five days prior notice of
the commencement of the conduct of the acceptance tests. TCG shall have the
right to have a person or persons present to observe any tests conducted by
FiveCom as a part of the ATP. Within 10 days of the conclusion of the acceptance
testing FiveCom shall provide the TCG with certified test results in accordance
with the ATP. The Completion Date shall be deemed to be the date on which TCG
has been given OTDR readings, tracings and power readings specified in Exhibit
2.1, that are within the parameters of the Specifications (the "Completion
Date").
2.2 Failure to Meet Specifications. If the measured test results are
not within the parameters of the Specifications, then within 10 days of its
receipt of the certified results from FiveCom, TCG shall notify FiveCom in
writing that such results are unacceptable and shall specify in reasonable
detail the portions of the TCG Fibers or TCG Built Fibers that are not within
the parameters of the Specifications. FiveCom shall then use its best efforts to
bring the unacceptable portions of the TCG Fibers within the parameters of the
Specifications. If FiveCom has not brought the operating standards of such
portions of the TCG Fibers within the parameters of the Specifications within 10
days of the written notice from the TCG that such measured test results are
unacceptable, TCG shall have the right to terminate this Agreement with respect
to such Fibers. If TCG shall not have so terminated this Agreement within such
10 day period it will be deemed to have agreed that the test results are within
the specifications cited in Exhibit 1.2.
3. Deliverables. FiveCom shall deliver two copies of the items listed in Exhibit
3 to TCG within 30 days following the Completion Date.
4. Term
4.1 Initial Term. Unless sooner terminated in accordance with the terms
of this Agreement, TCG agrees to lease from FiveCom the TCG Fibers for one year
and the TCG Built Fibers for 20 years (separately the "Initial Terms")
commencing on the Completion Date.
4.2 Extension. TCG shall have the option to renew the TCG Fibers for up
to four one-year periods (each an "Extension Term") commencing at the expiration
of the Initial Term of the TCG Fibers and at the end of each Extension Term
concerning which TCG's option was exercised. TCG shall give at least 60 days
notice of its intent to exercise any Extension Term.
Page 2
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
5. Payments By TCG
5.1 Basic Rate and First Payment for TCG Fibers. The TCG agrees to pay
[**] during the Initial Term, representing [**] times 66 fiber miles, for the
TCG Fibers. The first payment shall be made 30 days after the Completion Date.
The lease rate for the TCG Fibers during the Extension Term shall be [**].
5.2 Reduction. The basic rate for the TCG Fibers shall be [**] as are
set forth in the Agreement, [**]. If FiveCom [**] as set forth in this Agreement
[**]. FiveCom and TCG shall promptly thereafter execute an appropriate amendment
to this Agreement [**].
5.3 Outage Credit. TCG shall receive a credit ("Outage Credit") against
the basic fiber rate due FiveCom if the TCG Fibers do not operate within the
parameters of the Specifications. The Outage Credit shall be equal to the
proportionate amount of lease fee for the fibers out of compliance paid by TCG
for the duration of the noncompliance, measured from the time TCG notifies
FiveCom of the problem until the time FiveCom, or TCG in the event of self help,
has corrected the problem. The Outage Credit shall be [**].
5.4 Payment for TCG Built Fiber. TCG shall reimburse FiveCom for all
pole license expenses, [**] of such expenses as an administrative fee, incurred
in connection with the TCG Built Fiber. In addition, TCG shall pay FiveCom
[**]for the TCG Built Fiber in return for which FiveCom shall provide routine
surveillance of the TCG Built Fiber.
6. Maintenance and Repair of the TCG Fibers
6.1 FiveCom's Obligations. All routine maintenance and repair functions
and emergency maintenance and repair functions, including "One-Call" responses
and cable locate services for the TCG Fibers shall be performed by or under the
direction of FiveCom, at FiveCom's sole cost and expense. TCG shall have the
right to have an employee or representative available at TCG's expense to assist
FiveCom in any maintenance or repair of the TCG Fibers.
6.2 Emergency Maintenance. FiveCom shall use best efforts to respond to
any failure, interruption or impairment in the operation of the TCG Fibers
within one hour after receiving a report from TCG of any such failure,
interruption or impairment. TCG has the right to have a representative present
to assist in any maintenance or repair. FiveCom recognizes that TCG's company
objective is to have all fibers restored within four hours of any failure,
interruption or impairment and
Page 3
<PAGE>
FiveCom will use its best efforts to accomplish this objective. When trouble is
encountered on the TCG Fibers, TCG, to assist FiveCom in its emergency
maintenance activities, will diagnose the trouble through OTDR testing, if
possible, and ascertain and notify FiveCom of the location address to the
nearest cross street. FiveCom shall use its best efforts to perform maintenance
and repair to correct any failure, interruption or impairment in the operation
of the TCG Fibers in accordance with the procedures set forth in Exhibit 6.2. In
the event FiveCom fails to perform any emergency maintenance in accordance with
FiveCom's emergency maintenance standards, after written notice from TCG, TCG
shall have the right, but not the obligation, to undertake such emergency
maintenance of the TCG Fibers, at FiveCom's expense, using contractors
pre-approved by FiveCom.
6.3 Routine Maintenance. FiveCom will schedule and perform specific
periodic maintenance and repair and services, as set forth in FiveCom's routine
maintenance Standards, attached hereto as part of Exhibit 6.3, from time to time
on the TCG Fibers, at FiveCom's reasonable discretion, upon adequate advance
notice to TCG, or at TCG's reasonable request. FiveCom shall use best efforts to
provide TCG within 48 hours advance notice for routine maintenance and routine
repair functions by notifying TCG's national transmission surveillance center at
(800) 824-4049. In the event of an emergency, similar notice shall be given to
TCG as soon as the emergency is discovered. TCG may request additional
reasonable routine maintenance by delivering to FiveCom, not more than twice per
year, for FiveCom's approval, a statement detailing the maintenance and services
TCG desires to be performed on the TCG Fibers. The cost for such additional
routine maintenance shall be negotiated by the parties. In the event FiveCom
fails to perform any routine maintenance in accordance with FiveCom's Routine
Maintenance Standards, after written notice by TCG, TCG shall have the right,
but not the obligation, to undertake such routine maintenance of the TCG Fibers,
at FiveCom's sole cost and expense, using contractors pre-approved by FiveCom.
6.4 Availability of TCG Fibers. TCG shall furnish to FiveCom six
consecutive hours each calendar year for FiveCom to perform periodic maintenance
and repair services on the TCG Fibers at an agreed time arranged at least 30
days in advance.
6.5 Discontinuance by FiveCom. In the event FiveCom, or others acting
in FiveCom's behalf after written notice to TCG, at any time during the term of
this Agreement discontinues maintenance and/or repair of the TCG Fibers, TCG, or
others acting in TCG's behalf, shall have the right, but not the obligation, to
thereafter provide for the maintenance and repair of the TCG Fibers, at
FiveCom's expense. Any such discontinuance shall be upon no less than six months
prior written notice to TCG. In the event of such discontinuance, FiveCom shall
obtain for TCG, or others acting in TCG's behalf adequate access to the
rights-of-way on or within which
Page 4
<PAGE>
the TCG Fibers are located, for the purpose of permitting TCG, or others acting
in TCG's behalf, to undertaken such maintenance and repair of the TCG Fibers.
6.6 Replacement. In the event all or any part of the TCG Fibers shall
require replacement during the Initial Term of this Agreement, such replacement
shall be made as soon as reasonably practical, at FiveCom's expense. FiveCom
shall give TCG written notice of such replacement as soon as reasonably
practicable before the replacement optical fiber cable is ordered from the
manufacturer.
7. Representations
7.1 By FiveCom. FiveCom represents and warrants to TCG that it has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
FiveCom have been duly and validly authorized by all necessary corporate action
on the part of FiveCom.
7.2 By TCG. TCG represents and warrants to FiveCom that it has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
TCG have been duly and validly authorized by all necessary corporate action on
the part of TCG.
8. Taxes. TCG shall pay to FiveCom its pro rata portion, based on FiveCom's
actual cost without mark-up, of any taxes and franchise, license or permit fees
imposed on FiveCom with respect to the TCG Fibers or the TCG Built Fibers, based
upon a calculation made by dividing the number of TCG Fibers by the number of
fibers contained in the cable sheath. If at any time during the Initial Term or
an Extension Term a federal, state or local government authority seeks to impose
any new taxes, franchise, license or permit fees on FiveCom because of FiveCom's
provision of the TCG Fibers or the TCG Built Fibers, TCG shall pay FiveCom its
pro rata share of such charges, provided TCG has been afforded a reasonable
opportunity to challenge such taxes or fees and has agreed to indemnify FiveCom
from any costs or penalties arising from such challenge.
9. Limitation on Liability; Indemnification
9.1 Consequential Damages. Neither TCG nor FiveCom shall be liable to
the other for any indirect, special, punitive or consequential damages
(including, but not limited to, any claim from any TCG for loss of services)
arising under this Agreement or from any breach or partial breach of the
provisions of this Agreement or arising out of any act or omission of either
party hereto, its employees, servants,
Page 5
<PAGE>
contractors and/or agents. Both FiveCom and TCG shall use their best efforts to
include in any agreement with any third party relating to the use of the TCG
Fibers or the TCG Built Fibers a waiver by such third party to any claim for
indirect, special, punitive or consequential damages (including, but not limited
to, any claim from any client or TCG for loss of services) arising out of or as
a result of any act or omission by either party hereto, its employees, servants,
contractors and/or agents.
9.2 Indemnification. Each party hereto agrees to indemnify, defend,
protect and save the other harmless from and against any claim, damage, loss,
liability, cost and expense (including reasonable attorney's fees) in connection
with any personal injury, including death, loss or damage to any property, or
facilities of any party (including FiveCom, TCG or any other party operating or
using any part of the FiveCom System or the TCG Fibers) arising out of or
resulting in any way from the acts or omissions to act, negligent or otherwise,
of such party, its employees, servants, contractors and/or agents in connection
with the exercise of its rights and obligations under the terms of this
Agreement or any breach by such party of any obligation contained herein.
9.3 Third Parties. Nothing contained herein shall operate as a
limitation on the right of either party hereto to bring an action for damage,
including consequential damages, against any third party based on any acts or
omissions of such third party as such acts or omissions may affect the
construction, operation or use of the TCG System or the TCG Fibers, provided,
however, that each party hereto shall assign such rights or claims, execute such
documents and do whatever else may be reasonably necessary to enable the injured
party to pursue any such action against such third party.
10. Force Majeure. The obligations of the parties hereto are subject to force
majeure and neither party shall be in default under this Agreement if any
failure or delay in performance is caused by strike or other labor problems;
accidents; acts of God; fire; flood; adverse weather conditions; material or
facility shortages or unavailability not resulting from such party's failure to
timely place orders therefore; lack of transportation; the imposition of any
governmental codes, ordinances, laws, rules, regulations or restrictions;
condemnation or the exercise of rights of eminent domain; war or civil disorder;
or any other cause beyond the reasonable control of either party hereto;
provided, however, that the incidence of strikes or other labor unrest shall not
delay commencement of the running of time periods which must expire before TCG
shall be entitled to itself take corrective action under the terms of this
Agreement.
11. Permits and Required Rights-of-way. TCG recognizes that all or a portion of
the TCG Fibers and the TCG Built Fibers are located on rights of way made
available to FiveCom by one or more public utilities. FiveCom has informed TCG
that the agreements under which these rights of way have been made available
contain
Page 6
<PAGE>
provisions allowing the utility to withdraw or limit that availability under
certain circumstances. TCG shall not assert any claim against FiveCom because of
or based upon such withdrawal or limitation if unless such withdrawal or
limitation occurred because of a wrongful or alleged wrongful action or omission
to act by FiveCom.
12. Relocation of TCG Fibers. If FiveCom is required by any third party to
relocate any of the facilities used or required in providing the TCG Fibers,
FiveCom shall give TCG at least 60 days (or such lesser period of notice that
FiveCom may have received) prior written notice of any such relocation and TCG
shall be entitled to terminate this Agreement by giving at least 30 days prior
written notice to FiveCom. In the event this Agreement is not terminated,
FiveCom shall relocate the TCG Fibers and, to the extent FiveCom is not
reimbursed for the cost of such relocation by a third party, governmental entity
or otherwise, FiveCom shall be responsible for all the costs associated with the
relocation of the TCG Fibers. If FiveCom desires, for any other reason, to
relocate any of the facilities used or required in providing the TCG Fibers,
such relocation shall be undertaken at FiveCom's sole cost and expense.
13. Use of the TCG Fibers. TCG shall not use the TCG Fibers in any way which
fails to comply with any applicable federal, state or local code, ordinance,
law, rule, regulation or restriction or any policy of insurance. TCG shall use
the TCG Fibers for TCG's network services and not for resale or transfer.
14. Confidentiality. If Parties have previously executed a Confidentiality
Agreement dated May 12, 1997 and the terms of that Confidentiality Agreement
shall continue in full force and shall not be superseded by this Agreement.
15. Default and Termination
15.1 By TCG. TCG shall not be in default under this Agreement, or in
breach of any provision hereof unless and until FiveCom shall have given TCG
written notice of such breach and TCG shall have failed to cure the same within
30 days after receipt of such notice; provided, however, that where such breach
cannot reasonably be cured within such 30 day period, if TCG shall proceed
promptly to cure the same and prosecute such curing with due diligence, the time
for curing such breach shall be extended for such period of time as may be
necessary to complete such curing. Upon the failure by TCG to timely cure any
such breach after notice thereof from FiveCom, FiveCom shall have the right, in
its sole discretion, to take such action as it may determine, to be necessary to
cure the breach or to terminate this Agreement upon written notice to TCG.
15.2 By FiveCom. FiveCom shall not be in default under this Agreement
or in breach of any provision hereof unless and until TCG shall have given
FiveCom written notice of such breach and FiveCom shall have failed to cure the
same within
Page 7
<PAGE>
30 days after receipt of such notice; provided, however, that where such breach
cannot reasonably be cured within such 30 day period, if FiveCom shall proceed
promptly to cure the same and prosecute such curing with due diligence, the time
for curing such breach shall be extended for such period of time as may be
necessary to complete such curing. Upon the failure by FiveCom to timely cure
any such breach after notice thereof from TCG, TCG shall have the right in its
sole discretion to take such action as it may determine, to be necessary to cure
the breach or to terminate this Agreement.
15.3 Remedies Cumulative. No remedy provided for herein is intended to
be exclusive but each remedy shall be cumulative and in addition to and may be
exercised concurrently with any other remedy available to FiveCom or TCG at law
or in equity.
15.4 Optional Termination by TCG. TCG shall have the option, at its
sole discretion and for any reason, to terminate this Agreement upon 180 days
prior written notice to FiveCom and upon payment to FiveCom of all amounts due
to the end of the Initial Term or, if in effect, any Extension Term with respect
to the TCG Fibers and any sums that may be due with respect to the TCG Built
Fibers or otherwise under this Agreement.
16. Notices. Unless otherwise provided herein, all notices and communications
concerning this Agreement shall be in writing and addressed as follows:
If to FiveCom:
FiveCom LLC
391 Totten Pond Road, Suite 401
Waltham, MA 02154-2014
Attention: Michael A. Musen
Facsimile Number: (617) 890-8404
If to TCG:
Teleport Communications Boston
10 High Street
Boston, MA 02110
Attention: Director of Operation
Facsimile Number: (617) 476-4760
Page 8
<PAGE>
With a copy to its General Counsel at:
TCG
One Teleport Drive
Staten Island, NY 10311
Facsimile Number: (718) 355-4595
or at such other address as may be designated in writing to the other party.
Unless otherwise provided herein, notices shall be sent by certified U.S. Mail,
return receipt requested, or by commercial overnight delivery service, or by
facsimile, and shall be deemed delivered: if sent by U.S. Mail, five days after
deposit; if sent by facsimile, upon verification of receipt; or, if sent by
commercial overnight delivery service, one business day after deposit.
17. Assignment; Succession
17.1 By TCG. Except as provided in this Section 18.1, TCG shall not
assign or otherwise transfer this Agreement, in whole or in part, to any other
party without the prior written consent of FiveCom, which consent shall not be
unreasonably withheld or delayed; provided, however, that without such consent,
TCG shall have the right to assign, sublet or otherwise transfer this Agreement,
in whole or in part, to any parent, subsidiary or affiliate of TCG which shall
control, be under the control of or be under common control with TCG, or any
corporation which purchases all or substantially all of the assets of TCG. Any
assignee or transferee shall continue to perform the TCG obligations to FiveCom
under this Agreement. It will be reasonable for FiveCom to take into
consideration the financial stability and ability to pay of any assignee.
17.2 By FiveCom. Except as provided in this Section 20.2, FiveCom shall
not assign or otherwise transfer this Agreement, in whole or in part, to any
other party without the prior written consent of TCG, which consent shall not be
unreasonably withheld or delayed. It is expressly understood that TCG shall not
consent to any such assignment if TCG has reasonably determined that the
proposed assignee lacks appropriate financial viability and technical
capabilities suitable for providing maintenance and repair of the TCG Fibers and
is incapable of performing FiveCom's obligations under this Agreement to TCG's
satisfaction. Notwithstanding the foregoing provisions of this Section 20.2,
FiveCom shall have the right without TCG 's consent, to assign or otherwise
transfer this Agreement to any parent, subsidiary or affiliate of FiveCom which
shall control, be under the control of or be under common control with FiveCom,
or any corporation which purchases all or substantially all of the assets of
FiveCom. Any assignee or transferee shall continue to perform the FiveCom
obligations to TCG under the terms of this Agreement.
Page 9
<PAGE>
17.3 Succession. Subject to the provisions of this Section 18, this
Agreement, and each parties' respective rights and obligations hereunder, shall
be binding upon and shall inure to the benefit of the parties hereto and each of
their respective permitted successors and assigns.
18. Vendors. TCG shall have the right to review FiveCom's list of proposed
vendors, suppliers and manufacturers of materials to be used in the installation
and construction of the TCG Fibers.
19. Governing Law. This Agreement shall be interpreted and construed in
accordance with the internal laws of the Commonwealth of Massachusetts without
giving effect to its principles of conflicts of laws.
20. Dispute Resolution.
20.1 Arbitration. Any dispute arising out of or related to this
Agreement shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in Boston,
Massachusetts. The costs of arbitration, including the fees and expenses of the
arbitrator, shall be shared equally by the parties unless the arbitration award
provides otherwise. Each party shall bear the cost of preparing and presenting
its case. The parties agree that this provision and the arbitrator's authority
to grant relief shall be subject to the United States Arbitration Act, 9 U.S.C.
1-16 et seq. ("USAA"), the provisions of this Agreement, and the ABA-AAA Code of
Ethics for Arbitrators in Commercial Disputes. The parties agree that the
arbitrator shall have no power or authority to make awards or issue orders of
any kind except as expressly permitted by this Section 21.1, and in no event
shall the arbitrator have the authority to make any award that provides for
punitive or exemplary damages. The arbitrator's decision shall follow the plain
meaning of the relevant documents, and shall be final and binding. The award may
be confirmed and enforced in any court of competent jurisdiction. All post-award
proceedings shall be governed by the USAA.
20.2 Continuation of Service. FiveCom shall continue to provide the TCG
Fibers pursuant to this Agreement during the proceedings and litigation
described in Section 21.1 and TCG shall continue to make payments in accordance
with this Agreement.
21. Miscellaneous
21.1 Headings. The headings of the Sections in this Agreements are
strictly for convenience and shall not in any way be construed as amplifying or
limiting any of the terms, provisions or conditions of this Agreement.
Page 10
<PAGE>
21.2 Amendments. This Agreement may be amended only by a written
instrument executed by the party against whom enforcement of the modification is
sought.
21.3 No Waiver. No failure to exercise and no delay in exercising, on
the part of either party hereto, any right, power or privilege hereunder shall
operate as a waiver hereof, except as expressly provided herein.
22. Defined Terms. The following terms are defined in the following locations in
this Agreement:
<TABLE>
<S> <C>
Agreement Paragraph 1
ATP Section 2.1
Completion Date Section 2.1
Extension Term Section 4.2
FiveCom Paragraph 1
Initial Term Section 4.1
Outage Credit Section 5.3
Specifications Section 1.2
TCG Paragraph 1
TCG Built Fibers Section 1.1
TCG Fibers Section 1.1
USAA Section 20.1
</TABLE>
23. Entire Agreement. This Agreement and the Exhibits constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede any and all prior negotiations, understandings and
agreements with respect hereto, whether oral or written other than the
Confidentiality Agreement referred to in Section 14.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and an
agreement under seal as of the day and year first above written.
Page 11
<PAGE>
FiveCom LLC Teleport Communications Boston
By: FiveCom, Inc., Its Manager By: TC Boston Holdings, Inc.
a general partner
By: /s/ Michael A. Musen By:
------------------------------- ------------------------------
Name: Name:
------------------------------- ------------------------------
Title: Title:
------------------------------- ------------------------------
Page 12
<PAGE>
EXHIBIT 1.1(a)
Route and Demarcation Points
for
TCG Fibers
[Graph]
Page 13
<PAGE>
EXHIBIT 1.1(b)
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
TCG Built Fibers
1. FiveCom will build from the [**] shown on Exhibit 1.1, or acceptable
alternative splice point, to the TCG node located in [**]. FiveCom will work
closely with TCG during the design phase to ensure that all design requirements
are met for this short route. The mileage has been estimated at less than seven
miles.
2. This construction will be done on a cost plus [**] if the work is
completed before December 15, 1997. Every effort is being made to achieve a
December 1 completion. Any work completing after December 15, 1997 as a result
of FiveCom's performance, will result in FiveCom's profit markup being applied
to expediting construction completion. Costs shall include a [**] of direct
labor and material cost factor for overhead, G&A and supervision.
3. Prior to commencing the work, TCG shall review and approve the
design and cost estimate. TCG shall pay [**] the construction costs up front
followed by a final payment at the Completion Date. TCG shall have access to the
system fibers along this segment to accommodate any future routes that might be
spliced into this segment. FiveCom shall have the right to, at its expense, to
add additional fibers on the route described in this Exhibit 1.2(a).
Page 14
<PAGE>
EXHIBIT 1.2
Technical Specifications
1. The maximum bi-directional average splice loss shall not exceed .08 dB.
2. All splices shall be sealed in waterproof splice enclosures.
3. Between the wavelengths of 1300nm and 1320nm, fiber attenuation shall
not exceed 0.4 dB/km for standard single-mode fiber and shall not
exceed 0.5 dB/km for TrueWave, from temperatures between -40 and +65 C.
4. Between the wavelengths of 1540nm and 1560nm, fiber attenuation shall
not exceed 0.3 dB/km for temperatures between -40 and +65 and shall not
exceed 0.25 dB/nm for TrueWave.
5. The wavelength of zero fiber dispersion shall be between 1300nm and
1320nm for unshifted single-mode fiber. The wavelength of zero fiber
dispersion shall be between 1535nm and 1565nm for TrueWave. The slope
of the dispersion curve at the wavelength of zero dispersion shall not
exceed .10ps/nm/km.
6. The fiber dispersion at a wavelength of 1500nm shall not exceed 5ps/(nm
(bullet) km).
7. The fiber cut-off wavelength shall be less than 1330nm and greater than
1130nm.
8. Fiber attenuation shall be uniform along its entire cable length.
Attenuation discontinuities shall not exceed .1 dB at either 1300nm or
1550nm as measured at any point along the fiber.
Page 15
<PAGE>
EXHIBIT 3
As-Built Drawing Specifications
FiveCom shall deliver as-built drawings in either Autocad or DXF format in
addition to five 11" by 17" hard copies.
At a minimum, FiveCom's As-built drawings will include:
1. A route diagram that illustrates the location of the:
End Locations
Splice Locations
Repeater Locations
2. Manufacturer, type of cable, fiber count, and reel numbers.
3. A summary of distances between the locations listed above and offset of
cable in relation to fixed objects.
4. The type of cable construction between locations, buried, aerial,
conduit and any typicals or details needed for the specified type of
construction.
5. Any geographic information deemed necessary to further clarify the route.
6. Detailed route information that includes:
Street, road and highway names Railroad and/or highway
crossings Bridge Crossings Manhole and pole identification
Pole-to-pole distances in feet Manhole-to-manhole distances in
feet
Distances along or between any other attachment points on the
route New conduit, manhole, and pole installations Building
riser and lateral conduit locations, if any
7. Names of all manufacturers whose optical fiber cable, associated
splices and other equipment are used in installing and providing the
TCG Fibers.
Page 16
<PAGE>
Dispatch:
FiveCom shall respond to the notification immediately upon taking the call. For
required emergency restoration. Technicians and appropriate equipment will
report to the location controlling signals designated by TCG. FiveCom will log
in at the location and pick up needed restoration materials.
Restoration Activities: Troubleshooting will continue until the problem is
found.
The restoration sequence will be:
[bullet] Report of Damage
[bullet] Estimate time to repair
[bullet] Notification of Utilities if needed (i.e., downed pole)
[bullet] Verbal report of tasks to repair given to the representative
of TCG and to TCG.
4. Repair:
a. Channel or End Equipment Problems:
FiveCom technicians will isolate the signal problem by reviewing the
following:
1. visible alarms on bay or terminal equipment.
2. computer generated equipment logs.
3. review of performance statistics for common and TCG
equipment.
4. application of DS1 & DS3 test equipment, fiber optic
signal level meter and ADDER as required.
Testing and diagnostics will be coordinated with TCG technicians. FiveCom
technicians will remain on the call until all alarm or signal problems have been
corrected.
b. Outside Plant Repairs
Commencing immediately FiveCom will restore service to the link by
fusion splice methods, as a first priority, or with mechanical connectors as a
second choice. FiveCom will use its fusion splicer and ADDER power meter and all
other equipment required, excluding only the parts in the restoration kit.
Page 17
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AMENDED AND RESTATED AGREEMENT FOR THE PROVISION
OF FIBER OPTIC FACILITIES AND SERVICES
BETWEEN
NORTHEAST UTILITIES SERVICE COMPANY,
THE CONNECTICUT LIGHT AND POWER COMPANY,
WESTERN MASSACHUSETTS ELECTRIC COMPANY,
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE,
AND
NECOM LLC
AS OF
SEPTEMBER 27, 1994
PHASE ONE
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PREAMBLE.................................................................................................1
2. RECITALS.................................................................................................1
3. DEFINITIONS..............................................................................................2
3.1 Activation Date.................................................................................2
3.2 Actual Cost.....................................................................................2
3.3 Annual Fee......................................................................................2
3.4 Cable...........................................................................................2
3.5 Cable Accessories...............................................................................2
3.6 Claims..........................................................................................2
3.7 Demarcation Point ..............................................................................2
3.8 Ending Date.....................................................................................2
3.9 Equipment.......................................................................................2
3.10 [**] Rates......................................................................................2
3.11 Force Majeure Events............................................................................3
3.12 Grantee.........................................................................................3
3.13 Grantee's Space.................................................................................3
3.14 Grantor.........................................................................................3
3.15 Grantor's Space.................................................................................3
3.16 Grantor's Territory.............................................................................3
3.17 In Service Date.................................................................................3
3.18 Make Ready Work.................................................................................3
3.19 NEON............................................................................................3
3.20 Network Addition................................................................................3
3.21 New Buildings...................................................................................3
3.22 NUNet...........................................................................................3
3.23 Periodic Inspection.............................................................................3
3.24 Program Managers................................................................................4
3.25 Proprietary Information.........................................................................4
3.26 Route...........................................................................................4
3.27 Route Segment...................................................................................4
3.28 Specifications..................................................................................4
3.29 Structures......................................................................................4
3.30 Term............................................................................................4
3.31 Third Party.....................................................................................4
-ii-
<PAGE>
4. GRANTEE'S RIGHT OF USE; OBLIGATION TO BUILD..............................................................4
4.1 Grant of Right..................................................................................4
4.2 Grant Subject to Security Interests.............................................................4
4.3 Limitation on Use...............................................................................4
4.4 Obligation to Build.............................................................................5
4.5 Cable Measurement...............................................................................5
4.6 Other Cables/Facilities.........................................................................5
4.7 Warranty........................................................................................5
5. MODIFICATIONS TO THE ROUTE...............................................................................5
5.1 Additional Route Segments Designated by Grantor.................................................5
5.2 Withdrawal of Route Segments by Grantor.........................................................6
5.3 Additional Route Segments Designated By Grantee.................................................6
5.4 Cost and Means of Right of Way Acquisitions.....................................................6
5.5 Grantee's Right to Build and Connect Third Party Segments.......................................6
5.6 Third Party Connections.........................................................................7
5.7 Connection Grants...............................................................................7
6. ENGINEERING AND DESIGN...................................................................................7
6.1 Grantor's Obligations...........................................................................7
6.2 Grantee's Obligations...........................................................................8
7. MAKE READY WORK..........................................................................................8
7.1 Responsibility for Performance..................................................................8
7.2 Condition of Structures.........................................................................8
7.3 Costs...........................................................................................8
8. INSTALLATION.............................................................................................9
8.1 Grantee's Right to Select Contractors...........................................................9
8.2 Grantee's Right to Issue Specifications.........................................................9
8.3 Grantor's Installation Obligations..............................................................9
8.4 New Buildings...................................................................................9
8.5 State Fees.....................................................................................10
8.6 Public Rights of Way...........................................................................10
9. POINT OF DEMARCATION; BUILDING EXTENSIONS...............................................................10
9.1 Marking........................................................................................10
9.2 Building Extensions............................................................................10
10. MAINTENANCE.............................................................................................10
10.1 Grantee's Obligations..........................................................................10
10.2 Grantor's Obligations..........................................................................11
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<PAGE>
11. RELOCATION, REPLACEMENT, REBUILDS OF THE CABLE..........................................................11
11.1 By Grantee.....................................................................................11
11.2 By Grantor.....................................................................................11
11.3 Emergency Relocations; Third Party Relocations.................................................12
11.4 Cable Failure; NUNet Equipment.................................................................12
12. CONSTRUCTION, MAINTENANCE AND REMOVAL OF THE CABLE......................................................12
12.1 Interference With Other Joint Users............................................................12
12.2 Grantor's Approval of Third Party Work.........................................................12
12.3 Grantor's Right to Maintain Service............................................................12
12.4 Notice.........................................................................................13
12.5 Emergency Use of Grantor's Property............................................................13
12.6 Return of Removed Material.....................................................................13
13. PERIODIC INSPECTIONS....................................................................................13
13.1 By Grantor.....................................................................................13
13.2 Grantee's Obligations..........................................................................13
13.3 Cost...........................................................................................13
14. APPROVALS AND CONSULTATION..............................................................................14
14.1 Role of Program Managers.......................................................................14
14.2 Definition of Consultation/Cooperation and Approval............................................14
15. OWNERSHIP OF THE CABLE..................................................................................14
15.1 Title; Tax Accounting..........................................................................14
15.2 Reversion of Beneficial Ownership..............................................................14
16. USE OF THE CABLE BY GRANTOR.............................................................................15
16.1 Fibers and Use.................................................................................15
16.2 Option to Purchase Additional Fibers...........................................................16
16.3 Additional Service.............................................................................16
16.4 Space in Grantee's Locations...................................................................16
17. CASUALTY................................................................................................17
18. REPRESENTATIONS AND WARRANTIES..........................................................................17
18.1 Common Representations.........................................................................17
18.2 Representations by Grantor.....................................................................17
18.3 Representation by Grantor As To Structures.....................................................17
18.4 Representation by Grantor As to Right to Place Cable...........................................17
18.5 Work Clearances and Related Delays.............................................................18
18.6 Representations by Grantee.....................................................................18
19. INSURANCE...............................................................................................18
-iv-
<PAGE>
20. GRANTEE'S BOND..........................................................................................18
20.1 Bond...........................................................................................18
20.2 Affect of Bond.................................................................................19
21. TERM AND TERMINATION....................................................................................19
21.1 Period.........................................................................................19
21.2 Payment to Grantee.............................................................................19
21.3 Early Termination of Agreement.................................................................19
21.4 Termination of Route Segment...................................................................20
21.5 Cost Reimbursement.............................................................................20
22. ANNUAL FEE..............................................................................................20
22.1 Amount.........................................................................................20
22.2 CPI Adjustments................................................................................21
22.3 Additional Amounts.............................................................................21
22.4 When Due.......................................................................................22
22.5 Initial Annual Fee.............................................................................22
23. FORCE MAJEURE...........................................................................................22
23.1 Optional Termination...........................................................................22
23.2 Suspension Pending Force Majeure...............................................................22
24. PROPRIETARY INFORMATION.................................................................................22
24.1 Obligation to Maintain as Confidential.........................................................22
24.2 Route Constitutes Proprietary Information......................................................23
25. ACCESS AND SECURITY.....................................................................................23
25.1 Access by Grantor..............................................................................23
25.2 Access by Grantee..............................................................................23
25.3 Access by Grantee to NEON Space................................................................24
25.4 Grantee's Work.................................................................................24
26. NO JOINT VENTURE; COSTS.................................................................................25
26.1 Relationship...................................................................................25
26.2 Costs..........................................................................................25
27. PUBLICITY AND ADVERTISING...............................................................................25
27.1 Limitations....................................................................................25
27.2 Exceptions.....................................................................................25
28. MARKETING RELATIONSHIP..................................................................................26
29. SEVERABILITY............................................................................................26
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<PAGE>
30. LABOR RELATIONS.........................................................................................26
30.1 Notice by Grantor..............................................................................26
30.2 Notice by Grantee..............................................................................27
30.3 Determination by Grantee.......................................................................27
30.4 Determination by Grantor.......................................................................27
31. CONSENTS AND WAIVERS....................................................................................27
32. TAXES AND GOVERNMENTAL CHARGES..........................................................................27
33. INDEMNIFICATION.........................................................................................29
33.1 By Grantee.....................................................................................29
33.2 Indemnification Procedures.....................................................................29
33.3 Limitation of Grantor Liability................................................................29
33.4 Limitation of Grantee Liability................................................................29
34. DEFAULT.................................................................................................29
35. ASSIGNMENT..............................................................................................30
35.1 By Grantee.....................................................................................30
35.2 Change of Control..............................................................................30
35.3 Grantor's Right to Pledge Agreement and Transfer Property......................................30
35.4 Grantee's Right to Pledge Agreement and Lease Fibers...........................................30
35.5 Right to Assign................................................................................31
36. APPROVALS, PERMITS, AND CONSENTS........................................................................31
36.1 Grantee's Obligations..........................................................................31
36.2 Opinion........................................................................................31
36.3 Grantor's Obligations..........................................................................31
37. NOTICES.................................................................................................31
37.1 Form and Address...............................................................................31
37.2 How Sent.......................................................................................32
37.3 Damage Notification............................................................................32
38. DISPUTE RESOLUTION......................................................................................33
38.1 Arbitration....................................................................................33
38.2 Award; Costs...................................................................................33
39. EXERCISE OF RIGHT.......................................................................................34
39.1 No Waiver. ..................................................................................34
39.2 Grantee's Self Help Rights. ..................................................................34
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<PAGE>
40. ADDITIONAL ACTIONS AND DOCUMENTS........................................................................34
41. SURVIVAL................................................................................................34
42. HEADINGS................................................................................................34
43. INCORPORATION OF EXHIBITS...............................................................................35
44. COUNTERPARTS............................................................................................35
45. APPLICABLE LAW..........................................................................................35
46. PRIOR AGREEMENTS........................................................................................35
EXHIBIT 2.7 - EXISTING AND INSTALLED CABLE.......................................................................38
EXHIBIT 3.26 - THE ROUTE.........................................................................................40
EXHIBIT 3.28 - CABLE ACCEPTANCE AND PERFORMANCE
SPECIFICATIONS...................................................................................................43
EXHIBIT 10.1 - MAINTENANCE SPECIFICATIONS........................................................................46
EXHIBIT 11.1 - REQUEST FOR RELOCATION............................................................................48
EXHIBIT 28 - EXEMPT PROSPECTS....................................................................................49
</TABLE>
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AMENDED AND RESTATED AGREEMENT FOR THE
PROVISION OF FIBER OPTIC FACILITIES AND SERVICES
1. PREAMBLE
This Agreement is entered into on February 27, 1998 but effective as of
September 27, 1994 (the "Effective Date") between Northeast Utilities Service
Company, a specially chartered Connecticut corporation, The Connecticut Light
and Power Company, a Connecticut corporation, Western Massachusetts Electric
Company, a Massachusetts corporation, and Public Service Company of New
Hampshire, a New Hampshire corporation, (collectively, the "Grantor") and NECOM
LLC, a Massachusetts limited liability company (the "Grantee").
2. RECITALS
2.1 WHEREAS, the Grantor is the owner of transmission structures,
subtransmission structures, conduits, and associated civil works ("Structures")
and has certain rights to use easements, and/or rights of way within which the
Structures are located in the State of Connecticut, the Commonwealth of
Massachusetts, the State of Maine and the State of New Hampshire as part of the
Grantor's electric transmission system;
2.2 WHEREAS, the Grantee seeks to use certain of the Structures to install a
fiber optic cable which will consist of [**] and [**] fiber optic filaments,
[**] of which will be used by Grantee for its communication system [**] of which
will be used by Grantor for its communication system or otherwise as permitted
by this Agreement; and
2.3 WHEREAS, the Grantor and FiveCom, Inc., a Massachusetts corporation
("FiveCom") entered into an Agreement for the Provision of Fiber Optic
Facilities and Services dated September 27, 1994 (the "1994 Agreement"); and
2.4 WHEREAS, the 1994 Agreement was amended pursuant to letter agreement among
the Grantor and FiveCom dated February 23, 1996 (the 1994 Agreement as so
amended is herein called the "Prior Agreement"), which amendments are reflected
in Sections 16.1, 16.3, 28 and 32 of this Agreement; and
2.5 WHEREAS, the rights and obligations of FiveCom under the Prior Agreement
were assigned to Grantee by an Assignment and Assumption Agreement dated as of
May 23, 1996; and
2.6 WHEREAS, the Grantor and the Grantee are entering into another agreement of
even date (the "Phase Two Agreement") that governs the installation of Cable,
hereinafter defined, that occurs after the date of execution of this Agreement
and the Phase Two Agreement; and
<PAGE>
2.7 WHEREAS, the Grantor and Grantee desire to amend and restate the Prior
Agreement herein to apply to Cable existing and installed on the date hereof (as
specified in Exhibit 2.7); and
2.8 WHEREAS, the Grantor is willing to grant the use of certain of its
Structures for the purposes described in clause 2.2 and to grant the use of
certain of the fiber filaments in the fiber optic cable to the Grantee, once it
is installed, in exchange for certain annual fees and the use of 12 singlemode
fiber optic filaments;
NOW THEREFORE, in consideration of the mutual covenants, terms, and conditions
contained in this Agreement, the parties agree as follows:
3. DEFINITIONS
3.1 Activation Date - The date on which the Cable on a Route Segment is accepted
by the parties as operational in accordance with the acceptance specifications
set forth in Exhibit 3.28.
3.2 Actual Cost - Reasonable direct cost plus appropriate overhead cost but
without other mark-up or profit.
3.3 Annual Fee - See Section 22.1.
3.4 Cable - Fiber optic filaments consisting of either NUNet, NEON, or both, and
any suitable core, jacketing or sheath.
3.5 Cable Accessories - The attachment and suspension hardware, splice closures
and other components necessary either for the placement of the Cable or for the
continuity of the fiber filaments within the Cable but excluding antennas or
other communication devices whether or not attached to the Structures or to the
Cable.
3.6 Claims - See Section 33.1.
3.7 Demarcation Point - See Section 9.1.
3.8 Ending Date - See Section 21.1.
3.9 Equipment - The power equipment, electronic and optronic equipment,
including, without limitation, repeaters, junctions, patch panels, alarm
monitoring equipment and other equipment necessary to provide a network of fiber
optic transmission capacity located on the network side of the Demarcation
Point. The word "equipment" when not capitalized, refers to equipment of any
type.
-2-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3.10 [**] Rates - See Section 16.3.
3.11 Force Majeure Events - See Section 23.1.
3.12 Grantee - See Section 1.
3.13 Grantee's Space - Floor space to be provided to Grantee by Grantor, as
available in the sole judgment of Grantor, in existing facilities or in New
Buildings of Grantor along the Route for the placement of Equipment to be used
solely in connection with NEON.
3.14 Grantor - See Section 1.
3.15 Grantor's Space - Floor space to be provided to Grantor by Grantee in New
Buildings or facilities of the Grantee for the placement of Equipment to be used
solely in connection with NUNet.
3.16 Grantor's Territory - The geographical areas where the Grantor provides
retail or wholesale electric service; owns or operates electric transmission
facilities or, has obtained rights, interests or permissions which would allow
the Cable to be installed in such areas.
3.17 In Service Date - A date after the Activation Date when the NEON fibers are
transmitting light from a revenue producing customer including, without
limitation, the Grantor.
3.18 Make Ready Work - See Section 7.1.
3.19 NEON - The fiber optic filaments in the Cable (other than the 12 fiber
optic filaments to be used by the Grantor as NUNet), Grantee's Equipment and
Grantee's Space.
3.20 Network Addition - Any subsequent Grantor designated Route Segment not
initially included in the Route.
3.21 New Buildings - Buildings and shelters, including repeater housings that
are to be constructed, erected or positioned on real property to house Grantee's
and/or Grantor's Equipment of which either the Grantor or Grantee is the fee
simple owner or lessee.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3.22 NUNet - Twelve fiber optic filaments in one or more single color-coded
tubes within the Cable, Grantor's Equipment and Grantor's Space.
3.23 Periodic Inspection - The inspections conducted at irregular intervals by
Grantor on all or portions of the Route for the sole purpose of determining that
the Grantee's occupancies of Grantor's property is as authorized and is
maintained in conformance with the terms and conditions contained in this
Agreement.
3.24 Program Managers - See Section 14.1.
3.25 Proprietary Information - See Section 24.1.
3.26 Route - That portion of Grantor's transmission route designated in Exhibit
3.26, as it may be amended from time to time by written agreement of the
parties.
3.27 Route Segment - A portion of the Route between any two of the numbered
points set forth in Exhibit 3.26.
3.28 Specifications - The acceptance and performance specifications for the
Cable set forth in Exhibit 3.28.
3.29 Structures - See Section 2.1.
3.30 Term - See Section 21.1.
3.31 Third Party - Any party, person or entity that is not a signatory to this
Agreement or an affiliate (as that term is defined under the Securities Act of
1933, as amended) of a signatory and any party, person, or entity that is not a
successor or permitted assignee of the signatories hereto.
4. GRANTEE'S RIGHT OF USE; OBLIGATION TO BUILD
4.1 Grant of Right. Grantor grants to Grantee the indefeasible right of use of
the fiber optic filaments within the Cable as it is placed on the Grantor's
Structures, [**].
4.2 Grant Subject to Security Interests. Grantor has granted to Third Parties
security interests in certain of its real and personal property and releases,
approvals and waivers may therefore be required from the Third Parties as a
result of the grant provided for in Section 4.1. Grantor agrees to use its best
efforts to secure nondefeasance agreements or other releases, approvals and
waivers from these Third Parties as may be required or permitted under the terms
of the applicable security
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
agreements within nine months from the date of this Amended and Restated
Agreement; provided, however, that if such releases, approvals or waivers cannot
be obtained because the Cable has not been installed on the Structures then the
nine month period shall commence upon such installation.
4.3 Limitation on Use. The grant in Section 4.1 is solely for Grantee's use in
providing telecommunications services. The Grantee shall exercise the right of
use of NEON solely to serve its customers in accordance with the applicable
state and federal regulations.
4.4 Obligation to Build. Both parties agree to use their best efforts to install
the Cable on the Route according to a schedule to be subsequently agreed upon by
the parties but in any case by September 27, 1999. The parties' obligations
under this Section 4.4 shall be subject to manufacturing or supplier delays,
governmental regulatory delays and delays caused by the Grantor as a supplier of
services or equipment under the terms of this Agreement or as a result of the
Grantor's obligation to maintain reliable electric service. Subsequent to the
date of execution of this Amended and Restated Agreement, the rights and
obligations of the parties set forth in this Section 4.4 shall be governed by
the Phase Two Agreement.
4.5 Cable Measurement. All of the Cable upon the Route Segments shall be
measured on a linear footage basis, using the right-of-way monumented
line-of-location stationing, when available.
4.6 Other Cables/Facilities. This Agreement shall not be construed as limiting
or restricting the Grantor in any manner from using its structures, easements
and/or rights of way for the installation of its fiber optic cables or
telecommunication facilities for its own use or that of Third Parties.
4.7 Warranty. Subject to the terms and conditions of this Agreement, Grantor
warrants that it shall not interfere with nor disturb Grantee in its use and
full enjoyment of Grantee's indefeasible right of use set forth in Section 4.1.
5. MODIFICATIONS TO THE ROUTE
5.1 Additional Route Segments Designated by Grantor. If the Grantor shall
determine the need for any Network Additions from Third Parties, [**]. If, for
any reason, [**] on the terms requested by the Grantor, the Grantor shall [**].
If the Grantor shall [**]. The Grantee shall pay the incremental cost of
material necessary to provide such fibers. If the Grantor does [**], the Grantor
shall [**] under this Section 5.1 [**]. Subsequent to the date of execution of
this Amended and Restated
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Agreement, the rights and obligations of the parties set forth in this Section
5.1 shall be governed by the Phase Two Agreement.
5.2 Withdrawal of Route Segments by Grantor. During the one year period ending
September 27, 1995, the Grantor shall have the right to withdraw from this
Agreement, upon notice to the Grantee, any Route Segment that it deems, in its
sole and absolute judgment, not to have adequate capacity or structural
suitability for the Cable. The Grantee shall have no obligations to Grantor with
respect to any Route Segment so withdrawn.
5.3 Additional Route Segments Designated By Grantee. [**] on transmission
facilities [**] or if any Route Segment [**] to make it available [**] pursuant
to Section 5.2 or Section 21.4, then the Grantee shall [**] or property of the
[**] shall not [**]. Subsequent to the date of execution of this Amended and
Restated Agreement, the rights and obligations of the parties set forth in this
Section 5.3 shall be governed by the Phase Two Agreement.
5.4 Cost and Means of Right of Way Acquisitions. The Grantee shall be
responsible for, and the Grantor shall cooperate in, the acquisition of any
easement or right-of-way rights that may be required in order to permit (i) the
installation, operation and maintenance of the Cable on the Route or (ii) the
use of the NEON fibers by Grantee. [**], if possible. If the use of the power of
eminent domain is necessary in order to acquire any additional right-of-way
rights required for the use of the NEON fibers by Grantee, then any required
condemnation action shall be brought by Grantee in its own behalf, if such
action is available to Grantee. Any easement or right obtained by the Grantee by
using the power of eminent domain shall be subsequent and subordinate to any
existing rights of the Grantor. Except in the case of condemnation by Grantee,
Grantor shall exert its best efforts to minimize the cost of such additional
land or rights in land. In the event that additional rights are required by both
parties the cost of the acquisition of such additional rights shall be shared by
the parties pro rata based on the number of fibers controlled by each
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party. This Section is not intended as an acknowledgment by either party that
any such acquisition of additional rights is required but only to allocate the
responsibility for such acquisition if required.
5.5 Grantee's Right to Build and Connect Third Party Segments. In the event that
the Grantor (i) does not have Structures available to replace Route Segments not
available for any reason to the Grantee or (ii) does not provide such Structures
at the request of the Grantee, the Grantee shall have the right to build or
otherwise obtain such Structures from Third Parties, at the Grantee's sole cost
and expense. The Grantee may connect such Third Party facilities to the Route
Segments and Cable subject to the approval by Grantor of Grantee's connection
plans. The work to connect such Third Party facilities located on the Grantor's
property shall be performed by the Grantor. The provisions of the last two
sentences of Section 6.1 shall apply to this work to be performed by the
Grantor. Grantee shall pay all of Grantor's Actual Costs to review these
connection plans and to oversee the construction of such connections. If the
Grantee interconnects Third Party facilities to the Cable or Structures, Grantee
shall, upon Grantor's request, use its best efforts to provide the right to use
up to 12 singlemode fibers on such Third Party's facilities to maintain the
continuity of NUNet within Grantor's Territory and up to eight singlemode fibers
outside Grantor's Territory on terms no less favorable than those provided
Grantee for NEON. Subsequent to the date of execution of this Amended and
Restated Agreement, the rights and obligations of the parties set forth in this
Section 5.5 shall be governed by the Phase Two Agreement.
5.6 Third Party Connections. In the event of use of connections to the Cable
from public and private property, Grantee shall designate the location and
manner in which the Cable will enter and exit Grantor's property and connect to
the Cable and shall provide such specifications as needed unless so provided in
the engineering plans of Grantor's property. Such specifications will be subject
to change from time to time by the written consent of the parties hereto. The
Grantor shall have the right to review and approve (which shall not be
unreasonably withheld) connections made pursuant to this Section 5.6.
5.7 Connection Grants. Grantor hereby grants Grantee the right to install,
maintain, and operate the connections to the Cable as described in this Section
5.
6. ENGINEERING AND DESIGN
6.1 Grantor's Obligations. In consultation with Grantee, and in accordance with
the Specifications, the Grantor and/or its consultants shall engineer, provide
detailed specifications, construction working prints and other data necessary to
permit the construction and installation of the Cable on the Route. Grantor
shall also design all alternating current power sources, New Buildings and other
necessary and related articles of property which, together with the articles of
property to be designed by
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Grantee, are required to provide usable fiber optic transmission capacity
throughout the Grantor's system over the Route Segments. All such detailed
specifications, construction working prints and other information shall be
subject to Grantee's approval which approval shall not be unreasonably withheld
or delayed. Grantee shall reimburse the Grantor for the Grantor's Actual Costs
incurred pursuant to this Section 6.1. The Grantor shall use its best efforts to
perform the work called for by this Section 6.1 at the lowest possible cost to
the Grantee. The services provided by Grantor in this Section 6.1 shall be
performed in a professional and workmanlike manner.
6.2 Grantee's Obligations. The Grantee, at its sole cost and expense, shall
design, in cooperation with Grantor, all electronic and optronic equipment and
provide detailed specifications, construction working prints and other necessary
data for NUNet and NEON including, without limitation, the Cable and repeaters,
patch panels, terminations, terminals, splice cases and closures, alarm
monitoring equipment and all Equipment and all other necessary and related
articles of property which, together with the articles of property to be
designed by Grantor pursuant to Section 6.1 are required to provide fiber optic
transmission capacity throughout the Route Segments. All Equipment and other
equipment utilized solely in connection with NUNet shall be paid for solely by
Grantor.
7. MAKE READY WORK
7.1 Responsibility for Performance. In the event the Grantor and Grantee
determine that any work is required or desirable to install intermediate or
supplementary Structures, make existing Structures capable of supporting the
Cable, define the Route more clearly or provide for alternative Route Segments
(collectively "Make Ready Work"), Grantor will either perform such Make Ready
Work or permit Grantee or its contractor to perform such Make Ready Work. Any
charges for Make Ready Work performed by Grantor (other than to satisfy the
representation made in Section 18.3) will be paid at Grantor's Actual Costs 30
days after presentation of an invoice for such work. If Grantor elects to
perform any Make Ready Work, Grantor will either (i) endeavor to include such
work in its normal work load schedule, or (ii) at the request of Grantee, based
on the availability of Grantor's manpower, shall perform such Make Ready Work
after normal hours and at prevailing overtime rates, but not less than
straight-time rates.
7.2 Condition of Structures. Grantor shall make available its Structures and
other facilities owned or controlled by Grantor as required to provide for
continuous locations on which the Cable can be placed. Grantor shall perform
such work, if any, at its expense, as may be required to satisfy the
representation made in Section 18.3. Any additional improvements necessary to
permit the Structures to support the Cable shall be made at the expense of the
Grantee. Work required which is common to both Sections 7.2 and 18.3 shall be
performed at the sole cost of the Grantee.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
7.3 Costs. [**] done pursuant to Section 7.1 or in connection with [**],
including without limitation [**] that is necessary in order to make such
Structures or facilities [**] (other than to satisfy the representation made in
Section 18.3). The Grantor shall use its best efforts to perform the work called
for by Section 7.1 at the lowest possible cost [**]. The services provided by
Grantor in Section 7.1 shall be performed in a professional and workmanlike
manner.
8. INSTALLATION
8.1 Grantee's Right to Select Contractors. The Grantor shall provide the Grantee
with an estimate of Grantor's Actual Cost for the installation of the Cable and
Cable Accessories. The Grantee may then request that the Grantor seek bids from
qualified contractors and Grantor's Actual Cost shall then be based on the
lowest qualified bid. If an outside contractor is selected, the Grantor may,
however, act as general contractor on the work done under this Section 8. The
provisions of the last two sentences of Section 7.3 shall apply to any work done
under this Section 8.1 by the Grantor.
8.2 Grantee's Right to Issue Specifications. The Grantee shall have the right
but not the obligation to participate in the Grantor's issuance of contracts
containing general provisions, technical specifications, conditions of
installation, work schedules, and construction documentation which may include
design prints, engineering plans, installation procedures and manuals,
construction methods and practices, material handling properties, safety
procedures, performance standards, payment schedules, testing and acceptance
requirements and other contractual terms and conditions which may be issued
prior to the commencement of any work.
8.3 Grantor's Installation Obligations. Grantor shall supervise and, in
consultation with Grantee, be responsible for the construction or oversight of
the construction and installation as necessary to install the Cable and Cable
Accessories, including without limitation installation hardware, required for
NEON and NUNet, in accordance with the engineering and design requirements
finalized pursuant to Section 6, and Exhibit 3.28, Cable and Performance
Specifications.
8.4 New Buildings. In Grantor's sole discretion, Grantor shall provide all
electric power service to all New Buildings and to all Grantee's Space in the
Grantor's retail service territory. Grantor shall perform and be responsible for
site preparation and shall prepare foundations and fencing for all New Buildings
on Grantor's property.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Grantee shall install all New Buildings and Equipment used in equipping NEON and
in cooperation with Grantor when such installation is on Grantor's property.
Grantee shall reimburse Grantor for its Actual Costs incurred pursuant to this
Section 8.4. The parties shall, by subsequent agreement, apportion the costs of
service and maintenance and space in any New Buildings containing both Grantee
and Grantor Equipment.
8.5 State Fees. Grantee shall either pay directly or reimburse Grantor for any
fees payable to any State agency for the use of any public rights-of-way as a
result of Grantee's use of or right to use the NEON. Grantor will cooperate with
Grantee in obtaining such legal and regulatory permits and authorizations as are
needed in order to allow Grantee to be an authorized condemnation party in each
applicable state. Grantee shall reimburse Grantor for its Actual Costs incurred
pursuant to this Section 8.5.
8.6 Public Rights of Way. Grantee shall at its sole cost and expense obtain all
federal, state and municipal occupancies and other rights that may be required
for the installation of NEON in public rights-of-way or the use thereof.
9. POINT OF DEMARCATION; BUILDING EXTENSIONS
9.1 Marking. The point of demarcation (the "Demarcation Point") for the purpose
of this Agreement shall be indicated by a visible, indelible mark or tag of
long-lasting durability, at a point on one side of which is Grantee's
responsibility, termed network side, on the other side of the Demarcation Point,
termed premise side, both the Grantor and Grantee shall be responsible for their
respective Equipment and any Cable extensions. The color coding of the tube(s)
and fibers dedicated for Grantor's use shall remain consistent throughout the
Route.
9.2 Building Extensions. NEON will be extended by the Grantee for use by the
Grantee within buildings as required. In such extensions the entire Cable beyond
the building patch panel shall remain the property of Grantee and Grantor shall
receive an indefeasible right to use [**] to the point of the building patch
panel. The Grantee or its customer shall obtain approval from the owners of the
property for all such use and as to the physical location of Cable and, as to
installation, maintenance and operation of Grantee's facilities on said
property.
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10. MAINTENANCE
10.1 Grantee's Obligations. Provided that the Grantee has been given the
permission referred to below in this Section 10, the Grantee shall maintain and
repair the Cable, including emergency repairs and splices, pursuant to the terms
and conditions outlined in Exhibit 10.1 - Maintenance Specifications. In the
event Grantee fails to perform any necessary splicing or maintenance in
accordance with the procedures and time frames set forth therein, Grantor shall
have the right, but not the obligation, to undertake such splicing or
maintenance of the Cable, at Grantee's sole cost and expense, as provided for in
Exhibit 10.1. In no event shall Grantee be permitted access to Grantor's
property without Grantor's prior permission unless Grantee is acting pursuant to
Section 39.2. The Grantor reserves the right, but not the obligation, to perform
such maintenance with its own crews or contractor when required by the need to
insure the safe and reliable operation of its electric system. The provisions of
the last two sentences of Section 7.3 shall apply to any work done under this
Section 10.1. Grantee shall be solely responsible for all aspects of the
operation of NEON and the operation and maintenance of Equipment thereon.
Grantee shall perform routine inspections of the Cable including, without
limitation, once a year ride-outs of Route Segments, in accordance with its
standard maintenance procedures and with Grantor's approval. Grantee shall
provide notice to Grantor at least 10 working days in advance of any maintenance
upon any Route Segment upon which any repair is to be conducted as a result of
such maintenance procedures in accordance with Section 37. The Grantor shall
have 10 working days to confirm the availability of any Route Segment for
maintenance.
10.2 Grantor's Obligations. Grantor shall be solely responsible for all aspects
of the operation of NUNet and the operation and maintenance of Equipment
thereon. Grantor shall, at its own expense, perform routine inspections of the
Cable in conjunction with the periodic inspection of its electric facilities and
Structures and routine rights of way maintenance. Grantor shall provide notice
to Grantee at least 10 working days in advance of any maintenance upon any Route
Segment upon which any repair is to be conducted on the Cable as a result of
such maintenance procedures
11. RELOCATION, REPLACEMENT, REBUILDS OF THE CABLE
11.1 By Grantee. In the event that Grantee requests relocation, replacement, or
rebuild of the Cable during the term of this Agreement, the cost of any such
work shall be paid by Grantee, and Grantee shall submit to Grantor a completed
copy of Exhibit 11.1 to request an acceptable new location. No relocation or
replacement shall be performed on Grantor's property by Grantee without the
prior written approval of Grantor.
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11.2 By Grantor. In the event that during the Term of this Agreement Grantor is
required by public authorities or by lawful order or decree of a regulatory
agency or court to relocate or modify any or all Structures upon which NEON or
any part thereof is located, Grantor and Grantee shall cooperate in performing
such relocation or modifications so as to minimize any interference with the use
of NEON or NUNet by either party and to avoid unreasonably impairing the ability
of each to provide communications services of the type, quality and reliability
contemplated by this Agreement. Any such relocation shall be accomplished in
accordance with the provisions of Exhibit 3.28 Cable Specifications. Unless
otherwise agreed by the Parties, all costs directly associated with the
relocation of the Cable, Equipment and New Buildings located on the subject
property shall be shared by the Parties on a pro rata basis based on the number
of fiber optic filaments each Party controls.
11.3 Emergency Relocations; Third Party Relocations. In the event of an
emergency affecting Grantor's Structures, transmission facilities or public
safety, Grantor shall be permitted to replace, remove and relocate the Cable or
any portion thereof without prior notice to Grantee when such notice is not
practicable. Grantor shall incur no liability for service interruptions in
connection with any such removal or relocation and Grantee shall incur no
liability for service interruptions pertaining to Grantor's services, if so
affected. If the relocation or replacement of the Cable is requested or caused
by a Third Party, Grantor shall attempt to obtain reimbursement of Grantor's
costs from said Third Party. Any costs not recovered from said Third Party shall
be shared by the Parties on a pro rata basis based on the number of fiber optic
filaments each Party controls.
11.4 Cable Failure; NUNet Equipment. The Grantor makes no representations with
respect to the Cable. Should the Cable fail to function according to its design
specifications, Grantor shall assign its warranty enforcement rights to Grantee.
Grantee shall be entitled to any recovery from a Third Party, and Grantee shall
have the right, where allowed by law, to recover directly from that Third Party.
Should the Cable fail to function for any reason, Grantee shall have the right
to expeditiously replace the Cable, subject to the Grantor's review and approval
of Grantee's replacement plans. Grantee shall have no responsibility for
Equipment to be used solely in connection with NUNet, including without
limitation, any such equipment installed or located in Grantor's Space in any
New Building or at any of Grantee's facilities. To the extent Grantee realizes
any proceeds from Grantor's assignment of its warranty rights to the Cable that
are not expended in replacing Cable, such proceeds shall be retained by the
Grantee.
12. CONSTRUCTION, MAINTENANCE AND REMOVAL OF THE CABLE
12.1 Interference With Other Joint Users. The Parties shall design, engineer,
construct and maintain the Cable within the Route Segments in a manner so
intended
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not to physically conflict or interfere with the Grantor's property and any
facilities attached thereon or placed therein by joint users or others.
12.2 Grantor's Approval of Third Party Work. Prior to Grantee engaging the
services of a Third Party to commence work to install, remove, reconfigure or
maintain the Cable in any section or part of the Route Segments, the Grantee
will obtain Grantor's prior written consent of any Third Party chosen to perform
such work, and the date when such work is scheduled to commence, which consent
shall not be unreasonably withheld.
12.3 Grantor's Right to Maintain Service. Grantor shall at all times have the
right to take all action necessary to maintain and repair Grantor's property and
maintain Grantor's services to its customers, unconstrained by this Agreement
but shall take reasonable precautions to protect the Cable against damage. In
the event of any service outage affecting the Cable, Grantor shall have the
right to repair its facilities first. If conditions permit, Grantee may repair
its facilities concurrently with Grantor. Grantee acknowledges that all or a
portion of the Cable will be placed on Structures that are part of Grantor's
electric transmission system and that at all times the safe and continuous
operation of such system and the provision of electric service is Grantor's
foremost priority.
12.4 Notice. Grantee shall give Grantor 60 days prior written notice of any
removal(s) or material modification(s) of the Cable provided that no such
removal or modification will be permitted which adversely effects Grantor's use
of NUNet.
12.5 Emergency Use of Grantor's Property. With Grantor's prior written consent
and in its sole discretion, Grantee may temporarily use any of Grantor's
available property for emergency restoration and maintenance purposes. Any such
temporary use shall be subject to such reasonable terms and conditions as may be
imposed by the Grantor and shall be terminated within 90 days, or sooner, unless
Grantee applies for and Grantor grants permission for such temporary use to be
extended.
12.6 Return of Removed Material. In the event Grantor under the provisions of
this Agreement shall remove any portion of the Cable from Grantor's property,
Grantor will deliver to Grantee the Cable and Equipment so removed upon payment
by Grantee of the cost of removal, storage and delivery, and all other amounts
due Grantor.
13. PERIODIC INSPECTIONS
13.1 By Grantor. Grantor shall have the right to make Periodic Inspections of
any part of Grantee's operations occupying Grantor's property. Grantor will give
Grantee reasonable advance written notice of any periodic inspections, except in
those instances where, in the sole judgment of Grantor, safety considerations
justify the
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need for a Periodic Inspection without the delay of waiting until a written
notice has been forwarded to Grantee. A representative of the Grantee may
accompany the Grantor's representative on all Periodic Inspections.
13.2 Grantee's Obligations. The making of Periodic Inspections or the failure to
do so shall not impose upon Grantor any liability of any kind whatsoever nor
relieve Grantee of any responsibility, obligations or liability assumed under
this Agreement.
13.3 Cost. Grantee shall reimburse Grantor for its Actual Costs of Periodic
Inspections only if material violations are found. Charges for such inspections
shall be at Grantor's Actual Cost.
14. APPROVALS AND CONSULTATION
14.1 Role of Program Managers. Each party shall designate a Program Manager (a
Program Manager"). Whenever either party is entitled to approve a matter, the
Program Manager for the party responsible for the matter shall notify the
Program Manager of the other party of the nature of such matter. The Program
Managers shall discuss such matter, and each Program Manager is authorized to
approve such a matter on behalf of his company.
14.2 Definition of Consultation/Cooperation and Approval. Whenever in this
Agreement it is provided that Grantor will take action "in consultation with
Grantee," it is intended that such consultation shall be thorough and
meaningful, and that the views of Grantee with regard to the matter under
consultation shall be given the weight appropriate to the experience and
expertise of Grantee in telecommunications. Whenever in this Agreement it is
provided that Grantee will take action "in cooperation with Grantor," it is
intended that such cooperation shall be thorough and meaningful, and that the
views of Grantor with regard to the matter under consultation shall be given the
weight appropriate to the experience and expertise of Grantor in
telecommunications and in the transmission and use of electric power. Whenever
in this Agreement it is provided that the approval of one party is required, it
is intended that such approval will not be unreasonably withheld or delayed.
15. OWNERSHIP OF THE CABLE
15.1 Title; Tax Accounting. Legal title to the Cable and to any item of
Equipment installed upon the Grantor's Structures shall be held by Grantor. With
respect to the Cable and NUNet, Grantor shall have absolute legal and beneficial
ownership, subject to the provisions of Section 16.1. With respect to the NEON
fibers installed upon the Grantor's Structures, Grantor shall hold legal title
to the same as Grantee's nominee and, with respect to such property, Grantee
shall have the right of use granted in Section 4 of this Agreement and will be
the beneficial owner. Accordingly, Grantee shall for tax purposes account for
such property as the owner thereof and, as
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
between the Parties, shall be entitled to any investment tax credits,
depreciation and any other tax attributes or liabilities with respect to those
fibers. Grantor agrees that it will not, for tax purposes, account for the
property associated with NEON fibers as though it were the tax owner thereof and
shall not attempt to claim any of the tax attributes or liabilities with respect
thereto. The parties agree they shall file all income tax returns and otherwise
take all actions with respect to taxes in a manner which is consistent with the
foregoing.
15.2 Reversion of Beneficial Ownership. Grantee's right of use under Section 4
of this Agreement and beneficial ownership of NEON shall revert to the Grantor
upon termination of this Agreement or of any applicable Route Segment. Upon such
termination, Grantee shall deliver to Grantor such deeds, bills of sale,
releases or similar documents as Grantor shall reasonably request to confirm
said reversion.
16. USE OF THE CABLE BY GRANTOR
16.1 Fibers and Use. The Grantee shall provide [**] provided however that the
requirement of [**] as to which the Term has expired. The Grantor shall use
these [**] for the [**] other uses permitted by this Section 16.1, which shall
include but not be limited to the right of the Grantor [**] provided however,
that during the [**] years of this Agreement, the Grantor shall [**] to any of
the following entities or an entity which was an affiliate (as that term is
defined under the Securities Act of 1933, as amended) as of September 27, 1994
of any such entity without the prior written consent (to which Section 31 shall
not apply) of the Grantee:
[**]
However, this restriction shall [**]
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
[**] and (ii) [**] offices to any customer subscriber destination. (Subsections
(i) and (ii) immediately above hereinafter defined as "Carriage of Capacity").
These services will have [**] according to the following allocations:
Grantee shall pay Grantor [**] (as that term is defined in the Service
Agreements to be negotiated and signed by FiveCom LLC and NUTEL LLC
pursuant to the Letter Agreement between Central Maine Power Company,
NU, FiveCom, Inc., and MaineCom Services dated February 23, 1996)
resulting from Grantee's Carriage of Capacity.
The Grantor shall pay the Grantee [**] resulting from Grantor's
Carriage of Capacity.
Notwithstanding the foregoing, [**] other telecommunications networks, the
Grantor shall [**] can be made. If the Grantor [**] for its own business
purpose.
16.2 Option to Purchase Additional Fibers. The Grantor may purchase, if mutually
acceptable terms can be agreed upon between Grantee and the Grantor, additional
singlemode fibers from the Grantee at a price that is mutually acceptable.
16.3 Additional Service. In addition to providing 12 singlemode fibers, the
Grantee shall, upon Grantor's request and so long as Grantor is not in breach of
this Agreement, provide Grantor with commercial telecommunication services into
all locations served by Grantee's networks in the service area at Grantee's
Actual Cost for any incremental labor and provisioning equipment required for
the service being requested and, if provided using fibers other than Grantor's
12, Grantor shall also pay, without duplication of such actual cost, [**] ("[**]
Rates").
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16.4 Space in Grantee's Locations. Where available and requested by Grantor,
Grantee shall, so long as Grantor is not in breach of this Agreement, provide or
cause to be provided Grantor Space in the Grantee offices and other common
access areas of Grantee facilities along the Route Segments in New Buildings or
buildings adjacent thereto, adequate in each case to permit Grantor to install
racks of its optronics, multiplex and associated equipment used to equip NUNet
and to interconnect NUNet with NEON. Unless otherwise agreed, Grantor Space will
comply with power, ground, physical and environmental requirements of the
Grantee technical publications. Such Grantor Space shall be used by Grantor to
house Grantor Equipment necessary to permit the use of the NUNet and
interconnection with the Grantor's networks. Unless otherwise agreed, Grantor
Space in a Grantee facility other than a New Building, or buildings adjacent
thereto, shall be in a common access area of such facility, and to the extent
reasonably practicable, Grantor Space in a New Building shall be separate from
any area containing Grantee's Equipment. Grantee shall provide Grantor Space in
the common access areas of Grantee facilities at the then prevailing rate for
such space according to Grantee's tariff.
17. CASUALTY
If any portion of the Cable is damaged or destroyed by casualty at any time
during the Term each party shall pay a share of the cost of repair, restoration
or replacement based on the pro rata percentage of fibers, NUNet and NEON,
contained in the Cable. With respect to the Route Segment on which such portion
of the Cable is installed, the Grantee shall have the option of having the
Grantor repair, restore, or replace such portion of the Cable (and the Grantee
shall reimburse Grantor's Actual Cost of doing so) or terminating that Route
Segment. Unless Grantee notifies Grantor of its election to terminate that Route
Segment within 12 business days of the casualty, Grantee shall be deemed to have
elected repair, restoration and replacement of the Cable. If Grantee elects to
terminate such Route Segment as set forth in the preceding sentence, the NEON
fibers upon such portion of the Route Segment so effected, shall be available
for use by Grantor and Grantee shall assign, at no cost to Grantor, all its
rights and title to all New Buildings and Equipment on such Route Segments so
effected immediately thereafter.
18. REPRESENTATIONS AND WARRANTIES
18.1 Common Representations. Each of the parties represents and warrants that it
has full authority to enter into and perform this Agreement, that this Agreement
does not conflict with any other document or agreement to which it is a party or
is bound, and that this Agreement is fully enforceable in accordance with its
terms.
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18.2 Representations by Grantor. The Grantor represents and warrants that
Grantor is a corporation duly organized, validly existing and in good standing
under the laws of the state under which it is incorporated. The execution and
delivery of this Agreement and performance thereunder will not conflict with or
violate or constitute a breach or default under the Grantor's Articles or
Certificate of Incorporation and will not violate any law, rule or regulation
applicable to Grantor. No consents need to be obtained from any governmental
agency or regulatory agency to allow Grantor to execute, deliver and perform
this Agreement except those for which provision has been made in Section
21.4(iii)
18.3 Representation by Grantor As To Structures. The Grantor represents and
warrants that the Structures are suitable for their current use and were
designed and installed at a minimum to meet the requirements of the National
Electrical Safety Code and/or other applicable standards then in effect.
18.4 Representation by Grantor As to Right to Place Cable. The Grantor
represents and warrants that it has the right to have the Cable placed on the
Structures on the Route and to have the Cable used by the Grantor as
contemplated by this Agreement, subject to the governmental approvals for which
provision has been made in Section 21.4(iii) and the approvals from certain
lienholders referred to in Section 4.2.
18.5 Work Clearances and Related Delays. Grantor represents and warrants that it
cannot guarantee line outages or special contingency line operating conditions
that may be necessary for the installation, maintenance and repair of the Cable
and that delays may be necessary. Such work clearances must be obtained from
regional dispatching organization(s) with authority over the lines. The Grantee
shall be responsible for the Grantor's Actual Costs associated with last minute
delays caused by these regional authorities which are reasonably beyond the
control of the Grantor.
18.6 Representations by Grantee. The Grantee represents and warrants that
Grantee is a limited liability company duly organized and validly existing under
the laws of the Commonwealth of Massachusetts and the execution and delivery of
this Agreement and the performance thereunder will not conflict with or violate
or constitute a breach or default under the Operating Agreement of Grantee and
will not violate any law, rule or regulation applicable to Grantee. No consents
need to be obtained from any government agency or regulatory agency to allow
Grantee to execute, deliver and perform this Agreement.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
19. INSURANCE
The Grantee, at its own expense, shall provide and maintain in force during the
term of this Agreement a policy or policies of general liability insurance with
an aggregate limit of no less than [**]. The policy or policies shall include
contractual liability coverage to insure the indemnification agreement and
products completed operations coverage. Any such policy(ies) shall be procured
by the Grantee from a responsible insurance company with a "Best" rating of A or
better, satisfactory to the Grantor. Certificates evidencing such policy(ies)
shall be delivered to the Grantor within 30 days of the date of this Agreement.
Not less than 30 days prior to the expiration date of such policies,
certificates evidencing the renewal thereof shall be delivered to the Grantor.
Such policies shall further provide that not less than 30 days' written notice
shall be given to the Grantor before such policy(ies) may be cancelled,
materially changed or undergo a reduction in Insurance limits provided thereby.
Grantor shall be named as an additional insured. The coverage required herein
shall not be deemed to limit the Grantee's liability as set forth elsewhere in
this Agreement. Upon timely notice to the Grantee, Grantor may require
reasonable increases in the amount of insurance coverage which will be obtained
by Grantee within 30 days after Grantor's request.
20. GRANTEE'S BOND
20.1 Bond. Within 120 days of the Effective Date of this Agreement, the Grantee
shall provide Grantor with either of the following at the option of Grantee: (i)
a performance bond in the amount of the [**] of NUNet running from Millstone, CT
to Seabrook, NH as set forth in Exhibit 3.26 (the Route) in form and substance
reasonably satisfactory to Grantor and issued by a responsible and reputable
insurance company, or (ii) a letter of credit of equal value in form and
substance reasonably satisfactory to Grantor and issued by a responsible bank.
This bond or letter of credit shall be reduced by [**] for each mile of NUNet
installed on the Route.
20.2 Affect of Bond. If a bond or letter of credit is issued and remains in
effect to the benefit of Grantor pursuant to Section 20.1, the Grantee shall not
be found to be in default of any provision of this Agreement if such default is
based on the installation of NUNet or any other associated Cable relating
thereto.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
21. TERM AND TERMINATION
21.1 Period. The term of this Agreement shall be for a period of 30 years (the
"Term") commencing on September 27, 1994, and ending on September 27, 2024 (the
"Ending Date") and shall automatically renew on September 27, 2024 and
thereafter for five year periods until terminated by either party upon notice
given one year or more prior to September 27, 2024 or any renewal date
thereafter.
21.2 Payment to Grantee. If the Grantor elects to terminate this Agreement
pursuant to Section 21.1, the Grantor shall, at its option, either: (i) pay the
Grantee the fair market appraised value of NEON (determined, if no agreement can
be reached between the parties on such value, pursuant to Section 38) or (ii)
elect to receive [**] from the use of the Cable as determined by an independent
auditor selected by the mutual consent of the Parties. If Grantor elects clause
(ii), the payments provided for in that clause shall be in addition to any
Annual Fees due Grantor and this Agreement shall be extended for another 30
years from the date it would have otherwise terminated.
21.3 Early Termination of Agreement. This Agreement may be terminated prior
to the Ending Date upon any one of the following events:
(i) by Grantee upon 180 days, prior notice to Grantor.
(ii) by Grantor upon 90 days, prior notice to Grantee if (x)
the Grantee has not provided a bond or letter of credit pursuant to Section 20,
and (y) the Grantee has not completed NUNet according to Section 4.4.
(iii) by Grantor in the event of a default by Grantee under
Section 34.
(iv) by Grantor upon 90 days, prior notice in the event of a
violation of Section 36.1.
Grantee shall have the right to cure or correct any default specified under
clauses (ii) or (iv) above within the time period of the notices set forth
above.
21.4 Termination of Route Segment. Any Route Segment may be terminated:
(i) by Grantor upon reasonable notice for the purposes of
providing safe and economical electrical service; or
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(ii) by Grantee upon five days' prior written notice if two
Cable failures per month for three consecutive months occur on a Route Segment
as a result of Grantor's electric operations and Grantor fails to take steps to
cure such failure with due diligence, unless Grantor shall have cured such
failure prior to the expiration of said five day period, or where cure is not
possible within said five day period, Grantor is proceeding to cure with due
diligence.
(iii) by the Grantor at any time after consultation with
Grantee if it cannot obtain the regulatory approvals needed by it to perform its
obligations under this Agreement with respect to such Route Segment or can
obtain them but on terms that are unduly burdensome on the Grantor.
21.5 Cost Reimbursement. In the event of the termination of this Agreement or a
portion of the Route Segments thereof pursuant to Section 21.4, Grantor shall
reimburse Grantee a percentage of the cost of the Cable, for such terminated
portion according to the following schedule:
Year 1-5 (9/27/94-9/27/99) [**]
Year 6 [**]
Year 7 [**]
Year 8 [**]
Year 9 [**]
Year 10 [**]
Year 11 and thereafter, [**]
The Annual Fee described below for the portion of the year following termination
of a Route Segment shall be refunded to the Grantee. The amount of the refund
shall be determined by prorating the Annual Fee for the terminated Route Segment
equally over 365 days. In no event shall the amount of the refund exceed the
amounts collected on the terminated Route Segment during that period by the
Grantor.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
22. ANNUAL FEE
22.1 Amount. Grantee shall pay an annual fee ("Annual Fee") for its use of the
NEON fiber optical filaments in the Cable, which shall be:
(a) As to Grantor's underground facilities: [**]; and
(b) As to Grantor's aerial Structures, as follows:
(i) [**] where Grantor's Structures support Cable containing
NUNet. Said rate shall not be due for the period of 10 years from the Effective
Date of this Agreement for the Route shown in Exhibit 3.26.
(ii) [**] where Grantor's Structures support Cable not
containing NUNet.
(iii) [**] for solely owned utility distribution poles located
within the public right of ways, private ways, ancient ways, or on private
property or on easements.
(iv) [**] during the term of any agreements between Grantee
and any Third Party for route segments containing Grantee's cable or NEON's
extensions supported by any transmission structures, aerial plant, civil works,
and underground facilities owned by any utility operating in any of Connecticut,
Maine, Massachusetts, New Hampshire, New York, Rhode Island, Vermont and certain
parts of Canada which share a border with any of those States if the Grantor
contributed in a material way to the Grantee's obtaining such route segments.
[**] will be paid upon execution of an agreement with such Third Party but the
annual fee will not be due until the sooner of the Activation Date or the
In-Service Date of such route segments. (Grantee seeks route segments into New
York from Connecticut; into Rhode Island from Connecticut and Massachusetts;
into Vermont from Massachusetts, New Hampshire, New York, and Canada; and into
Maine from New Hampshire and Canada.)
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
22.2 CPI Adjustments. The Annual Fee shall be adjusted annually from the
Effective Date by an escalation factor equal to changes in the Consumer Price
Index All Urban (CPI-U) published by the US Department of Labor, Bureau of Labor
Statistics, which shall be calculated each October based on changes in the CPI-U
from the previous October. In no instance shall the CPI-U change be applied if
it results in a smaller payment than the previous year's payment. As to any
period during which fees have been waived, the CPI-U shall accrue to the rate
during such waiver period.
22.3 Additional Amounts. In addition to the amounts due and payable pursuant to
Section 22.1, as adjusted pursuant to Section 22.2, the Grantee shall pay the
Grantor an amount equivalent to [**] on the Grantor's Structures each and every
year such revenues exceed [**].
22.4 When Due. All Annual Fees shall be paid on January 1st of each year. All
pro-rata payments made during the year shall be based on this date. All payments
shall be paid within 30 days of invoicing.
22.5 Initial Annual Fee. Unless otherwise waived according to the provisions of
22.1(b)(i), 22.1(b)(iv) or otherwise, the initial Annual Fee payment will be due
and payable within 30 days after preliminary engineering work has been accepted
by both parties and shall be based upon the estimated number of duct feet and
aerial feet to be utilized by Grantee over the remainder of the calendar year.
23. FORCE MAJEURE
23.1 Optional Termination. Should any of the Force Majeure Events defined below
occur and should the Grantor determine that as a direct or indirect result
thereof, the parties continued performance hereunder or with respect to any
portion of the Structures and the Cable will be irreparably impaired or
prevented, the parties may mutually agree to terminate this Agreement, in whole
or in part as to any portion of the Route Segments and the Cable so affected
with no further obligation or liability. The parties will attempt to provide a
date of termination such that the parties will have a reasonable time to obtain
alternative means of providing service to customers, but neither party shall
have an obligation to do so. A Force Majeure Event shall include fire, flood,
strike or other labor difficulty, natural disasters, acts of God or public
enemy, (restraint or hindrance by any governmental authority), war,
insurrection, riot, action of any regulating authorities; or institution of
litigation by any Third Party, or any other causes of any nature reasonably
beyond the control of either party which would have a material adverse effect on
the subject matter of this
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Agreement. Financial difficulties, or events resulting from financial
difficulties, shall not be considered a Force Majeure Event.
23.2 Suspension Pending Force Majeure. If a Force Majeure Event should occur
then, and for a reasonable time thereafter, the parties' performance of this
Agreement shall be suspended. At the conclusion of a Force Majeure Event the
period of time so suspended shall be added to the dates, schedules and other
performance related matters under this Agreement.
24. PROPRIETARY INFORMATION
24.1 Obligation to Maintain as Confidential. Each party acknowledges that in the
course of the performance of this Agreement it may have access to privileged and
proprietary information claimed to be unique, secret, and confidential, and
which constitutes the exclusive property and trade secrets of the other
("Proprietary Information"). This information may be presented in documents
marked with a restrictive notice or otherwise tangibly designated as proprietary
or during oral discussions, at which time representatives of the disclosing
party will specify that the information is proprietary and shall subsequently
confirm said specification in writing within five days. Each party agrees to
maintain the confidentiality of the Proprietary Information and to use the same
degree of care as it uses with regard to its own proprietary information to
prevent the disclosure, publication or unauthorized use of the Proprietary
Information. Neither party may duplicate, copy or use Proprietary Information of
the other party other than to the extent necessary to perform this Agreement.
Either party shall be excused from these nondisclosure provisions if the
Proprietary Information received from the other party has been or is
subsequently made public by the other party, is independently developed by such
party, disclosed pursuant to order by a court or government agency, or if the
other party gives its express, prior written consent to the disclosure of the
Proprietary Information.
24.2 Route Constitutes Proprietary Information. The routing of NEON and the
conditions of Grantee's contracts with customers and customer names are deemed
Proprietary Information without further notice and will not be disclosed by
Grantor absent an order by a court or regulatory body with jurisdiction over
Grantor.
25. ACCESS AND SECURITY
25.1 Access by Grantor. Grantee agrees, upon reasonable request, to allow
Grantor direct ingress and egress to all Grantor Space to be provided to Grantor
as described above, and to permit Grantor to be on Grantee's premises at such
times as may be required for Grantor to perform any appropriate maintenance and
repair of equipment in such Grantor Space. Grantee may require that a
representative of Grantee accompany any representatives of Grantor having access
to the Grantor
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Space except in New Buildings having separate entrances providing access only to
the Grantor Space therein. Employees and agents of Grantor shall, while on the
premises of Grantee, comply with all rules and regulations, including without
limitation security requirements, and, where required by government regulations,
receipt of satisfactory governmental clearances. Grantor shall provide to
Grantee a list of Grantor's employees or authorized Grantor designee's employees
who are performing work on, or who have access to, the Grantor's Space. Grantee
shall have the right to notify Grantor that certain Grantor or authorized
Grantor designee employees are excluded if, in the reasonable judgment of
Grantee, the exclusion of such employees is necessary for the proper security
and maintenance of Grantee's facilities.
25.2 Access by Grantee. Grantor agrees, upon reasonable request, to allow
Grantee direct ingress and egress to all Grantee Space to be provided to Grantee
as described above, and to permit Grantee to be on Grantor's premises at such
times as may be required for Grantee to perform any appropriate maintenance and
repair of Equipment located at such Grantee Space. Grantor may require that a
representative of Grantor accompany any representatives of Grantee having access
to the Grantee Space. Employees and agents of Grantee shall, while on the
premises of Grantor, comply with all rules and regulations, including without
limitation security requirements, and, where required by government regulations,
receipt of satisfactory governmental clearances. Grantee shall provide to
Grantor a list of Grantee's employees or authorized Grantee designee's employees
who are performing work on, or who have access to, the Grantee Space. Grantor
shall have the right to notify Grantee that certain Grantee or authorized
Grantee designee employees are excluded if, in the reasonable judgment of
Grantor, the exclusion of such employees is necessary for the proper security
and maintenance of Grantor's facilities.
25.3 Access by Grantee to NEON Space. Except as provided in Section 25.2 above,
with respect to the Grantee Space, Grantee and authorized Grantee designees
shall have the right to visit any facilities of Grantor utilized in providing
NEON upon reasonable prior written notice to Grantor; provided, however, that
Grantor may require that a representative of Grantor accompany any
representation of Grantee or of an authorized Grantee designee making such
visit. Such visitation right shall include the right to inspect NEON and to
review worksheets, to review performance or service data, and to review other
documents used in conjunction with this Agreement. Employees and agents of
Grantee or of an authorized Grantee designee shall, while on the premises of
Grantor, comply with all rules and regulations, including without limitation
security requirements and, where required by government regulations, receipt of
satisfactory governmental clearances. Grantor shall have the right to notify
Grantee that certain Grantee or authorized Grantee designee employees are
excluded if, in the reasonable judgment of Grantor, the exclusion of
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such employees is necessary for the proper security and maintenance of Grantor's
facilities.
25.4 Grantee's Work. The Grantee shall at all times perform its work in
accordance with Grantor's safety and work procedures and in accordance with the
applicable provisions of OSHA. Grantor shall have the authority to suspend
Grantee's work operations in and around Grantor's property if, in the sole
judgment of Grantor at any time hazardous conditions arise or any unsafe
practices are being followed by Grantee's employees, agents, or contractors.
Grantee agrees to pay Grantor for having Grantor's employee or agent present
when Grantee's work is being done in and around Grantor's property. Such charges
shall be at Grantor's Actual Cost. The presence of Grantor's authorized employee
or agent(s) shall not relieve Grantee of its responsibility to conduct all of
its work operations in and around Grantor's property in a safe and workmanlike
manner, and in accordance with the terms and conditions of this Agreement.
26. NO JOINT VENTURE; COSTS
26.1 Relationship. In all matters pertaining to this Agreement, the relationship
of Grantor and Grantee shall be that of independent contractors, and neither
Grantor nor Grantee shall make any representations or warranties that their
relationship is other than that of independent contractors. This Agreement is
not intended to create nor shall it be construed to create any partnership,
joint venture, employment or agency relationship between Grantee and Grantor,
and no party hereto shall be liable for the payment or performance of any debts,
obligations, or liabilities of the other party, unless expressly assumed in
writing herein or otherwise. Each party retains full control over the
employment, direction, compensation and discharge of its employees, and will be
solely responsible for all compensation of such employees, including social
security, withholding and worker's compensation responsibilities.
26.2 Costs. Except for costs and expenses specifically assumed by a party under
this Agreement each party shall pay its own expenses incident to this Agreement,
including without limitation amendments hereto, and the transactions
contemplated hereunder, including all legal and accounting fees and
disbursements.
27. PUBLICITY AND ADVERTISING
27.1 Limitations. In connection with this Agreement, neither party shall publish
or use any advertising, sales promotions, or other publicity materials that use
the other party's logo, trademarks, or service marks or employee name without
the prior written approval of the other party. Except as provided in Section
27.2 below, each party shall have the right to review and approve any publicity
materials, press releases or other public statements by the other party. In
connection with this
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Agreement, each party agrees not to issue any such publicity materials, press
releases or material produced by the public relations department for the other
party without written consent. Unless otherwise agreed, neither party shall
release the existence of the text of this Agreement or any material portion
thereof, other than in the form modified to remove all references to the
identity of the other party, to any person or entity other than the parties
hereto for any purpose other than those specified in Section 27.2.
27.2 Exceptions. The provisions of Section 27.1 shall not apply to reasonably
necessary disclosures in or in connection with regulatory filings or
proceedings, financial disclosures which in the good faith judgment of the
disclosing party are required by law, or disclosures that may be reasonably
necessary in connection with the performance of this Agreement.
28. MARKETING RELATIONSHIP
Upon the written approval of the Grantor, except for the exemption of customer
prospects and customers of Grantee as listed in Exhibit 28, Sales Order Customer
Exclusion List, in the event that communication service orders are received by
Grantee, as a result of Grantee issuing sales literature or promotional material
in which the name of Grantor is mentioned or by Grantor introducing Grantee to
customer prospects not listed in Exhibit 28, or by the Grantor undertaking any
joint marketing effort with Grantee including joint sales calls, Grantee shall
pay to Grantor [**] to those customers receiving such sales literature,
promotional material or joint sales calls.
In addition, in the event that communications service orders are received by
Grantor as a result of Grantor issuing sales or promotional literature or
information in which the name of Grantee or the NEON network is mentioned, by
Grantee introducing Grantor to customer prospects, or by Grantee undertaking any
joint marketing effort with Grantor, including joint sales calls, Grantor shall
pay to [**] to those customers.
29. SEVERABILITY
If any part of any provision of this Agreement or any other agreement, document
or writing given pursuant to or in connection with this Agreement shall be
invalid or unenforceable under applicable law, said part shall be ineffective to
the extent of such invalidity only, without in any way affecting the remaining
parts of said provision or the remaining provisions of said agreement; provided,
however, that if any such ineffectiveness or enforcement of any provision of
this Agreement, in the good faith judgment of either party, renders the benefits
to such party of this Agreement as a
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whole uneconomical in light of the obligations of such party under this
Agreement as a whole, then the other party shall negotiate in good faith in an
effort to restore insofar as possible the economic benefits of this Agreement to
such party.
30. LABOR RELATIONS
30.1 Notice by Grantor. Grantor agrees to notify Grantee immediately whenever
Grantor has knowledge that a labor dispute concerning its employees is delaying
or threatens to delay Grantor's timely performance of its obligations under this
Agreement. Grantor shall endeavor to minimize impairment of its obligations to
Grantee (by using Grantor's management personnel to perform work, or by other
means) in event of a labor dispute.
30.2 Notice by Grantee. Grantee agrees to notify Grantor immediately whenever
Grantee has knowledge that a labor dispute concerning its employees is delaying
or threatens to delay Grantee's timely performance of its obligations under this
Agreement. Grantee shall endeavor to minimize impairment of its obligations to
Grantor (by using Grantee's management personnel to perform work, or by other
means) in the event of labor dispute.
30.3 Determination by Grantee. If Grantee determines that Grantor's activities
pursuant to this Agreement in any Grantee facility are causing or will cause
labor difficulties for Grantee, Grantor agrees to discontinue those activities
until the labor difficulties have been resolved; provided, however, that in any
such event and notwithstanding any other provision of this Agreement, Grantee
shall during the period of such labor difficulties perform at its own expense
any such activities that may be reasonably necessary to the operation and
maintenance of the Grantor's system or any portion thereof.
30.4 Determination by Grantor. If Grantor determines that Grantee's activities
pursuant to this Agreement in any Grantor facility are causing or will cause
labor difficulties for Grantor, Grantee agrees to discontinue those activities
until the labor difficulties have been resolved; provided, however, that in any
such event and notwithstanding any other provision of this Agreement, Grantor
shall during the period of such labor difficulties perform at its own expense
any such activities that may be reasonably necessary to the operation and
maintenance of the Grantee's system or any portion thereof.
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31. CONSENTS AND WAIVERS
Whenever any party hereto is asked to consent or waive any action or matter
provided herein or whenever any party has the right to do or refuse to do any
act in its sole judgment or discretion provided herein, said party agrees to act
reasonably and in good faith in making or refusing to consent, in waiving or
refusing to waive, or in making any such judgments.
32. TAXES AND GOVERNMENTAL CHARGES
The Grantee shall pay the Grantor the pro rata amount based on the number of
fiber optic filaments under each Party's control, of all taxes assessed on the
Grantor which are attributable to the Grantee's portion of the Cable, New
Buildings and Equipment. The Grantee shall pay the Grantor said taxes when they
become due, which shall include all taxes, assessments and governmental charges
of any kind whatsoever lawfully levied or assessed and attributable against the
Grantee's installation, maintenance or operation of the connections to the Cable
or against the Grantee's business with regards to the Cable or the connection
thereof, including without limitation, all franchise and other fees to any
Federal, State, City or other jurisdiction having the authority to tax or assess
other governmental charges. Upon said payment to Grantor, Grantor shall
indemnify Grantee against any and all actions which may be brought against
Grantor and Grantee with regard to Grantor's remittance of said payments to any
taxing authority or governmental agency. Grantee shall have the right to pay the
tax or charge under protest without being subjected to a default notice under
Section 34. The Grantor shall pay, when they become due, the pro rata amount
based on the number of fiber optic filaments under each Party's control, all
taxes, assessments and governmental charges of any kind whatsoever lawfully
levied or assessed against the Cable, installation, maintenance or operation of
the connections to the Cable or against the Grantor's business with regards to
the Cable or the connection thereto, including without limitation, all franchise
and other fees to any Federal, State, City or other jurisdiction having the
authority to tax and assess other governmental charges. Grantor shall have the
right to pay the tax or charge under protest without being subjected to a
default notice under Section 34. Grantor warrants that it shall remit all tax
payments to taxing authorities and governmental agencies and shall not cause the
Cable to be levied, attached, or otherwise encumbered by any taxing authority by
not having done so. Each party shall pay without apportionment any taxes levied
on it based on its business profits.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
[**]. Grantor shall take reasonable efforts suggested by Grantee to minimize the
amount of said income tax liability on its return(s), in accordance with
applicable laws and regulations. At present, based upon using a twenty-year
depreciation schedule, the parties estimate this tax liability to be [**].
Grantee shall hold harmless, indemnify and defend Grantor in the event [**] that
Grantor may request from Grantee from time to time and which Grantee agrees to
provide, which [**] described in this paragraph. If said [**] has not been
attained on the [**] of this Agreement, Grantee agrees to [**] specified in
Section 22.1(b)(i) [**] sufficient to [**] by the [**] of this Agreement,
provided that such payments do not put Grantee into default under any financial
agreements then in place. If such payments would cause an Event of Default under
any financial document, the parties agree to use their best efforts to devise
and agree upon an alternative payment plan that would [**] by the [**] of this
Agreement. Thereafter, the payment as specified in Section 22.1(b)(i) shall be
due and owing. In a given year, [**] shall only be [**].
33. INDEMNIFICATION
33.1 By Grantee. Grantee agrees to indemnify and hold harmless Grantor, its
employees, contractors, subcontractors, agents, directors, officers, affiliates,
and subsidiaries and their respective employees, subcontractors, agents,
directors and officers from and against any and all liabilities, damages,
losses, claims, demands, judgments, costs, and expenses (including, subject to
Section 33.2, the cost of defense thereof and attorney's fees) based on the
Grantee's use of the Cable including, without limitation, any claim for
infringement of patent or trade secret, made by Third Parties (collectively,
"Claims").
33.2 Indemnification Procedures. The Grantor shall give prompt notice of any
Claim for which indemnification is or will be sought under this Section and
shall cooperate and assist the Grantee in the defense of the Claim. The Grantee
shall bear the cost of and have the right to control the defense and shall have
the right to select
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counsel after consulting with the Grantor. The obligation to indemnify shall be
net of any tax or insurance benefit obtained by the Grantor.
33.3 Limitation of Grantor Liability. In no event shall Grantor be liable to the
Grantee or to its customers, whether in contract, tort, or otherwise, including
strict liability, for any special, indirect, incidental or consequential damages
or any lost business damages in the nature of lost revenues or profits, and any
such claims by Third Parties against Grantor shall invoke the obligations under,
but subject to the provisions of, Section 33.1 above.
33.4 Limitation of Grantee Liability. In no event shall Grantee be liable to the
Grantor or to its customers, whether in contract, tort, or otherwise, including
strict liability, for any special, indirect, incidental or consequential damages
or any lost business damages in the nature of lost revenues or profits.
34. DEFAULT
If either party shall allow any payment due hereunder to be in arrears more than
60 days after notice from the other party, shall allow any policy of insurance
provided by Section 19 hereof to expire without renewal, or shall remain in
default under any other provision of this Agreement other than those referred to
in Section 21 for a period of 30 days after notice by the other party of such
default, the party so notifying the other party may, at its option, terminate
this Agreement pursuant to Section 21, or avail itself of any other remedy at
law or equity, including without limitation, the remedy of specific performance,
provided, however, that, in the case of a default for other than failure of
payment or failure to maintain insurance, where the party in default proceeds
with all due diligence to cure such default and cure is not possible within said
30 days, then the party then in default shall have such time to cure the default
as the other party agrees is reasonably necessary. The parties agree that
Grantee's remedies at law for a breach by Grantor of the warranty set forth in
Section 4.7 may be inadequate and that, for such a breach where Grantee's
remedies at law are inadequate, Grantee shall be entitled to equitable relief.
35. ASSIGNMENT
35.1 By Grantee. Subject to Section 35.4, the Grantee may not assign or
otherwise allow use of its rights under this Agreement to any person or entity
other than an affiliate (as defined in Section 16.1) without the prior written
approval of the Grantor. The Grantor's approval will be granted provided the new
person or entity demonstrates to the reasonable satisfaction of the Grantor that
the proposed assignee is financially and operationally fit, willing and able to
discharge its obligations under this Agreement, acquires substantially all of
the Grantee's business within the geographic area of such assignment including
substantially all of the assets used in
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such business, and agrees to be bound directly and fully by all of the terms and
conditions of this Agreement.
35.2 Change of Control. Any change of control of the Grantee shall be deemed an
assignment if a new person or entity other than an affiliate (as defined in
Section 16.1), directly or indirectly, acquires 50% or more of the voting stock
of the Grantee in one or more connected transactions, except that this Section
35.2 shall not apply to (i) any transaction consummated within 30 days of the
date of this Agreement involving Applied Telecommunications Technologies, Inc.
or (ii) any other acquiror of any equity interest in the Grantee, if such other
acquiror was introduced to the Grantee by Applied Telecommunications
Technologies, Inc., or if Applied Telecommunications Technologies, Inc. was
acting as an advisor for such other acquiror.
35.3 Grantor's Right to Pledge Agreement and Transfer Property. Grantor shall be
free to mortgage, pledge, or otherwise assign its interests under this Agreement
to any Third Party in connection with any borrowing or other financing activity
of Grantor provided that such assignment shall not limit or otherwise affect
Grantor's obligations under this Agreement. Any transfer of property of the
Grantor included in or subject to this Agreement may be made by Grantor provided
the person acquiring such property takes it subject to this Agreement.
35.4 Grantee's Right to Pledge Agreement and Lease Fibers. Grantee shall be free
to mortgage, pledge or otherwise assign its interest under this Agreement to any
Third Party in connection with any borrowing or other financing activity
(including that contemplated by Section 20) of Grantee provided that such
assignment shall not limit or otherwise affect Grantee's obligations under this
Agreement. Nothing in this Section 35 shall limit or apply to the Grantee's
right to lease or sublease fibers of which it has the use under this Agreement
to Third Parties in the normal course of the Grantee's business.
35.5 Right to Assign. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns where
permitted by this Agreement or where an assignment occurs by operation of law.
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<PAGE>
36. APPROVALS, PERMITS, AND CONSENTS
36.1 Grantee's Obligations. During the term of this Agreement, Grantee at its
sole cost and expense shall obtain and maintain any and all necessary permits,
licenses, franchises and approvals that may be required by federal, state or
local law, regulation or ordinance, and shall continuously comply with all such
laws, regulations or ordinances as may now or in the future be applicable to the
Grantee's use and operation of the Cable. If Grantee or any permitted assignee
shall at any time fail to maintain such approvals, Grantor may terminate this
Agreement without any liability or obligation to Grantee pursuant to Section
21.3(iv).
36.2 Opinion. Within 90 days of the date of this Agreement, the Grantee shall
provide the Grantor with an opinion of counsel, in form and substance
satisfactory to Grantor, stating Grantee's compliance with the provisions of law
applicable to Grantee's use of the Cable and its obligations under this
Agreement.
36.3 Grantor's Obligations. During the term of this Agreement, the Grantor
shall, at its Actual Cost to be paid by the Grantee, obtain all approvals and
consents that may be required from all federal, state, and local authorities
regarding all or any portion of the Cable installation or replacement upon the
Route Segments subject to such jurisdiction. Legal counsel used for this purpose
shall be selected by Grantor following consultation with the Grantee.
37. NOTICES
37.1 Form and Address. All notices authorized or required by this Agreement
shall be given in writing and delivered to the following addresses, which may
change from time to time by such notice to either party, which addresses shall
also serve as the addresses for the delivery of any amounts due and payable
hereunder:
Director - T&D System Projects
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
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<PAGE>
With a copy to:
Vice President-Energy Delivery
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
NECOM LLC
391 Totten Pond Road
Suite 401
Waltham, MA 02154
Attention: President
With a copy to:
Alexander A. Bernhard, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
37.2 How Sent. Each notice, demand, request, report approval or communication
which shall be mailed in the manner described above, or delivered by hand or an
insured overnight courier, shall be deemed sufficiently given, served, sent or
received for all purposes at such time as it is delivered to the addressee, with
the return receipt or the delivery receipt being deemed conclusive evidence of
such delivery, or at such time as delivery is refused by the addressee upon
presentation.
37.3 Damage Notification. In the event that the Cable is damaged for any reason,
the party discovering such damage shall notify the other party of said damage by
telephone at:
for Grantor (203) 665-6000 or (800) 286-5000 extension 6000
for Grantee (800) 891-5080
These are 24 hour, 7 day per week emergency notification numbers. Calls shall be
directed to the Supervisor on Duty, and the caller should be able to provide the
following information:
1. Name of company making report;
2. Location reporting problem;
3. Name of contact person reporting problem;
4. Telephone number to call back with progress report;
5. Description of the problem in as much detail as possible;
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<PAGE>
6. Time and date the problem occurred or began; and
7. If appropriate, a statement that "This is an emergency" and
that a problem presents a jeopardy situation to the physical
plant of Grantor or Grantee, as the case may be.
38. DISPUTE RESOLUTION
38.1 Arbitration. If any question shall arise in regard to the interpretation of
any provision of this Agreement or as to the rights or obligations of the
parties hereunder, the question shall be referred to the respective Program
Managers who shall deliberate such questions for not more than 15 days. If a
resolution is not forthcoming within said period the matter will be referred to
a senior executive designated by each party who shall, within 30 days of the
request of the party invoking these dispute resolution procedures, meet with
each other to negotiate and attempt to resolve such question in good faith. Such
senior executives may, if they so desire, consult outside experts for assistance
in arriving at such a resolution. In the event that the resolution is not
achieved within 30 days after such a request, then the question shall be finally
resolved by the award of arbitrators (all of whom shall be arbitrators certified
by the American Arbitration Association) named as follows:
(i) the party sharing one side of the dispute shall name an
arbitrator and give written notice thereof to the party sharing the other side
of the dispute;
(ii) the party sharing the other side of the dispute shall,
within 14 days of receipt of such written notice, name an arbitrator; and
(iii) the arbitrator so named shall within 15 days after the
naming the latter of them, select an additional arbitrator. If such additional
arbitrator is not selected within fifteen (15) days of the appointment of the
latter of the arbitrators the party sharing either side of the dispute may seek
to appoint such third arbitrator by applying to the American Arbitration
Association. The arbitrators shall proceed promptly to hear and determine the
matter in controversy. The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrators shall be instructed that their decision must be made within 45 days
after the appointment of the third arbitrator, subject to any reasonable delay
due to unforeseen circumstances.
38.2 Award; Costs. The decision of the arbitrators shall be in writing and
signed by the arbitrators or a majority of them and shall be final and binding
on the parties, and the parties shall abide by the decision and perform the
terms and conditions thereof. Unless otherwise determined by the arbitrators,
the fees and expenses of the arbitration shall be borne by the party losing in
these dispute resolution procedures, or if no party prevails in full, as
allocated by the arbitrators based on the relative merits of the parties
positions. Judgment upon the award rendered may be in any
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<PAGE>
court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be. All arbitration shall be conducted in Worcester, Massachusetts.
39. EXERCISE OF RIGHTS
39.1 No Waiver. No failure or delay on the part of either party hereto in
exercising any right, power or privilege hereunder and no course of dealing
between the parties shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege.
39.2 Grantee's Self Help Rights. In the event the Grantor shall default or in
any manner fail to perform any of its maintenance obligations hereunder and such
failure shall continue for twenty (20) days after written notice from the
Grantee, then, unless such failure is the result of a Force Majeure Event, the
Grantee shall have the right, but not the obligation, so long as such failure
continues, to perform such obligations of the Grantor in accordance with the
relevant provisions of this Agreement, provided that Grantee shall only use
properly qualified and licensed personnel to perform such maintenance, shall
proceed in accordance with all applicable laws, codes and regulations, and shall
provide advance written notice prior to entering Grantor's property.
40. ADDITIONAL ACTIONS AND DOCUMENTS
Each of the parties hereto hereby agrees to take or cause to be taken such
further actions, to execute, acknowledge, deliver and file or cause to be
executed, acknowledged, delivered and filed such further documents and
instruments, and to use its best effort to obtain such consents, as may be
necessary or as may be reasonably requested in order to fully effectuate the
purposes, terms and conditions of this Agreement, whether at or after the
execution of this Agreement.
41. SURVIVAL
It is the express intention and agreement of the parties hereto that all
covenants, agreements, statements, representations, warranties and indemnities
made in this Agreement shall survive the execution and delivery of this
Agreement.
42. HEADINGS
Article headings contained in this Agreement are inserted for convenience of
reference only, shall not be deemed to be a part of this Agreement for any
purpose, and shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
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<PAGE>
43. INCORPORATION OF EXHIBITS
The Exhibits referenced in and attached to this Agreement shall be deemed an
integral part hereof to the same extent as if written at length herein.
44. COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many counterparts
as may be required; and it shall not be necessary that the signatures of or on
behalf of each party appear on each counterpart; but it shall be sufficient that
the signature of or on behalf of each party appear on one or more of the
counterparts. All counterparts shall collectively constitute a single agreement.
It shall not be necessary in any proof of this Agreement to produce or account
for more than the number of counterparts containing the respective signatures of
or on behalf of all of the parties.
45. APPLICABLE LAW
This Agreement shall be construed under and in accordance with the laws of the
State of Connecticut.
46. PRIOR AGREEMENTS
This Agreement supersedes all prior or contemporaneous proposals, communications
and negotiations, either oral or written, relating to the rights, obligations,
or performance of this Agreement by the parties hereto, and, as such,
constitutes the complete and entire agreement of the parties.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
<TABLE>
<CAPTION>
Witnessed by: Northeast Utilities Service Company
<S> <C>
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
------------------------------- ---------------------------------------------
Name: David H. Boguslawski
Title: Vice President- Energy Delivery
The Connecticut Light and Power
Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
------------------------------- ---------------------------------------------
Name: David H. Boguslawski
Title: Vice President- Energy Delivery
Western Massachusetts Electric
Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
------------------------------- ---------------------------------------------
Name: David H. Boguslawski
Title: Vice President- Energy Delivery
Public Service Company of New
Hampshire
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
------------------------------- ---------------------------------------------
Name: David H. Boguslawski
Title: Vice President- Energy Delivery
NECOM LLC
By: Its Manager, FiveCom, Inc.
/s/ Anna Strannen By: /s/ Victor Colantonio
------------------------------- ---------------------------------------------
Name: Victor Colantonio
Title: President
</TABLE>
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<PAGE>
CONSENT AND JOINDER
Reference is made to the foregoing Amended and Restated Agreement of
even date herewith among Northeast Utilities Service Company, et al., and NECOM
LLC.
WHEREAS, terms defined in the aforesaid agreement and not defined
herein shall have the meaning ascribed to them in said agreement; and
WHEREAS, FiveCom assigned all of its rights and obligations under the
Prior Agreement to FiveCom LLC, a Massachusetts limited liability company, and
FiveCom LLC accepted such assignment and assumed such obligations by an
Assignment and Assumption dated as of May 23, 1996; and
WHEREAS, FiveCom LLC further assigned such rights and obligations to
Grantee in such Assignment and Assumption dated May 23, 1996; and
WHEREAS, such assignments required the consent of Grantor, and as a
condition of providing such consent, Grantor required that FiveCom LLC would
remain jointly and severally responsible for certain of Grantee's obligations
under the Prior Agreement; and
WHEREAS, notwithstanding the assignment to Grantee, FiveCom LLC remains
obligated to perform Grantee's obligations under said Agreement; and
WHEREAS, FiveCom LLC acknowledges the benefits to Grantee, and to those
obligated to perform Grantee's obligations under the Agreement, of the
provisions of said Amended and Restated Agreement.
NOW, THEREFORE, in consideration of the foregoing, FiveCom LLC hereby
consents to, approves of, and agrees to be jointly and severally bound by the
provisions of the aforesaid Amended and Restated Agreement, including, without
limitation, the provisions of Sections 5.5, 6.1, 7.3, 8.5, 13.3, 16.3, 21.2,
22.1, 22.3, 24.1, 27.1, 28 and 33.1, with the same force and effect and in the
same manner as under the terms of the Prior Agreement prior to said assignment.
For purposes of said Sections, the term "Grantee" shall be read and interpreted
to include FiveCom LLC.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement this 27th day of
February, 1998.
Witnessed by: FiveCom LLC
By: Its Manager, FiveCom, Inc.
/s/ Elizabeth Arcand By: /s/ Victor Colatonio
------------------------------- ---------------------------
Name: Victor Colantonio
Title: President
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<PAGE>
EXHIBIT 2.7
EXISTING AND INSTALLED CABLE
[**]
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 3.26
THE ROUTE
The Route for the Cable consisting of NUNet and NEON are represented on Map 1 as
the Route connecting [**].
A routing option for the Grantor exists between a) [**] and B) [**].
[Map of Cable Route]
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<PAGE>
Exhibit 3.26
[**]
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<PAGE>
EXHIBIT 3.28
CABLE ACCEPTANCE AND PERFORMANCE SPECIFICATIONS
CABLE ACCEPTANCE
Cable inspections will be performed in compliance with manufacturer's
specifications at 1300 and 1550 nm. Tests will include OTDR continuity tests,
reports with photos when necessary, and the following two directional tests.
a. Reel testing of all cable after the final handling by the
transport company.
b. Reel testing at the installation staging site prior to the
installation of all static wire fibers.
c. Splice testing for each splice point in two directions.
d. End to end testing for each Route Segment, or portion thereof,
after installation. (See typical test report in Supplemental
documents)
Cable acceptance and test reports shall be prepared in two original versions,
one set each for the Grantor and Grantee.
Maintenance and cable specifications of Alcoa Fujikura Limited and Corning
AN-121 are incorporated in this exhibit by this reference as additional
specifications.
CABLE PERFORMANCE SPECIFICATIONS
Cable performance specifications shall comply with manufacturer's
specifications. The performance shall be within the tolerances of the total loss
budgets for each Route Segment or portion thereof. The cable shall comply with
the appropriate performance requirements of DS1, DS3, and SONET equipment as to
throughput (BER) and attention (loss) and for end to end performance.
FiveCom, Inc. DS1, DS3 & SONET Performance Specifications, as of July 1994 are
incorporated in this exhibit by this reference as additional specifications.
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<PAGE>
EXHIBIT 3.28
FIVECOM DS1, DS3 & SONET PERFORMANCE PARAMETERS
Error Free Seconds 98.75%
(measured over any 24 hour period)
Severely Errored Seconds LTE 5
(measured one-way per 24 hour period)
Availability 99.925%
(measured over 12 consecutive months)
Acceptance Limits LTE 20 ES
(15 minute loop back)
Operational Maintenance Limits GTE 20 ES
(15 minute loop back)
Immediate Action Limits GTE 60 ES
(measured in loop back) in any 5 minute interval
Note:
Performance is based on BellCore Technical Standard PUB 62508 Definitions
ES - Errored Seconds
LTE - Less than or equal to
GTE - Greater than or equal to
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<PAGE>
EXHIBIT 3.28
FiveCom, Inc. DS1, DS3 & SONET Performance Specifications July 1994
1. This listing defines the performance objectives for DS-1, DS-3 and SONET
circuits provisioned on NEON. Maintenance procedures will meet these performance
objectives
2. Partial List of Compliance to Cited References:
a. ANSI T1 102-1987 (Electrical Signal Interfaces)
ANSI T1 403, 1989
ANSI T1, 404, 1989
b. AT&T Technical Reference, TR 62415, 6/89 c. Bellcore TR-TSY-000499,
Issue 3, 12/89.
Bellcore TR-TSY 000020, Issue 4, 12/89. Bellcore TR-NWT -
000063, Issue 4, 7/91 (Ambient Conditions) Bellcore TR-NWT-
000253, Issue 2, (Jitter)
d. Corning Incorporated AN-121, 6/90 (SM Splicing)
e. ESCA - SONET Rates and Format, T1X1 5 3/88
f. MCI-MCIT 051-450-3500 Doc. #023-0024-01-OF-ES, 8/19/91 (DSI&DS3
Performance)
g. Northern Telecom, Publication #323-1201-180, Doc Rel. 7 Std., 1/94
(OC-SONET
h. OSHA Part 1910, (Title 29 Ch. XVII, DoL) (Labeling) OSHA 1970
(Acoustic Noise)
l. UL 1459 (Telephone Equip)
UL 94 (Flammability)
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<PAGE>
Exhibit 5.3
Map of Network Expansion Route
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<PAGE>
EXHIBIT 10.1
MAINTENANCE SPECIFICATIONS
MAINTENANCE SPECIFICATIONS
1. Applicable maintenance and service procedures of Grantor for outside plant
and electrical distribution systems are incorporated in this Exhibit by the
reference as maintenance specifications.
2. The following are incorporated by this reference as additional maintenance
specifications:
a. The maintenance procedures and service schedules of both the
Cable and equipment manufacturers.
b. Applicable Bellcore and Bell Practices maintenance standards.
c. All relevant OSHA practices.
d. As to NEON:
i. All applicable AT&T maintenance practices and services
procedures.
ii. All applicable MCI maintenance practices and services
procedures.
iii. All applicable Sprint maintenance practices and service
procedures.
iv. All applicable WilTel maintenance practices and service
procedures.
v. All applicable NYNEX maintenance practices and services
procedures.
vi. All applicable SNET maintenance practices and service
procedures.
vii. All maintenance and repair procedures, standards and
practices of Dig Safe and The Common Carriers
Steering Committee Northeast Region
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<PAGE>
e. FiveCom, Inc. DSl, DS3 and SONET performance specifications
for circuit availability as of July 1994.
f. The performance specifications of Alcoa Fujikura Limited.
g. FiveCom's service and emergency restoration policies and
procedures as are from time to time in effect.
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EXHIBIT 11.1
REQUEST FOR RELOCATION
Request No.___________________
Date:_________________________
To: Northeast Utilities Service Company
In accordance with the terms of the Agreement between us dated ________________
request is hereby made for Cable relocation on Structures as indicated on the
attachment hereto.
Name__________________________
By:___________________________
Title:________________________
Grantee
Such of the Structures indicated on the reverse hereof can be made available for
Cable attachment thereto subject to your acceptance of necessary changes and
rearrangement at an estimated cost to you of $____ payable in accordance with
the terms of the Agreement.
Northeast Utilities Service Company
By:_________________________ Date:______________________
Title:________________________
Grantor
The above changes and rearrangements are accepted.
Name_______________________
By:_________________________ Date:_____________
Title:_______________________
Grantee
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 28
EXEMPT PROSPECTS
[**]
-51-
Exhibit 10.25
Phase One
February 25, 1998
SHORT FORM
AGREEMENT FOR THE PROVISION OF
FIBER OPTIC FACILITIES AND SERVICES
1. PREAMBLE
This Agreement is entered into on February 27, 1998 between Northeast Utilities
Service Company, a specially chartered Connecticut corporation, The Connecticut
Light and Power Company, a Connecticut corporation, Western Massachusetts
Electric Company, a Massachusetts corporation, and Public Service Company of New
Hampshire, a New Hampshire corporation, (collectively "Grantor") and NECOM LLC,
a Massachusetts limited liability company (the "Grantee").
2. RECITALS
2.1 WHEREAS, Grantor is the owner of transmission structures, subtransmission
structures, conduits, and associated civil works ("Structures") and has certain
rights to use easements and/or rights of way within which the Structures are
located in the State of Connecticut, the Commonwealth of Massachusetts, the
State of Maine and the State of New Hampshire as part of Grantor's electric
transmission system;
2.2 WHEREAS, Grantee seeks to use certain of the Structures to install a fiber
optic cable which will consist of not less than 48 and not more than 144
singlemode fiber optic filaments, at least 36 of which will be used by Grantee
for its communication system and 12 of which will be used by Grantor for its
communication system or otherwise as permitted by this Agreement; and
2.3 WHEREAS, the parties have entered into an agreement of even date relating to
portions of Cable, hereinafter defined, installed after the date hereof; and
2.4 WHEREAS, Grantor is willing to grant the use of certain of its Structures
for the purposes described in clause 2.2 and to grant the use of certain of the
fiber optic filaments in the fiber optic cable, once it is installed, in
exchange for the payment of certain annual fees and the right of use of 12
singlemode fiber optic filaments.
NOW THEREFORE, in consideration of the mutual covenants, terms, and conditions
contained in this Agreement, the parties agree as follows:
<PAGE>
3. DEFINITIONS
3.1 Activation Date - The date on which the Cable on a Route Segment is accepted
by the parties as operational.
3.2 Cable - Fiber optic filaments consisting of either NUNet, NEON, or both, and
any suitable core, jacketing or sheath.
3.3 Grantee's Space - Floor space to be provided to Grantee by Grantor, as
available in the sole judgment of Grantor, in existing facilities or in New
Buildings of Grantor along the Route for the placement of Equipment to be used
solely in connection with NEON.
3.4 Grantor's Space - Floor space to be provided to Grantor by Grantee in New
Buildings or facilities of Grantee for the placement of Equipment to be used
solely in connection with NUNet.
3.5 NEON - The fiber optic filaments in the Cable (other than the 12 fibers to
be used by Grantor as NUNet), Grantee's Equipment and Grantee's Space.
3.6 NUNet - Twelve fiber optic filaments in one or more single color-coded tubes
within the Cable, Grantor's Equipment and Grantor's Space.
3.8 Route - That portion of Grantor's transmission route designated in Exhibit
3.26 attached to the Complete Agreement referred to in Section 8.1.
3.9 Route Segment - A portion of the Route between any two of the numbered
points set forth in Exhibit 3.26 attached to the Complete Agreement referred to
in Section 8.1. The Route Segment includes a location within the cities or towns
and counties listed in Exhibit 3.10.
4. Grantee'S RIGHT TO USE; OBLIGATION TO BUILD
4.1 Grant of Right. Grantor grants to Grantee the indefeasible right of use of
the fiber optic filaments within the Cable as it is placed on the Grantor's
Structures, except for the 12 fiber optic filaments reserved for the Grantor's
use.
4.2 Limitation on Use. Grantee shall use NEON solely to serve its customers in
accordance with applicable state and federal regulations.
4.3 Other Cables/Facilities. This Agreement shall not be construed as limiting
or restricting Grantor in any manner from using its structures, easements and/or
rights of way for the installation of its fiber optic cables or
telecommunication facilities for its own use or that of third parties.
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<PAGE>
5. OWNERSHIP OF THE CABLE
5.1 Title. Legal title to the Cable and to any item of Equipment installed upon
the Grantor's Structures shall be held by Grantor. With respect to the Cable and
NUNet, Grantor shall have absolute legal and beneficial ownership, subject to
certain restrictions set forth in the Complete Agreement. With respect to the
NEON fibers installed upon the Grantor's Structures, Grantor shall hold legal
title to the same as Grantee's nominee and, with respect to such property,
Grantee shall have the right of use granted in Section 4 of this Agreement and
will be the beneficial owner.
5.2 Reversion of Beneficial Ownership. Grantee's right of use under Section 4 of
this Agreement and beneficial ownership of NEON shall revert to the Grantor upon
termination of this Agreement or of any applicable Route Segment.
6. TERM AND TERMINATION
6.1 Period. The term of this Agreement shall be for a period (the "Term")
commencing on September 27, 1994 and ending on September 27, 2024 ("the Ending
Date") and shall automatically renew on September 27, 2024 and thereafter for
five year periods until terminated by either party upon notice given one year or
more prior to September 27, 2024 or any renewal date thereafter.
7. SHORT FORM; INCONSISTENCIES
7.1 Short Form. The parties have entered into another agreement of even date
regarding the same subject matter which other agreement contains further
provisions concerning the relationships between the parties (the "Complete
Agreement"). This Agreement is a shortened form of the Complete Agreement and is
created solely for the purpose of recording or filing it in appropriate public
records. In the event of any inconsistencies between this Agreement and the
Complete Agreement, the provisions of the Complete Agreement shall control.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
<TABLE>
<CAPTION>
Witnessed by: Northeast Utilities Service Company
<S> <C>
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print Name: David H. Boguslawski
Title: Vice President - Energy Delivery
The Connecticut Light and Power
Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print Name: David H. Boguslawski
Title: Vice President - Energy Delivery
Western Massachusetts Electric
Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print Name: David H. Boguslawski
Title: Vice President - Energy Delivery
Public Service Company of New
Hampshire
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print Name: David H. Boguslawski
Title: Vice President - Energy Delivery
NECOM LLC, by its
Manager FiveCom,
Inc.
/s/ Anna Strannen By: /s/ Victor Colantonio
---------------- -----------------------------------------
Print Name: Victor Colantonio
Title: President
</TABLE>
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<PAGE>
State of Connecticut February 26, 1998
County of Hartford, ss. Berlin
Personally appeared David H. Boguslawski, the Vice President of
Northeast Utilities Service Company, and acknowledged the foregoing instrument
to be the free act and deed of Northeast Utilities Service Company, before me,
/s/ Deborah A. Taurel
---------------------------------
affix notarial print name:
seal Notary Public
My Commission expires: 12/31/2000
State of Connecticut February 26, 1998
County of Hartford, ss. Berlin
Personally appeared David H. Boguslawski, the Vice President of The
Connecticut Light and Power Company, and acknowledged the foregoing instrument
to be the free act and deed of The Connecticut Light and Power Company, before
me,
/s/ Deborah A. Taurel
---------------------------------
affix notarial
seal Notary Public
My Commission expires: 12/31/2000
State of Connecticut February 26, 1998
County of Hartford, ss. Berlin
Personally appeared David H. Boguslawski, the Vice President of Western
Massachusetts Electric Company and acknowledged the foregoing instrument to be
the free act and deed of Western Massachusetts Electric Company, before me,
/s/ Deborah A. Taurel
---------------------------------
affix notarial
seal Notary Public
My Commission expires: 12/31/2000
-5-
<PAGE>
State of Connecticut February 26, 1998
County of , ss.
Personally appeared David H. Boguslawski, the Vice President of Public
Service Company of New Hampshire, and acknowledged the foregoing instrument to
be the free act and deed of Public Service Company of New Hampshire, before me,
/s/ Deborah A. Taurel
affix notarial ---------------------------------
seal
Notary Public
My Commission expires: 12/31/2000
State of Massachusetts ,1998
County of , ss.
Personally appeared ________________________, the
______________________ of NECOM LLC, and acknowledged the foregoing instrument
to be the free act and deed of NECOM LLC, before me,
affix notarial ---------------------------------
seal
Notary Public
My Commission expires: 12/31/2000
-6-
<PAGE>
EXHIBIT 3.10
Cities or Towns and Counties in which the Route Segment is located and in which
this agreement is to be filed or recorded
<TABLE>
<CAPTION>
State County Municipality
- ----- ------ ------------
<S> <C> <C>
CONNECTICUT Hartford East Hartford
East Windsor
Hartford
Manchester
South Windsor
Tolland Ellington
Somers
MASSACHUSETTS Hampden Chicopee
Hampden
Ludlow
Springfield
Wilbraham
NEW HAMPSHIRE Hillsborough Bedford
Goffstown
Hudson
Litchfield
Manchester
Merrimack
Nashua
Merrimack Hooksett
Rockingham Candia
Deerfield
Londonderry
Nottingham
Strafford Barrington
Dover
Durham
-7-
<PAGE>
State County Municipality
NEW HAMPSHIRE Strafford Lee
Madbury
</TABLE>
-8-
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
AMENDED AND RESTATED AGREEMENT FOR THE PROVISION
OF FIBER OPTIC FACILITIES AND SERVICES
BETWEEN
NORTHEAST UTILITIES SERVICE COMPANY,
THE CONNECTICUT LIGHT AND POWER COMPANY,
WESTERN MASSACHUSETTS ELECTRIC COMPANY,
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE,
AND
NECOM LLC
AS OF
February 27, 1998
PHASE TWO
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PREAMBLE.................................................................................................1
2. RECITALS.................................................................................................1
3. DEFINITIONS..............................................................................................2
3.1 Activation Date.................................................................................2
3.2 Actual Cost.....................................................................................2
3.3 Annual Fee......................................................................................2
3.4 Cable...........................................................................................2
3.5 Cable Accessories...............................................................................2
3.6 Claims..........................................................................................2
3.7 Demarcation Point...............................................................................2
3.8 Ending Date.....................................................................................3
3.9 Equipment.......................................................................................3
3.10 [**] Rates......................................................................................3
3.11 Force Majeure Events............................................................................3
3.12 NECOM...........................................................................................3
3.13 NECOM's Space...................................................................................3
3.14 NU..............................................................................................3
3.15 NU's Space......................................................................................3
3.16 NU's Territory..................................................................................3
3.17 In Service Date.................................................................................3
3.18 Make Ready Work.................................................................................3
3.19 NEON............................................................................................3
3.20 Network Addition................................................................................3
3.21 New Buildings...................................................................................4
3.22 NUNet...........................................................................................4
3.23 Periodic Inspection.............................................................................4
3.24 Program Managers................................................................................4
3.25 Proprietary Information.........................................................................4
3.26 Route...........................................................................................4
3.27 Route Segment...................................................................................4
3.28 Specifications..................................................................................4
3.29 Structures......................................................................................4
3.30 Term............................................................................................4
3.31 Third Party.....................................................................................4
3.32 Indefeasible Right of Use (or IRU)..............................................................4
-ii-
<PAGE>
4. NECOM'S RIGHT OF USE; OBLIGATION TO BUILD................................................................5
4.1 Right of Use....................................................................................5
4.2 Grant Subject to Security Interests.............................................................5
4.3 Limitation on Use...............................................................................5
4.4 Obligation to Build.............................................................................5
4.5 Cable Measurement...............................................................................5
4.6 Other Cables/Facilities.........................................................................5
4.7 Warranty........................................................................................5
4.8 Reservation of Security Interest................................................................6
5. MODIFICATIONS TO THE ROUTE...............................................................................6
5.1 Additional Route Segments Designated by NU......................................................6
5.2 Intentionally Omitted...........................................................................6
5.3 Additional Route Segments Designated By NECOM...................................................6
5.4 Cost and Means of Right of Way Acquisitions.....................................................6
5.5 NECOM's Right to Build and Connect Third Party Segments.........................................7
5.6 Third Party Connections.........................................................................7
5.7 Connection Grants...............................................................................7
6. ENGINEERING AND DESIGN...................................................................................8
6.1 NU's Obligations................................................................................8
6.2 NECOM's Obligations.............................................................................8
7. MAKE READY WORK..........................................................................................8
7.1 Responsibility for Performance..................................................................8
7.2 Condition of Structures.........................................................................9
7.3 Costs...........................................................................................9
8. INSTALLATION.............................................................................................9
8.1 NECOM's Right to Select Contractors.............................................................9
8.2 NECOM's Right to Issue Specifications...........................................................9
8.3 NU's Installation Obligations...................................................................9
8.4 New Buildings..................................................................................10
8.5 State Fees.....................................................................................10
8.6 Public Rights of Way...........................................................................10
9. POINT OF DEMARCATION; BUILDING EXTENSIONS...............................................................10
9.1 Marking........................................................................................10
9.2 Building Extensions............................................................................10
10. MAINTENANCE.............................................................................................11
10.1 NECOM's Obligations............................................................................11
10.2 NU's Obligations...............................................................................11
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<PAGE>
11. RELOCATION, REPLACEMENT, REBUILDS OF THE CABLE..........................................................11
11.1 By NECOM.......................................................................................11
11.2 By NU..........................................................................................11
11.3 Emergency Relocations; Third Party Relocations.................................................12
11.4 Cable Failure; NUNet Equipment.................................................................12
12. CONSTRUCTION, MAINTENANCE AND REMOVAL OF THE CABLE......................................................12
12.1 Interference With Other Joint Users............................................................12
12.2 NU's Approval of Third Party Work..............................................................13
12.3 NU's Right to Maintain Service.................................................................13
12.4 Notice.........................................................................................13
12.5 Emergency Use of NU's Property.................................................................13
12.6 Return of Removed Material.....................................................................13
13. PERIODIC INSPECTIONS....................................................................................13
13.1 By NU..........................................................................................13
13.2 NECOM's Obligations............................................................................14
13.3 Cost...........................................................................................14
14. APPROVALS AND CONSULTATION..............................................................................14
14.1 Role of Program Managers.......................................................................14
14.2 Definition of Consultation/Cooperation and Approval............................................14
15. OWNERSHIP OF THE CABLE..................................................................................14
15.1 Title; Tax Accounting..........................................................................14
15.2 Vesting of Title in NU.........................................................................15
16. USE OF THE CABLE BY NU..................................................................................15
16.1 Fibers and Use.................................................................................15
16.2 Option to Purchase Additional Fibers...........................................................16
16.3 Additional Service.............................................................................16
16.4 Space in NECOM's Locations.....................................................................16
17. CASUALTY................................................................................................17
18. REPRESENTATIONS AND WARRANTIES..........................................................................17
18.1 Common Representations.........................................................................17
18.2 Representations by NU..........................................................................17
18.3 Representation by NU As To Structures..........................................................18
18.4 Representation by NU As to Right to Place Cable................................................18
18.5 Work Clearances and Related Delays.............................................................18
18.6 Representations by NECOM.......................................................................18
-iv-
<PAGE>
19. INSURANCE...............................................................................................18
20. NECOM'S BOND............................................................................................19
20.1 Bond...........................................................................................19
20.2 Affect of Bond.................................................................................19
21. TERM AND TERMINATION....................................................................................19
21.1 Period.........................................................................................19
21.2 Payment to NECOM...............................................................................19
21.3 Early Termination of Agreement.................................................................19
21.4 Termination of Route Segment...................................................................20
21.5 Cost Reimbursement.............................................................................20
22. ANNUAL FEE..............................................................................................21
22.1 Amount.........................................................................................21
22.2 CPI Adjustments................................................................................21
22.3 Additional Amounts.............................................................................22
22.4 When Due.......................................................................................22
22.5 Initial Annual Fee.............................................................................22
22.6 Right to Withhold..............................................................................22
23. FORCE MAJEURE...........................................................................................22
23.1 Optional Termination...........................................................................22
23.2 Suspension Pending Force Majeure...............................................................23
24. PROPRIETARY INFORMATION.................................................................................23
24.1 Obligation to Maintain as Confidential.........................................................23
24.2 Route Constitutes Proprietary Information......................................................23
25. ACCESS AND SECURITY.....................................................................................23
25.1 Access by NU...................................................................................23
25.2 Access by NECOM................................................................................24
25.3 Access by NECOM to NEON Space..................................................................24
25.4 NECOM's Work...................................................................................25
26. NO JOINT VENTURE; COSTS.................................................................................25
26.1 Relationship...................................................................................25
26.2 Costs..........................................................................................25
27. PUBLICITY AND ADVERTISING...............................................................................25
27.1 Limitations....................................................................................25
27.2 Exceptions.....................................................................................26
28. MARKETING RELATIONSHIP..................................................................................26
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<PAGE>
29. SEVERABILITY............................................................................................26
30. LABOR RELATIONS.........................................................................................27
30.1 Notice by NU...................................................................................27
30.2 Notice by NECOM................................................................................27
30.3 Determination by NECOM.........................................................................27
30.4 Determination by NU............................................................................27
31. CONSENTS AND WAIVERS....................................................................................27
32. TAXES AND GOVERNMENTAL CHARGES..........................................................................28
33. INDEMNIFICATION.........................................................................................29
33.1 By NECOM.......................................................................................29
33.2 Indemnification Procedures.....................................................................29
33.3 Limitation of NU Liability.....................................................................29
33.4 Limitation of NECOM Liability..................................................................29
34. DEFAULT.................................................................................................30
35. ASSIGNMENT..............................................................................................30
35.1 By NECOM.......................................................................................30
35.2 Change of Control..............................................................................30
35.3 NU's Right to Pledge Agreement and Transfer Property...........................................30
35.4 NECOM's Right to Pledge Agreement and Lease Fibers.............................................31
35.5 Right to Assign................................................................................31
36. APPROVALS, PERMITS, AND CONSENTS........................................................................31
36.1 NECOM's Obligations............................................................................31
36.2 Opinion........................................................................................31
36.3 NU's Obligations...............................................................................31
37. NOTICES.................................................................................................32
37.1 Form and Address...............................................................................32
37.2 How Sent.......................................................................................32
37.3 Damage Notification............................................................................32
38. DISPUTE RESOLUTION......................................................................................33
38.1 Arbitration....................................................................................33
38.2 Award; Costs...................................................................................34
39. EXERCISE OF RIGHT.......................................................................................34
39.1 No Waiver. ..................................................................................34
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<PAGE>
39.2 NECOM's Self Help Rights. ....................................................................34
40. ADDITIONAL ACTIONS AND DOCUMENTS........................................................................34
41. SURVIVAL................................................................................................35
42. HEADINGS................................................................................................35
43. INCORPORATION OF EXHIBITS...............................................................................35
44. COUNTERPARTS............................................................................................35
45. APPLICABLE LAW..........................................................................................35
46. PRIOR AGREEMENTS........................................................................................35
EXHIBIT 3.26 - THE ROUTE.........................................................................................39
EXHIBIT 3.28 - CABLE ACCEPTANCE AND PERFORMANCE SPECIFICATIONS...................................................42
EXHIBIT 3.28 - FIVECOM DS1, DS3 & SONET PERFORMANCE
PARAMETERS.......................................................................................................43
EXHIBIT 4.8 - Form of Security Agreements........................................................................45
EXHIBIT 10.1 - MAINTENANCE SPECIFICATIONS........................................................................61
EXHIBIT 11.1 - REQUEST FOR RELOCATION............................................................................63
EXHIBIT 28 - EXEMPT PROSPECTS....................................................................................64
</TABLE>
-vii-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AGREEMENT FOR THE PROVISION OF
FIBER OPTIC FACILITIES AND SERVICES
1. PREAMBLE
This Agreement is entered into on February 27, 1998 between Northeast Utilities
Service Company, a specially chartered Connecticut corporation, The Connecticut
Light and Power Company, a Connecticut corporation, Western Massachusetts
Electric Company, a Massachusetts corporation, and Public Service Company of New
Hampshire, a New Hampshire corporation, (collectively, "NU") and NECOM LLC, a
Massachusetts limited liability company ("NECOM").
2. RECITALS
2.1 WHEREAS, NU is the owner of transmission structures, subtransmission
structures, conduits, and associated civil works ("Structures") and has certain
rights to use easements and/or rights of way within which the Structures are
located in the State of Connecticut, the Commonwealth of Massachusetts, the
State of Maine and the State of New Hampshire as part of NU's electric
transmission system;
2.2 WHEREAS, NECOM seeks to use certain of the Structures to install a fiber
optic cable which will consist of [**] and [**] fiber optic filaments, [**] of
which will be used by NECOM for its communication system [**] of which will be
used by NU for its communication system or otherwise as permitted by this
Agreement; and
2.3 WHEREAS, NU and FiveCom, Inc., a Massachusetts corporation ("FiveCom")
entered into an Agreement for the Provision of Fiber Optic Facilities and
Services dated September 27, 1994 (the "1994 Agreement"); and
2.4 WHEREAS, the 1994 Agreement was amended pursuant to letter agreement among
NU and FiveCom dated February 23, 1996, which amendments are reflected in
Sections 16.1, 16.3, 28 and 32 of this Agreement (the 1994 Agreement as so
amended is herein called the "Prior Agreement"); and
2.5 WHEREAS, the rights and obligations of FiveCom under the Prior Agreement
were assigned to NECOM by an Assignment and Assumption Agreement dated as of May
23, 1996; and
2.6 WHEREAS, in order for NECOM to obtain financing for continued development of
NEON on the Route, NECOM's lenders require that NECOM have not only the
indefeasible right of use for NEON but also hold legal title to the portions of
NEON in Cable that is installed on or after the date hereof; and
2.7 WHEREAS, the parties have agreed to an arrangement by which it is not
detrimental to NU that legal title to the portions of NEON in Cable that is
installed
<PAGE>
on or after the date hereof and not reflected on Exhibit 2.7 to the Phase One
Agreement (as defined below) be vested in NECOM; and
2.8 WHEREAS, the continued effectiveness of this Agreement and installation of
the Cable is advantageous to the parties, and that one of the benefits to NU is
the expansion of NUNet at the expense of NECOM; and
2.9 WHEREAS, the parties have entered into an agreement of even date (the "Phase
One Agreement") relating to portions of NEON in Cable installed prior to the
date hereof; and
2.10 WHEREAS, NU and NECOM desire to amend and restate the Prior
Agreement; and
2.11 WHEREAS, NU is willing to permit the use of certain of its Structures for
the purposes described in clause 2.2 in exchange for title to the Cable as and
to the extent set forth in Sections 15.1 and 15.2, the use of 12 singlemode
fiber optic filaments and the payment of certain annual fees.
NOW THEREFORE, in consideration of the mutual covenants, terms, and conditions
contained in this Agreement, the parties agree as follows:
3. DEFINITIONS
3.1 Activation Date - The date on which the Cable on a Route Segment is accepted
by the parties as operational in accordance with the acceptance specifications
set forth in Exhibit 3.28.
3.2 Actual Cost - Reasonable direct cost plus appropriate overhead cost but
without other mark-up or profit.
3.3 Annual Fee - See Section 22.1.
3.4 Cable - Fiber optic filaments consisting of either NUNet, NEON, or both, and
any suitable core, jacketing or sheath.
3.5 Cable Accessories - The attachment and suspension hardware, splice closures
and other components necessary either for the placement of the Cable or for the
continuity of the fiber filaments within the Cable but excluding antennas or
other communication devices whether or not attached to the Structures or to the
Cable.
3.6 Claims - See Section 33.1.
3.7 Demarcation Point - See Section 9.1.
-2-
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
3.8 Ending Date - See Section 21.1.
3.9 Equipment - The power equipment, electronic and optronic equipment,
including, without limitation, repeaters, junctions, patch panels, alarm
monitoring equipment and other equipment necessary to provide a network of fiber
optic transmission capacity located on the network side of the Demarcation
Point. The word "equipment" when not capitalized, refers to equipment of any
type.
3.10 [**] Rates - See Section 16.3.
3.11 Force Majeure Events - See Section 23.1.
3.12 NECOM - See Section 1.
3.13 NECOM's Space - Floor space to be provided to NECOM by NU, as available in
the sole judgment of NU, in existing facilities or in New Buildings of NU along
the Route for the placement of Equipment to be used solely in connection with
NEON.
3.14 NU - See Section 1.
3.15 NU's Space - Floor space to be provided to NU by NECOM in New Buildings or
facilities of NECOM for the placement of Equipment to be used solely in
connection with NUNet.
3.16 NU's Territory - The geographical areas where NU provides retail or
wholesale electric service; owns or operates electric transmission facilities
or, has obtained rights, interests or permissions which would allow the Cable to
be installed in such areas.
3.17 In Service Date - A date after the Activation Date when the NEON fibers are
transmitting light from a revenue producing customer including, without
limitation, NU.
3.18 Make Ready Work - See Section 7.1.
3.19 NEON - The fiber optic filaments in the Cable (other than the 12 fiber
optic filaments to be used by NU as NUNet), NECOM's Equipment and NECOM's Space.
3.20 Network Addition - Any subsequent NU designated Route Segment not initially
included in the Route.
-3-
<PAGE>
3.21 New Buildings - Buildings and shelters, including repeater housings that
are to be constructed, erected or positioned on real property to house NECOM's
and/or NU's Equipment of which either NU or NECOM is the fee simple owner or
lessee.
3.22 NUNet - Twelve fiber optic filaments in one or more single color-coded
tubes within the Cable, NU's Equipment and NU's Space.
3.23 Periodic Inspection - The inspections conducted at irregular intervals by
NU on all or portions of the Route for the sole purpose of determining that
NECOM's occupancies of NU's property is as authorized and is maintained in
conformance with the terms and conditions contained in this Agreement.
3.24 Program Managers - See Section 14.1.
3.25 Proprietary Information - See Section 24.1.
3.26 Route - That portion of NU's transmission route designated in Exhibit 3.26
to this Agreement, as it may be amended from time to time by written agreement
of the parties.
3.27 Route Segment - A portion of the Route between any two of the numbered
points set forth in Exhibit 3.26.
3.28 Specifications - The acceptance and performance specifications for the
Cable set forth in Exhibit 3.28.
3.29 Structures - See Section 2.1.
3.30 Term - See Section 21.1.
3.31 Third Party - Any party, person or entity that is not a signatory to this
Agreement or an affiliate (as that term is defined under the Securities Act of
1933, as amended) of a signatory and any party, person, or entity that is not a
successor or permitted assignee of the signatories hereto.
3.32 Indefeasible Right of Use (or IRU) - An indefeasible right of use, for the
use of NEON in accordance with the purposes described herein, in NU's
Structures, Space and the Route, as set forth in Section 4.1, including without
limitation, all of the rights and privileges of an Indefeasible Right of Use as
generally understood and interpreted in the communications industry as an
exclusive ownership right relating to communication transmission capacities and
facilities.
-4-
<PAGE>
4. NECOM'S RIGHT OF USE; OBLIGATION TO BUILD
4.1 Right of Use. The parties will install, or cause to be installed, the Cable
in accordance with the provisions of this Agreement. Upon installation on or
after the date of this Agreement with respect to the Cable on a Route Segment or
alternate path, NECOM shall have an Indefeasible Right of Use, for the purposes
described herein, in that Route Segment or alternate path and in NU's Structures
and Space for the operation of NEON, for the Term defined in Section 21.1 and on
the terms and subject to the conditions set forth herein.
4.2 Grant Subject to Security Interests. NU has granted to Third Parties
security interests in certain of its real and personal property and releases,
approvals and waivers may therefore be required from the Third Parties as a
result of the provisions of Section 4.1. NU agrees to use its best efforts to
secure nondefeasance agreements or other releases, approvals and waivers from
these Third Parties as may be required or permitted under the terms of the
applicable security agreements within nine months from the date of this
Agreement; provided, however, that if such releases, approvals or waivers cannot
be obtained because the Cable has not been installed on the Structures then the
nine month period shall commence upon such installation.
4.3 Limitation on Use. NECOM shall use NEON solely to serve its customers in
accordance with the applicable state and federal regulations.
4.4 Obligation to Build. Both parties agree to use their best efforts to install
the Cable on the Route according to a schedule to be subsequently agreed upon by
the parties but in any case by September 27, 1999. The parties' obligations
under this Section 4.4 shall be subject to manufacturing or supplier delays,
governmental regulatory delays and delays caused by NU as a supplier of services
or layout equipment under the terms of this Agreement or as a result of NU's
obligation to maintain reliable electric service.
4.5 Cable Measurement. All of the Cable upon the Route Segments shall be
measured on a linear footage basis, using the right-of-way monumented
line-of-location stationing, when available.
4.6 Other Cables/Facilities. This Agreement shall not be construed as limiting
or restricting NU in any manner from using its structures, easements and/or
rights of way for the installation of its fiber optic cables or
telecommunication facilities for its own use or that of Third Parties.
4.7 Warranty. Subject to the terms and conditions of this Agreement, NU warrants
that it shall not interfere with nor disturb NECOM in its use and full enjoyment
of NECOM's Indefeasible Right of Use set forth in Section 4.1.
-5-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
4.8 Reservation of Security Interest. NECOM reserves a security interest in
NUNet, and all products and proceeds thereof, as security for NU's performance
of its obligations under Section 4.7 of this Agreement, and NU shall confirm
such reservation by executing and delivering to NECOM a security agreement in
the form attached as Exhibit 4.8. NECOM, or any assignee or purchaser from
NECOM, shall have an Indefeasible Right of Use in NU's Structures, Space and
Route for the operation of NUNet in the event NUNet is acquired by NECOM, or any
assignee or purchaser from NECOM, pursuant to such security agreement.
5. MODIFICATIONS TO THE ROUTE
5.1 Additional Route Segments Designated by NU. If NU shall determine the need
for any Network Additions from Third Parties, [**]. If, for any reason, [**] on
the terms requested by NU, NU shall [**]. If NU shall [**]. NECOM shall pay the
incremental cost of material necessary to provide such fibers. If NU does [**]
NU shall [**] under this Section 5.1 [**].
5.2 Intentionally Omitted.
5.3 Additional Route Segments Designated By NECOM. If NECOM wishes to extend the
Route by installing Cable on transmission facilities marked in red on Exhibit
5.3 (Network Expansion) or if any Route Segment requires material modifications
or unusual expense to make it available for the Cable or if NU withdraws Route
Segments pursuant to Section 5.2 or Section 21.4, then NECOM shall have the
right, subject to NU's approval, to designate additional Route Segments, or an
alternative path, for the Cable on Structures or property of NU by submitting a
request in the form of Exhibit 11.1. NU shall not withhold its approval of such
additional Route Segments unless such additional Segments would materially
adversely affect NU's ability to provide reliable electric service, cause or
create safety problems or not be feasible for structural reasons.
5.4 Cost and Means of Right of Way Acquisitions. NECOM shall be responsible for,
and NU shall cooperate in, the acquisition of any easement or right-of-way
rights that may be required in order to permit (i) the installation, operation
and maintenance of the Cable on the Route or (ii) the ownership and use of the
NEON fibers by NECOM. [**], if possible. If the use of the power of eminent
domain is necessary in order to acquire any additional right-of-way rights
required for the use of the NEON fibers by NECOM, then any required condemnation
action shall be brought by NECOM in its own behalf, if such action is available
to NECOM. Any easement or right obtained by NECOM by using the power of eminent
domain shall be subsequent and subordinate to any existing rights of NU. Except
in the case of
-6-
<PAGE>
condemnation by NECOM, NU shall exert its best efforts to minimize the cost of
such additional land or rights in land. In the event that additional rights are
required by both parties the cost of the acquisition of such additional rights
shall be shared by the parties pro rata based on the number of fibers controlled
by each party. This Section is not intended as an acknowledgment by either party
that any such acquisition of additional rights is required but only to allocate
the responsibility for such acquisition if required.
5.5 NECOM's Right to Build and Connect Third Party Segments. In the event that
NU (i) does not have Structures available to replace Route Segments not
available for any reason to NECOM or (ii) does not provide such Structures at
the request of NECOM, NECOM shall have the right to build or otherwise obtain
such Structures from Third Parties, at NECOM's sole cost and expense. NECOM may
connect such Third Party facilities to the Route Segments and Cable subject to
the approval by NU of NECOM's connection plans. The work to connect such Third
Party facilities located on NU's property shall be performed by NU. The
provisions of the last two sentences of Section 6.1 shall apply to this work to
be performed by NU. NECOM shall pay all of NU's Actual Costs to review these
connection plans and to oversee the construction of such connections. If the
NECOM interconnects Third Party facilities to the Cable or Structures, NECOM
shall, upon NU's request, use its best efforts to provide the right to use up to
12 singlemode fibers on such Third Party's facilities to maintain the continuity
of NUNet within NU's Territory and up to eight singlemode fibers outside NU's
Territory on terms no less favorable than those provided NECOM for NEON.
5.6 Third Party Connections. In the event of use of connections to the Cable
from public and private property, NECOM shall designate the location and manner
in which the Cable will enter and exit NU's property and connect to the Cable
and shall provide such specifications as needed unless so provided in the
engineering plans of NU's property. Such specifications will be subject to
change from time to time by the written consent of the parties hereto. NU shall
have the right to review and approve (which shall not be unreasonably withheld)
connections made pursuant to this Section 5.6.
5.7 Connection Grants. NU hereby grants NECOM the right to install, maintain,
and operate the connections to the Cable as described in this Section 5.
6. ENGINEERING AND DESIGN
6.1 NU's Obligations. In consultation with NECOM, and in accordance with the
Specifications, NU and/or its consultants shall engineer, provide detailed
specifications, construction working prints and other data necessary to permit
the construction and installation of the Cable on the Route. NU shall also
design all alternating current power sources, New Buildings and other necessary
and related
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articles of property which, together with the articles of property to be
designed by NECOM, are required to provide usable fiber optic transmission
capacity throughout NU's system over the Route Segments. All such detailed
specifications, construction working prints and other information shall be
subject to NECOM's approval which approval shall not be unreasonably withheld or
delayed. NECOM shall reimburse NU for NU's Actual Costs incurred pursuant to
this Section 6.1. NU shall use its best efforts to perform the work called for
by this Section 6.1 at the lowest possible cost to NECOM. The services provided
by NU in this Section 6.1 shall be performed in a professional and workmanlike
manner.
6.2 NECOM's Obligations. NECOM, at its sole cost and expense, shall design, in
cooperation with NU, all electronic and optronic equipment and provide detailed
specifications, construction working prints and other necessary data for NUNet
and NEON including, without limitation, the Cable and repeaters, patch panels,
terminations, terminals, splice cases and closures, alarm monitoring equipment
and all Equipment and all other necessary and related articles of property
which, together with the articles of property to be designed by NU pursuant to
Section 6.1 are required to provide fiber optic transmission capacity throughout
the Route Segments. All Equipment and other equipment utilized solely in
connection with NUNet shall be paid for solely by NU.
7. MAKE READY WORK
7.1 Responsibility for Performance. In the event NU and NECOM determine that any
work is required or desirable to install intermediate or supplementary
Structures, make existing Structures capable of supporting the Cable, define the
Route more clearly or provide for alternative Route Segments (collectively "Make
Ready Work"), NU will either perform such Make Ready Work or permit NECOM or its
contractor to perform such Make Ready Work. Any charges for Make Ready Work
performed by NU (other than to satisfy the representation made in Section 18.3)
will be paid at NU's Actual Costs 30 days after presentation of an invoice for
such work. If NU elects to perform any Make Ready Work, NU will either (i)
endeavor to include such work in its normal work load schedule, or (ii) at the
request of NECOM, based on the availability of NU's manpower, shall perform such
Make Ready Work after normal hours and at prevailing overtime rates, but not
less than straight-time rates.
7.2 Condition of Structures. NU shall make available its Structures and other
facilities owned or controlled by NU as required to provide for continuous
locations on which the Cable can be placed. NU shall perform such work, if any,
at its expense, as may be required to satisfy the representation made in Section
18.3. Any additional improvements necessary to permit the Structures to support
the Cable shall be made at the expense of NECOM. Work required which is common
to both Sections 7.2 and 18.3 shall be performed at the sole cost of NECOM.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
7.3 Costs. [**] done pursuant to Section 7.1, or in connection with [**]
including without limitation [**] that is necessary in order to make such
Structures or facilities [**] (other than to satisfy the representation made in
Section 18.3). NU shall use its best efforts to perform the work called for by
Section 7.1 at the lowest possible cost [**]. The services provided by NU in
Section 7.1 shall be performed in a professional and workmanlike manner.
8. INSTALLATION
8.1 NECOM's Right to Select Contractors. NU shall provide NECOM with an estimate
of NU's Actual Cost for the installation of the Cable and Cable Accessories.
NECOM may then request that NU seek bids from qualified contractors and NU's
Actual Cost shall then be based on the lowest qualified bid. If an outside
contractor is selected, NU may, however, act as general contractor on the work
done under this Section 8. The provisions of the last two sentences of Section
7.3 shall apply to any work done under this Section 8.1 by NU.
8.2 NECOM's Right to Issue Specifications. NECOM shall have the right but not
the obligation to participate in NU's issuance of contracts containing general
provisions, technical specifications, conditions of installation, work
schedules, and construction documentation which may include design prints,
engineering plans, installation procedures and manuals, construction methods and
practices, material handling properties, safety procedures, performance
standards, payment schedules, testing and acceptance requirements and other
contractual terms and conditions which may be issued prior to the commencement
of any work.
8.3 NU's Installation Obligations. NU shall supervise and, in consultation with
NECOM, be responsible for the construction or oversight of the construction and
installation as necessary to install the Cable and Cable Accessories, including
without limitation installation hardware, required for NEON and NUNet, in
accordance with the engineering and design requirements finalized pursuant to
Section 6, and Exhibit 3.28, Cable and Performance Specifications.
8.4 New Buildings. In NU's sole discretion, NU shall provide all electric power
service to all New Buildings and to all NECOM's Space in NU's retail service
territory. NU shall perform and be responsible for site preparation and shall
prepare foundations and fencing for all New Buildings on NU's property. NECOM
shall install all New Buildings and Equipment used in equipping NEON and in
cooperation with NU when such installation is on NU's property. NECOM shall
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
reimburse NU for its Actual Costs incurred pursuant to this Section 8.4. The
parties shall, by subsequent agreement, apportion the costs of service and
maintenance and space in any New Buildings containing both NECOM and NU
Equipment.
8.5 State Fees. NECOM shall either pay directly or reimburse NU for any fees
payable to any State agency for the use of any public rights-of-way as a result
of NECOM's use of or right to use the NEON. NU will cooperate with NECOM in
obtaining such legal and regulatory permits and authorizations as are needed in
order to allow NECOM to be an authorized condemnation party in each applicable
state. NECOM shall reimburse NU for its Actual Costs incurred pursuant to this
Section 8.5.
8.6 Public Rights of Way. NECOM shall at its sole cost and expense obtain all
federal, state and municipal occupancies and other rights that may be required
for the installation of NEON in public rights-of-way or the use thereof.
9. POINT OF DEMARCATION; BUILDING EXTENSIONS
9.1 Marking. The point of demarcation (the "Demarcation Point") for the purpose
of this Agreement shall be indicated by a visible, indelible mark or tag of
long-lasting durability, at a point on one side of which is NECOM's
responsibility, termed network side, on the other side of the Demarcation Point,
termed premise side, both NU and NECOM shall be responsible for their respective
Equipment and any Cable extensions. The color coding of the tube(s) and fibers
dedicated for NU's use shall remain consistent throughout the Route.
9.2 Building Extensions. NEON will be extended by NECOM for use by NECOM within
buildings as required. In such extensions the entire Cable beyond the building
patch panel shall remain the property of NECOM and NU shall receive an
indefeasible right to use [**] to the point of the building patch panel. NECOM
or its customer shall obtain approval from the owners of the property for all
such use and as to the physical location of Cable and, as to installation,
maintenance and operation of NECOM's facilities on said property.
10. MAINTENANCE
10.1 NECOM's Obligations. Provided that NECOM has been given the permission
referred to below in this Section 10, NECOM shall maintain and repair the Cable,
including emergency repairs and splices, pursuant to the terms and conditions
outlined in Exhibit 10.1 - Maintenance Specifications. In the event NECOM fails
to perform any necessary splicing or maintenance in accordance with the
procedures and time frames set forth therein, NU shall have the right, but not
the obligation, to undertake such splicing or maintenance of the Cable, at
NECOM's sole cost and expense, as provided for in Exhibit 10.1. In no event
shall NECOM be permitted
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access to NU's property without NU's prior permission unless NECOM is acting
pursuant to Section 39.2. NU reserves the right, but not the obligation, to
perform such maintenance with its own crews or contractor when required by the
need to insure the safe and reliable operation of its electric system. The
provisions of the last two sentences of Section 7.3 shall apply to any work done
under this Section 10.1. NECOM shall be solely responsible for all aspects of
the operation of NEON and the operation and maintenance of Equipment thereon.
NECOM shall perform routine inspections of the Cable including, without
limitation, once a year ride-outs of Route Segments, in accordance with its
standard maintenance procedures and with NU's approval. NECOM shall provide
notice to NU at least 10 working days in advance of any maintenance upon any
Route Segment upon which any repair is to be conducted as a result of such
maintenance procedures in accordance with Section 37. NU shall have 10 working
days to confirm the availability of any Route Segment for maintenance.
10.2 NU's Obligations. NU shall be solely responsible for all aspects of the
operation of NUNet and the operation and maintenance of Equipment thereon. NU
shall at its own expense, perform routine inspections of the Cable in
conjunction with the periodic inspection of its electric facilities and
Structures and routine rights of way maintenance. NU shall provide notice to
NECOM at least 10 working days in advance of any maintenance upon any Route
Segment upon which any repair is to be conducted on the Cable as a result of
such maintenance procedures
11. RELOCATION, REPLACEMENT, REBUILDS OF THE CABLE
11.1 By NECOM. In the event that NECOM requests relocation, replacement, or
rebuild of the Cable during the term of this Agreement, the cost of any such
work shall be paid by NECOM, and NECOM shall submit to NU a completed copy of
Exhibit 11.1 to request an acceptable new location. No relocation or replacement
shall be performed on NU's property by NECOM without the prior written approval
of NU.
11.2 By NU. In the event that during the Term of this Agreement NU is required
by public authorities or by lawful order or decree of a regulatory agency or
court to relocate or modify any or all Structures upon which NEON or any part
thereof is located, NU and NECOM shall cooperate in performing such relocation
or modifications so as to minimize any interference with the use of NEON or
NUNet by either party and to avoid unreasonably impairing the ability of each to
provide communications services of the type, quality and reliability
contemplated by this Agreement. Any such relocation shall be accomplished in
accordance with the provisions of Exhibit 3.28 Cable Specifications. Unless
otherwise agreed by the Parties, all costs directly associated with the
relocation of the Cable, Equipment and New Buildings located on the subject
property shall be shared by the Parties on a pro rata basis based on the number
of fiber optic filaments each Party controls.
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11.3 Emergency Relocations; Third Party Relocations. In the event of an
emergency affecting NU's Structures, transmission facilities or public safety,
NU shall be permitted to replace, remove and relocate the Cable or any portion
thereof without prior notice to NECOM when such notice is not practicable. NU
shall incur no liability for service interruptions in connection with any such
removal or relocation and NECOM shall incur no liability for service
interruptions pertaining to NU's services, if so affected. If the relocation or
replacement of the Cable is requested or caused by a Third Party, NU shall
attempt to obtain reimbursement of NU's costs from said Third Party. Any costs
not recovered from said Third Party shall be shared by the Parties on a pro rata
basis based on the number of fiber optic filaments each Party controls.
11.4 Cable Failure; NUNet Equipment. NU makes no representations with respect to
the Cable. Should the Cable fail to function according to its design
specifications, NU shall assign its warranty enforcement rights to NECOM. NECOM
shall be entitled to any recovery from a Third Party, and NECOM shall have the
right, where allowed by law, to recover directly from that Third Party. Should
the Cable fail to function for any reason, NECOM shall have the right to
expeditiously replace the Cable, subject to NU's review and approval of NECOM's
replacement plans. NECOM shall have no responsibility for Equipment to be used
solely in connection with NUNet, including without limitation, any such
equipment installed or located in NU's Space in any New Building or at any of
NECOM's facilities. To the extent NECOM realizes any proceeds from NU's
assignment of its warranty rights to the Cable that are not expended in
replacing Cable, such proceeds shall be retained by NECOM.
12. CONSTRUCTION, MAINTENANCE AND REMOVAL OF THE CABLE
12.1 Interference With Other Joint Users. The Parties shall design, engineer,
construct and maintain the Cable within the Route Segments in a manner so
intended not to physically conflict or interfere with NU's property and any
facilities attached thereon or placed therein by joint users or others.
12.2 NU's Approval of Third Party Work. Prior to NECOM engaging the services of
a Third Party to commence work to install, remove, reconfigure or maintain the
Cable in any section or part of the Route Segments, NECOM will obtain NU's prior
written consent of any Third Party chosen to perform such work, and the date
when such work is scheduled to commence, which consent shall not be unreasonably
withheld.
12.3 NU's Right to Maintain Service. NU shall at all times have the right to
take all action necessary to maintain and repair NU's property and maintain NU's
services to its customers, unconstrained by this Agreement but shall take
reasonable precautions
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to protect the Cable against damage. In the event of any service outage
affecting the Cable, NU shall have the right to repair its facilities first. If
conditions permit, NECOM may repair its facilities concurrently with NU. NECOM
acknowledges that all or a portion of the Cable will be placed on Structures
that are part of NU's electric transmission system and that at all times the
safe and continuous operation of such system and the provision of electric
service is NU's foremost priority.
12.4 Notice. NECOM shall give NU 60 days prior written notice of any removal(s)
or material modification(s) of the Cable provided that no such removal or
modification will be permitted which adversely effects NU's use of NUNet.
12.5 Emergency Use of NU's Property. With NU's prior written consent and in its
sole discretion, NECOM may temporarily use any of NU's available property for
emergency restoration and maintenance purposes. Any such temporary use shall be
subject to such reasonable terms and conditions as may be imposed by NU and
shall be terminated within 90 days, or sooner, unless NECOM applies for and NU
grants permission for such temporary use to be extended.
12.6 Return of Removed Material. In the event NU under the provisions of this
Agreement shall remove any portion of the Cable from NU's property, NU will
deliver to NECOM the Cable and Equipment so removed upon payment by NECOM of the
cost of removal, storage and delivery, and all other amounts due NU.
13. PERIODIC INSPECTIONS
13.1 By NU. NU shall have the right to make Periodic Inspections of any part of
NECOM's operations occupying NU's property. NU will give NECOM reasonable
advance written notice of any periodic inspections, except in those instances
where, in the sole judgment of NU, safety considerations justify the need for a
Periodic Inspection without the delay of waiting until a written notice has been
forwarded to NECOM. A representative of NECOM may accompany NU's representative
on all Periodic Inspections.
13.2 NECOM's Obligations. The making of Periodic Inspections or the failure to
do so shall not impose upon NU any liability of any kind whatsoever nor relieve
NECOM of any responsibility, obligations or liability assumed under this
Agreement.
13.3 Cost. NECOM shall reimburse NU for its Actual Costs of Periodic Inspections
only if material violations are found. Charges for such inspections shall be at
NU's Actual Cost.
14. APPROVALS AND CONSULTATION
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14.1 Role of Program Managers. Each party shall designate a Program Manager (a
"Program Manager"). Whenever either party is entitled to approve a matter, the
Program Manager for the party responsible for the matter shall notify the
Program Manager of the other party of the nature of such matter. The Program
Managers shall discuss such matter, and each Program Manager is authorized to
approve such a matter on behalf of his company.
14.2 Definition of Consultation/Cooperation and Approval. Whenever in this
Agreement it is provided that NU will take action "in consultation with NECOM,"
it is intended that such consultation shall be thorough and meaningful, and that
the views of NECOM with regard to the matter under consultation shall be given
the weight appropriate to the experience and expertise of NECOM in
telecommunications. Whenever in this Agreement it is provided that NECOM will
take action "in cooperation with NU", it is intended that such cooperation shall
be thorough and meaningful, and that the views of NU with regard to the matter
under consultation shall be given the weight appropriate to the experience and
expertise of NU in telecommunications and in the transmission and use of
electric power. Whenever in this Agreement it is provided that the approval of
one party is required, it is intended that such approval will not be
unreasonably withheld or delayed.
15. OWNERSHIP OF THE CABLE
15.1 Title; Tax Accounting. Legal title to the Cable and to any item of
Equipment installed upon NU's Structures shall be held by NU, except as herein
set forth. With respect to the Cable and NUNet, but excluding NEON, NU shall
have absolute legal and beneficial ownership, subject to the security interest
reserved in Section 4.8 and the provisions of Section 16.1. Legal title to the
portions of NEON installed on or after the date hereof shall be held by NECOM
during the term of this Agreement and with respect thereto, NECOM shall have
absolute legal and beneficial ownership during the term of this Agreement. NU
agrees and acknowledges that, notwithstanding installation of NEON upon NU's
Structures, NEON shall not become a fixture on any real estate or real estate
interest of NU but rather shall remain the personal property of NECOM.
Accordingly, NECOM shall for tax purposes account for NEON as the owner thereof
and, as between the Parties, shall be entitled to any investment tax credits,
depreciation and any other tax attributes or liabilities with respect thereto.
NU agrees that it will not, for tax purposes, account for the property
associated with NEON as though it were the tax owner thereof and shall not
attempt to claim any of the tax attributes or liabilities with respect thereto.
The parties agree they shall file all income tax returns and otherwise take all
actions with respect to taxes in a manner which is consistent with the
foregoing.
15.2 Vesting of Title in NU. Legal title to NEON shall vest in NU upon
termination of this Agreement or of any applicable Route Segment. Upon such
termination,
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
NECOM shall deliver to NU such deeds, bills of sale, releases, or similar
documents as NU may reasonably request to confirm said vesting.
16. USE OF THE CABLE BY NU
16.1 Fibers and Use. NECOM shall provide not less than 12 usable singlemode
fiber optic filaments in the Cable for the unimpeded and unrestricted use by NU,
provided however that the requirement of usability shall not apply to any fiber
optic filaments located upon a Route Segment or alternate path as to which the
Term has expired. NU shall use these 12 singlemode fiber optic filaments
exclusively for NU's own business purposes and other uses permitted by this
Section 16.1, which shall include but not be limited to the right of NU to
assign any number of the 12 fiber optic filaments, or resell capacity on any of
the 12 fiber optic filaments, provided however, that until September 27, 2001,
NU shall not have the right, directly or indirectly, to assign for the purpose
of carrier's carrier service, any number of the 12 fiber optic filaments, or
resell capacity on any of the 12 fiber optic filaments, to any of the following
entities or an entity which was an affiliate (as that term is defined under the
Securities Act of 1933, as amended) as of September 27, 1994 of any such entity
without the prior written consent (to which Section 31 shall not apply) of
NECOM:
[**]
However, this restriction shall not [**] (i); and (ii) [**]
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
[**] to any customer subscriber destination. (Subsections (i) and (ii)
immediately above hereinafter defined as "Carriage of Capacity"). These services
will have [**] according to the following allocations:
NECOM shall pay NU [**] (as that term is defined in the
Service Agreements to be negotiated and signed by FiveCom LLC
and NUTEL LLC pursuant to the Letter Agreement between Central
Maine Power Company, NU, FiveCom, Inc., and MaineCom Services
dated February 23, 1996) resulting from NECOM's Carriage of
Capacity.
NU shall pay NECOM [**] resulting from NU's Carriage of
Capacity.
Notwithstanding the foregoing, [**] telecommunications networks, NU [**] can be
made. If [**] for its own business purpose.
16.2 Option to Purchase Additional Fibers. NU may purchase if mutually
acceptable terms can be agreed upon between NECOM and NU, additional singlemode
fiber optic filaments from NECOM at a price that is mutually acceptable.
16.3 Additional Service. In addition to providing 12 singlemode fiber optic
filaments, NECOM shall, upon NU's request, so long as NU is not in breach of
this Agreement, provide NU with commercial telecommunication services into all
locations served by NECOM's networks in the service area at NECOM's Actual Cost
for any incremental labor and provisioning equipment required for the service
being requested and, if provided using fiber optic filaments other than NU's 12,
NU shall also pay, without duplication of such actual cost, [**]("[**] Rates").
16.4 Space in NECOM's Locations. Where available and requested by NU, NECOM
shall, so long as NU is not in breach of this Agreement, provide or cause to be
provided NU Space in NECOM offices and other common access areas of NECOM
facilities along the Route Segments in New Buildings or buildings adjacent
thereto, adequate in each case to permit NU to install racks of its optronics,
multiplex and associated equipment used to equip NUNet and to interconnect NUNet
with NEON. Unless otherwise agreed, NU Space will comply with power, ground,
physical and
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environmental requirements of NECOM technical publications Such NU Space shall
be used by NU to house NU Equipment necessary to permit the use of the NUNet and
interconnection with NU's networks. Unless otherwise agreed, NU Space in a NECOM
facility other than a New Building, or buildings adjacent thereto, shall be in a
common access area of such facility, and to the extent reasonably practicable,
NU Space in a New Building shall be separate from any area containing NECOM's
Equipment. NECOM shall provide NU Space in the common access areas of NECOM
facilities at the then prevailing rate for such space according to NECOM's
tariff.
17. CASUALTY
If any portion of the Cable is damaged or destroyed by casualty at any time
during the Term each party shall pay a share of the cost of repair, restoration
or replacement based on the pro rata percentage of fibers, NUNet and NEON,
contained in the Cable. With respect to the Route Segment on which such portion
of the Cable is installed, NECOM shall have the option of having NU repair,
restore, or replace such portion of the Cable (and NECOM shall reimburse NU's
Actual Cost of doing so) or terminating that Route Segment. Unless NECOM
notifies NU of its election to terminate that Route Segment within 12 business
days of the casualty, NECOM shall be deemed to have elected repair, restoration
and replacement of the Cable. If NECOM elects to terminate such Route Segment as
set forth in the preceding sentence, the NEON fibers upon such portion of the
Route Segment so effected, shall be available for use by NU and NECOM shall
assign, at no cost to NU, all its rights and title to all New Buildings and
Equipment on such Route Segments so effected immediately thereafter.
18. REPRESENTATIONS AND WARRANTIES
18.1 Common Representations. Each of the parties represents and warrants that it
has full authority to enter into and perform this Agreement, that this Agreement
does not conflict with any other document or agreement to which it is a party or
is bound, and that this Agreement is fully enforceable in accordance with its
terms.
18.2 Representations by NU. NU represents and warrants that NU is a corporation
duly organized, validly existing and in good standing under the laws of the
state under which it is incorporated. The execution and delivery of this
Agreement and performance thereunder will not conflict with or violate or
constitute a breach or default under NU's Articles or Certificate of
Incorporation and will not violate any law, rule or regulation applicable to NU.
No consents need to be obtained from any governmental agency or regulatory
agency to allow NU to execute, deliver and perform this Agreement except those
for which provision has been made in Section 21.4(iii).
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
18.3 Representation by NU As To Structures. NU represents and warrants that the
Structures are suitable for their current use and were designed and installed at
a minimum to meet the requirements of the National Electrical Safety Code and/or
other applicable standards then in effect.
18.4 Representation by NU As to Right to Place Cable. NU represents and warrants
that it has the right to have the Cable placed on the Structures on the Route
and to have the Cable used by NU as contemplated by this Agreement, subject to
the governmental approvals for which provision has been made in Section
21.4(iii) and the approvals from certain lienholders referred to in Section 4.2,
but this representation and warranty shall not extend to the portions of NEON of
which NECOM holds legal title.
18.5 Work Clearances and Related Delays. NU represents and warrants that it
cannot guarantee line outages or special contingency line operating conditions
that may be necessary for the installation, maintenance and repair of the Cable
and that delays may be necessary. Such work clearances must be obtained from
regional dispatching organization(s) with authority over the lines. NECOM shall
be responsible for NU's Actual Costs associated with last minute delays caused
by these regional authorities which are reasonably beyond the control of NU.
18.6 Representations by NECOM. NECOM represents and warrants that NECOM is a
limited liability company duly organized and validly existing under the laws of
the Commonwealth of Massachusetts and the execution and delivery of this
Agreement and the performance thereunder will not conflict with or violate or
constitute a breach or default under the Operating Agreement of NECOM and will
not violate any law, rule or regulation applicable to NECOM. No consents need to
be obtained from any government agency or regulatory agency to allow NECOM to
execute, deliver and perform this Agreement.
19. INSURANCE
NECOM, at its own expense, shall provide and maintain in force during the term
of this Agreement a policy or policies of general liability insurance with an
aggregate limit of no less than [**]. The policy or policies shall include
contractual liability coverage to insure the indemnification agreement and
products completed operations coverage. Any such policy(ies) shall be procured
by NECOM from a responsible
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
insurance company with a "Best" rating of A or better, satisfactory to NU.
Certificates evidencing such policy(ies) shall be delivered to NU within 30 days
of the date of this Agreement. Not less than 30 days prior to the expiration
date of such policies, certificates evidencing the renewal thereof shall be
delivered to NU. Such policies shall further provide that not less than 30 days'
written notice shall be given to NU before such policy(ies) may be cancelled,
materially changed or undergo a reduction in Insurance limits provided thereby.
NU shall be named as an additional insured. The coverage required herein shall
not be deemed to limit NECOM's liability as set forth elsewhere in this
Agreement. Upon timely notice to NECOM, NU may require reasonable increases in
the amount of insurance coverage which will be obtained by NECOM within 30 days
after NU's request.
20. NECOM'S BOND
20.1 Bond. Within 120 days of the date of this Agreement, NECOM shall provide NU
with either of the following at the option of NECOM: (i) a performance bond in
the amount of the [**] of NUNet running from Millstone, CT to Seabrook, NH as
set forth in Exhibit 3.26 (the Route) in form and substance reasonably
satisfactory to NU and issued by a responsible and reputable insurance company,
or (ii) a letter of credit of equal value in form and substance reasonably
satisfactory to NU and issued by a responsible bank. This bond or letter of
credit shall be reduced by [**] of NUNet installed on the Route.
20.2 Affect of Bond. If a bond or letter of credit is issued and remains in
effect to the benefit of NU pursuant to Section 20.1, NECOM shall not be found
to be in default of any provision of this Agreement if such default is based on
the installation of NUNet or any other associated Cable relating thereto.
21. TERM AND TERMINATION
21.1 Period. The term of this Agreement shall be for a period (the "Term")
commencing on the date hereof, and ending on September 27, 2024 ("the Ending
Date") and shall automatically renew on September 27, 2024 and thereafter for
five year periods until terminated by either party upon notice given one year or
more prior to September 27, 2024 or any renewal date thereafter.
21.2 Payment to NECOM. If NU elects to terminate this Agreement pursuant to
Section 21.1, NU shall, at its option, either: (i) pay NECOM the fair market
appraised value of NEON (determined, if no agreement can be reached between the
parties on such value, pursuant to Section 38) or (ii) elect to receive [**] as
determined by an
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independent auditor selected by the mutual consent of the Parties. If NU elects
clause (ii), the payments provided for in that clause shall be in addition to
any Annual Fees due NU and this Agreement shall be extended for another 30 years
from the date it would have otherwise terminated.
21.3 Early Termination of Agreement. This Agreement may be terminated prior
to the Ending Date upon any one of the following events:
(i) by NECOM upon 180 days prior notice to NU.
(ii) by NU upon 90 days prior notice to NECOM if (x) NECOM has
not provided a bond or letter of credit pursuant to Section 20, and (y) NECOM
has not completed NUNet according to Section 4.4.
(iii) by NU in the event of a default by NECOM under Section
34.
(iv) by NU upon 90 days prior notice in the event of a
violation of Section 36.1.
NECOM shall have the right to cure or correct any default Specified under
clauses (ii) or (iv) above within the time period of the notices set forth
above.
21.4 Termination of Route Segment. Any Route Segment may be terminated:
(i) by NU upon reasonable notice for the purposes of providing
safe and economical electrical service; or
(ii) by NECOM upon five days prior written notice if two Cable
failures per month for three consecutive months occur on a Route Segment as a
result of NU's electric operations and NU fails to take steps to cure such
failure with due diligence, unless NU shall have cured such failure prior to the
expiration of said five day period, or where cure is not possible within said
five day period, NU is proceeding to cure with due diligence.
(iii) by NU at any time after consultation with NECOM if it
cannot obtain the regulatory approvals needed by it to perform its obligations
under this Agreement with respect to such Route Segment or can obtain them but
on terms that are unduly burdensome on NU.
21.5 Cost Reimbursement. In the event of the termination of this Agreement or a
portion of the Route Segments thereof pursuant to Section 21.4, NU shall
reimburse NECOM a percentage of the cost of the Cable, for such terminated
portion according to the following schedule:
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
<TABLE>
<S> <C>
Year 1-5 (9/27/94-9/27/99) [**]
Year 6 [**]
Year 7 [**]
Year 8 [**]
Year 9 [**]
Year 10 [**]
Year 11 and thereafter, [**]
</TABLE>
The Annual Fee described below for the portion of the year following termination
of a Route Segment shall be refunded to NECOM. The amount of the refund shall be
determined by prorating the Annual Fee for the terminated Route Segment equally
over 365 days. In no event shall the amount of the refund exceed the amounts
collected on the terminated Route Segment during that period by NU.
22. ANNUAL FEE
22.1 Amount. NECOM shall pay an annual fee ("Annual Fee") for the support of
NEON in the Cable, which shall be:
(a) As to NU's underground facilities: [**]; and
(b) As to NU's aerial Structures, as follows:
(i) [**] where NU's Structures support Cable containing NUNet.
Said rate shall not be due for the period of 10 years from September 27, 1994
for the Route shown in Exhibit 3.26.
(ii) [**] where NU's Structures support Cable not containing
NUNet.
(iii) [**] for solely owned utility distribution poles located
within the public right of ways, private ways, ancient ways, or on private
property or on easements.
(iv) [**] during the term of any agreements between NECOM and
any Third Party for route segments containing NECOM's cable or NEON's extensions
supported by any transmission structures, aerial plant, civil works, and
underground facilities owned by any utility operating in any of Connecticut,
Maine, Massachusetts, New Hampshire, New York, Rhode Island, Vermont and certain
parts of Canada
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
which share a border with any of those States if NU contributed in a material
way to NECOM's obtaining such route segments. [**] will be paid upon execution
of an agreement with such Third Party but the annual fee will not be due until
the sooner of the Activation Date or the In-Service Date of such route segments.
(NECOM seeks route segments into New York from Connecticut; into Rhode Island
from Connecticut and Massachusetts; into Vermont from Massachusetts, New
Hampshire, New York, and Canada; and into Maine from New Hampshire and Canada.)
22.2 CPI Adjustments. The Annual Fee shall be adjusted annually from September
27, 1994 by an escalation factor equal to changes in the Consumer Price Index -
All Urban (CPI-U) published by the US Department of Labor, Bureau of Labor
Statistics, which shall be calculated each October based on changes in the CPI-U
from the previous October. In no instance shall the CPI-U change be applied if
it results in a smaller payment than the previous year's payment. As to any
period during which fees have been waived, the CPI-U shall accrue to the rate
during such waiver period.
22.3 Additional Amounts. In addition to the amounts due and payable pursuant to
Section 22.1, as adjusted pursuant to Section 22.2, NECOM shall pay NU an amount
equivalent to [**] on NU's Structures each and every year [**].
22.4 When Due. All Annual Fees shall be paid on January 1st of each year. All
pro-rata payments made during the year shall be based on this date. All payments
shall be paid within 30 days of invoicing.
22.5 Initial Annual Fee. Unless otherwise waived according to the provisions of
22.1(b)(i), 22.1(b)(iv) or otherwise, the initial Annual Fee payment will be due
and payable within 30 days after preliminary engineering work has been accepted
by both parties and shall be based upon the estimated number of duct feet and
aerial feet to be utilized by NECOM over the remainder of the calendar year.
22.6 Right to Withhold. In the event NU shall be unable or unwilling to perform
its maintenance obligations hereunder, NECOM may, at its option, withhold any
Annual Fees related to such nonperformance on any Segment and obtain substituted
performance or exercise self-help in accordance with Section 39.2, and in either
case NECOM may apply or set-off such fees against any costs NECOM may incur for
such substituted performance or self-help, up to the actual amount of such
costs.
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23. FORCE MAJEURE
23.1 Optional Termination. Should any of the Force Majeure Events defined below
occur and should NU determine that as a direct or indirect result thereof, the
parties continued performance hereunder or with respect to any portion of the
Structures and the Cable will be irreparably impaired or prevented, the parties
may mutually agree to terminate this Agreement, in whole or in part as to any
portion of the Route Segments and the Cable so affected with no further
obligation or liability. The parties will attempt to provide a date of
termination such that the parties will have a reasonable time to obtain
alternative means of providing service to customers, but neither party shall
have an obligation to do so. A Force Majeure Event shall include fire, flood,
strike or other labor difficulty, natural disasters, acts of God or public
enemy, (restraint or hindrance by any governmental authority), war,
insurrection, riot, action of any regulating authorities; or institution of
litigation by any Third Party, or any other causes of any nature reasonably
beyond the control of either party which would have a material adverse effect on
the subject matter of this Agreement. Financial difficulties, or events
resulting from financial difficulties, shall not be considered a Force Majeure
Event.
23.2 Suspension Pending Force Majeure. If a Force Majeure Event should occur
then, and for a reasonable time thereafter, the parties' performance of this
Agreement shall be suspended. At the conclusion of a Force Majeure Event the
period of time so suspended shall be added to the dates, schedules and other
performance related matters under this Agreement.
24. PROPRIETARY INFORMATION
24.1 Obligation to Maintain as Confidential. Each party acknowledges that in the
course of the performance of this Agreement it may have access to privileged and
proprietary information claimed to be unique, secret, and confidential, and
which constitutes the exclusive property and trade secrets of the other
("Proprietary Information"). This information may be presented in documents
marked with a restrictive notice or otherwise tangibly designated as proprietary
or during oral discussions, at which time representatives of the disclosing
party will specify that the information is proprietary and shall subsequently
confirm said specification in writing within five days. Each party agrees to
maintain the confidentiality of the Proprietary Information and to use the same
degree of care as it uses with regard to its own proprietary information to
prevent the disclosure, publication or unauthorized use of the Proprietary
Information. Neither party may duplicate, copy or use Proprietary Information of
the other party other than to the extent necessary to perform this Agreement.
Either party shall be excused from these nondisclosure provisions if the
Proprietary Information received from the other party has been or is
subsequently made public by the other party, is independently developed by such
party, disclosed pursuant to order by a court or government agency, or if the
other
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party gives its express, prior written consent to the disclosure of the
Proprietary Information.
24.2 Route Constitutes Proprietary Information. The routing of NEON and the
conditions of NECOM's contracts with customers and customer names are deemed
Proprietary Information without further notice and will not be disclosed by NU
absent an order by a court or regulatory body with jurisdiction over NU.
25. ACCESS AND SECURITY
25.1 Access by NU. NECOM agrees, upon reasonable request, to allow NU direct
ingress and egress to all NU Space to be provided to NU as described above, and
to permit NU to be on NECOM's premises at such times as may be required for NU
to perform any appropriate maintenance and repair of equipment in such NU Space.
NECOM may require that a representative of NECOM accompany any representatives
of NU having access to NU Space except in New Buildings having separate
entrances providing access only to NU Space therein. Employees and agents of NU
shall, while on the premises of NECOM, comply with all rules and regulations,
including without limitation security requirements, and, where required by
government regulations, receipt of satisfactory governmental clearances. NU
shall provide to NECOM a list of NU's employees or authorized NU designee's
employees who are performing work on, or who have access to, NU's Space. NECOM
shall have the right to notify NU that certain NU or authorized NU designee
employees are excluded if, in the reasonable judgment of NECOM, the exclusion of
such employees is necessary for the proper security and maintenance of NECOM's
facilities.
25.2 Access by NECOM. NU agrees, upon reasonable request, to allow NECOM direct
ingress and egress to all NECOM Space to be provided to NECOM as described
above, and to permit NECOM to be on NU's premises at such times as may be
required for NECOM to perform any appropriate maintenance and repair of
Equipment located at such NECOM Space. NU may require that a representative of
NU accompany any representatives of NECOM having access to NECOM Space.
Employees and agents of NECOM shall, while on the premises of NU, comply with
all rules and regulations, including without limitation security requirements,
and, where required by government regulations, receipt of satisfactory
governmental clearances. NECOM shall provide to NU a list of NECOM's employees
or authorized NECOM designee's employees who are performing work on, or who have
access to, NECOM Space. NU shall have the right to notify NECOM that certain
NECOM or authorized NECOM designee employees are excluded if, in the reasonable
judgment of NU, the exclusion of such employees is necessary for the proper
security and maintenance of NU's facilities.
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25.3 Access by NECOM to NEON Space. Except as provided in Section 25.2 above,
with respect to NECOM Space, NECOM and authorized NECOM designees shall have the
right to visit any facilities of NU utilized in providing NEON upon reasonable
prior written notice to NU; provided, however, that NU may require that a
representative of NU accompany any representation of NECOM or of an authorized
NECOM designee making such visit. Such visitation right shall include the right
to inspect NEON and to review worksheets, to review performance or service data,
and to review other documents used in conjunction with this Agreement. Employees
and agents of NECOM or of an authorized NECOM designee shall, while on the
premises of NU, comply with all rules and regulations, including without
limitation security requirements and, where required by government regulations,
receipt of satisfactory governmental clearances. NU shall have the right to
notify NECOM that certain NECOM or authorized NECOM designee employees are
excluded if, in the reasonable judgment of NU, the exclusion of such employees
is necessary for the proper security and maintenance of NU's facilities.
25.4 NECOM's Work. NECOM shall at all times perform its work in accordance with
NU's safety and work procedures and in accordance with the applicable provisions
of OSHA. NU shall have the authority to suspend NECOM's work operations in and
around NU's property if, in the sole judgment of NU at any time hazardous
conditions arise or any unsafe practices are being followed by NECOM's
employees, agents, or contractors. NECOM agrees to pay NU for having NU's
employee or agent present when NECOM's work is being done in and around NU's
property. Such charges shall be at NU's Actual Cost. The presence of NU's
authorized employee or agent(s) shall not relieve NECOM of its responsibility to
conduct all of its work operations in and around NU's property in a safe and
workmanlike manner, and in accordance with the terms and conditions of this
Agreement.
26. NO JOINT VENTURE; COSTS
26.1 Relationship. In all matters pertaining to this Agreement, the relationship
of NU and NECOM shall be that of independent contractors, and neither NU nor
NECOM shall make any representations or warranties that their relationship is
other than that of independent contractors. This Agreement is not intended to
create nor shall it be construed to create any partnership, joint venture,
employment or agency relationship between NECOM and NU, and no party hereto
shall be liable for the payment or performance of any debts, obligations, or
liabilities of the other party, unless expressly assumed in writing herein or
otherwise. Each party retains full control over the employment, direction,
compensation and discharge of its employees, and will be solely responsible for
all compensation of such employees, including social security, withholding and
worker's compensation responsibilities.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
26.2 Costs. Except for costs and expenses specifically assumed by a party under
this Agreement each party shall pay its own expenses incident to this Agreement,
including without limitation amendments hereto, and the transactions
contemplated hereunder, including all legal and accounting fees and
disbursements.
27. PUBLICITY AND ADVERTISING
27.1 Limitations. In connection with this Agreement, neither party shall publish
or use any advertising, sales promotions, or other publicity materials that use
the other party's logo, trademarks, or service marks or employee name without
the prior written approval of the other party. Except as provided in Section
27.2 below, each party shall have the right to review and approve any publicity
materials, press releases or other public statements by the other party. In
connection with this Agreement, each party agrees not to issue any such
publicity materials, press releases or material produced by the public relations
department for the other party without written consent. Unless otherwise agreed,
neither party shall release the existence of the text of this Agreement or any
material portion thereof, other than in the form modified to remove all
references to the identity of the other party, to any person or entity other
than the parties hereto for any purpose other than those specified in Section
27.2.
27.2 Exceptions. The provisions of Section 27.1 shall not apply to reasonably
necessary disclosures in or in connection with regulatory filings or
proceedings, financial disclosures which in the good faith judgment of the
disclosing party are required by law, or disclosures that may be reasonably
necessary in connection with the performance of this Agreement.
28. MARKETING RELATIONSHIP
Upon the written approval of [**] in the event that [**] result of [**] to those
customers [**]
In addition, in the event that [**] as a result of [**]
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
[**] to those customers.
29. SEVERABILITY
If any part of any provision of this Agreement or any other agreement, document
or writing given pursuant to or in connection with this Agreement shall be
invalid or unenforceable under applicable law, said part shall be ineffective to
the extent of such invalidity only, without in any way affecting the remaining
parts of said provision or the remaining provisions of said agreement; provided,
however, that if any such ineffectiveness or enforcement of any provision of
this Agreement, in the good faith judgment of either party, renders the benefits
to such party of this Agreement as a whole uneconomical in light of the
obligations of such party under this Agreement as a whole, then the other party
shall negotiate in good faith in an effort to restore insofar as possible the
economic benefits of this Agreement to such party.
30. LABOR RELATIONS
30.1 Notice by NU. NU agrees to notify NECOM immediately whenever NU has
knowledge that a labor dispute concerning its employees is delaying or threatens
to delay NU's timely performance of its obligations under this Agreement. NU
shall endeavor to minimize impairment of its obligations to NECOM (by using NU's
management personnel to perform work, or by other means) in event of a labor
dispute.
30.2 Notice by NECOM. NECOM agrees to notify NU immediately whenever NECOM has
knowledge that a labor dispute concerning its employees is delaying or threatens
to delay NECOM's timely performance of its obligations under this Agreement.
NECOM shall endeavor to minimize impairment of its obligations to NU (by using
NECOM's management personnel to perform work, or by other means) in the event of
labor dispute.
30.3 Determination by NECOM. If NECOM determines that NU's activities pursuant
to this Agreement in any NECOM facility are causing or will cause labor
difficulties for NECOM, NU agrees to discontinue those activities until the
labor difficulties have been resolved; provided, however, that in any such event
and notwithstanding any other provision of this Agreement, NECOM shall during
the period of such labor difficulties perform at its own expense any such
activities that may be reasonably necessary to the operation and maintenance of
NU's system or any portion thereof.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
30.4 Determination by NU. If NU determines that NECOM's activities pursuant to
this Agreement in any NU facility are causing or will cause labor difficulties
for NU, NECOM agrees to discontinue those activities until the labor
difficulties have been resolved; provided, however, that in any such event and
notwithstanding any other provision of this Agreement, NU shall during the
period of such labor difficulties perform at its own expense any such activities
that may be reasonably necessary to the operation and maintenance of NECOM's
system or any portion thereof.
31. CONSENTS AND WAIVERS
Whenever any party hereto is asked to consent or waive any action or matter
provided herein or whenever any party has the right to do or refuse to do any
act in its sole judgment or discretion provided herein, said party agrees to act
reasonably and in good faith in making or refusing to consent, in waiving or
refusing to waive, or in making any such judgments.
32. TAXES AND GOVERNMENTAL CHARGES
[**] of all taxes assessed on NU which are attributable to [**] when they become
due, which shall include all taxes, assessments and governmental charges of any
kind whatsoever lawfully levied or assessed and attributable against NECOM's
installation, maintenance or operation of the connections to the Cable or
against NECOM's business with regards to the Cable or the connection thereof,
including without limitation, all franchise and other fees to any Federal,
State, City or other jurisdiction having the authority to tax or assess other
governmental charges. Upon said payment to NU, NU shall indemnify NECOM against
any and all actions which may be brought against NU and NECOM with regard to
NU's remittance of said payments to any taxing authority or governmental agency.
NECOM shall have the right to pay the tax or charge under protest without being
subjected to a default notice under Section 34. NU shall [**] all taxes,
assessments and governmental charges of any kind whatsoever lawfully levied or
assessed against the Cable, installation, maintenance or operation of the
connections to the Cable or against NU's business with regards to the Cable or
the connection thereto, including without limitation, all franchise and other
fees to any Federal, State, City or other jurisdiction having the authority to
tax and assess other governmental charges. NU shall have the right to pay the
tax or charge under protest without being subjected to a default notice under
Section 34. NU warrants that it shall remit all tax payments to taxing
authorities and governmental agencies and shall not cause the Cable to be
levied, attached, or otherwise encumbered by any taxing authority by not having
done so. Each party shall pay without apportionment any taxes levied on it based
on its business profits.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
[**]. NU shall take reasonable efforts suggested by NECOM to minimize the amount
of said income tax liability on its return(s), in accordance with applicable
laws and regulations. At present, based upon using a twenty-year depreciation
schedule, the parties estimate this tax liability to be [**]. NECOM shall hold
harmless, indemnify and defend NU in the event [**] that NU may request from
NECOM from time to time and which NECOM agrees to provide, which [**] described
in this paragraph. If said [**] has not been attained on the [**] of this
Agreement, NECOM agrees to [**] specified in Section 22.1(b)(i) [**] sufficient
to [**] by the [**] of this Agreement, provided that such payments do not put
NECOM into default under any financial agreements then in place. If such
payments would cause an Event of Default under any financial document, the
parties agree to use their best efforts to devise and agree upon an alternative
payment plan that would [**] by the [**] of this Agreement. Thereafter, the
payment as specified in Section 22.1(b)(i) shall be due and owing. In a given
year, [**] shall only be [**].
33. INDEMNIFICATION
33.1 By NECOM. NECOM agrees to indemnify and hold harmless NU, its employees,
contractors, subcontractors, agents, directors, officers, affiliates, and
subsidiaries and their respective employees, subcontractors, agents, directors
and officers from and against any and all liabilities, damages, losses, claims,
demands, judgments, costs, and expenses (including, subject to Section 33.2, the
cost of defense thereof and attorney's fees) based on NECOM's use of the Cable
including, without limitation, any claim for infringement of patent or trade
secret, made by Third Parties (collectively, "Claims").
33.2 Indemnification Procedures. NU shall give prompt notice of any Claim for
which indemnification is or will be sought under this Section and shall
cooperate and assist NECOM in the defense of the Claim. NECOM shall bear the
cost of and have the right to control the defense and shall have the right to
select counsel after
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consulting with NU. The obligation to indemnify shall be net of any tax or
insurance benefit obtained by NU.
33.3 Limitation of NU Liability. In no event shall NU be liable to NECOM or to
its customers, whether in contract, tort, or otherwise, including strict
liability, for any special, indirect, incidental or consequential damages or any
lost business damages in the nature of lost revenues or profits, and any such
claims by Third Parties against NU shall invoke the obligations under, but
subject to the provisions of, Section 33.1 above.
33.4 Limitation of NECOM Liability. In no event shall NECOM be liable to NU or
to its customers, whether in contract, tort, or otherwise, including strict
liability, for any special, indirect, incidental or consequential damages or any
lost business damages in the nature of lost revenues or profits.
34. DEFAULT
If either party shall allow any payment due hereunder to be in arrears more than
60 days after notice from the other party, shall allow any policy of insurance
provided by Section 19 hereof to expire without renewal, or shall remain in
default under any other provision of this Agreement other than those referred to
in Section 21 for a period of 30 days after notice by the other party of such
default, the party so notifying the other party may, at its option, terminate
this Agreement pursuant to Section 21, or avail itself of any other available
remedy provided at law or equity, including without limitation, the remedy of
specific performance or, in the case of NECOM, exercising its rights under the
security agreement referred to in Section 4.8 provided, however, that, in the
case of a default for other than failure of payment or failure to maintain
insurance, where the party in default proceeds with all due diligence to cure
such default and cure is not possible within said 30 days, then the party then
in default shall have such time to cure the default as the other party agrees is
reasonably necessary. The parties agree that NECOM's remedies at law for a
breach by NU of the warranty set forth in Section 4.7 may be inadequate and
that, for such a breach where NECOM's remedies at law are inadequate, NECOM
shall be entitled to equitable relief.
35. ASSIGNMENT
35.1 By NECOM. Subject to Section 35.4, NECOM may not assign or otherwise allow
use of its rights under this Agreement to any person or entity other than an
affiliate (as defined in Section 16.1) without the prior written approval of NU.
NU's approval will be granted provided the new person or entity demonstrates to
the reasonable satisfaction of NU that the proposed assignee is financially and
operationally fit, willing and able to discharge its obligations under this
Agreement, acquires substantially all of NECOM's business within the geographic
area of such
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assignment including substantially all of the assets used in such business, and
agrees to be bound directly and fully by all of the terms and conditions of this
Agreement.
35.2 Change of Control. Any change of control of NECOM shall be deemed an
assignment if a new person or entity other than an affiliate (as defined in
Section 16.1), directly or indirectly, acquires 50% or more of the voting stock
of NECOM in one or more connected transactions, except that this Section 35.2
shall not apply to (i) any transaction consummated within 30 days of the date of
this Agreement involving Applied Telecommunications Technologies, Inc. or (ii)
any other acquiror of any equity interest in NECOM, if such other acquiror was
introduced to NECOM by Applied Telecommunications Technologies, Inc., or if
Applied Telecommunications Technologies, Inc. was acting as an advisor for such
other acquiror.
35.3 NU's Right to Pledge Agreement and Transfer Property. NU shall be free to
mortgage, pledge, or otherwise assign its interests under this Agreement to any
Third Party in connection with any borrowing or other financing activity of NU
provided that such assignment shall not limit or otherwise affect NU's
obligations under this Agreement. Any transfer of property of NU included in or
subject to this Agreement may be made by NU provided the person acquiring such
property takes it subject to this Agreement.
35.4 NECOM's Right to Pledge Agreement and Lease Fibers. NECOM shall be free to
mortgage, pledge or otherwise assign its interest under this Agreement to any
Third Party in connection with any borrowing or other financing activity
(including that contemplated by Section 20) of NECOM provided that such
assignment shall not limit or otherwise affect NECOM's obligations under this
Agreement. Nothing in this Section 35 shall limit or apply to NECOM's right to
lease or sublease fibers of which it has the use under this Agreement to Third
Parties in the normal course of NECOM's business.
35.5 Right to Assign. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns where
permitted by this Agreement or where an assignment occurs by operation of law.
36. APPROVALS, PERMITS, AND CONSENTS
36.1 NECOM's Obligations. During the term of this Agreement, NECOM at its sole
cost and expense shall obtain and maintain any and all necessary permits,
licenses, franchises and approvals that may be required by federal, state or
local law, regulation or ordinance, and shall continuously comply with all such
laws, regulations or ordinances as may now or in the future be applicable to
NECOM's use and operation of the Cable. If NECOM or any permitted assignee shall
at any time fail to maintain such approvals, NU may terminate this Agreement
without any liability or obligation to NECOM pursuant to Section 21.3(iv).
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36.2 Opinion. Within 90 days of the date of this Agreement, NECOM shall provide
NU with an opinion of counsel, in form and substance satisfactory to NU, stating
NECOM's compliance with the provisions of law applicable to NECOM's use of the
Cable and its obligations under this Agreement.
36.3 NU's Obligations. During the term of this Agreement, NU shall, at its
Actual Cost to be paid by NECOM, obtain all approvals and consents that may be
required from all federal, state, and local authorities regarding all or any
portion of the Cable installation or replacement upon the Route Segments subject
to such jurisdiction. Legal counsel used for this purpose shall be selected by
NU following consultation with NECOM.
37. NOTICES
37.1 Form and Address. All notices authorized or required by this Agreement
shall be given in writing and delivered to the following addresses, which may
change from time to time by such notice to either party, which addresses shall
also serve as the addresses for the delivery of any amounts due and payable
hereunder:
Director - T&D System Projects
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
With a copy to:
Vice President - Energy Delivery
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
NECOM LLC
391 Totten Pond Road
Suite 401
Waltham, MA 02154
Attention: President
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With a copy to:
Alexander A. Bernhard, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
37.2 How Sent. Each notice, demand, request, report approval or communication
which shall be mailed in the manner described above, or delivered by hand or an
insured overnight courier, shall be deemed sufficiently given, served, sent or
received for all purposes at such time as it is delivered to the addressee, with
the return receipt or the delivery receipt being deemed conclusive evidence of
such delivery, or at such time as delivery is refused by the addressee upon
presentation.
37.3 Damage Notification. In the event that the Cable is damaged for any reason,
the party discovering such damage shall notify the other party of said damage by
telephone at:
for NU (203) 665-6000 or (800) 286-5000 extension 6000
for NECOM (800) 891-5080
These are 24 hour, 7 day per week emergency notification numbers. Calls shall be
directed to the Supervisor on Duty, and the caller should be able to provide the
following information:
1. Name of company making report;
2. Location reporting problem;
3. Name of contact person reporting problem;
4. Telephone number to call back with progress report;
5. Description of the problem in as much detail as possible;
6. Time and date the problem occurred or began; and
7. If appropriate, a statement that "This is an emergency" and that a
problem presents a jeopardy situation to the physical plant of NU or
NECOM, as the case may be.
38. DISPUTE RESOLUTION
38.1 Arbitration. If any question shall arise in regard to the interpretation of
any provision of this Agreement or as to the rights or obligations of the
parties hereunder, the question shall be referred to the respective Program
Managers who shall deliberate such questions for not more than 15 days. If a
resolution is not forthcoming within said period the matter will be referred to
a senior executive designated by each party who shall, within 30 days of the
request of the party invoking these dispute resolution procedures, meet with
each other to negotiate and
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<PAGE>
attempt to resolve such question in good faith. Such senior executives may, if
they so desire, consult outside experts for assistance in arriving at such a
resolution. In the event that the resolution is not achieved within 30 days
after such a request, then the question shall be finally resolved by the award
of arbitrators (all of whom shall be arbitrators certified by the American
Arbitration Association) named as follows:
(i) the party sharing one side of the dispute shall name an
arbitrator and give written notice thereof to the party sharing the other side
of the dispute;
(ii) the party sharing the other side of the dispute shall,
within 14 days of receipt of such written notice, name an arbitrator; and
(iii) the arbitrator so named shall within 15 days after the
naming the latter of them, select an additional arbitrator. If such additional
arbitrator is not selected within fifteen (15) days of the appointment of the
latter of the arbitrators the party sharing either side of the dispute may seek
to appoint such third arbitrator by applying to the American Arbitration
Association. The arbitrators shall proceed promptly to hear and determine the
matter in controversy. The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrators shall be instructed that their decision must be made within 45 days
after the appointment of the third arbitrator, subject to any reasonable delay
due to unforeseen circumstances.
38.2 Award; Costs. The decision of the arbitrators shall be in writing and
signed by the arbitrators or a majority of them and shall be final and binding
on the parties, and the parties shall abide by the decision and perform the
terms and conditions thereof. Unless otherwise determined by the arbitrators,
the fees and expenses of the arbitration shall be borne by the party losing in
these dispute resolution procedures, or if no party prevails in full, as
allocated by the arbitrators based on the relative merits of the parties
positions. Judgment upon the award rendered may be in any court having
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be. All arbitration
shall be conducted in Worcester, Massachusetts.
39. EXERCISE OF RIGHTS
39.1 No Waiver. No failure or delay on the part of either party hereto in
exercising any right, power or privilege hereunder and no course of dealing
between the parties shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege.
39.2 NECOM's Self Help Rights. In the event NU shall default or in any manner
fail to perform any of its maintenance obligations hereunder and such failure
shall
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continue for twenty (20) days after written notice from NECOM, then, unless such
failure is the result of a Force Majeure Event, NECOM shall have the right, but
not the obligation, so long as such failure continues, to perform such
obligations of NU in accordance with the relevant provisions of this Agreement,
provided that NECOM shall only use properly qualified and licensed personnel to
perform such maintenance, shall proceed in accordance with all applicable laws,
codes and regulations, and shall provide advance written notice prior to
entering NU's property.
40. ADDITIONAL ACTIONS AND DOCUMENTS
Each of the parties hereto hereby agrees to take or cause to be taken such
further actions, to execute, acknowledge, deliver and file or cause to be
executed, acknowledged, delivered and filed such further documents and
instruments, and to use its best effort to obtain such consents, as may be
necessary or as may be reasonably requested in order to fully effectuate the
purposes, terms and conditions of this Agreement, whether at or after the
execution of this Agreement.
41. SURVIVAL
It is the express intention and agreement of the parties hereto that all
covenants, agreements, statements, representations, warranties and indemnities
made in this Agreement shall survive the execution and delivery of this
Agreement.
42. HEADINGS
Article headings contained in this Agreement are inserted for convenience of
reference only, shall not be deemed to be a part of this Agreement for any
purpose, and shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
43. INCORPORATION OF EXHIBITS
The Exhibits referenced in and attached to this Agreement shall be deemed an
integral part hereof to the same extent as if written at length herein.
44. COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many counterparts
as may be required; and it shall not be necessary that the signatures of or on
behalf of each party appear on each counterpart; but it shall be sufficient that
the signature of or on behalf of each party appear on one or more of the
counterparts. All counterparts shall collectively constitute a single agreement.
It shall not be necessary in any proof of this Agreement to produce or account
for more than the number of counterparts containing the respective signatures of
or on behalf of all of the parties.
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<PAGE>
45. APPLICABLE LAW
This Agreement shall be construed under and in accordance with the laws of the
State of Connecticut.
46. PRIOR AGREEMENTS
This Agreement supersedes all prior or contemporaneous proposals, communications
and negotiations, either oral or written, relating to the rights, obligations,
or performance of this Agreement by the parties hereto, and, as such,
constitutes the complete and entire agreement of the parties.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
<TABLE>
<S> <C>
Witnessed by: Northeast Utilities Service Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
-------------------- -------------------------------
Name: David H. Boguslawski
Title: Vice President-Energy Development
The Connecticut Light and Power
Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
-------------------- -------------------------------
Name: David H. Boguslawski
Title: Vice President-Energy Development
Western Massachusetts Electric
Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
-------------------- -------------------------------
Name: David H. Boguslawski
Title: Vice President-Energy Development
Public Service Company of New
Hampshire
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
-------------------- -------------------------------
Name: David H. Boguslawski
Title: Vice President-Energy Development
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<PAGE>
NECOM LLC
By: its Manager, FiveCom, Inc.
/s/ Elizabeth Arcand By: /s/ Victor Colatonio
-------------------- -------------------------------
Name: Victor Colantonio
Title: President
</TABLE>
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<PAGE>
CONSENT AND JOINDER
Reference is made to the foregoing Amended and Restated Agreement of
even date herewith among Northeast Utilities Service Company, et al, and NECOM
LLC.
WHEREAS, terms defined in the aforesaid agreement and not defined
herein shall have the meaning ascribed to them in said agreement; and
WHEREAS, FiveCom assigned all of its rights and obligations under the
Prior Agreement to FiveCom LLC, a Massachusetts limited liability company, and
FiveCom LLC accepted such assignment and assumed such obligations by an
Assignment and Assumption dated as of May 23, 1996; and
WHEREAS, FiveCom LLC further assigned such rights and obligations to
NECOM in such Assignment and Assumption dated May 23, 1996; and
WHEREAS, such assignments required the consent of NU, and as a
condition of providing such consent, NU required that FiveCom LLC would remain
jointly and severally responsible for certain of NECOM's obligations under the
Prior Agreement; and
WHEREAS, notwithstanding the assignment to NECOM, FiveCom LLC remains
obligated to perform NECOM's obligations under said Agreement; and
WHEREAS, FiveCom LLC acknowledges the benefits to NECOM and to those
obligated to perform NECOM's obligations under the Agreement, of the provisions
of said Amended and Restated Agreement.
NOW, THEREFORE, in consideration of the foregoing, FiveCom LLC hereby
consents to, approves of, and agrees to be jointly and severally bound by the
provisions of the aforesaid Amended and Restated Agreement, including, without
limitation, the provisions of Sections 5.5, 6.1, 7.3, 8.5, 13.3, 16.3, 21.2,
22.1, 22.3, 24.1, 27.1, 28 and 33, with the same force and effect and in the
same manner as under the terms of the Prior Agreement prior to said assignment.
For purposes of said Sections, the term "NECOM" shall be read and interpreted to
include FiveCom LLC.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement this 27th day of
February, 1998.
Witnessed by: /s/ Elizabeth Arcand FiveCom LLC
By: its Manager, FiveCom, Inc.
By: /s/ Victor Colantonio
------------------------
Name: Victor Colantonio
Title: President
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 3.26
THE ROUTE
The Route for the Cable consisting of NUNet and NEON are represented on Map 1 as
the Route connecting [**]
A routing option for NU exists between a) [**] and B) [**].
Map of the Route
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<PAGE>
Exhibit 3.26
[**]
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<PAGE>
EXHIBIT 3.28
CABLE ACCEPTANCE AND PERFORMANCE SPECIFICATIONS
CABLE ACCEPTANCE
Cable inspections will be performed in compliance with manufacturer's
specifications at 1300 and 1550 nm. Tests will include OTDR continuity tests,
reports with photos when necessary, and the following two directional tests.
a. Reel testing of all cable after the final handling by the transport
company.
b. Reel testing at the installation staging site prior to the
installation of all static wire fibers.
c. Splice testing for each splice point in two directions.
d. End to end testing for each Route Segment, or portion thereof, after
installation. (See typical test report in Supplemental documents)
Cable acceptance and test reports shall be prepared in two original versions,
one set each for NU and NECOM.
Maintenance and cable specifications of Alcoa Fujikura Limited and Corning
AN-121 are incorporated in this exhibit by this reference as additional
specifications.
CABLE PERFORMANCE SPECIFICATIONS
Cable performance specifications shall comply with manufacturer's
specifications. The performance shall be within the tolerances of the total loss
budgets for each Route Segment or portion thereof. The cable shall comply with
the appropriate performance requirements of DS1, DS3, and SONET equipment as to
throughput (BER) and attention (loss) and for end to end performance.
FiveCom, Inc. DS1, DS3 & SONET Performance Specifications, as of July 1994 are
incorporated in this exhibit by this reference as additional specifications.
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 3.28
FIVECOM DS1, DS3 & SONET PERFORMANCE PARAMETERS
<TABLE>
<S> <C>
Error Free Seconds [**]
(measured over any 24 hour period)
Severely Errored Seconds [**]
(measured one-way per 24 hour period)
Availability [**]
(measured over 12 consecutive months)
Acceptance Limits [**]
(15 minute loop back)
Operational Maintenance Limits [**]
(15 minute loop back)
Immediate Action Limits [**]
(measured in loop back)
</TABLE>
Note:
Performance is based on BellCore Technical Standard PUB 62508 Definitions
ES - Errored Seconds
LTE - Less than or equal to
GTE - Greater than or equal to
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<PAGE>
EXHIBIT 3.28
FiveCom, Inc. DS1, DS3 & SONET Performance Specifications July 1994
1. This listing defines the performance objectives for DS-1, DS-3 and SONET
circuits provisioned on NEON. Maintenance procedures will meet these performance
objectives
2. Partial List of Compliance to Cited References:
a. ANSI T1 102-1987 (Electrical Signal Interfaces)
ANSI T1 403, 1989
ANSI T1, 404, 1989
b. AT&T Technical Reference, TR 62415, 6/89
c. Bellcore TR-TSY-000499, Issue 3, 12/89
Bellcore TR-TSY 000020, Issue 4, 12/89 Bellcore TR-NWT -
000063, Issue 4, 7/91 (Ambient Conditions) Bellcore TR-NWT-
000253, Issue 2, (Jitter)
d. Corning Incorporated AN-121, 6/90 (SM Splicing)
e. ESCA - SONET Rates and Format, T1X1 5 3/88
f. MCI-MCIT 051-450-3500 Doc. #023-0024-01-OF-ES, 8/19/91 (DS1&DS3
Performance)
g. Northern Telecom, Publication #323-1201-180, Doc Rel. 7 Std., 1/94
(OC-SONET
h. OSHA Part 1910, (Title 29 Ch. XVII, DoL) (Labeling) OSHA 1970
(Acoustic Noise)
l. UL 1459 (Telephone Equip)
UL 94 (Flammability)
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EXHIBIT 4.8
Form of Security Agreements
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<PAGE>
Exhibit 4.8 CLPC
PURCHASE MONEY SECURITY AGREEMENT
This is a Purchase Money Security Agreement made this ____ day of
____________, 1998 (the "Agreement") between The Connecticut Light and Power
Company, a Connecticut corporation having its principal place of business at 107
Selden Street, Berlin, Connecticut 06037 ("CLPC"), and NECOM LLC, a
Massachusetts limited liability corporation having its principal place of
business at 391 Totten Pond Road, Suite 401, Waltham, Massachusetts 02154
("NECOM").
RECITALS:
A. CLPC and its affiliates, Northeast Utilities Service Company, a
specially chartered Connecticut corporation having its principal place of
business at 107 Selden Street, Berlin, Connecticut 06037, Public Service Company
of New Hampshire, a New Hampshire corporation having its principal place of
business at 1000 Elm Street, Manchester, New Hampshire 03105 ("PSNH"), Western
Massachusetts Electric Company, a Massachusetts corporation having its principal
place of business at 174 Brush Hill Avenue, West Springfield, Massachusetts
01089 ("WMEC"), have entered into an Agreement for the Provision of Fiber Optic
Facilities and Services with NECOM of even date herewith (the "Phase Two
Agreement") under which CLPC, PSNH and WMEC have agreed that NECOM shall have an
Indefeasible Right of Use ("IRU") as may be necessary for NECOM's use and
operation of its optical fiber network being constructed in the States of New
Hampshire, Massachusetts and Connecticut known as, and defined in the Phase Two
Agreement as, NEON;
B. In partial consideration for said IRU, NECOM has agreed that PSNH,
WMEC and CLPC shall have legal title to the 12 fiber optic filaments known as,
and defined in the Phase Two Agreement as, NUNet;
C. The parties have agreed that NECOM shall reserve a purchase money
security interest in NUNet and all proceeds and products arising from or
relating to NUNet to secure CLPC's performance of its warranty to NECOM of
NECOM's quiet use and enjoyment of the IRU; and
D. The parties intend to implement that purchase money security
interest by the terms of this Agreement and similar agreements of even date with
PSNH and WMEC (collectively, the "Affiliates").
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
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<PAGE>
1. DEFINITIONS. All defined terms in this Agreement shall have the same
definitions as set forth in the Phase Two Agreement unless separately defined in
this Agreement.
2. SECURITY INTEREST. In connection with the vesting of NUNet title in
CLPC, NECOM reserves, and CLPC acknowledges and agrees to such reservation and
hereby grants to NECOM, a security interest in NUNet in the State of Connecticut
(the "Collateral"), as security for (a) CLPC's performance of all its
obligations under Section 4.7 of the Phase Two Agreement, and (b) any costs,
damages or losses incurred as a result of any breach of such warranty, or
incurred in connection with the enforcement of this Agreement.
3. CLPC'S REPRESENTATIONS AND WARRANTIES. CLPC represents and warrants
that:
3.1 Incorporation, Qualification and Corporate Power. CLPC is
a corporation duly organized, validly existing and in good standing under the
laws of Connecticut, and has obtained whatever authorization of officers,
directors or shareholders is required by such laws, or by its charter or
by-laws, for it to enter into this Agreement.
3.2 Office. CLPC is a transmitting utility within the meaning
of Section 9-401 of the Uniform Commercial Code, as enacted in Connecticut, and
the office where CLPC keeps records concerning the Collateral is at the address
shown for CLPC at the head of this Agreement.
4. GENERAL OBLIGATIONS OF CLPC. CLPC agrees that:
4.1 Financing Statements. CLPC will execute one or more
financing statements and file them wherever filing is deemed by NECOM to be
necessary or desirable. A carbon, photographic or other reproduction of this
Agreement or of a financing statement shall be sufficient as a financing
statement.
4.2 Inspection. CLPC will keep accurate and complete records
of the Collateral, and NECOM or any of its agents shall have the right to
inspect the Collateral and all records concerning the Collateral, wherever
located, upon reasonable advance notice during normal business hours.
4.3 Insurance. CLPC will keep all Collateral insured with
coverages in amounts in accordance with CLPC's normal business practices but not
less than the replacement cost of the Collateral. Upon NECOM's request, CLPC
shall require its insurance carrier to add NECOM to the policy as a loss payee
and not to cancel the policy except upon ten days' advance notice to NECOM.
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<PAGE>
4.4 Location of Collateral. CLPC shall not move the Collateral
from the locations described in the Phase Two Agreement except as provided
therein subject to CLPC's normal operational requirements and the terms of the
Phase Two Agreement.
4.5 Notice of Other Transfer of Collateral. CLPC shall
immediately notify NECOM if any third party (such as a creditor, sheriff,
receiver or trustee) takes or is given possession of any Collateral.
4.6 Notice of Tax Lien. CLPC shall immediately notify NECOM if
any federal or state tax lien is filed against the Collateral, even if the taxes
are in dispute.
4.7 Notice of Loss or Destruction. CLPC shall timely notify
NECOM in accordance with the terms of the Phase Two Agreement if any material
portion of the Collateral is lost, stolen, damaged or destroyed.
5. DEFAULT. CLPC shall be in default under this Agreement and under any
other agreement with NECOM upon the happening of any of the following events or
conditions, without demand or notice from NECOM:
5.1 Interference. Any act by CLPC, or suffered by CLPC, which
interrupts, terminates or otherwise interferes with NECOM's quiet use and full
enjoyment of its IRU;
5.2 Maintenance. CLPC's failure to pay, consistent with the
Phase Two Agreement, any obligation necessary to maintain or repair any
facilities or equipment required for the quiet use and enjoyment of the IRU;
5.3 Business Failure. Dissolution, termination of existence,
insolvency or business failure of CLPC, or the appointment of a custodian or
receiver of a substantial portion of CLPC's property, or an assignment or trust
mortgage for the benefit of creditors by CLPC, or the recording or existence of
any attachment of or involuntary lien on a substantial portion of CLPC's
property affecting the Collateral which is not released within a reasonable
period of time, or the commencement of any proceeding under any chapter of the
U.S. Bankruptcy Code, 11 U.S.C. [Section] 101 et seq., or any insolvency laws by
or against CLPC, or the commencement of any action by any federal or state
regulatory authority to take control of, or appoint a receiver for, the business
of CLPC.
5.4 Cross-Default. Any default or breach of the warranty by
CLPC or any Affiliate of Section 4.7 of the Phase Two Agreement, including any
interruption of NECOM's normal operation of NEON.
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<PAGE>
6. NECOM'S RIGHTS UPON DEFAULT. Upon default and at any time
thereafter, NECOM may in its sole discretion, without presentment, demand,
protest, advertisement or notice of any kind except as specifically provided
below, exercise any or all of the following rights:
6.1 Acceleration. NECOM may exercise the rights of a secured
party under law or under the terms of this or any other agreement with CLPC.
6.2 Assembling of Collateral. By giving written notice to
CLPC, NECOM may require CLPC to immediately assemble the Collateral and make it
at all times secure and available to NECOM at a place or places designated by
NECOM.
6.3 Possession and Sale. NECOM may take possession of the
Collateral and sell, lease or otherwise dispose of it in accordance with
applicable law, provided, however, that NECOM shall give CLPC no less than ten
(10) days' advance notice of any sale or other disposition of Collateral. This
notice shall be given by United States first-class, registered or certified mail
with postage prepaid (in which event notice shall be deemed to have been given
when so deposited in the mail) or by hand delivery, to CLPC's address specified
at the head of this Agreement. Such possession shall include, without
limitation, NECOM's right to operate, control and maintain the Cable, NUNet and
any Structures, Equipment, Cable Accessories and New Buildings required for the
usual and customary operation of NUNet, either directly or through the use of
licensed and qualified contractors. At any public sale or other disposition of
the Collateral, NECOM shall be entitled to bid the amount of all obligations
secured hereby and take title to NUNet in accordance with applicable laws.
Alternatively, NECOM may, after required notice, retain the Collateral in
satisfaction of the obligations secured hereby.
6.4 Judicial Proceedings. If NECOM brings suit against CLPC,
CLPC agrees that appropriate venue and jurisdiction shall reside exclusively in
the State and Federal Courts of Massachusetts.
6.5 Collection Expenses. CLPC shall pay to NECOM on demand any
and all reasonable counsel fees and other expenses incurred by NECOM to enforce
its rights under this Agreement and collect payment of all obligations of CLPC
to NECOM, including but not limited to counsel fees or expenses incurred in any
bankruptcy or insolvency proceeding.
7. TERM AND TERMINATION. This Agreement shall terminate with respect to
Collateral owned by any CLPC corporate entity when that corporation's
instruments of investment are rated "Investment Grade" or higher by a nationally
recognized rating service.
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<PAGE>
8. GENERAL.
8.1 Waivers. CLPC waives all notices except those specifically
provided in this Agreement.
8.2 Assignment. This Agreement shall inure to the benefit of
NECOM's successors and assigns and shall be freely assignable, at NECOM's sole
option, to any successor or successors to NECOM's rights and interests under the
Phase Two Agreement.
8.3 Delays or Omissions. No delay or omission by NECOM in
exercising any rights shall operate as a waiver of such right or any other right
and waiver on any one occasion shall not operate as a waiver on any future
occasion.
8.4 Construction. The Uniform Commercial Code and other laws
of Massachusetts shall govern the construction of this Agreement. If more than
one party executes this Agreement as CLPC, their obligations shall be joint and
several. No amendment of this Agreement shall be effective unless in writing and
executed by both CLPC and NECOM. Headings and sub-headings are for convenience
only, and shall not affect the meaning or interpretation of the Agreement.
8.5 Counterparts. This Agreement may be executed by the
individual parties in counterparts.
EXECUTED under seal as of the date first above written.
THE CONNECTICUT LIGHT AND
POWER COMPANY
Attest:
By:
- ---------------------------- -----------------------------------------
Title:
NECOM LLC
Attest:
By:
- ---------------------------- -----------------------------------------
Title:
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<PAGE>
Exhibit 4.8 WMEC
PURCHASE MONEY SECURITY AGREEMENT
This is a Purchase Money Security Agreement made this ____ day of
__________, 1998 (the "Agreement") between Western Massachusetts Electric
Company, a Massachusetts corporation having its principal place of business at
174 Brush Hill Avenue, West Springfield, Massachusetts 01089 ("WMEC"), and NECOM
LLC, a Massachusetts limited liability corporation having its principal place of
business at 391 Totten Pond Road, Suite 401, Waltham, Massachusetts 02154
("NECOM").
RECITALS:
A. WMEC and its affiliates, Northeast Utilities Service Company, a
specially chartered Connecticut corporation having its principal place of
business at 107 Selden Street, Berlin, Connecticut 06037, Public Service Company
of New Hampshire, a New Hampshire corporation having its principal place of
business at 1000 Elm Street, Manchester, New Hampshire 03105 ("PSNH"), and The
Connecticut Light and Power Company, a Connecticut corporation having its
principal place of business at 107 Selden Street, Berlin, Connecticut 06037
("CLPC"), have entered into an Agreement for the Provision of Fiber Optic
Facilities and Services with NECOM of even date herewith (the "Phase Two
Agreement") under which WMEC, PSNH and CLPC have agreed that NECOM shall have an
Indefeasible Right of Use ("IRU") as may be necessary for NECOM's use and
operation of its optical fiber network being constructed in the States of New
Hampshire, Massachusetts and Connecticut known as, and defined in the Phase Two
Agreement as, NEON;
B. In partial consideration for said IRU, NECOM has agreed that PSNH,
WMEC and CLPC shall have legal title to the 12 fiber optic filaments known as,
and defined in the Phase Two Agreement as, NUNet;
C. The parties have agreed that NECOM shall reserve a purchase money
security interest in NUNet and all proceeds and products arising from or
relating to NUNet to secure WMEC's performance of its warranty to NECOM of
NECOM's quiet use and enjoyment of the IRU; and
D. The parties intend to implement that purchase money security
interest by the terms of this Agreement and similar agreements of even date with
PSNH and WMEC (collectively, the "Affiliates").
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
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1. DEFINITIONS. All defined terms in this Agreement shall have the same
definitions as set forth in the Phase Two Agreement unless separately defined in
this Agreement.
2. SECURITY INTEREST. In connection with the vesting of NUNet title in
WMEC, NECOM reserves, and WMEC acknowledges and agrees to such reservation and
hereby grants to NECOM, a security interest in NUNet in the Commonwealth of
Massachusetts (the "Collateral"), as security for (a) WMEC's performance of all
its obligations under Section 4.7 of the Phase Two Agreement, and (b) any costs,
damages or losses incurred as a result of any breach of such warranty, or
incurred in connection with the enforcement of this Agreement.
3. WMEC'S REPRESENTATIONS AND WARRANTIES. WMEC represents and warrants
that:
3.1 Incorporation Qualification and Corporate Power. WMEC is a
corporation duly organized, validly existing and in good standing under the laws
of Massachusetts, and has obtained whatever authorization of officers, directors
or shareholders is required by such laws, or by its charter or by-laws, for it
to enter into this Agreement.
3.2 Office. WMEC is a transmitting utility within the meaning
of Section 9-401 of the Uniform Commercial Code, as enacted in Massachusetts,
and the office where WMEC keeps records concerning the Collateral is at the
address shown for WMEC at the head of this Agreement.
4. GENERAL OBLIGATIONS OF WMEC. WMEC agrees that:
4.1 Financing Statements. WMEC will execute one or more
financing statements and file them wherever filing is deemed by NECOM to be
necessary or desirable. A carbon, photographic or other reproduction of this
Agreement or of a financing statement shall be sufficient as a financing
statement.
4.2 Inspection. WMEC will keep accurate and complete records
of the Collateral, and NECOM or any of its agents shall have the right to
inspect the Collateral and all records concerning the Collateral, wherever
located, upon reasonable advance notice during normal business hours.
4.3 Insurance. WMEC will keep all Collateral insured with
coverages in amounts in accordance with WMEC's normal business practices but not
less than the replacement cost of the Collateral. Upon NECOM's request, WMEC
shall require its insurance carrier to add NECOM to the policy as a loss payee
and not to cancel the policy except upon ten days' advance notice to NECOM.
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4.4 Location of Collateral. WMEC shall not move the Collateral
from the locations described in the Phase Two Agreement except as provided
therein subject to WMEC's normal operational requirements and the terms of the
Phase Two Agreement.
4.5 Notice of Other Transfer of Collateral. WMEC shall
immediately notify NECOM if any third party (such as a creditor, sheriff,
receiver or trustee) takes or is given possession of any Collateral.
4.6 Notice of Tax Lien. WMEC shall immediately notify NECOM if
any federal or state tax lien is filed against the Collateral, even if the taxes
are in dispute.
4.7 Notice of Loss or Destruction. WMEC shall timely notify
NECOM in accordance with the terms of the Phase Two Agreement if any material
portion of the Collateral is lost, stolen, damaged or destroyed.
5. DEFAULT. WMEC shall be in default under this Agreement and under any
other agreement with NECOM upon the happening of any of the following events or
conditions, without demand or notice from NECOM:
5.1 Interference. Any act by WMEC, or suffered by WMEC, which
interrupts, terminates or otherwise interferes with NECOM's quiet use and full
enjoyment of its IRU;
5.2 Maintenance. WMEC's failure to pay, consistent with the
Phase Two Agreement, any obligation necessary to maintain or repair any
facilities or equipment required for the quiet use and enjoyment of the IRU;
5.3 Business Failure. Dissolution, termination of existence,
insolvency or business failure of WMEC, or the appointment of a custodian or
receiver of a substantial portion of WMEC's property, or an assignment or trust
mortgage for the benefit of creditors by WMEC, or the recording or existence of
any attachment of or involuntary lien on a substantial portion of WMEC's
property affecting the Collateral which is not released within a reasonable
period of time, or the commencement of any proceeding under any chapter of the
U.S. Bankruptcy Code, 11 U.S.C. [Section] 101 et seq., or any insolvency laws by
or against WMEC, or the commencement of any action by any federal or state
regulatory authority to take control of, or appoint a receiver for, the business
of WMEC.
5.4 Cross-Default. Any default or breach of the warranty by
WMEC or any Affiliate of Section 4.7 of the Phase Two Agreement, including any
interruption of NECOM's normal operation of NEON.
-53-
<PAGE>
6. NECOM'S RIGHTS UPON DEFAULT. Upon default and at any time
thereafter, NECOM may in its sole discretion, without presentment, demand,
protest, advertisement or notice of any kind except as specifically provided
below, exercise any or all of the following rights:
6.1 Acceleration. NECOM may exercise the rights of a secured
party under law or under the terms of this or any other agreement with WMEC.
6.2 Assembling of Collateral. By giving written notice to
WMEC, NECOM may require WMEC to immediately assemble the Collateral and make it
at all times secure and available to NECOM at a place or places designated by
NECOM.
6.3 Possession and Sale. NECOM may take possession of the
Collateral and sell, lease or otherwise dispose of it in accordance with
applicable law, provided, however, that NECOM shall give WMEC no less than ten
(10) days' advance notice of any sale or other disposition of Collateral. This
notice shall be given by United States first-class, registered or certified mail
with postage prepaid (in which event notice shall be deemed to have been given
when so deposited in the mail) or by hand delivery, to WMEC's address specified
at the head of this Agreement. Such possession shall include, without
limitation, NECOM's right to operate, control and maintain the Cable, NUNet and
any Structures, Equipment, Cable Accessories and New Buildings required for the
usual and customary operation of NUNet, either directly or through the use of
licensed and qualified contractors. At any public sale or other disposition of
the Collateral, NECOM shall be entitled to bid the amount of all obligations
secured hereby and take title to NUNet in accordance with applicable laws.
Alternatively, NECOM may, after required notice, retain the Collateral in
satisfaction of the obligations secured hereby.
6.4 Judicial Proceedings. If NECOM brings suit against WMEC,
WMEC agrees that appropriate venue and jurisdiction shall reside exclusively in
the State and Federal Courts of Massachusetts.
6.5 Collection Expenses. WMEC shall pay to NECOM on demand any
and all reasonable counsel fees and other expenses incurred by NECOM to enforce
its rights under this Agreement and collect payment of all obligations of WMEC
to NECOM, including but not limited to counsel fees or expenses incurred in any
bankruptcy or insolvency proceeding.
7. TERM AND TERMINATION. This Agreement shall terminate with respect to
Collateral owned by any WMEC corporate entity when that corporation's
instruments of investment are rated "Investment Grade" or higher by a nationally
recognized rating service.
-54-
<PAGE>
8. GENERAL.
8.1 Waivers. WMEC waives all notices except those specifically
provided in this Agreement.
8.2 Assignment. This Agreement shall inure to the benefit of
NECOM's successors and assigns and shall be freely assignable, at NECOM's sole
option, to any successor or successors to NECOM's rights and interests under the
Phase Two Agreement.
8.3 Delays or Omissions. No delay or omission by NECOM in
exercising any rights shall operate as a waiver of such right or any other right
and waiver on any one occasion shall not operate as a waiver on any future
occasion.
8.4 Construction. The Uniform Commercial Code and other laws
of Massachusetts shall govern the construction of this Agreement. If more than
one party executes this Agreement as WMEC, their obligations shall be joint and
several. No amendment of this Agreement shall be effective unless in writing and
executed by both WMEC and NECOM. Headings and sub-headings are for convenience
only, and shall not affect the meaning or interpretation of the Agreement.
8.5 Counterparts. This Agreement may be executed by the
individual parties in counterparts.
EXECUTED under seal as of the date first above written.
WESTERN MASSACHUSETTS
ELECTRIC COMPANY
Attest:
By:
- ---------------------------- -----------------------------------------
Title:
NECOM LLC
Attest:
By:
- ---------------------------- -----------------------------------------
Title:
-55-
<PAGE>
Exhibit 4.8 PSNH
PURCHASE MONEY SECURITY AGREEMENT
This is a Purchase Money Security Agreement made this ____ day of
___________, 1998 (the "Agreement") between Public Service Company of New
Hampshire, a New Hampshire corporation having its principal place of business at
1000 Elm Street, Manchester, New Hampshire 03105 ("PSNH"), and NECOM LLC, a
Massachusetts limited liability corporation having its principal place of
business at 391 Totten Pond Road, Suite 401, Waltham, Massachusetts 02154
("NECOM").
RECITALS:
A. PSNH and its affiliates, Northeast Utilities Service Company, a
specially chartered Connecticut corporation having its principal place of
business at 107 Selden Street, Berlin, Connecticut 06037, The Connecticut Light
and Power Company, a Connecticut corporation having its principal place of
business at 107 Selden Street, Berlin, Connecticut 06037 ("CLPC"), Western
Massachusetts Electric Company, a Massachusetts corporation having its principal
place of business at 174 Brush Hill Avenue, West Springfield, Massachusetts
01089 ("WMEC"), have entered into an Agreement for the Provision of Fiber Optic
Facilities and Services with NECOM of even date herewith (the "Phase Two
Agreement") under which PSNH, CLPC and WMEC have agreed that NECOM shall have an
Indefeasible Right of Use ("IRU") as may be necessary for NECOM's use and
operation of its optical fiber network being constructed in the States of New
Hampshire, Massachusetts and Connecticut known as, and defined in the Phase Two
Agreement as, NEON;
B. In partial consideration for said IRU, NECOM has agreed that PSNH,
WMEC and CLPC shall have legal title to the 12 fiber optic filaments known as,
and defined in the Phase Two Agreement as, NUNet;
C. The parties have agreed that NECOM shall reserve a purchase money
security interest in NUNet and all proceeds and products arising from or
relating to NUNet to secure PSNH's performance of its warranty to NECOM of
NECOM's quiet use and enjoyment of the IRU; and
D. The parties intend to implement that purchase money security
interest by the terms of this Agreement and similar agreements of even date with
CLPC and WMEC (collectively, the "Affiliates").
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
-56-
<PAGE>
1. DEFINITIONS. All defined terms in this Agreement shall have the same
definitions as set forth in the Phase Two Agreement unless separately defined in
this Agreement.
2. SECURITY INTEREST. In connection with the vesting of NUNet title in
PSNH, NECOM reserves, and PSNH acknowledges and agrees to such reservation and
hereby grants to NECOM, a security interest in NUNet in the state of New
Hampshire (the "Collateral"), as security for (a) PSNH's performance of all its
obligations under Section 4.7 of the Phase Two Agreement, and (b) any costs,
damages or losses incurred as a result of any breach of such warranty, or
incurred in connection with the enforcement of this Agreement.
3. PSNH'S REPRESENTATIONS AND WARRANTIES. PSNH represents and warrants
that:
3.1 Incorporation, Qualification and Corporate Power. PSNH is
a corporation duly organized, validly existing and in good standing under the
laws of New Hampshire, and has obtained whatever authorization of officers,
directors or shareholders is required by such laws, or by its charter or
by-laws, for it to enter into this Agreement.
3.2 Office. PSNH is a transmitting utility within the meaning
of Section 9-401 of the Uniform Commercial Code, as enacted in New Hampshire,
and the office where PSNH keeps records concerning the Collateral is at the
address shown for PSNH at the head of this Agreement.
4. GENERAL OBLIGATIONS OF PSNH. PSNH agrees that:
4.1 Financing Statements. PSNH will execute one or more
financing statements and file them wherever filing is deemed by NECOM to be
necessary or desirable. A carbon, photographic or other reproduction of this
Agreement or of a financing statement shall be sufficient as a financing
statement.
4.2 Inspection. PSNH will keep accurate and complete records
of the Collateral, and NECOM or any of its agents shall have the right to
inspect the Collateral and all records concerning the Collateral, wherever
located, upon reasonable advance notice during normal business hours.
4.3 Insurance. PSNH will keep all Collateral insured with
coverages in amounts in accordance with PSNH's normal business practices but not
less than the replacement cost of the Collateral. Upon NECOM's request, PSNH
shall require its insurance carrier to add NECOM to the policy as a loss payee
and not to cancel the policy except upon ten days' advance notice to NECOM.
-57-
<PAGE>
4.4 Location of Collateral. PSNH shall not move the Collateral
from the locations described in the Phase Two Agreement except as provided
therein subject to PSNH's normal operational requirements and the terms of the
Phase Two Agreement.
4.5 Notice of Other Transfer of Collateral. PSNH shall
immediately notify NECOM if any third party (such as a creditor, sheriff,
receiver or trustee) takes or is given possession of any Collateral.
4.6 Notice of Tax Lien. PSNH shall immediately notify NECOM if
any federal or state tax lien is filed against the Collateral, even if the taxes
are in dispute.
4.7 Notice of Loss or Destruction. PSNH shall timely notify
NECOM in accordance with the terms of the Phase Two Agreement if any material
portion of the Collateral is lost, stolen, damaged or destroyed.
5. DEFAULT. PSNH shall be in default under this Agreement and under any
other agreement with NECOM upon the happening of any of the following events or
conditions, without demand or notice from NECOM:
5.1 Interference. Any act by PSNH, or suffered by PSNH, which
interrupts, terminates or otherwise interferes with NECOM's quiet use and full
enjoyment of its IRU;
5.2 Maintenance. PSNH's failure to pay, consistent with the
Phase Two Agreement, any obligation necessary to maintain or repair any
facilities or equipment required for the quiet use and enjoyment of the IRU;
5.3 Business Failure. Dissolution, termination of existence,
insolvency or business failure of PSNH, or the appointment of a custodian or
receiver of a substantial portion of PSNH's property, or an assignment or trust
mortgage for the benefit of creditors by PSNH, or the recording or existence of
any attachment of or involuntary lien on a substantial portion of PSNH's
property affecting the Collateral which is not released within a reasonable
period of time, or the commencement of any proceeding under any chapter of the
U.S. Bankruptcy Code, 11 U.S.C. [Section] 101 et seq., or any insolvency laws by
or against PSNH, or the commencement of any action by any federal or state
regulatory authority to take control of; or appoint a receiver for, the business
of PSNH.
5.4 Cross-Default. Any default or breach of the Warranty by
PSNH or any Affiliate of Section 4.7 of the Phase Two Agreement, including any
interruption of NECOM's normal operation of NEON.
-58-
<PAGE>
6. NECOM'S RIGHTS UPON DEFAULT. Upon default and at any time
thereafter, NECOM may in its sole discretion, without presentment, demand,
protest, advertisement or notice of any kind except as specifically provided
below, exercise any or all of the following rights:
6.1 Acceleration. NECOM may exercise the rights of a secured
party under law or under the terms of this or any other agreement with PSNH.
6.2 Assembling of Collateral. By giving written notice to
PSNH, NECOM may require PSNH to immediately assemble the Collateral and make it
at all times secure and available to NECOM at a place or places designated by
NECOM.
6.3 Possession and Sale. NECOM may take possession of the
Collateral and sell, lease or otherwise dispose of it in accordance with
applicable law, provided, however, that NECOM shall give PSNH no less than ten
(10) days' advance notice of any sale or other disposition of Collateral. This
notice shall be given by United States first-class, registered or certified mail
with postage prepaid (in which event notice shall be deemed to have been given
when so deposited in the mail) or by hand delivery, to PSNH's address specified
at the head of this Agreement. Such possession shall include, without
limitation, NECOM's right to operate, control and maintain the Cable, NUNet and
any Structures, Equipment, Cable Accessories and New Buildings required for the
usual and customary operation of NUNet, either directly or through the use of
licensed and qualified contractors. At any public sale or other disposition of
the Collateral, NECOM shall be entitled to bid the amount of all obligations
secured hereby and take title to NUNet in accordance with applicable laws.
Alternatively, NECOM may, after required notice, retain the Collateral in
satisfaction of the obligations secured hereby.
6.4 Judicial Proceedings. If NECOM brings suit against PSNH,
PSNH agrees that appropriate venue and jurisdiction shall reside exclusively in
the State and Federal Courts of Massachusetts.
6.5 Collection Expenses. PSNH shall pay to NECOM on demand any
and all reasonable counsel fees and other expenses incurred by NECOM to enforce
its rights under this Agreement and collect payment of all obligations of PSNH
to NECOM, including but not limited to counsel fees or expenses incurred in any
bankruptcy or insolvency proceeding.
7. TERM AND TERMINATION. This Agreement shall terminate with respect to
Collateral owned by any PSNH corporate entity when that corporation's
instruments of investment are rated "Investment Grade" or higher by a nationally
recognized rating service.
-59-
<PAGE>
8. GENERAL.
8.1 Waivers. PSNH waives all notices except those specifically
provided in this Agreement.
8.2 Assignment. This Agreement shall inure to the benefit of
NECOM's successors and assigns and shall be freely assignable, at NECOM's sole
option, to any successor or successors to NECOM's rights and interests under the
Phase Two Agreement.
8.3 Delays or Omissions. No delay or omission by NECOM in
exercising any rights shall operate as a waiver of such right or any other right
and waiver on any one occasion shall not operate as a waiver on any one
occasion.
8.4 Construction. The Uniform Commercial Code and other laws
of Massachusetts shall govern the construction of this Agreement. If more than
one party executes this Agreement as PSNH, their obligations shall be joint and
several. No amendment of this Agreement shall be effective unless in writing and
executed by both PSNH and NECOM. Headings and sub-headings are for convenience
only, and shall not affect the meaning or interpretation of the Agreement.
8.5 Counterparts. This Agreement may be executed by the
individual parties in counterparts.
EXECUTED under seal as of the date first above written.
PUBLIC SERVICE COMPANY OF NEW
HAMPSHIRE
Attest:
By:
- ---------------------------- -----------------------------------------
Title:
NECOM LLC
Attest:
By:
- ---------------------------- -----------------------------------------
Title:
-60-
<PAGE>
EXHIBIT 5.5
Map of the Network Expansion Route
-61-
<PAGE>
EXHIBIT 10.1
MAINTENANCE SPECIFICATIONS
MAINTENANCE SPECIFICATIONS
1. Applicable maintenance and service procedures of NU for outside plant and
electrical distribution systems are incorporated in this Exhibit by the
reference as maintenance specifications.
2. The following are incorporated by this reference as additional maintenance
specifications:
a. The maintenance procedures and service schedules of both the
Cable and equipment manufacturers.
b. Applicable Bellcore and Bell Practices maintenance standards.
c. All relevant OSHA practices.
d. As to NEON:
i. All applicable AT&T maintenance practices and services
procedures.
ii. All applicable MCI maintenance practices and services
procedures.
iii. All applicable Sprint maintenance practices and service
procedures.
iv. All applicable WilTel maintenance practices and service
procedures.
v. All applicable NYNEX maintenance practices and services
procedures.
vi. All applicable SNET maintenance practices and service
procedures.
vii. All maintenance and repair procedures, standards and
practices of Dig Safe and The Common Carriers
Steering Committee - Northeast Region
-62-
<PAGE>
e. FiveCom, Inc. DSl, DS3 and SONET performance specifications
for circuit availability as of July 1994.
f. The performance specifications of Alcoa Fujikura Limited.
g. FiveCom's service and emergency restoration policies and
procedures as are from time to time in effect.
-63-
<PAGE>
EXHIBIT 11.1
REQUEST FOR RELOCATION
Request No.:_________________
Date:________________________
To: Northeast Utilities Service Company
In accordance with the terms of the Agreement between us dated ________________
request is hereby made for Cable relocation on Structures as indicated on the
attachment hereto.
Name_________________________
By:___________________________
Title:_________________________
NECOM
Such of the Structures indicated on the reverse hereof can be made available for
Cable attachment thereto subject to your acceptance of necessary changes and
rearrangement at an estimated cost to you of $____ payable in accordance with
the terms of the Agreement.
Northeast Utilities Service Company
By:_________________________ Date:______________________
Title:________________________
NU
The above changes and rearrangements are accepted.
Name_______________________
By:_________________________ Date:_____________
Title:_______________________
NECOM
-64-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 28
EXEMPT PROSPECTS
Interexchange Carriers, InterState, InterLATA and Common Carriers
[**]
-65-
Exhibit 10.27
Phase Two
February 25, 1998
SHORT FORM
AGREEMENT FOR THE PROVISION OF
FIBER OPTIC FACILITIES AND SERVICES
1. PREAMBLE
This Agreement is entered into as of February 27, 1998 between Northeast
Utilities Service Company, a specially chartered Connecticut corporation, The
Connecticut Light and Power Company, a Connecticut corporation, Western
Massachusetts Electric Company, a Massachusetts corporation, and Public Service
Company of New Hampshire, a New Hampshire corporation, (collectively "NU") and
NECOM LLC, a Massachusetts limited liability company ("NECOM").
2. RECITALS
2.1 WHEREAS, NU is the owner of transmission structures, subtransmission
structures, conduits, and associated civil works ("Structures") and has certain
rights to use easements and/or rights of way within which the Structures are
located in the State of Connecticut, the Commonwealth of Massachusetts, the
State of Maine and the State of New Hampshire as part of NU's electric
transmission system;
2.2 WHEREAS, NECOM seeks to use certain of the Structures to install a fiber
optic cable which will consist of not less than 48 and not more than 144
singlemode fiber optic filaments, at least 36 of which will be used by NECOM for
its communication system and 12 of which will be used by NU for its
communication system or otherwise as permitted by this Agreement; and
2.3 WHEREAS, the parties have entered into an agreement of even date relating to
portions of Cable, hereinafter defined, which was installed prior to the date
hereof; and
2.4 WHEREAS, NU is willing to permit the use of certain of its Structures for
the purposes described in clause 2.2 in exchange for title to the Cable as and
to the extent set forth in Sections 5.1 and 5.2, the use of 12 singlemode fiber
optic filaments and the payment of certain annual fees.
NOW THEREFORE, in consideration of the mutual covenants, terms, and conditions
contained in this Agreement, the parties agree as follows:
3. DEFINITIONS
<PAGE>
3.1 Activation Date - The date on which the Cable on a Route Segment is accepted
by the parties as operational.
3.2 Cable - Fiber optic filaments consisting of either NUNet, NEON, or both, and
any suitable core, jacketing or sheath.
3.3 Indefeasible Right of Use - An indefeasible right of use, for the purposes
described herein, in NU's Structures, Space and the Route as set forth in
Section 4.1, including without limitation all of the rights and privileges of an
Indefeasible Right of Use as generally understood and interpreted in the
communications industry as an exclusive ownership right relating to
communication transmission capacities and facilities.
3.4 NECOM's Space - Floor space to be provided to NECOM by NU, as available in
the sole judgment of NU, in existing facilities or in New Buildings of NU along
the Route for the placement of Equipment to be used solely in connection with
NEON.
3.5 NEON - The fiber optic filaments in the Cable (other than the 12 fibers to
be used by NU as NUNet), NECOM's Equipment and NECOM's Space.
3.6 NUNet - Twelve fiber optic filaments in one or more single color-coded tubes
within the Cable, NU's Equipment and NU's Space.
3.7 NU's Space - Floor space to be provided to NU by NECOM in New Buildings or
facilities of NECOM for the placement of Equipment to be used solely in
connection with NUNet.
3.8 Route - That portion of NU's transmission route designated in Exhibit 3.26
attached to the Complete Agreement referred to in Section 8.1.
3.9 Route Segment - A portion of the Route between any two of the numbered
points set forth in Exhibit 3.26 attached to the Complete Agreement referred to
in Section 8.1. The Route Segment includes a location within the cities or towns
and counties listed in Exhibit 3.10.
4. NECOM'S RIGHT TO USE; OBLIGATION TO BUILD
4.1 Right of Use. The parties will install, or cause to be installed, the Cable
in accordance with the provisions of this Agreement. Upon the installation on or
after the date of this Agreement with respect to Cable on a Route Segment or
alternate path, NECOM shall have an Indefeasible Right of Use, for the purposes
described herein, in that Route Segment or alternate path and in NU's Structures
and Space for the operation of NEON, for the Term defined in Section 7.1 and on
the terms and subject to the conditions set forth herein.
-2-
<PAGE>
4.2 Limitation on Use. NECOM shall use NEON solely to serve its customers in
accordance with applicable state and federal regulations.
4.3 Other Cables/Facilities. This Agreement shall not be construed as limiting
or restricting NU in any manner from using its structures, easements and/or
rights of way for the installation of its fiber optic cables or
telecommunication facilities for its own use or that of third parties.
5. OWNERSHIP OF THE CABLE
5.1 Title; Tax Accounting. Legal title to the Cable and to any item of Equipment
installed upon NU's Structures shall be held by NU, except as herein set forth.
With respect to the Cable and NUNet, but excluding NEON, NU shall have absolute
legal and beneficial ownership, subject to certain rights and restrictions set
forth in the Complete Agreement. Legal title to the portions of NEON installed
on or after the date hereof shall be held by NECOM during the term of this
Agreement and with respect thereto, NECOM shall have absolute legal and
beneficial ownership during the term of this Agreement. NU agrees and
acknowledges that, notwithstanding installation of NEON upon NU's Structures,
NEON shall not become a fixture on any real estate or real estate interest of NU
but rather shall remain the personal property of NECOM.
5.2 Vesting of Title in NU. Legal title to NEON shall vest in NU upon
termination of this Agreement or of any applicable Route Segment.
6. TERM AND TERMINATION
6.1 Period. The term of this Agreement shall be for a period (the "Term")
commencing on the date hereof, and ending on September 27, 2024 ("the Ending
Date") and shall automatically renew on September 27, 2024 and thereafter for
five year periods until terminated by either party upon notice given one year or
more prior to September 27, 2024 or any renewal date thereafter.
7. SHORT FORM; INCONSISTENCIES
7.1 Short Form. The parties have entered into another agreement of even date
regarding the same subject matter which other agreement contains further
provisions concerning the relationships between the parties (the "Complete
Agreement"). This Agreement is a shortened form of the Complete Agreement and is
created solely for the purpose of recording or filing it in appropriate public
records. In the event of any inconsistencies between this Agreement and the
Complete Agreement, the provisions of the Complete Agreement shall control.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
<TABLE>
<CAPTION>
Witnessed by: Northeast Utilities Service Company
<S> <C>
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print: Name: David H. Boguslawski
Title: Vice President - Energy Delivery
The Connecticut Light and Power Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print: Name: David H. Boguslawski
Title: Vice President - Energy Delivery
Western Massachusetts Electric Company
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print: Name: David H. Boguslawski
Title: Vice President - Energy Delivery
Public Service Company of New Hampshire
/s/ Daniel P. Venora By: /s/ David H. Boguslawski
---------------- -----------------------------------------
Print: Name: David H. Boguslawski
Title: Vice President - Energy Delivery
NECOM LLC
By: its Manager, FiveCom, Inc.
/s/ Anna Strannen By: /s/ Victor Colantonio
---------------- -----------------------------------------
Print Name: Victor Colantonio
Title: President
</TABLE>
-4-
<PAGE>
State of Connecticut February 26, 1998
County Hartford, ss. Berlin
Personally appeared David H. Boguslawski, the Vice President of
Northeast Utilities Service Company, and acknowledged the foregoing instrument
to be the free act and deed of Northeast Utilities Service Company, before me,
/s/ Deborah A. Taurel
affix notarial ---------------------------------
seal print name:
Notary Public
My Commission expires:
State of Connecticut February 26, 1998
County Hartford, ss. Berlin
Personally appeared David H. Boguslawski, the Vice President of The
Connecticut Light and Power Company, and acknowledged the foregoing instrument
to be the free act and deed of The Connecticut Light and Power Company, before
me,
/s/ Deborah A. Taurel
affix notarial ---------------------------------
seal
Notary Public
My Commission expires:
State of Connecticut February 26, 1998
County Hartford, ss. Berlin
Personally appeared David H. Boguslawski, the Vice President of Western
Massachusetts Electric Company and acknowledged the foregoing instrument to be
the free act and deed of Western Massachusetts Electric Company, before me,
/s/ Deborah A. Taurel
affix notarial ---------------------------------
seal
Notary Public
My Commission expires:
-5-
<PAGE>
State of Connecticut February 26, 1998
County Hartford, ss. Berlin
Personally appeared David H. Boguslawski, the Vice President of Public
Service Company of New Hampshire, and acknowledged the foregoing instrument to
be the free act and deed of Public Service Company of New Hampshire, before me,
/s/ Deborah A. Taurel
affix notarial ---------------------------------
seal
Notary Public
My Commission expires:
State of ,1998
County of , ss.
Personally appeared ________________________, the
______________________ of NECOM LLC, and acknowledged the foregoing instrument
to be the free act and deed of NECOM LLC, before me,
---------------------------------
affix notarial
seal Notary Public
My Commission expires:
-6-
<PAGE>
EXHIBIT 3.10
Cities or Towns and Counties in which the Route Segment is located and in which
this agreement is to be filed or recorded
<TABLE>
<CAPTION>
State County Municipality
- ----- ------ ------------
<S> <C> <C>
CONNECTICUT Fairfield Bridgeport
Darien
Easton
Fairfield
Norwalk
Stamford
Stratford
Trumbull
Weston
Wilton
Hartford Berlin
Hartford
New Britain
Rocky Hill
Southington
Wethersfield
Middlesex East Haddam
East Hampton
Haddam
Middlefield
Middletown
New Haven Bethany
Cheshire
Hamden
Meriden
Milford
Orange
Wallingford
Woodbridge
-7-
<PAGE>
State County Municipality
- ----- ------ ------------
CONNECTICUT New London East Lyme
Groton
Ledyard
Lyme
Montville
North Stonington
Stonington
Waterford
MASSACHUSETTS Franklin Erving
Leverett
Montague
Northfield
Sunderland
Warwick
Hampden Chicopee
Hampshire Amherst
Granby
South Hadley
NEW HAMPSHIRE Cheshire Hinsdale
Keene
Nelson
Stoddard
Sullivan
Swanzey
Winchester
Hillsborough Antrim
Deering
Goffstown
Hillsborough
Hudson
Pelham
Weare
-8-
<PAGE>
NEW HAMPSHIRE Rockingham Greenland
Hampton
Hampton Falls
Newington
North Hampton
Portsmouth
Seabrook
Windham
</TABLE>
-9-
Exhibit 10.28
DUCT AGREEMENT
BETWEEN
-------------------------------
AND
NORTHEAST OPTIC NETWORK, INC.
FOR THE
PROVISION OF FIBER OPTIC FACILITIES AND SERVICES
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. PREAMBLE.................................................................................................1
2. RECITALS.................................................................................................1
3. DEFINITIONS..............................................................................................1
3.1 Activation Date.................................................................................1
3.2 Actual Cost.....................................................................................1
3.3 Affiliate.......................................................................................1
3.4 Annual Fee......................................................................................2
3.5 Cable...........................................................................................2
3.6 Cable Accessories...............................................................................2
3.7 _DN or __Digital Network........................................................................2
3.8 Claims..........................................................................................2
3.9 Demarcation Point...............................................................................2
3.10 Designated City.................................................................................2
3.11 Duct Segment....................................................................................2
3.12 Duct System.....................................................................................2
3.13 Ending Date.....................................................................................2
3.14 Equipment.......................................................................................2
3.15 Favored Customer Rates..........................................................................2
3.16 Force Majeure Events............................................................................2
3.17 Grantee.........................................................................................2
3.18 Grantee Space...................................................................................2
3.19 Grantor.........................................................................................2
3.20 Grantor Space...................................................................................3
3.21 Grantor's Territory.............................................................................3
3.22 In Service Date.................................................................................3
3.23 Make Ready Work.................................................................................3
3.24 Network Addition................................................................................3
3.25 __Net...........................................................................................3
3.26 Periodic Inspection.............................................................................3
3.27 Program Managers................................................................................3
3.28 Proprietary Information.........................................................................3
3.29 Specifications..................................................................................3
3.30 Term............................................................................................3
3.31 Third Party.....................................................................................3
4. GRANTEE'S RIGHT TO USE; OBLIGATION TO BUILD..............................................................3
4.1 Grant of Right..................................................................................3
4.2 Grant Subject to Security Interests.............................................................4
4.3 Limitations.....................................................................................4
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4.4 Obligation to Build.............................................................................4
4.5 Cable Measurement...............................................................................4
4.6 Other Cables/Facilities.........................................................................4
5. MODIFICATIONS TO THE CABLE...............................................................................4
5.1 Withdrawal of Duct Segments by the Grantor......................................................4
5.2 Cost and Means of Right of Way Acquisitions.....................................................5
5.3 Grantee's Right to Build and Connect Third Party Segments.......................................5
5.4 Third Party Connections.........................................................................5
5.5 Connection Grants...............................................................................6
6. ENGINEERING AND DESIGN...................................................................................6
6.1 Grantor's Obligations...........................................................................6
6.2 Grantee's Obligations...........................................................................6
7. MAKE READY WORK..........................................................................................6
7.1 Responsibility for Performance..................................................................6
7.2 Condition of Duct System........................................................................7
7.3 Costs...........................................................................................7
8. INSTALLATION.............................................................................................7
8.1 Grantee's Right to Select Contractors...........................................................7
8.2 Grantee's Right to Issue Specifications.........................................................7
8.3 Grantor's Installation Obligations..............................................................8
8.4 State Fees......................................................................................8
8.5 Public Rights of Way............................................................................8
9. POINT OF DEMARCATION; BUILDING EXTENSIONS................................................................8
9.1 Marking.........................................................................................8
9.2 Building Extensions.............................................................................8
10. MAINTENANCE..............................................................................................8
10.1 Grantee's Obligations...........................................................................8
10.2 Grantor's Obligations...........................................................................9
11. RELOCATION, REPLACEMENT, REBUILDS OF THE CABLE...........................................................9
11.1 By the Grantee..................................................................................9
11.2 By the Grantor..................................................................................9
11.3 Emergency Relocations; Third Party Relocations.................................................10
11.4 Cable Failure; __Net Equipment.................................................................10
12. CONSTRUCTION, MAINTENANCE AND REMOVAL OF THE CABLE......................................................10
12.1 Interference With Other Joint Users............................................................10
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12.2 Grantor's Approval of Third Party Work.........................................................10
12.3 Grantor's Right to Maintain Service............................................................11
12.4 Notice.........................................................................................11
12.5 Emergency Use of the Grantor's Property........................................................11
12.6 Return of Removed Material.....................................................................11
13. PERIODIC INSPECTIONS....................................................................................11
13.1 By the Grantor.................................................................................11
13.2 Grantee's Obligations..........................................................................11
13.3 Cost...........................................................................................12
14. APPROVALS AND CONSULTATION..............................................................................12
14.1 Role of Program Managers.......................................................................12
14.2 Definition of Consultation/Cooperation and Approval............................................12
15. OWNERSHIP OF THE CABLE..................................................................................12
15.1 Title; Tax Accounting..........................................................................12
15.2 Reversion of Beneficial Ownership..............................................................13
16. USE OF THE CABLE BY THE GRANTOR.........................................................................13
16.1 Fibers and Use.................................................................................13
16.2 Option to Purchase Additional Fibers...........................................................13
16.3 Additional Service.............................................................................13
16.4 Space in Grantee's and Grantor's Facilities....................................................14
17. CASUALTY................................................................................................14
18. GENERAL REPRESENTATIONS AND WARRANTIES..................................................................15
18.1 Common Representations.........................................................................15
18.2 General Representations by the Grantor.........................................................15
18.3 Representation by the Grantor As To Duct System................................................15
18.4 Representation by the Grantor As to Right to Place Cable.......................................15
18.5 Work Clearances and Related Delays.............................................................15
18.6 General Representations by the Grantee.........................................................15
19. INSURANCE...............................................................................................16
20. TERM AND TERMINATION....................................................................................16
20.1 Period.........................................................................................16
20.2 Early Termination of Agreement.................................................................16
20.3 Termination of Duct Segment....................................................................17
20.4 Cost Reimbursement.............................................................................17
21. ANNUAL FEE..............................................................................................17
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21.1 Amount.........................................................................................18
21.2 CPI Adjustments................................................................................18
21.3 When Due.......................................................................................18
21.4 Initial Annual Fee.............................................................................18
22. FORCE MAJEURE...........................................................................................18
22.1 Optional Termination...........................................................................18
22.2 Suspension Pending Force Majeure...............................................................19
23. PROPRIETARY INFORMATION.................................................................................19
23.1 Obligation to Maintain as Confidential.........................................................19
23.2 Route Constitutes Proprietary Information......................................................19
24. ACCESS AND SECURITY.....................................................................................19
24.1 Access by the Grantor..........................................................................19
24.2 Access by the Grantee..........................................................................20
24.3 Access by the Grantee to _DN Space.............................................................20
24.4 Grantee's Work.................................................................................21
25. NO JOINT VENTURE; COSTS.................................................................................21
25.1 Relationship...................................................................................21
25.2 Costs..........................................................................................21
26. PUBLICITY AND ADVERTISING...............................................................................21
26.1 Limitations....................................................................................21
26.2 Exceptions.....................................................................................22
27. MARKETING RELATIONSHIP..................................................................................22
28. SEVERABILITY............................................................................................22
29. LABOR RELATIONS.........................................................................................22
29.1 Notice by the Grantor..........................................................................22
29.2 Notice by the Grantee..........................................................................23
29.3 Determination by the Grantee...................................................................23
29.4 Determination by the Grantor...................................................................23
30. CONSENTS AND WAIVERS....................................................................................23
31. TAXES AND GOVERNMENTAL CHARGES..........................................................................24
32. INDEMNIFICATION.........................................................................................24
32.1 By the Grantee.................................................................................24
32.2 Indemnification Procedures.....................................................................24
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32.3 Limitation of the Grantor Liability............................................................25
32.4 Limitation of the Grantee Liability............................................................25
33. DEFAULT.................................................................................................25
34. ASSIGNMENT..............................................................................................25
34.1 By Grantee.....................................................................................25
34.2 Change of Control..............................................................................26
34.3 Grantor's Right to Pledge Agreement and Transfer Property......................................26
34.4 Grantee's Right to Pledge Agreement and Lease Fibers...........................................26
34.5 Right to Assign................................................................................26
35. APPROVALS, PERMITS, AND CONSENTS........................................................................26
35.1 Grantee's Obligations..........................................................................26
35.2 Opinion........................................................................................26
35.3 Grantor's Obligations..........................................................................26
36. NOTICES.................................................................................................27
36.1 Form and Address...............................................................................27
36.2 How Sent.......................................................................................27
36.3 Damage Notification............................................................................28
37. DISPUTE RESOLUTION......................................................................................28
37.1 Arbitration....................................................................................28
37.2 Award; Costs...................................................................................29
38. EXERCISE OF RIGHT.......................................................................................29
39. ADDITIONAL ACTIONS AND DOCUMENTS........................................................................29
40. SURVIVAL................................................................................................29
41. HEADINGS................................................................................................30
42. INCORPORATION OF EXHIBITS...............................................................................30
43. COUNTERPARTS............................................................................................30
44. APPLICABLE LAW..........................................................................................30
45. PRIOR AGREEMENTS........................................................................................30
</TABLE>
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AGREEMENT FOR THE PROVISION OF
FIBER OPTIC FACILITIES AND SERVICES
1. PREAMBLE
This Agreement is entered into on ____________ __, 19__ between
____________________, (the "Grantor") and NorthEast Optic Network, Inc., a
Delaware corporation with an address at 391 Totten Pond Road, Suite 401,
Waltham,
MA 02154 (the "Grantee").
2. RECITALS
2.1 WHEREAS, the Grantor is the owner of subterranean structures, conduits, and
associated civil works (the "Duct System") and has certain rights to use
easements, and/or rights of way within which the Duct System is located in the
State of ________________ as part of the Grantor's electric distribution system;
2.2 WHEREAS, the Grantee seeks to install innerducts and fiber optic cables in
certain portions of the Duct System to be used by the Grantee and the Grantor
for their communication systems; and
2.3 WHEREAS, the Grantor is willing to grant the use of its Duct System and the
use of the fiber filaments in the fiber optic cable once installed in the Duct
System to the Grantee in exchange for certain annual fees and the use of a
portion of the installed cable consisting of __ singlemode fiber optic filaments
in each cable installed in the Duct Systems;
NOW THEREFORE, in consideration of the mutual covenants, terms, and conditions
contained in this Agreement, the parties agree as follows:
3. DEFINITIONS
3.1 Activation Date - The date on which the Cable in a Duct Segment is accepted
by the parties as operational in accordance with the acceptance and performance
specifications set forth in Exhibit 3.29.
3.2 Actual Cost - Reasonable direct cost plus appropriate overhead cost but
without other mark-up or profit.
3.3 Affiliate - As defined under the Securities Act of 1933, as amended.
3.4 Annual Fee - See Section 21.1.
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3.5 Cable - Fiber optic filaments contained in any suitable jacketing or sheath
and installed by the Grantee in the Grantor's Duct System.
3.6 Cable Accessories - The attachment and suspension hardware, splice closures
and other components necessary either for the placement of the Cable or for the
continuity of the fiber filaments within the Cable.
3.7 DN or Digital Network - All the optical fiber filaments in the Cable
(other than the __ fibers to be used by the Grantor as __Net), the Grantee's
Equipment and the Grantee's Space.
3.8 Claims - See Section 32.1.
3.9 Demarcation Point - See Section 9.1.
3.10 Designated City - _______________, __.
3.11 Duct Segment - That portion of the Duct System between any two designated
manholes.
3.12 Duct System - See Section 2.1.
3.13 Ending Date - See Section 20.1.
3.14 Equipment - The power equipment, electronic and optronic equipment,
including, without limitation, repeaters, junctions, patch panels, alarm
monitoring equipment and other equipment necessary to provide a network of fiber
optic transmission capacity located on the network side of the Demarcation
point. The word "equipment" when not capitalized, refers to equipment of any
type.
3.15 Favored Customer Rates - See Section 16.3.
3.16 Force Majeure Events - See Section 22.1.
3.17 Grantee - See Section 1.
3.18 Grantee Space - Space to be provided by the Grantor to the Grantee, as
available in the sole judgment of the Grantor, in existing facilities of the
Grantor within the Designated City for the placement of Equipment to be used
solely in connection with _DN.
3.19 Grantor - See Section 1.
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3.20 Grantor Space - Space to be provided by the Grantee to the Grantor for the
placement of Equipment used solely in connection with __Net.
3.21 Grantor's Territory - The geographical areas where the Grantor provides
retail or wholesale electric service; owns or operates electric transmission
and/or distribution facilities or has obtained rights, interests or permissions
which would allow the Cable to be installed in such areas.
3.22 In Service Date - A date after the Activation Date when the _DN fibers are
transmitting light from a revenue producing customer including, without
limitation, the Grantor.
3.23 Make Ready Work - See Section 7.1.
3.24 Network Addition - Any Duct Segment not included in the Grantee's initial
building plans.
3.25 __Net - The # fiber optic filaments in one or more single color-coded tubes
within the Cable to be used by the Grantor, the Grantor's Equipment and the
Grantor's Space.
3.26 Periodic Inspection - The inspections conducted at irregular intervals by
the Grantor on all or portions of the Duct System for the sole purpose of
determining that the Grantee's occupancies of the Grantor's property is as
authorized and is maintained in conformance with the terms of this Agreement.
3.27 Program Managers - See Section 14.1.
3.28 Proprietary Information - See Section 23.1.
3.29 Specifications - The specifications set forth in Exhibit 3.29.
3.30 Term - See Section 20.1.
3.31 Third Party - Any party, person or entity other than the Grantor or the
Grantee or an Affiliate of the Grantor or the Grantee and any party, person, or
entity that is not a successor or permitted assignee of the Grantor or the
Grantee.
4. GRANTEE'S RIGHT TO USE; OBLIGATION TO BUILD
4.1 Grant of Right. The Grantor grants to the Grantee the right to install Cable
in portions of the Duct System selected by the Grantee and as approved by the
Grantor in the Designated City and, once installed, the indefeasible right to
use the fiber optic
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filaments within the Cable, except for the # fiber optic filaments reserved for
the Grantor's use.
4.2 Grant Subject to Security Interests. The Grantor has granted to Third
Parties security interests in certain of its real and personal property and
releases, approvals and waivers may therefore be required from the Third Parties
as a result of the grant provided for in Section 4.1. The Grantor agrees to use
its best efforts to secure nondefeasance agreements or other equivalent
releases, approvals or waivers from these Third Parties as may be required or
permitted under the terms of the applicable security agreements within nine
months of the date of this Agreement; provided, however, that if such releases,
approval or waiver cannot be obtained because the Cable has not been installed
in the Duct System then the nine month period shall commence upon such
installation.
4.3 Limitations. The grant in Section 4.1 is solely for the Grantee's use (or
the use by an assignee of the Grantee, pursuant to Section 34.4) in providing
telecommunications services. The Grantee shall exercise the right to use the
Cable solely to operate _DN and to serve its customers in accordance with
applicable state and federal regulations. Each Cable shall not contain more than
XXX fibers.
4.4 Obligation to Build. Both parties agree to use their best efforts to install
the Cable in the Duct System according to a schedule to be subsequently agreed
upon by the parties but in any case the Grantee shall install at least ____ feet
of Cable within 12 months of the date of this Agreement. The parties'
obligations under this Section 4.4 shall be subject to manufacturing or supplier
delays, governmental regulatory delays, delays caused by the Grantor as a
supplier of services or equipment under the terms of this Agreement and to
delays resulting from the Grantor's obligation to maintain reliable electric
service.
4.5 Cable Measurement. All of the Cable within the Duct System shall be measured
on a duct footage basis.
4.6 Other Cables/Facilities. This Agreement shall not be construed as limiting
or restricting the Grantor in any manner from using its structures, Duct System,
easements, franchise rights, and/or rights of way for the installation of its
fiber optic cables or telecommunication facilities for its own use or that of
Third Parties.
5. MODIFICATIONS TO THE CABLE
5.1 Withdrawal of Duct Segments by the Grantor. During the one year period
following the date of this Agreement, the Grantor shall have the right to
withdraw from this Agreement, upon notice to the Grantee, any portion of the
Duct System that it deems, in its sole and absolute judgment, not to have
adequate capacity or
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structural suitability for the Cable. The Grantee shall have no obligations to
the Grantor with respect to that portion of the Duct System so withdrawn.
5.2 Cost and Means of Right of Way Acquisitions. The Grantee shall be
responsible for, and the Grantor shall cooperate in, the acquisition of any
easement or right-of-way rights, or any certificate of public convenience and
necessity or other rights to use public roads that may be required in order to
permit (i) the installation, operation and maintenance of the Cable or (ii) the
use of the _DN fibers by the Grantee. New easements obtained by the Grantee
shall be assignable to the Grantor, if possible. If the use of the power of
eminent domain is necessary in order to acquire any additional right-of-way
rights required for the use of the _DN by the Grantee, then any required
condemnation action shall be brought by the Grantee in its own behalf. The
Grantor will cooperate with the Grantee in obtaining such legal and regulatory
permits and authorizations as are needed in order to allow the Grantee to be an
authorized condemnation party in __. Any easement or right obtained by the
Grantee by using the power of eminent domain shall be subsequent and subordinate
to any existing rights of the Grantor. Except in the case of condemnation by the
Grantee, the Grantor shall exert its best efforts to minimize the cost of such
additional land or rights in land. In the event that additional rights are
required by both parties the cost of the acquisition of such additional rights
shall be shared by the parties pro rata based on the number of fibers controlled
by each party. This Section is not intended as an acknowledgment by either party
that any such acquisition of additional rights is required but only to allocate
the responsibility for such acquisition if required.
5.3 Grantee's Right to Build and Connect Third Party Segments. The Grantee shall
have the right to build or otherwise install Cable on property of Third Parties,
at the Grantee's sole cost and expense. The Grantee may connect such Third Party
facilities to the Duct Segments and Cable subject to the approval by the Grantor
of the Grantee's connection plans. The work to connect such Third Party
facilities located on the Grantor's property shall be performed by the Grantor.
The provisions of the last two sentences of Section 6.1 shall apply to this work
to be performed by the Grantor. The Grantee shall pay all of the Grantor's
Actual Costs to review these connection plans and to oversee the construction of
such connections. If the Grantee interconnects Third Party facilities to the
Cable, the Grantee shall, upon the Grantor's request, use its best efforts to
provide the right to use up to # singlemode fibers on such Third Party's
facilities to maintain the continuity of __Net within the Grantor's Territory
and up to # singlemode fibers outside the Grantor's Territory on terms no less
favorable than those provided the Grantee for _DN.
5.4 Third Party Connections. In the event of use of connections to the Cable
from public and private property, the Grantee shall designate the location and
manner in which the Cable will enter and exit the Grantor's property and
connects to the Cable and shall provide such specifications as needed unless so
provided in the engineering
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plans of the Grantor's property. Such specifications will be subject to change
from time to time by the written consent of the parties hereto. The Grantor
shall have the right to review and approve connections made pursuant to this
Section 5.4.
5.5 Connection Grants. The Grantor hereby grants the Grantee the right to
install, maintain, and operate the connections to the Cable as described in this
Section 5.
6. ENGINEERING AND DESIGN
6.1 Grantor's Obligations. In consultation with the Grantee, and in accordance
with the Specifications, the Grantor and/or its consultants shall engineer,
provide detailed specifications, construction working prints and other data
necessary to permit the construction and installation of the Cable in the Duct
System. The Grantor shall also design all alternating current power sources,
buildings and other necessary and related articles of property which, together
with the articles of property to be designed by the Grantee, are required to
provide usable fiber optic transmission capacity throughout the Grantor's Duct
System. All such detailed specifications, construction working prints and other
information shall be subject to the Grantee's approval. The Grantee shall
reimburse the Grantor for the Grantor's Actual Costs incurred pursuant to this
Section 6.1. The Grantor shall use its best efforts to perform the work called
for by this Section 6.1 at the lowest possible cost to the Grantee. The services
provided by the Grantor in this Section 6.1 shall be performed in a professional
and workmanlike manner.
6.2 Grantee's Obligations. The Grantee, at its sole cost and expense, shall
design, in cooperation with the Grantor, all electronic and optronic equipment
and shall provide detailed specifications, construction working prints and other
necessary data for __Net and _DN including, without limitation, the Cable and
repeaters, patch panels, terminations, terminals, splice cases and closures,
alarm monitoring equipment, Equipment and all other necessary and related
articles of property which, together with the articles of property to be
designed by the Grantor pursuant to Section 6.1 are required to provide fiber
optic transmission capacity throughout the Duct System. All Equipment and other
equipment utilized solely in connection with __Net shall be paid for solely by
the Grantor.
7. MAKE READY WORK
7.1 Responsibility for Performance. In the event the Grantor and the Grantee
determine that any work is required or desirable to install manholes, handholes,
subduct, pulling rope or supplementary civil works, make the existing Duct
System capable of containing the Cable, or provide for alternative Duct Segments
(collectively "Make Ready Work"), the Grantor will either perform such Make
Ready Work or permit the Grantee or its contractor to perform such Make Ready
Work. Any charges for Make Ready Work performed by the Grantor (other than to
satisfy the
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representation made in Section 18.3) will be paid at the Grantor's Actual Costs.
If the Grantor elects to perform any Make Ready Work, the Grantor will either
(i) endeavor to include such work in its normal work load schedule, or (ii) at
the request of the Grantee, based on the availability of the Grantor's manpower,
shall perform such Make Ready Work after normal hours and at prevailing overtime
rates, but not less than straight-time rates.
7.2 Condition of Duct System. The Grantor shall make available its Duct System
and other facilities owned or controlled by the Grantor as required to provide
for continuous locations in which the Cable can be placed. The Grantor shall
perform such work, if any, at its expense, as may be required to satisfy the
representation made in Section 18.3. Any additional improvements necessary to
permit the Duct System to contain the Cable shall be made at the expense of the
Grantee. Work required which is common to both Sections 7.2 and 18.3 shall be
performed at the sole cost of the Grantee.
7.3 Costs. The Grantee shall reimburse the Grantor for the Grantor's Actual Cost
incurred in connection with any Make Ready Work done pursuant to Section 7.1 or
in connection with engineering, construction and installation of the Cable,
including without limitation the labor and equipment cost of removal of existing
facilities. The Grantee shall reimburse the Grantor its Actual Cost of any
upgrading or replacement of Duct System or facilities that is necessary in order
to make such Duct System or facilities capable of containing the Cable (other
than to satisfy the representation made in Section 18.3). The Grantor shall use
its best efforts to perform the work called for by Section 7.1 at the lowest
possible cost to the Grantee. The services provided by the Grantor in Section
7.1 shall be performed in a professional and workmanlike manner.
8. INSTALLATION
8.1 Grantee's Right to Select Contractors. The Grantor shall provide the Grantee
with an estimate of the Grantor's Actual Cost for the installation of the Cable
and Cable Accessories. The Grantee may then request that the Grantor seek bids
from qualified contractors and the Grantor's Actual Cost shall then not exceed
the lowest qualified bid. If an outside contractor is selected, the Grantor may,
however, act as general contractor on the work done under this Section 8. The
provisions of the last two sentences of Section 7.3 shall apply to any work done
under this Section 8.1 by the Grantor.
8.2 Grantee's Right to Issue Specifications. The Grantee shall have the right
but not the obligation to participate in the Grantor's issuance of contracts
containing general provisions, technical specifications, conditions of
installation, work schedules, and construction documentation which may include
design prints, engineering plans, installation procedures and manuals,
construction methods and practices, material
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handling properties, safety procedures, performance standards, payment
schedules, testing and acceptance requirements and other contractual terms and
conditions which may be issued prior to the commencement of any work.
8.3 Grantor's Installation Obligations. The Grantor shall supervise and, in
consultation with the Grantee, be responsible for the construction or oversight
of the construction and installation as necessary to install the Cable and Cable
Accessories, including without limitation installation hardware, required for
_DN and __Net, in accordance with the engineering and design requirements
finalized pursuant to Section 6, and Exhibit 3.29, Cable and Performance
Specifications.
8.4 State Fees. The Grantee shall either pay directly or reimburse the Grantor
for any fees payable to any State agency or other authority for the use of any
public rights-of-way as a result of the Grantee's use of or right to use the
_DN. The Grantee shall reimburse the Grantor for its Actual Costs incurred
pursuant to this Section 8.5.
8.5 Public Rights of Way. The Grantee shall at its sole cost and expense obtain
all federal, state and municipal occupancies and other rights that may be
required for the installation of _DN in public rights-of-way or the use thereof.
9. POINT OF DEMARCATION; BUILDING EXTENSIONS
9.1 Marking. The point of demarcation (the "Demarcation Point") for the purpose
of this Agreement shall be indicated by a visible, indelible mark or tag of
long-lasting durability, at a point on one side of which is the Grantee's
responsibility, termed network side, on the other side of the Demarcation Point,
termed premise side. Both the Grantor and the Grantee shall be responsible for
their respective Equipment and any Cable extensions. The color coding of the
tube(s) and fibers dedicated for the Grantor's use shall remain consistent
throughout the Duct System.
9.2 Building Extensions. _DN will be extended by the Grantee for use by the
Grantee within buildings as required. In such extensions the entire Cable beyond
the building patch panel shall remain the property of the Grantee and the
Grantor shall receive an indefeasible right to use # fibers for __Net to the
point of the building patch panel. The Grantee or its customer shall obtain
approval from the owners of the property for all such use and as to the physical
location of Cable and, as to installation, maintenance and operation of the
Grantee's facilities on said property.
10. MAINTENANCE
10.1 Grantee's Obligations. Provided that the Grantee has been given the
permission referred to below in this Section 10, the Grantee shall maintain and
repair the Cable, including emergency repairs and splices, pursuant to the terms
and conditions outlined in Exhibit 10.1 - Maintenance Specifications. In the
event the
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Grantee fails to perform any necessary splicing or maintenance in accordance
with the procedures and time frames set forth therein, the Grantor shall have
the right, but not the obligation, to undertake such splicing or maintenance of
the Cable, at the Grantee's sole cost and expense, as provided for in Exhibit
10.1. In no event shall the Grantee be permitted access to the Grantor's
property without the Grantor's prior permission. The Grantor reserves the right,
but not the obligation, to perform such maintenance with its own crews or
contractor when required by the need to insure the safe and reliable operation
of its electric system. The provisions of the last two sentences of Section 7.3
shall apply to any work done under this Section 10.1. The Grantee shall be
solely responsible for all aspects of the operation of _DN and the operation and
maintenance of Equipment thereon. The Grantee shall perform routine inspections
of the Cable in accordance with its standard maintenance procedures and with the
Grantor's approval. The Grantee shall provide notice to the Grantor at least 10
working days in advance of any maintenance upon any Duct Segment upon which any
repair is to be conducted as a result of such maintenance procedures in
accordance with Section 36. The Grantor shall have 10 working days to confirm
the availability of any Duct Segment for maintenance.
10.2 Grantor's Obligations. The Grantor shall be solely responsible for all
aspects of the operation of __Net and the operation and maintenance of Equipment
thereon. The Grantor shall at its own expense, perform routine inspections of
the Cable in conjunction with the periodic inspection of its electric facilities
and Duct System and routine rights of way maintenance. The Grantor shall provide
notice to the Grantee at least 10 working days in advance of any maintenance
upon any Duct Segment upon which any repair is to be conducted on the Cable as a
result of such maintenance procedures.
11. RELOCATION, REPLACEMENT, REBUILDS OF THE CABLE
11.1 By the Grantee. In the event that the Grantee requests relocation,
replacement, or rebuild of the Cable, the cost of any such work shall be paid by
the Grantee, and the Grantee shall submit to the Grantor a completed copy of
Exhibit 11.1 to request an acceptable new location. No relocation or replacement
shall be performed on the Grantor's property by the Grantee without the prior
written approval of the Grantor.
11.2 By the Grantor. In the event that during the Term of this Agreement the
Grantor is required by public authorities or by lawful order or decree of a
regulatory agency or court to relocate or modify any or all of the Duct System
within which _DN or any part thereof is located, the Grantor and the Grantee
shall cooperate in performing such relocation or modifications so as to minimize
any interference with the use of _DN or __Net by either party and to avoid
unreasonably impairing the ability of each to provide communications services of
the type, quality and reliability contemplated by this Agreement. Any such
relocation shall be accomplished in accordance with the provisions of Exhibit
3.29 Cable Specifications. Unless otherwise
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agreed by the parties, all costs directly associated with the relocation of the
Cable and Equipment shall be shared by the parties on a pro rata basis based on
the number of fiber optic filaments each party controls.
11.3 Emergency Relocations; Third Party Relocations. In the event of an
emergency within the Grantor's Duct System, the Grantor shall have the right to
replace, remove or relocate the Cable or any portion thereof without prior
notice to the Grantee if such notice is not practicable. The Grantor shall incur
no liability for service interruptions in connection with any such removal or
relocation and the Grantee shall incur no liability for service interruptions
pertaining to the Grantor's services, if so affected. If the relocation or
replacement of the Cable is requested or caused by anyone other than the
Grantor, the Grantor shall attempt to obtain reimbursement of the Grantor's
costs from such party. Any costs not recovered from such party shall be shared
by the parties on a pro rata basis based on the number of fiber optic filaments
each party controls.
11.4 Cable Failure; __Net Equipment. The Grantor makes no representations with
respect to the Cable. Should the Cable fail to function according to its design
specifications the Grantor shall assign its warranty enforcement rights to the
Grantee. The Grantee shall be entitled to any recovery and the Grantee shall
have the right, where allowed by law, to recover directly from any person.
Should the Cable fail to function for any reason, the Grantee shall have the
right to expeditiously replace the Cable, subject to the Grantor's review and
approval of the Grantee's replacement plans. The Grantee shall have no
responsibility for Equipment to be used solely in connection with __Net,
including without limitation, any such equipment installed or located in Grantor
Space in any building or in any of the Grantee's facilities. To the extent the
Grantee realizes any proceeds from the Grantor's assignment of its warranty
rights to the Cable that are not expended in replacing Cable, such proceeds
shall be retained by the Grantee.
12. CONSTRUCTION, MAINTENANCE AND REMOVAL OF THE CABLE
12.1 Interference With Other Joint Users. The parties shall design, engineer,
construct and maintain the Cable so as not to physically conflict or interfere
with the Grantor's other property and any facilities attached thereon or placed
therein by joint users or others.
12.2 Grantor's Approval of Third Party Work. Prior to the Grantee engaging the
services of a Third Party to commence work to install, remove, reconfigure or
maintain the Cable in any section or part of the Duct Segments, the Grantee will
obtain the Grantor's prior written consent of any Third Party chosen to perform
such work, and the date when such work is scheduled to commence.
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12.3 Grantor's Right to Maintain Service. The Grantor shall at all times have
the right to take all action necessary to maintain and repair the Grantor's
property and maintain the Grantor's services to its customers, unconstrained by
this Agreement but shall take reasonable precautions to protect the Cable
against damage. In the event of any service outage affecting the Cable, the
Grantor shall have the right to repair its facilities first. If conditions
permit, the Grantee may repair its facilities concurrently with the Grantor. The
Grantee acknowledges that all or a portion of the Cable will be placed in the
Duct System that is part of the Grantor's electric distribution system and that
at all times the safe and continuous operation of such system and the provision
of electric service is the Grantor's foremost priority.
12.4 Notice. The Grantee shall give the Grantor 60 days' prior written notice of
any removal(s) or material modification(s) of the Cable provided that no such
removal or modification will be permitted which adversely effects the Grantor's
use of __Net.
12.5 Emergency Use of the Grantor's Property. With the Grantor's prior written
consent and in its sole discretion, the Grantee may temporarily use any of the
Grantor's available property for emergency restoration and maintenance purposes.
Any such temporary use shall be subject to such reasonable terms and conditions
as may be imposed by the Grantor and shall be terminated within 90 days, or
sooner, unless the Grantee applies for and the Grantor grants permission for
such temporary use to be extended.
12.6 Return of Removed Material. In the event the Grantor under the provisions
of this Agreement shall remove any portion of the Cable from the Grantor's
property, the Grantor will deliver to the Grantee the Cable and Equipment so
removed upon payment by the Grantee of the cost of removal, storage and
delivery, and all other amounts due the Grantor.
13. PERIODIC INSPECTIONS
13.1 By the Grantor. The Grantor shall have the right to make Periodic
Inspections of any part of the Grantee's operations occupying the Grantor's
property. The Grantor will give the Grantee reasonable advance written notice of
any periodic inspections, except in those instances where, in the sole judgment
of the Grantor, safety considerations justify the need for a Periodic Inspection
without the delay of waiting until a written notice has been forwarded to the
Grantee. A representative of the Grantee may accompany the Grantor's
representative on all Periodic Inspections.
13.2 Grantee's Obligations. The making of Periodic Inspections or the failure to
do so shall not impose upon the Grantor any liability of any kind whatsoever nor
relieve the Grantee of any responsibility, obligations or liability assumed
under this Agreement.
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13.3 Cost. The Grantee shall reimburse the Grantor for its Actual Costs of
Periodic Inspections only if material violations are found. Charges for such
inspections shall be at the Grantor's Actual Cost.
14. APPROVALS AND CONSULTATION
14.1 Role of Program Managers. Each party shall designate a Program Manager (a
"Program Manager"). Whenever either party is entitled to approve a matter, the
Program Manager for the party responsible for the matter shall notify the
Program Manager of the other party of the nature of such matter. The Program
Managers shall discuss such matter, and each Program Manager is authorized to
approve such a matter on behalf of his company.
14.2 Definition of Consultation/Cooperation and Approval. Whenever in this
Agreement it is provided that the Grantor will take action "in consultation with
the Grantee," it is intended that such consultation shall be thorough and
meaningful, and that the views of the Grantee with regard to the matter under
consultation shall be given the weight appropriate to the experience and
expertise of the Grantee in telecommunications. Whenever in this Agreement it is
provided that the Grantee will take action "in cooperation with the Grantor," it
is intended that such cooperation shall be thorough and meaningful, and that the
views of the Grantor with regard to the matter under consultation shall be given
the weight appropriate to the experience and expertise of the Grantor in
telecommunications and in the transmission and use of electric power. Whenever
in this Agreement it is provided that the approval or consent of one party is
required, it is intended that such approval or consent will not be unreasonably
withheld or delayed.
15. OWNERSHIP OF THE CABLE
15.1 Title; Tax Accounting. Legal title to the Cable and to any item of
Equipment installed within the Grantor's Duct System shall be held by the
Grantor. With respect to the Cable and __Net, the Grantor shall have absolute
legal and beneficial ownership, subject to the provisions of Section 16.1. With
respect to the _DN fibers installed in the Grantor's Duct System, the Grantor
shall hold legal title to the same as the Grantee's nominee and, with respect to
such property, the Grantee will be the beneficial owner. Accordingly, the
Grantee shall for tax purposes account for such property as the owner thereof
and, as between the parties, shall be entitled to any investment tax credits,
depreciation and any other tax attributes or liabilities with respect to those
fibers. The Grantor agrees that it will not, for tax purposes, account for the
property associated with _DN as though it were the tax owner thereof and shall
not attempt to claim any of the tax attributes or liabilities with respect
thereto. The parties agree they shall file all income tax returns and otherwise
take all actions with respect to taxes in a manner which is consistent with the
foregoing.
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15.2 Reversion of Beneficial Ownership. Beneficial ownership of _DN shall revert
to the Grantor upon termination of this Agreement or of any Duct Segment.
16. USE OF THE CABLE BY THE GRANTOR
16.1 Fibers and Use. The Grantee shall provide not less than # usable singlemode
fibers in the Cable in any Duct Segment for the unimpeded and unrestricted use
by the Grantor, provided however that the requirement of usability shall not
apply to any fibers located in a Duct Segment as to which the Term has expired.
The Grantor may use these # singlemode fibers either (i) for the Grantor's own
business purposes or (ii) may assign any number of the # fibers, or resell
capacity on any of the # fibers, except that during the first ____ years of this
Agreement, the Grantor may assign fibers or sell capacity only to a person,
business, or entity which purchases electric service from the Grantor, provided
however, that during that ____ year period, the Grantor shall not have the
right, directly or indirectly, to assign any number of the # fibers, or resell
capacity on any of the # fibers, to any of the following entities or an
Affiliate of any such entity without the prior written consent (to which Section
30 shall not apply) of the Grantee:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Notwithstanding the foregoing, in times of emergencies affecting the Grantor's
other telecommunications networks, the Grantor shall have the right to use the #
singlemode fibers for any purpose until alternative arrangements can be made. If
the Grantor violates the provisions of this Section 16.1 and fails to cease such
violation within 90 days following notice of such violation by the Grantee, the
Grantor's right to use the fibers involved in such violation shall cease and the
Grantee shall then have the right to use such fibers for its own purposes.
16.2 Option to Purchase Additional Fibers. The Grantor may purchase, if mutually
acceptable terms can be agreed upon between the Grantee and the Grantor,
additional singlemode fibers from the Grantee at a price that is mutually
acceptable.
16.3 Additional Service. In addition to providing # singlemode fibers, the
Grantee shall, upon the Grantor's request, provide the Grantor with commercial
telecommunication services into all locations served by the Grantee's networks
in the service area at the lower of (i) the Grantee's Actual Cost or (ii) at the
then lowest commercial price that the Grantee offers the same or similar
services to the largest customers ("Favored Customer Rates").
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16.4 Space in the Grantee's and Grantor's Facilities. Where available and
requested by the Grantor, the Grantee shall provide or cause to be provided
Grantor Space in the Grantee's offices and other common access areas in the
Grantee's facilities or along the Duct Segments or in buildings adjacent
thereto, adequate in each case to permit the Grantor to install racks of its
optronics, multiplex and associated equipment used to equip __Net and to
interconnect __Net with _DN. Unless otherwise agreed, the Grantor Space will
comply with power, ground, physical and environmental requirements of the
Grantee technical publications. Such Grantor Space shall be used by the Grantor
to house the Grantor Equipment necessary to permit the use of the __Net and
interconnection with the Grantor's networks. Unless otherwise agreed, the
Grantor Space in the Grantee facility other than a Building, or buildings
adjacent thereto, shall be in a common access area of such facility, and to the
extent reasonably practicable, the Grantor Space in a Building shall be separate
from any area containing the Grantee's Equipment. The Grantee shall provide the
Grantor Space in the common access areas of the Grantee facilities at the then
prevailing rate for such space according to the Grantee's tariff. The Grantor
shall pay the Grantee's Actual Cost of providing the Grantor Space pursuant to
this Section 16.4. The Grantor shall provide the Grantee with Grantee Space on
terms equivalent to those on which the Grantee provides Grantor Space to the
Grantor.
17. CASUALTY
If any portion of the Cable is damaged or destroyed by casualty at any time
during the Term each party shall pay a share of the cost based on the pro rata
percentage of __Net and _DN contained in the Cable. With respect to the Duct
Segment on which such portion of the Cable is installed, the Grantee shall have
the option of having the Grantor repair, restore, or replace such portion of the
Cable (and the Grantee shall reimburse the Grantor's Actual Cost of doing so) or
terminating that Duct Segment. Unless the Grantee notifies the Grantor of its
election to terminate that Duct Segment within 12 business days of the casualty,
the Grantee shall be deemed to have elected repair, restoration and replacement
of the Cable. If the Grantee elects to terminate such Duct Segment as set forth
in the preceding sentence, the _DN fibers upon such portion of the Duct Segment
so effected, shall be available for use by the Grantor and the Grantee shall
assign, at no cost to the Grantor, all its rights and title to all buildings and
Equipment on such Duct Segments so effected immediately thereafter.
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18. GENERAL REPRESENTATIONS AND WARRANTIES
18.1 Common Representations. Each of the parties represents and warrants that it
has full authority to enter into and perform this Agreement, that this Agreement
does not conflict with any other document or agreement to which it is a party or
is bound, and that this Agreement is fully enforceable in accordance with its
terms.
18.2 General Representations by the Grantor. The Grantor represents and warrants
that the Grantor is a corporation duly organized, validly existing and in good
standing under the laws of the state under which it is incorporated. The
execution and delivery of this Agreement and performance thereunder will not
conflict with or violate or constitute a breach or default under the Grantor's
Articles or Certificate of Incorporation and will not violate any law, rule or
regulation applicable to the Grantor. No consents need to be obtained from any
governmental agency or regulatory agency to allow the Grantor to execute,
deliver and perform this Agreement except those for which provision has been
made for in Section 35.1.
18.3 Representation by the Grantor As To Duct System. The Grantor represents and
warrants that the Duct System is suitable for its current use and was designed
and installed at a minimum to meet the requirements of the National Electrical
Safety Code and/or other applicable standards then in effect.
18.4 Representation by the Grantor As to Right to Place Cable. The Grantor
represents and warrants that it has the right to have the Cable placed on or in
the Duct System and to have the Cable used by the Grantor as contemplated by
this Agreement, subject to the governmental approvals for which provision has
been made in Section 35.1 and the approvals from certain lienholders referred to
in Section 4.2.
18.5 Work Clearances and Related Delays. The Grantor represents and warrants
that it cannot guarantee line outages or special contingency line operating
conditions that may be necessary for the installation, maintenance and repair of
the Cable and that delays may be necessary. Such work clearances may be obtained
from regional dispatching organization(s) with authority over the lines. The
Grantee shall be responsible for the Grantor's Actual Costs associated with last
minute delays caused by these regional authorities which are reasonably beyond
the control of the Grantor.
18.6 General Representations by the Grantee. The Grantee represents and warrants
that the Grantee is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and the execution and delivery
of this Agreement and the performance thereunder will not conflict with or
violate or constitute a breach or default under the Certificate of Incorporation
of the Grantee and will not violate any law, rule or regulation applicable to
the Grantee. No
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consents need to be obtained from any government agency or regulatory agency to
allow the Grantee to execute, deliver and perform this Agreement.
19. INSURANCE
The Grantee, at its own expense, shall provide and maintain in force during the
term of this Agreement a policy or policies of general liability insurance with
an aggregate limit of no less than $_____. The policy or policies shall include
contractual liability coverage to insure the indemnification agreement and
products completed operations coverage. Any such policy(ies) shall be procured
by the Grantee from a responsible insurance company with a "Best" rating of A or
better, satisfactory to the Grantor. Certificates evidencing such policy(ies)
shall be delivered to the Grantor within 30 days of the date of this Agreement.
Not less than 30 days prior to the expiration date of such policies,
certificates evidencing the renewal thereof shall be delivered to the Grantor.
Such policies shall further provide that not less than 30 days' written notice
shall be given to the Grantor before such policy(ies) may be cancelled,
materially changed or undergo a reduction in Insurance limits provided thereby.
The Grantor shall be named as an additional insured, but this shall not limit
the Grantee's right to also include others as additional named insured. The
coverage required herein shall not be deemed to limit the Grantee's liability as
set forth elsewhere in this Agreement. Upon timely notice to the Grantee, the
Grantor may require reasonable increases in the amount of insurance coverage
which will be obtained by the Grantee within 30 days after the Grantor's
request.
20. TERM AND TERMINATION
20.1 Period. The term of this Agreement shall be for a period of __ years (the
"Term") commencing on _____ __, 19XX, and ending on ______ __, 20XX (the "Ending
Date") and shall automatically renew on ______ __, 20XX and thereafter for ___
year periods until terminated by either party upon notice given one year or more
prior to ______ __, 20XX or any renewal date thereafter.
20.2 Early Termination of Agreement. This Agreement may be terminated prior to
the Ending Date upon any one of the following events:
(i) by the Grantee upon 180 days' prior notice to the Grantor.
(ii) by either party in the event of a default by the other party under
Section 33.
(iii) by the Grantor upon 90 days' prior notice in the event of a
violation of Section 35.1.
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The Grantee shall have the right to cure or correct any default specified under
clauses (ii) or (iii) above within the time period of the notices set forth in
Section 33 or as set forth in clause (iii), and the Grantor shall have a similar
right with respect to clause (ii) above.
20.3 Termination of Duct Segment. Any Duct Segment may be terminated:
(i) by the Grantor upon reasonable notice for the purposes of providing
safe and economical electrical service; or
(ii) by the Grantee upon five days' prior written notice if two Cable
failures per month for three consecutive months occur on a Duct Segment as a
result of the Grantor's electric operations and the Grantor fails to take steps
to cure such failure with due diligence, unless the Grantor shall have cured
such failure prior to the expiration of said five day period, or where cure is
not possible within said five day period, the Grantor is proceeding to cure with
due diligence.
(iii) by the Grantor at any time if it cannot obtain the regulatory
approvals needed by it to perform its obligations under this Agreement with
respect to such Duct Segment or can obtain them but on terms that are unduly
burdensome on the Grantor.
20.4 Cost Reimbursement. In the event of the termination of this Agreement or a
portion of the Duct Segments thereof pursuant to Section 20.3, the Grantor shall
reimburse the Grantee a percentage of the cost of the Cable, for such terminated
portion according to the following schedule:
Year 1 100%
Year 2 80%
Year 3 60%
Year 4 40%
Year 5 20%
Year 6 and thereafter, 0%
Year 1 begins on ______ __, 19XX.
The Annual Fee described below for the portion of the year following termination
of a Duct Segment shall be refunded to the Grantee. The amount of the refund
shall be determined by prorating the Annual Fee for the terminated Duct Segment
equally over 365 days. In no event shall the amount of the refund exceed the
amounts collected on the terminated Duct Segment during that period by the
Grantor.
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21. ANNUAL FEE
21.1 Amount. The Grantee shall pay an annual fee ("Annual Fee") for the grant of
use provided in Section 4.1 of this Agreement at a rate of $___.00 per duct foot
per year per each Cable. A Cable shall not contain more than XXX fibers. The
obligation to pay this Annual Fee and that portion of the Annual Fee for
underground facilities contained in Section 22.1(a) of the Agreement for the
provision of Fiber Optic Facilities and Services between the parties and certain
affiliates dated _____ __, 19XX shall not be cumulative. The payment of the
Annual Fee under this Agreement shall, therefore, be in lieu of any payments due
for the same duct space that would otherwise have been due under the _____ __,
19XX Agreement.
21.2 CPI Adjustments. The Annual Fee shall be adjusted annually by an escalation
factor equal to changes in the Consumer Price Index - All Urban ("CPI-U")
published by the US Department of Labor, Bureau of Labor Statistics, which shall
be calculated each October based on changes in the CPI-U from the previous
October. In no instance shall the CPI-U change be applied if it results in a
smaller payment than the previous year's payment. As to any period during which
fees have been waived, the CPI-U shall accrue to the rate during such waiver
period.
21.3 When Due. All Annual Fees shall be paid on January 1st of each year. All
pro-rata payments made during the year shall be based on this date. All payments
shall be paid within 30 days of invoicing.
21.4 Initial Annual Fee. The initial Annual Fee payment will be due and payable
within 30 days after preliminary engineering work has been accepted by both
parties and shall be based upon the estimated number of duct feet to be utilized
by the Grantee over the remainder of the calendar year.
22. FORCE MAJEURE
22.1 Optional Termination. Should any of the Force Majeure Events defined below
occur and should the Grantor determine that as a direct or indirect result
thereof, the parties' continued performance hereunder or with respect to any
portion of the Duct System and the Cable will be irreparably impaired or
prevented, the parties may mutually agree to terminate this Agreement, in whole
or in part as to any portion of the Duct Segments and the Cable so affected with
no further obligation or liability. The parties will attempt to provide a date
of termination such that the parties will have a reasonable time to obtain
alternative means of providing service to customers, but neither party shall
have an obligation to do so. A Force Majeure Event shall include fire, flood,
strike or other labor difficulty, natural disasters, acts of God or public
enemy, restraint or hindrance by any governmental authority, war, insurrection,
riot, action of any regulating authorities or institution of litigation by any
Third Party, or any other causes of any nature reasonably beyond the control of
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either party which would have a material adverse effect on the subject matter of
this Agreement.
22.2 Suspension Pending Force Majeure. If a Force Majeure Event should occur
then, and for a reasonable time thereafter, the parties' performance of this
Agreement shall be suspended. At the conclusion of a Force Majeure Event the
period of time so suspended shall be added to the dates, schedules and other
performance related matters under this Agreement.
23. PROPRIETARY INFORMATION
23.1 Obligation to Maintain as Confidential. Each party acknowledges that in the
course of the performance of this Agreement it may have access to privileged and
proprietary information claimed to be unique, secret, and confidential, and
which constitutes the exclusive property and trade secrets of the other
("Proprietary Information"). This information may be presented in documents
marked with a restrictive notice or otherwise tangibly designated as proprietary
or during oral discussions, at which time representatives of the disclosing
party will specify that the information is proprietary and shall subsequently
confirm said specification in writing within five days. Each party agrees to
maintain the confidentiality of the Proprietary Information and to use the same
degree of care as it uses with regard to its own proprietary information to
prevent the disclosure, publication or unauthorized use of the Proprietary
Information. Neither party may duplicate, copy or use Proprietary Information of
the other party other than to the extent necessary to perform this Agreement.
Either party shall be excused from these nondisclosure provisions if the
Proprietary Information received from the other party has been or is
subsequently made public by the other party, is independently developed by such
party, disclosed pursuant to order by a court or government agency, or if the
other party gives its express, prior written consent to the disclosure of the
Proprietary Information.
23.2 Route Constitutes Proprietary Information. The routing of _DN and the
conditions of the Grantee's contracts with customers and customer names are
deemed Proprietary Information without further notice and will not be disclosed
by the Grantor absent an order by a court or regulatory body with jurisdiction
over the Grantor.
24. ACCESS AND SECURITY
24.1 Access by the Grantor. The Grantee agrees, upon reasonable request, to
allow the Grantor direct ingress and egress to all the Grantor Space to be
provided to the Grantor as described in Section 16.4, and to permit the Grantor
to be on the Grantee's premises at such times as may be required for the Grantor
to perform any appropriate maintenance and repair of equipment in such Grantor
Space. The
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Grantee may require that a representative of the Grantee accompany any
representatives of the Grantor having access to the Grantor Space except in
buildings having separate entrances providing access only to the Grantor Space
therein. Employees and agents of the Grantor shall, while on the premises of the
Grantee, comply with all rules and regulations, including without limitation
security requirements, and, where required by government regulations, receipt of
satisfactory governmental clearances. The Grantor shall provide to the Grantee a
list of the Grantor's employees or authorized Grantor's designee employees who
are performing work on, or who have access to, the Grantor Space. The Grantee
shall have the right to notify the Grantor that certain Grantor or authorized
Grantor designee employees are excluded if, in the reasonable judgment of the
Grantee, the exclusion of such employees is necessary for the proper security
and maintenance of the Grantee's facilities.
24.2 Access by the Grantee. The Grantor agrees, upon reasonable request, to
allow the Grantee direct ingress and egress to all the Grantee Space to be
provided to the Grantee as described above, and to permit the Grantee to be on
the Grantor's premises at such times as may be required for the Grantee to
perform any appropriate maintenance and repair of Equipment located at such
Grantee Space. The Grantor may require that a representative of the Grantor
accompany any representatives of the Grantee having access to the Grantee Space.
Employees and agents of the Grantee shall, while on the premises of the Grantor,
comply with all rules and regulations, including without limitation security
requirements, and, where required by government regulations, receipt of
satisfactory governmental clearances. The Grantee shall provide to the Grantor a
list of the Grantee's employees or authorized Grantee's designee employees who
are performing work on, or who have access to, the Grantee Space. The Grantor
shall have the right to notify the Grantee that certain Grantee or authorized
Grantee's designee employees are excluded if, in the reasonable judgment of the
Grantor, the exclusion of such employees is necessary for the proper security
and maintenance of the Grantor's facilities.
24.3 Access by the Grantee to _DN Space. The Grantee or its designees shall have
the right to visit the Grantee Space and any facilities of the Grantor utilized
in providing _DN upon reasonable prior written notice to the Grantor; provided,
however, that the Grantor may require that a representative of the Grantor
accompany any representatives of the Grantee or of an authorized Grantee
designee making such visit. Such visitation right shall include the right to
inspect _DN and to review worksheets, to review performance or service data, and
to review other documents used in conjunction with this Agreement. Employees and
agents of the Grantee or of an authorized Grantee designee shall, while on the
premises of the Grantor, comply with all rules and regulations, including
without limitation security requirements and, where required by government
regulations, receipt of satisfactory governmental clearances. The Grantor shall
have the right to notify the Grantee that certain Grantee or authorized Grantee
designee employees are excluded if, in the
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reasonable judgment of the Grantor, the exclusion of such employees is necessary
for the proper security and maintenance of the Grantor's facilities.
24.4 Grantee's Work. The Grantee shall at all times perform its work in
accordance with the Grantor's safety and work procedures and in accordance with
the applicable provisions of OSHA. The Grantor shall have the authority to
suspend the Grantee's work operations in and around the Grantor's property if,
in the sole judgment of the Grantor at any time hazardous conditions arise or
any unsafe practices are being followed by the Grantee's employees, agents, or
contractors. The Grantee agrees to pay the Grantor for having the Grantor's
employee or agent present when the Grantee's work is being done in and around
the Grantor's property. Such charges shall be at the Grantor's Actual Cost. The
presence of the Grantor's authorized employee or agent(s) shall not relieve the
Grantee of its responsibility to conduct all of its work operations in and
around the Grantor's property in a safe and workmanlike manner, and in
accordance with the terms and conditions of this Agreement.
25. NO JOINT VENTURE; COSTS
25.1 Relationship. In all matters pertaining to this Agreement, the relationship
of the Grantor and the Grantee shall be that of independent contractors, and
neither the Grantor nor the Grantee shall make any representations or warranties
that their relationship is other than that of independent contractors. This
Agreement is not intended to create nor shall it be construed to create any
partnership, joint venture, employment or agency relationship between the
Grantee and the Grantor, and no party hereto shall be liable for the payment or
performance of any debts, obligations, or liabilities of the other party, unless
expressly assumed in writing herein or otherwise. Each party retains full
control over the employment, direction, compensation and discharge of its
employees, and will be solely responsible for all compensation of such
employees, including social security, withholding and worker's compensation
responsibilities.
25.2 Costs. Except for costs and expenses specifically assumed by a party under
this Agreement each party shall pay its own expenses incident to this Agreement,
including without limitation amendments hereto, and the transactions
contemplated hereunder, including all legal and accounting fees and
disbursements.
26. PUBLICITY AND ADVERTISING
26.1 Limitations. In connection with this Agreement, neither party shall publish
or use any advertising, sales promotions, or other publicity materials that use
the other party's logo, trademarks, or service marks or employee name without
the prior written approval of the other party. Except as provided in Section
26.2 below, each party shall have the right to review and approve any publicity
materials, press
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releases or other public statements by the other party. In connection with this
Agreement, each party agrees not to issue any such publicity materials, press
releases or material produced by the public relations department for the other
party without written consent. Unless otherwise agreed, neither party shall
release the existence of the text of this Agreement or any material portion
thereof, other than in the form modified to remove all references to the
identity of the other party, to any person or entity other than the parties
hereto for any purpose other than those specified in Section 26.2.
26.2 Exceptions. The provisions of Section 26.1 shall not apply to reasonably
necessary disclosures in or in connection with regulatory filings or
proceedings, financial disclosures which in the good faith judgment of the
disclosing party are required by law, or disclosures that may be reasonably
necessary in connection with the performance of this Agreement.
27. MARKETING RELATIONSHIP
Upon the written approval of the Grantor, except for the exemption of customer
prospects and customers of the Grantee as listed in Exhibit 27, Sales Order
Customer Exclusion List, in the event that communication service orders are
received by the Grantee, as a result of the Grantee issuing sales literature or
promotional material in which the name of the Grantor is mentioned or by the
Grantor introducing the Grantee to customer prospects not listed in Exhibit 27,
or by the Grantor undertaking any joint marketing effort with the Grantee
including joint sales calls, the Grantee shall pay to the Grantor compensation
equal to the first month that there is recurring revenue charged by the Grantee
to those customers receiving such sales literature, promotional material or
joint sales calls.
28. SEVERABILITY
If any part of any provision of this Agreement or any other agreement, document
or writing given pursuant to or in connection with this Agreement shall be
invalid or unenforceable under applicable law, said part shall be ineffective to
the extent of such invalidity only, without in any way affecting the remaining
parts of said provision or the remaining provisions of said agreement; provided,
however, that if any such ineffectiveness or enforcement of any provision of
this Agreement, in the good faith judgment of either party, renders the benefits
to such party of this Agreement as a whole uneconomical in light of the
obligations of such party under this Agreement as a whole, then the other party
shall negotiate in good faith in an effort to restore insofar as possible the
economic benefits of this Agreement to such party.
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29. LABOR RELATIONS
29.1 Notice by the Grantor. The Grantor agrees to notify the Grantee immediately
whenever the Grantor has knowledge that a labor dispute concerning its employees
is delaying or threatens to delay the Grantor's timely performance of its
obligations under this Agreement. The Grantor shall endeavor to minimize
impairment of its obligations to the Grantee (by using the Grantor's management
personnel to perform work, or by other means) in event of a labor dispute.
29.2 Notice by the Grantee. The Grantee agrees to notify the Grantor immediately
whenever the Grantee has knowledge that a labor dispute concerning its employees
is delaying or threatens to delay the Grantee's timely performance of its
obligations under this Agreement. The Grantee shall endeavor to minimize
impairment of its obligations to the Grantor (by using the Grantee's management
personnel to perform work, or by other means) in the event of labor dispute.
29.3 Determination by the Grantee. If the Grantee determines that the Grantor's
activities pursuant to this Agreement in any Grantee facility are causing or
will cause labor difficulties for the Grantee, the Grantor agrees to discontinue
those activities until the labor difficulties have been resolved; provided,
however, that in any such event and notwithstanding any other provision of this
Agreement, the Grantee shall during the period of such labor difficulties
perform at its own expense any such activities that may be reasonably necessary
to the operation and maintenance of the Grantor's system or any portion thereof.
29.4 Determination by the Grantor. If the Grantor determines that the Grantee's
activities pursuant to this Agreement in any the Grantor facility are causing or
will cause labor difficulties for the Grantor, the Grantee agrees to discontinue
those activities until the labor difficulties have been resolved; provided,
however, that in any such event and notwithstanding any other provision of this
Agreement, the Grantor shall during the period of such labor difficulties
perform at its own expense any such activities that may be reasonably necessary
to the operation and maintenance of the Grantee's system or any portion thereof.
30. CONSENTS AND WAIVERS
Whenever any party hereto is asked to consent or waive any action or matter
provided herein or whenever any party has the right to do or refuse to do any
act in its sole judgment or discretion provided herein, said party agrees to act
reasonably and in good faith in making or refusing to consent, in waiving or
refusing to waive, or in making any such judgments.
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<PAGE>
31. TAXES AND GOVERNMENTAL CHARGES
The Grantee shall pay the Grantor the pro rata amount based on the number of
fiber optic filaments under each party's control, of all taxes assessed on the
Grantor which are attributable to the Grantee's portion of the Cable, buildings
and Equipment. The Grantee shall pay the Grantor said taxes when they become
due, which shall include all taxes, assessments and governmental charges of any
kind whatsoever lawfully levied or assessed and attributable against the
Grantee's installation, maintenance or operation of the connections to the Cable
or against the Grantee's business with regards to the Cable or the connection
thereto, including without limitation, all franchise and other fees to any
Federal, State, City or other jurisdiction having the authority to tax or assess
other governmental charges. Upon said payment to the Grantor, the Grantor shall
indemnify the Grantee against any and all actions which may be brought against
the Grantor and the Grantee with regard to the Grantor's remittance of said
payments to any taxing authority or governmental agency. The Grantee shall have
the right to pay the tax or charge under protest without being subjected to a
default notice under Section 34. The Grantor shall pay, when they become due,
the pro rata amount based on the number of fiber optic filaments under each
party's control, all taxes, assessments and governmental charges of any kind
whatsoever lawfully levied or assessed against the Cable, installation,
maintenance or operation of the connections to the Cable or against the
Grantor's business with regards to the Cable or the connection thereto,
including without limitation, all franchise and other fees to any Federal,
State, City or other jurisdiction having the authority to tax and assess other
governmental charges. The Grantor shall have the right to pay the tax or charge
under protest without being subjected to a default notice under Section 33. The
Grantor warrants that it shall remit all tax payments to taxing authorities and
governmental agencies and shall not cause the Cable to be levied, attached, or
otherwise encumbered by any taxing authority by not having done so. Each party
shall pay without apportionment any taxes levied on it based on its business
profits.
32. INDEMNIFICATION.
32.1 By the Grantee. The Grantee agrees to indemnify and hold harmless the
Grantor, its employees, contractors, subcontractors, agents, directors,
officers, affiliates, and subsidiaries and their respective employees,
subcontractors, agents, directors and officers from and against any and all
liabilities, damages, losses, claims, demands, judgments, costs, and expenses
(including, subject to Section 32.2, the cost of defense thereof and attorney's
fees) based on the Grantee's use of the Cable including, without limitation, any
claim for infringement of patent or trade secret, made by Third Parties
(collectively, "Claims").
32.2 Indemnification procedures. The Grantor shall give prompt notice of any
Claim for which indemnification is or will be sought under this Section and
shall
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cooperate and assist the Grantee in the defense of the Claim. The Grantee shall
bear the cost of and have the right to control the defense and shall have the
right to select counsel after consulting with the Grantor. The obligation to
indemnify shall be net of any tax or insurance benefit obtained by the Grantor.
32.3 Limitation of the Grantor Liability. In no event shall the Grantor be
liable to the Grantee or to its customers, whether in contract, tort, or
otherwise, including strict liability, for any special, indirect, incidental or
consequential damages or any lost business damages in the nature of lost
revenues or profits, and any such claims by Third Parties against the Grantor
shall invoke the obligations under, but subject to the provisions of, Section
32.1 above.
32.4 Limitation of the Grantee Liability. In no event shall the Grantee be
liable to the Grantor or to its customers, whether in contract, tort, or
otherwise, including strict liability, for any special, indirect, incidental or
consequential damages or any lost business damages in the nature of lost
revenues or profits.
33. DEFAULT
If either party shall allow any payment due hereunder to be in arrears more than
60 days after notice from the other party, shall allow any policy of insurance
provided by Section 19 hereof to expire without renewal, or shall remain in
default under any other provision of this Agreement other than those referred to
in Section 20 for a period of 30 days after notice by the other party of such
default, the party so notifying the other party may, at its option, terminate
this Agreement pursuant to Section 20.2(ii), provided, however, that, in the
case of a default for other than failure of payment or failure to maintain
insurance, where the party in default proceeds with all due diligence to cure
such default and cure is not possible within said 30 days, then the party then
in default shall have such time to cure the default as the defaulted party
agrees is reasonably necessary.
34. ASSIGNMENT
34.1 By the Grantee. Subject to Section 34.4, the Grantee may not assign or
otherwise allow use of its rights under this Agreement to any person or entity
other than an Affiliate without the prior written approval of the Grantor. The
Grantor's approval will be granted provided the new person or entity
demonstrates to the reasonable satisfaction of the Grantor that the proposed
assignee is financially and operationally fit, willing and able to discharge its
obligations under this Agreement, acquires substantially all of the Grantee's
business within the geographic area of such assignment including substantially
all of the assets used in such business, and agrees to be bound directly and
fully by all of the terms and conditions of this Agreement.
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34.2 Change of Control. Any change of control of the Grantee shall be deemed an
assignment if a new person or entity other than an Affiliate, directly or
indirectly, acquires 50% or more of the voting stock of the Grantee in one or
more connected transactions, except that this Section 34.2 shall not apply to
any acquiror of any equity interest in the Grantee, if such other acquiror was
introduced to the Grantee by XXX, Inc., or if XXX, Inc. was acting as an advisor
for such other acquiror.
34.3 Grantor's Right to Pledge Agreement and Transfer Property. The Grantor
shall be free to mortgage, pledge, or otherwise assign its interests under this
Agreement to any Third Party in connection with any borrowing or other financing
activity of the Grantor provided that such assignment shall not limit or
otherwise affect the Grantor's obligations under this Agreement. Any transfer of
property of the Grantor included in or subject to this Agreement may be made by
the Grantor provided the person acquiring such property takes it subject to this
Agreement.
34.4 Grantee's Right to Pledge Agreement and Lease Fibers. The Grantee shall be
free to mortgage, pledge or otherwise assign its interest under this Agreement
to any Third Party in connection with any borrowing or other financing activity
of the Grantee provided that such assignment shall not limit or otherwise affect
the Grantee's obligations under this Agreement. The Grantee shall have the right
to lease or sublease fibers of which it has the use under this Agreement to
Third Parties.
34.5 Right to Assign. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns where
permitted by this Agreement.
35. APPROVALS, PERMITS, AND CONSENTS
35.1 Grantee's Obligations. During the term of this Agreement, the Grantee at
its sole cost and expense shall obtain and maintain any and all necessary
permits, licenses, franchises and approvals that may be required by federal,
state or local law, regulation or ordinance, and shall continuously comply with
all such laws, regulations or ordinances as may now or in the future be
applicable to the Grantee's use and operation of the Cable. If the Grantee or
any permitted assignee shall at any time fail to maintain such approvals, the
Grantor may terminate this Agreement without any liability or obligation to the
Grantee pursuant to Section 20.2(iii).
35.2 Opinion. Within 90 days of the date of this Agreement, the Grantee shall
provide the Grantor with an opinion of counsel, in form and substance
satisfactory to the Grantor, stating the Grantee's compliance with the
provisions of law applicable to the Grantee's use of the Cable and its
obligations under this Agreement.
35.3 Grantor's Obligations. During the term of this Agreement, the Grantor
shall, at its Actual Cost to be paid by the Grantee, obtain all approvals and
consents that
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may be required from all federal, state, and local authorities regarding all or
any portion of the Cable installation or replacement upon the Duct Segments
subject to such jurisdiction. Legal counsel used for this purpose shall be
selected by the Grantor in consultation with the Grantee.
36. NOTICES
36.1 Form and Address. All notices authorized or required by this Agreement
shall be given in writing and delivered to the following addresses, which may
change from time to time by such notice to either party, which addresses shall
also serve as the addresses for the delivery of any amounts due and payable
hereunder:
---------------------------
---------------------------
---------------------------
---------------------------
With a copy to:
---------------------------
---------------------------
---------------------------
---------------------------
NorthEast Optic Network, Inc.
391 Totten Pond Road
Suite 401
Waltham, MA 02154
Attention: President
With a copy to:
Alexander A. Bernhard, P.C.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
36.2 How Sent. Each notice, demand, request, report approval or communication
which shall be mailed in the manner described above, or delivered by hand or an
insured overnight courier, shall be deemed sufficiently given, served, sent or
received for all purposes at such time as it is delivered to the addressee with
the return receipt or the delivery receipt being deemed conclusive evidence of
such delivery, or at such time as delivery is refused by the addressee upon
presentation.
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36.3 Damage Notification. In the event that the Cable is damaged for any reason,
the party discovering such damage shall notify the other party of said damage by
telephone at:
for the Grantor: (XXX) XXX-XXXX
for the Grantee: (800) 891-5080
These are 24 hour, 7 day per week emergency notification numbers. Calls shall be
directed to the Supervisor on Duty, and the caller should be able to provide the
following information:
1. Name of company making report;
2. Location reporting problem;
3. Name of contact person reporting problem;
4. Telephone number to call back with progress report;
5. Description of the problem in as much detail as possible;
6. Time and date the problem occurred or began; and
7. If appropriate, a statement that "This is an emergency" and that a
problem presents a jeopardy situation to the physical plant of the
Grantor or the Grantee, as the case may be.
37. DISPUTE RESOLUTION
37.1 Arbitration. If any question shall arise in regard to the interpretation of
any provision of this Agreement or as to the rights or obligations of the
parties hereunder, the question shall be referred by either party to the two
Program Managers who shall deliberate such question for not more than 15 days
following such referral. If a resolution is not forthcoming within said period
the matter shall be deemed to have been further referred to a senior executive
designated by each party who shall, within 30 days of the initial referral which
invoked these dispute resolution procedures, meet with each other to negotiate
and attempt to resolve such question in good faith. Such senior executives may,
if they so desire, consult outside experts for assistance in arriving at such a
resolution. In the event that a resolution is not achieved within 30 days of
such initial referral, then the question shall be deemed referred for final
resolution to arbitrators (all of whom shall be arbitrators certified by the
American Arbitration Association) named as follows:
(i) each party shall name an arbitrator and give written notice thereof
to the other party within 10 days following the expiration of such 30 day
period; and
(ii) the arbitrators so named shall within 15 days after the naming the
latter of them, select an additional arbitrator. If such additional arbitrator
is not selected within such 15 day period, either party may seek to appoint such
third arbitrator by applying to the Boston Office of the American Arbitration
Association who shall
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promptly appoint such third arbitrator. The three arbitrators shall then proceed
promptly to hear and determine the matter in controversy. The arbitration shall
be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The arbitrators shall be instructed that their decision
must be made within 45 days after the appointment of the third arbitrator,
subject to any reasonable delay due to unforeseen circumstances. If any party
shall fail to appoint an arbitrator within the time specified, the remaining
arbitrator or arbitrators may proceed without that arbitrator having been
appointed.
37.2 Award; Costs. The decision of the arbitrators shall be in writing and
signed by the arbitrators or a majority of them and shall be final and binding
on the parties, and the parties shall abide by the decision and perform the
terms and conditions thereof. Unless otherwise determined by the arbitrators,
the fees and expenses of the arbitration shall be borne by the party losing in
these dispute resolution procedures, or if no party prevails in full, as
allocated by the arbitrators based on the relative merits of the parties'
positions. Judgment upon the award rendered may be issued by any court having
jurisdiction and application may be made to such court for a judicial acceptance
of the award and an order of enforcement. All arbitration shall be conducted in
Worcester, Massachusetts.
38. EXERCISE OF RIGHT
No failure or delay on the part of either party hereto in exercising any right,
power or privilege hereunder and no course of dealing between the parties shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
39. ADDITIONAL ACTIONS AND DOCUMENTS
Each of the parties hereto hereby agrees to take or cause to be taken such
further actions, to execute, acknowledge, deliver and file or cause to be
executed, acknowledged, delivered and filed such further documents and
instruments, and to use its best effort to obtain such consents, as may be
necessary or as may be reasonably requested in order to fully effectuate the
purposes, terms and conditions of this Agreement, whether at or after the
execution of this Agreement.
40. SURVIVAL
It is the express intention and agreement of the parties hereto that all
covenants, agreements, statements, representations, warranties and indemnities
made in this Agreement shall survive the execution and delivery of this
Agreement.
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41. HEADINGS
Article headings contained in this Agreement are inserted for convenience of
reference only, shall not be deemed to be a part of this Agreement for any
purpose, and shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
42. INCORPORATION OF EXHIBITS
The Exhibits referenced in and attached to this Agreement shall be deemed an
integral part hereof to the same extent as if written at length herein.
43. COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many counterparts
as may be required; and it shall not be necessary that the Signatures of or on
behalf of each party appear on each counterpart; but it shall be sufficient that
the signature of or on behalf of each party appear on one or more of the
counterparts. All counterparts shall collectively constitute a single agreement.
It shall not be necessary in any proof of this Agreement to produce or account
for more than the number of counterparts containing the respective signatures of
or on behalf of all of the parties.
44. APPLICABLE LAW
This Agreement shall be construed under and in accordance with the laws of the
State of ____________________.
45. PRIOR AGREEMENTS
This Agreement supersedes all prior or contemporaneous proposals, communications
and negotiations, either oral or written, relating to the rights, obligations,
or performance of this Agreement by the parties hereto, and, as such,
constitutes the complete and entire agreement of the parties.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
Witnessed GRANTOR
_____________________ By:__________________________
Title:____________________
NORTHEAST OPTIC NETWORK, INC.
By:__________________________
Title:____________________
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Exhibit 10.31
EMPLOYMENT AGREEMENT
BETWEEN
FIVECOM, INC.
AND
MICHAEL A. MUSEN
DATED: September 29, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Employment, Duties and Acceptance...............................................................4
2. Term............................................................................................4
3. Compensation, Expenses and Benefits.............................................................4
3.1 Salary.................................................................................4
3.2 Benefits...............................................................................5
3.3 Travel and other Expenses..............................................................5
3.4 Stock Ownership........................................................................5
4. Termination of Employment.......................................................................5
4.1 Termination for Cause..................................................................5
4.2 Termination by the Company.............................................................6
4.3 Termination by The Executive...........................................................6
4.4 Disability or Death....................................................................6
4.5 Date of Termination....................................................................6
4.6 Involuntary Termination................................................................7
5. Certain Covenants of the Executive..............................................................7
5.1 Competition, Confidential Information. Solicitation....................................7
5.2 Rights and Remedies Upon Breach........................................................9
6. Corporate Opportunities........................................................................10
7. Miscellaneous..................................................................................10
7.1 Notices...............................................................................10
7.2 Successors and Assigns................................................................10
7.3 Governing Law.........................................................................11
7.4 Entire Agreement......................................................................11
7.5 Waivers and Amendments................................................................11
7.6 Counterparts..........................................................................11
7.7 Headings...................................................................................11
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT dated as of September 29, 1994 between FiveCom,
Inc., a Massachusetts corporation having its principal place of business at 393
Totten Pond Road, Waltham, Massachusetts 02154 (the "Company"), and Michael A.
Musen, residing at Newton, Massachusetts (the "Executive").
R E C I T A L S:
A. The Executive presently serves as Vice President of the Company.
B. The parties have agreed to execute and deliver this Employment
Agreement pursuant to which the Company will employ the Executive, and the
Executive is willing to make his services available to the Company, on the terms
and subject to the conditions hereinafter set forth.
Accordingly, in consideration of the continued employment of the
Executive by the Company and of the covenants and agreements hereinafter set
forth, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance. During the term of the
Executive's employment hereunder, the Company hereby agrees to employ the
Executive as Vice President. He shall be responsible for the day to day
operations of the Company's private telecommunications networks in such New
England locations as may be assigned to him, subject to the supervision and
control of the President and Chief Executive Officer of the Company, as well as
such other activities as the Board of Directors of the Company shall direct,
commensurate with the Executive's position. The Executive accepts employment on
these terms and agrees to devote his full business time, attention and best
efforts to his duties and responsibilities hereunder.
2. Term. Unless sooner terminated as provided herein, the term of the
Executive's employment hereunder shall be deemed to have commenced on July 28,
1994 and shall continue for a period of three years from such date to and
including July 28, 1997 and from year to year thereafter unless either party
shall give the other written notice, not less than one hundred eighty (180) days
prior to the expiration of the term, that the term of employment hereunder will
not be extended, in which case the term of employment hereunder will end at the
expiration of the then existing term of employment hereunder.
3. Compensation, Expenses and Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Employment Agreement, the Company shall pay the Executive
during the term of the Executive's employment hereunder a salary at the rate of
not less than
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$100,000 per annum, payable in accordance with the payroll policies of the
Company as from time to time in effect, less such deductions as are required to
be withheld by applicable laws and regulations. During the term of the
Executive's employment hereunder, the Executive's annual salary rate shall be
reviewed by the Board of Directors of the Company not less often than once each
year (there will be a review of such salary in July of 1995 and, if the Company
is pleased with the Executive's performance at that time, the Executive's annual
salary rate will be increased to $110,000 effective July 28, 1995). Upon each
such review, the Executive's annual salary rate shall be set at such rate as
shall be considered appropriate and fixed by the Board of Directors of the
Company, taking into account the Executive's performance and other relevant
factors, but in no event shall the Executive's annual salary rate be less than
the rate for the preceding year.
3.2 Benefits. During the term of the Executive's employment
hereunder, the Executive may continue his current medical insurance coverage, at
the Company's expense, or, at its option, the Company may provide alternative
coverage providing benefits no less favorable to the Executive than such current
coverage. In addition, the Executive shall be permitted during the term hereof,
if and to the extent otherwise eligible, to participate in any other benefit
programs generally available to senior executive officers of the Company. The
Executive shall be entitled to three (3) weeks paid vacation each year during
the term hereof. The Company and the Executive agree to schedule such vacations
at mutually agreeable times.
3.3 Travel and other Expenses. Subject to such reasonable
policies as may from time to time be established by the Board of Directors of
the Company, the Company shall pay or reimburse the Executive for all reasonable
travel and other expenses actually incurred by the Executive in the performance
of the Executive's duties hereunder, upon presentation of expense statements or
vouchers or such other reasonable supporting information as is generally
required from the senior executive officers of the Company. During the term of
the Executive's employment hereunder, the Company will provide the Executive
with the use of an automobile owned or leased by the Company and will reimburse
the Executive for the reasonable expenses (i.e. gas, oil, maintenance, etc.)
incurred in the normal operation thereof.
3.4 Stock Ownership. The Executive has agreed to purchase
71,892 shares of the Company's Common Stock, $.01 par value per share (the
"Common Stock") . The Company agrees that (i) at such time as the Company has
raised its first $5,000,000 in financing (whether by direct investment or in the
form of capitalized leases)1 and (ii) after taking into account such shares of
the Common Stock as are issued to the Executive pursuant to the terms of this
Agreement, the Executive will have been issued such number of shares of the
Common Stock as will equal at least nine percent (9%) of the then outstanding
Common Stock of the Company calculated on an as converted, fully diluted basis.
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4. Termination of Employment.
4.1 Termination for Cause. The Company may terminate the
Executive for cause at any time in the event that the Board of Directors of the
Company should determine that the Executive is guilty of any of the following:
(i) fraud; (ii) misappropriation of corporate property or funds; (iii)
embezzlement; (iv) malfeasance in office; (v) misfeasance in office which is
willful or grossly negligent; or (vi) nonfeasance in office which is willful or
grossly negligent. For the purposes hereof, the Executive shall not be deemed
guilty of misfeasance or nonfeasance in office by reason of any act or failure
to act of the Executive done or omitted to be done in good faith and with the
reasonable belief that his action or omission was in the best interests of the
Company. A termination for cause as set forth in this Section 4.1 shall not
constitute a breach of this Employment Agreement by the Company, and shall not
constitute an Involuntary Termination of Employment (as defined in Section 4.6
of this Employment Agreement).
4.2 Termination by the Company. At any time the Company may
give the Executive Notice of Termination (as defined in Section 4.5 of this
Employment Agreement), in which case the Executive's termination of employment
(other than a termination for cause) shall become effective upon the expiration
of the term of this Employment Agreement (as provided in Section 2 hereof) in
effect as of the date the Notice of Termination is given to The Executive. At
all times prior to the Date of Termination (as defined in Section 4.5 of this
Employment Agreement), this Employment Agreement shall remain in full force and
effect, and, the Company and the Executive shall have all of the rights, duties
and obligations set forth herein. All rights to payments or benefits accrued
under this Employment Agreement as of the Date of Termination, shall survive the
Executive's termination of employment, and shall be fully vested (not subject to
forfeiture) in the Executive, unless expressly waived by the Executive.
4.3 Termination by The Executive. The Executive may terminate
his employment hereunder (a) in the event of an Involuntary Termination of
Employment; or (b) if his health should become impaired to an extent that makes
his continued performance of his duties hereunder hazardous to his physical or
mental health or his life; or (c) upon the Executive's giving at least six (6)
months' written notice to the Company of his termination of employment; or (d)
at any time following the Executive's reaching the age of sixty-five (65).
4.4 Disability or Death. In the event that the Executive
should become incapacitated by any physical or mental illness or disability
continuing for a period of one hundred and eighty days (180) consecutive days or
more, and which at any time after such one hundred and eighty (180) day period
the Board of Directors, of the Company in good faith determines renders the
Executive incapable of performing his duties, the term of employment hereunder
shall terminate on the date
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of such determination of the Executive's incapacity. In the event of the
Executive's death while in the employ of the Company, there shall be a
termination of employment for purposes of this Employment Agreement.
4.5 Date of Termination. "Date of Termination" shall mean (a)
if the Executive's employment is terminated by his death, -the date of his
death; (b) if the Executive's employment is terminated for cause in accordance
with Section 4.1 of this -Employment Agreement, the date the Notice of
Termination is given; (c) if the Executive's employment is terminated in
accordance with Section 4.2 of this Employment Agreement, the date six (6)
months after the date that Notice of Termination is given; (d) if the
Executive's employment is terminated as the result of an Involuntary Termination
of Employment, the date six (6) months after the date the event occurs which
results in the involuntary Termination of Employment; (e) if the Executive's
employment is terminated on or following his reaching the age of sixty-five (65)
the date he actually terminates employment with the Company; (f) the sixth month
anniversary of the date a Notice of Termination is given by the Executive if
given in accordance with Section 4.3(c); (g) if the Executive's employment is
terminated for reasons of his incapacity, the date of the determination of such
incapacity by the Board of Directors of the Company pursuant to Section 4.4 of
this Employment Agreement; and (h) if the Executive's employment is terminated
for any other reason, the last day of the term of this Employment Agreement in
effect as of the date Notice of Termination is given, provided that such Notice
of Termination is given at least six (6) months prior to the last day of such
term. As used herein, a "Notice of Termination" shall mean a written notice
which shall indicate the specific termination provision in this Employment
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provisions so indicated.
4.6 Involuntary Termination. An "Involuntary Termination of
Employment" shall occur upon the happening of any of the following: (a) a breach
by the Company of any of the terms of Section 2 of this Employment Agreement
concerning the Executive's term of employment, or of Section 3 of this
Employment Agreement concerning the Executive's compensation; or (b) failure of
the Company to obtain the agreement to perform this Agreement by any successor
as contemplated in Section 7.2 of this Employment Agreement; or (c) any
purported termination for cause which is disputed and finally determined not to
have been proper, either by mutual written agreement of the parties or by final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected). In the
event of an Involuntary Termination of Employment, the Company shall pay to the
Executive on or before the fifth (5th) day following the date of the event which
results in the Involuntary Termination of Employment as liquidated damages and
not as a penalty, the aggregate of the unpaid salary payments provided for in
Section 3.1 of this Employment Agreement through the Date of Termination.
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5. Certain Covenants of the Executive.
5.1 Competition, Confidential Information. Solicitation. The
Executive acknowledges that: (i) the principal business of the Company is, and
immediately after the performance of the transactions contemplated by the Stock
Purchase Agreement will be, the construction, ownership and operation of private
telecommunications networks, including but not limited to the construction,
ownership and operation of a private telecommunications network in various
transmission corridors owned by Northeast Utilities and in various communities
within the geographic area that includes Massachusetts, New Hampshire, Maine,
Connecticut, Rhode island and Vermont, (the FiveCom Business) together with all
other material business activities of the Company and its affiliates in which
the Executive may be actively engaged during the term of his employment
hereunder and other material business activities in which the Company may
actively engage during the term hereof is hereinafter referred to as the
"Company Business"); (ii) the Executive has founded, conceived and been engaged
in the development and management of the FiveCom Business; and (iii) the
Executive's work for the Company has brought, and is expected to continue to
bring, him into close contact with various confidential business data of the
Company not readily available to the public. Accordingly the Executive:
5.1.1 covenants and agrees that during the term
hereof and for a period of twelve (12) months following the expiration of such
term (the "Restricted Period"), other than in fulfillment of his remaining
obligations under the Brooks Employment Agreement or as a result of an
Involuntary Termination of Employment hereunder, he will not directly or
indirectly become or serve as an officer, employee or member of, or consultant
or advisor to, any person, partnership or corporation conducting, nor become an
owner of a substantial interest in any business conducting, or transfer any
rights of way, licenses, permits or grants of location to any business
conducting, a business in substantial competition with the Company Business as
described in Section 5.1 or anywhere within the geographic area described in
Section 5.1;
5.1.2 covenants and agrees that during and after the
term of this Employment Agreement and the Restricted Period, the Executive shall
not use or disclose, whether for his benefit or otherwise, except in connection
with the Company Business, any confidential matters concerning the Company
Business, including without limitation, trade secrets, engineering, design and
technical data, customer lists, lists of employees, sales representatives,
details of consultant contracts, pricing policies, operational methods,
marketing plans or strategies, business acquisition and expansion plans, new
personnel acquisition plans, and other confidential business affairs concerning
the Company Business and shall not disclose them to anyone outside of the
Company and its affiliates except: (i) as required in the course of
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performing his duties hereunder; (ii) as required by law; or (iii) to the extent
such matters are or become public knowledge through no fault or wrongful act of
the Executive;
5.1.3 covenants and agrees that (i) all confidential
memoranda, notes, lists (including, without limitation, customer lists) 1
records and other confidential documents (and all copies thereof) made or
compiled by the Executive or made available to him concerning the Company
Business shall be the property of the Company, and (ii) if such documents are in
the possession or control of the Executive, the Executive shall deliver them to
the Company promptly following the termination of the term of the Executive's
employment hereunder or at any time on request of the Company;
5.1.4 covenants and agrees that, during the
Restricted Period, he shall not, directly or indirectly, without the express
written consent of the Company, solicit or encourage any employee of the Company
to leave the employment of the Company, or hire any employee of the Company;
5.1.5 covenants and agrees that, during the
Restricted Period, he shall not, directly or indirectly, encourage to cease to
work with the Company, any consultant which is then under contract with the
Company; and.
5.1.6 covenants and agrees that, during the
Restricted Period, he shall not directly or indirectly solicit or deal with any
person or company which has been a customer of, or had business dealings with,
the Company prior to the termination of his employment hereunder in a manner
that is competitive with the Company Business.
5.2 Rights and Remedies Upon Breach. The Executive agrees that
if he breaches any of the provisions of Section 5.1 of this Employment
Agreement, the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable and all of which rights and remedies shall be in addition to and not
in lieu of any other rights and remedies available to the Company under law or
in equity:
5.2.1 The right and remedy to have the provisions of
this Section 5 specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such material breach will cause
irreparable injury to the Company and that any damages will not provide an
adequate remedy to the Company;
5.2.2 If any court determines that any of the
provisions of Section 5.1, or any part thereof, is invalid or unenforceable, the
remainder of Section
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5.1 shall not thereby be affected and shall be given full effect, without regard
to the invalid portion;
5.2.3 If any court determines that any of the
provisions of Section 5.1, or any part thereof, is unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced; and
5.2.4 The Company and the Executive intend to and
hereby confer non-exclusive jurisdiction to enforce provisions of this
Employment Agreement upon the state and federal courts located in the
Commonwealth of Massachusetts and each consents to service of process and deems
sufficient such service of process by means of registered or certified mail,
return receipt requested, mailed in the same manner as notices required under
this Agreement as provided in Section 7.1.
6. Corporate Opportunities. In respect to every network opportunity
during the term of the Executive's employment hereunder which relates to the
Company Business ("Corporate Opportunity"), the Executive:
(a) will promptly and fully disclose the Corporate Opportunity to the
Company;
(b) does hereby assign the Corporate Opportunity and all rights with
respect thereto to the Company; and
(c) without personal expense and at the Company's request and expense,
will fully cooperate with the Company in applying for and securing such
Corporate Opportunity and all rights with respect thereto in the
Company's name, or that of its nominees or designees, and will do all
other reasonable acts and things and execute all proper documents
reasonably presented to the Executive for signature by the Company or
its nominees or designees to enable it or them to apply for and secure
and to transfer legal title therein to the Company or its nominees or
its designees.
If any of the foregoing shall require services by the Executive following
termination of the term of the Executive's employment hereunder, as a condition
precedent to the furnishing of such services, the Company shall agree to
reasonably compensate the Executive for such services at a rate not less than $
100 per hour.
7. Miscellaneous.
7.1 Notices. Any notice or other communication required or
which may be given to any party hereunder shall be in writing and shall be
delivered
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personally, telegraphed or telexed, or sent by certified, registered or express
mail, postage prepaid and shall be deemed given when so delivered personally,
telegraphed or telexed, or if mailed, two days after the date of mailing, to the
address of such party set forth above (or to such other address as any party may
from time to time specify in writing pursuant to the notice provisions hereof).
7.2 Successors and Assigns. This Employment Agreement shall
inure to the benefit of and be binding upon the Company and its successors and
assigns, and the Executive, his heirs and personal representatives, but the
Executive's duties hereunder are personal to him and shall not be subject to
voluntary or involuntary alienation, assignment or transfer. The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and/or
assets of the Company, to expressly assume and agree to perform this Employment
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any succession
shall be a breach of this Employment Agreement and shall constitute an
Involuntary Termination of Employment. For purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be the
date the Involuntary Termination of Employment takes place.
7.3 Governing Law. This Employment Agreement shall be governed
by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts.
7.4 Entire Agreement. This Employment Agreement is entered
into and delivered pursuant to the Stock Purchase Agreement and encompasses in
its entirety any and all employment agreements and understandings between the
Executive and the Company.
7.5 Waivers and Amendments. This Employment Agreement may be
amended, modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any rights, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, or any single or partial exercise of
any right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies that any party may otherwise have at law or in equity.
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7.6 Counterparts. This Employment Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
7.7 Headings. The headings in this Employment Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Employment Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Employment Agreement as of the date first above written.
FIVECOM, INC.
By: /s/ Victor Colantonio
-------------------------
Name: Victor Colantonio
Title: President
EXECUTIVE
/s/ Michael A. Musen
-------------------------
Michael A. Musen
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Exhibit 10.33
LOAN AGREEMENT
LOAN AGREEMENT, dated as of November 22, 1995, among FIVECOM, INC., a
Massachusetts corporation (the "Borrower"), and CENTRAL MAINE POWER COMPANY, a
Maine corporation (the "Lender").
PRELIMINARY STATEMENT
The Borrower and MaineCom Services, a wholly-owned subsidiary of the
Lender ("MaineCom"), are entering into a Stock Subscription Agreement of even
date herewith (the "Stock Subscription Agreement"), under which MaineCom agrees,
subject to the conditions contained therein, to purchase Series B Preferred
Stock of the Borrower for $10,000,000. Closing is conditioned upon, among other
things, Borrower closing on a third-party loan in an additional amount of at
least $25,000,000. Borrower has determined that it will need operating funds
before such closing, and has requested Lender to extend credit hereunder.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
SECTION 1. TERMS OF CREDIT.
1.1 Commitment. (a) Subject to and upon the terms and conditions herein
set forth, the Lender agrees, from time to time on or after the date hereof, to
lend to the Borrower up to $200,000, plus the amount of fees provided in Section
6 (together, the "Loan"), in several installments (each an "Advance").
(b) If Applied Telecommunications Technologies, Inc. ("ATTI")
shall have advanced to Borrower an additional $62,000, or any portion thereof,
under the "Leases" referenced in Exhibit 2.4, the amount of the commitment in
subsection (a) above shall be reduced by the amount so advanced. Lender states
that it has no intention of advancing any such amount to the extent advanced by
ATTI.
1.2 Request for Credit. The Borrower shall give to the Lender notice (a
"Request for Advance") (by telecopy, promptly confirmed by a "hard copy"
writing) requesting an Advance hereunder. Such notices shall (i) be in the form
of Exhibit 1.2 annexed hereto, duly completed in conformity herewith, (ii) be
submitted bi-weekly, (iii) specify the date of the proposed borrowing, which
shall be ten (10) business days after the date of submission and (iv) specify
the aggregate amount of the proposed Advance.
<PAGE>
1.3 Use of Proceeds. The Borrower represents that the proceeds of the
Loan will be used by the Borrower only to finance its working capital needs,
including, without limitation, operational and maintenance expenses, general and
administrative expenses, in each case, to the extent not otherwise prohibited by
this Agreement.
1.4 The Note. (a) The Borrower's obligation to repay the principal
amount of, and interest on, the Loan shall be evidenced by a single promissory
note of the Borrower substantially in the form of Exhibit 1.4 hereto.
(b) The Lender shall maintain a register (the "Credit
Register") on which it shall record the principal amount of the Loan outstanding
from time to time, and interest accrued thereon. Any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded
or endorsed. Notwithstanding the foregoing, the failure to make a notation in
the Credit Register or any error with respect to any such notation, shall not
limit or otherwise affect the obligation of the Borrower hereunder or under the
Note with respect to any Advance, and payments by the Borrower shall not be
affected by the failure to make a notation thereof or by an error in such
notation, nor shall such failure or error affect any rights of the Borrower
hereunder or under applicable law.
SECTION 2. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF
CREDIT.
The Lender shall not be obligated to make the initial Advance unless
each of the following conditions precedent shall have been satisfied:
2.1 Note, Security Agreement and Stock Subscription Agreement. There
shall have been delivered to the Lender an executed Note in the form attached
hereto as Exhibit 1.4, an executed Security Agreement in the form attached
hereto as Exhibit 2.1 (together with this Agreement, the "Loan Documents"), and
an executed Stock Subscription Agreement in form and substance satisfactory to
the Lender.
2.2 Opinions of Counsel. The Lender shall have received a favorable
opinion of Hale and Dorr, counsel to the Borrower, substantially in the form of
Exhibit 2.2 hereto, dated on the date of such extension of credit; such opinion
shall be addressed to the Lender and shall cover such other matters as the
Lender may reasonably request.
2.3 Corporate and Legal Proceedings. All corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory in form and substance to the Lender, and the Lender shall have
received all information and copies of all documents and papers, including
records of corporate and governmental proceedings and the financial information
required under this Agreement which the
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Lender may reasonably have requested in connection therewith, such documents
and papers (when appropriate) to be certified by proper corporate or
governmental authorities and shall, in any event, include: (A) a long form good
standing certificate for the Borrower, (B) a certified copy of the Articles of
Organization of the Borrower and (C) a certificate of the Clerk or an Assistant
Clerk of the Borrower substantially in the form of Exhibit 2.3 annexed hereto
certifying (1) the by-laws and corporate resolutions of the Borrower relating to
the entering into and performance of the Loan Documents and the Stock
Subscription Agreement and the transactions contemplated thereby and (2) the
incumbency and specimen signatures of officers or representatives of the
Borrower authorized to execute the Loan Documents and the Stock Subscription
Agreement and other documents and papers, and to take any other action, in
connection herewith and therewith.
2.4 Standstill Agreement; No Other Lien Filings. Lender shall have
received a Standstill Agreement substantially in the form of Exhibit 2.4 hereto,
executed by Borrower and ATTI. Except for the UCC-1 financing statements filed
to secure ATTI's interests, there shall be no lien filings of record against
Borrower.
2.5 Other Conditions. All acts, conditions and things required to be
done and performed and to have happened precedent to the execution and delivery
of this Agreement, the other Loan Documents and the Stock Subscription Agreement
in order that the same constitute the legal, valid and binding obligations of
the Borrower and the other parties thereto, as the case may be, enforceable in
accordance with their terms, shall have been done and performed and have
happened in strict compliance with all applicable laws.
2.6 Deadline Not Elapsed. If all other conditions precedent in this
Section 2 shall not have been satisfied or waived by Lender on or before
November 22, 1995, then Lender shall have the option, in its sole discretion, of
terminating this Agreement.
All of the Loan Documents, opinions of counsel and other documents and
papers referred to in this Section 2 shall be in form and substance satisfactory
to the Lender and its counsel.
SECTION 3. CONDITIONS PRECEDENT TO EACH ADVANCE.
Lender shall not be obligated to make any Advance unless, at the time
of such Advance and after giving effect thereto:
3.1 No Default. On the date of such Advance, and after giving effect
thereto, there shall exist no Event of Default.
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3.2 Correctness of Representations. On the date of such Advance, and
after giving effect thereto, all representations and warranties contained in
this Agreement, any other Loan Document or in any writing delivered to the
Lender by the Borrower in connection with this Agreement or any other Loan
Document or in satisfaction of any conditions set forth in this Section 3
shall be true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of such time.
3.3 No Governmental Action. No law, regulation, rule, guideline or
other action by any Governmental Authority shall be in effect or shall have
occurred, the effect of which is to prevent the Lender or the Borrower from
fulfilling their respective obligations hereunder or under the other Loan
Documents.
3.4 Lender Satisfaction. Lender shall have determined, in its sole
discretion, that Borrower is making progress toward satisfaction of all
conditions precedent to the Closing under the Stock Subscription Agreement, and
Lender shall otherwise be satisfied with the business and prospects of the
Borrower.
As at the date of each Advance under this Agreement, the Borrower shall
be deemed to have represented and warranted to the Lender that (i) no Event of
Default exists, (ii) all representations and warranties incorporated by
reference are true and correct and (iii) to the best of its knowledge all other
conditions in this Section 3 are satisfied at such time.
SECTION 4. COVENANTS, REPRESENTATIONS AND WARRANTIES.
4.1 All covenants, representations and warranties of the Borrower in
the Stock Subscription Agreement are incorporated herein by reference.
4.2 Information. Until the Note is paid in full, the borrower shall
furnish to the Lender promptly (and, in any event, within 10 days), (i) notice
in writing of any development in the Borrower's affairs, financial or otherwise,
or any action, proceeding or claim which has been commenced or asserted against
the Borrower or any of its assets or any dispute between the Borrower and any
governmental regulatory body which, in the reasonable judgment of the Borrower,
may have a material adverse effect on its affairs or business, and (ii) notice
of the occurrence of any Event of Default, the nature and period of existence
thereof and the action which the Borrower proposes to take with respect thereto.
SECTION 5. EVENTS OF DEFAULT.
Each of the following events, conditions or acts shall constitute an
event of default (an "Event of Default") under this Agreement:
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5.1 Principal and Interest. The Borrower shall fail to pay when due any
principal or interest on the Note;
5.2 Representations and Warranties. Any representation, warranty or
statement made or deemed made by the Borrower herein, in any other Loan Document
or otherwise in connection herewith or therewith, shall be breached or be untrue
in any material respect on or as of the date made or deemed made;
5.3 Covenants. The Borrower shall default in the observance or
performance of any obligation contained or deemed contained herein or in any
other Loan Document or the Stock Subscription Agreement;
5.4 Other Obligations. The Borrower shall default in the payment when
due (after giving effect to any applicable grace period) of any indebtedness for
borrowed money or any obligation under any of the Contracts (as defined in the
Stock Subscription Agreement) or, except as disclosed in Schedule 4.8 to the
Stock Subscription Agreement, any holders of any such indebtedness (or a person
acting on their behalf) shall become entitled to exercise default remedies under
the Contracts or to cause any such indebtedness to become, or any such
indebtedness shall become, due prior to its stated maturity;
5.5 Judgments; Attachments, etc. One or more judgments or decrees shall
be entered against the Borrower involving in the aggregate a liability (not paid
or fully covered by insurance) of $20,000 or more and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal
within 60 days from the entry thereof; or there shall be commenced against the
Borrower any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets that results in the entry of an order for any
such relief that shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof; or
5.6 Insolvency, etc. The Borrower shall suspend or discontinue its
business, or shall make an assignment for the benefit of, or composition with,
creditors, or shall become insolvent or be unable, or generally fail (within the
meaning of Title 11 of the United States Code (entitled "Bankruptcy")), to pay
its debts when due; or the Borrower shall become a party or subject to any
liquidation or dissolution action or proceeding for the relief of financially
distressed debtors with respect to the Borrower or a receiver, liquidator,
custodian or trustee shall be appointed for the Borrower or a substantial part
of its assets and, if any of the same shall occur involuntarily as to the
Borrower, it shall not be dismissed, stayed or discharged within 60 days; or if
any order for relief shall be entered against the Borrower under Title 11 of the
U.S. Code; or the Borrower shall take any action to effect, or which indicates
its acquiescence in, any of the foregoing with respect to itself.
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SECTION 6. PAYMENT OF EXPENSES
The Borrower shall, whether or not the transactions hereby contemplated
shall be consummated, pay all out-of-pocket costs and expenses (including,
without limitation, the reasonable fees and disbursements of counsel or, after
the occurrence of any Event of Default, any other expert or consultant) (a) of
the Lender in connection with any Advance, the preparation, negotiation,
execution, delivery and administration of this Agreement or the other Loan
Documents (including, without limitation, any consent, waiver or other
modification) and (b) of the Lender in connection with the enforcement of, or
preservation of any rights under this Agreement and any of the other Loan
Documents, and any investigation of any action or claim relating to the Loan
Documents. The amount due hereunder for the fees and expenses of Lender's
counsel, Curtis Thaxter Stevens Broder & Micoleau Limited Liability Company,
P.A., for the work leading to the closing, shall not exceed $10,000. The amount
of such fees and expenses shall be in addition to the fees and expenses for such
counsel due under the Stock Subscription Agreement, and shall be added to the
Loan and be disbursed in the Advance following the Closing.
SECTION 7. MISCELLANEOUS.
7.1 Notices. Except as otherwise expressly provided herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be in writing and shall be deemed to have been duly given
or made (i) if mailed, three business days after being deposited in the mails,
registered or certified mail, postage prepaid, (ii) in the case of telex,
telegraphic, cable or telecopy notice, when sent or (iii) if by messenger or by
Federal Express (or any similar overnight express or courier service) 24 hours
after being sent, in each case, addressed to the relevant party, at its address
specified in the Stock Subscription Agreement, or to such other addresses as any
of the parties hereto may hereafter specify to the others in writing; provided
that communications with respect to a change of address shall be deemed to be
effective when actually received. All communications which are required to be
given, or may be given, pursuant to this Agreement by telex, telegraph or cable,
may be given by telecopy and shall be effective when sent to a telecopy number
specified in the Stock Subscription Agreement. Except as otherwise expressly
provided herein, no other form of notice is hereby precluded.
7.2 Benefit of Agreement, etc. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, and, in particular, shall inure to the
benefit of the holder from time to time of the Note; provided, that the Borrower
may not assign or transfer its rights or obligations under this Agreement or any
of the other Loan Documents or in connection herewith or therewith (voluntarily,
by operation of law or otherwise) without the prior written consent of the
Lender.
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7.3 Governing Law. This Agreement, the Note and the other Loan
Documents and the rights and obligations of the parties hereunder and thereunder
shall be construed in accordance with and governed by the laws of the State of
Maine, without regard to any provisions relating to conflicts of law.
7.4 Consent of Jurisdiction, etc. The Borrower agrees that any legal
action or proceeding against the Borrower with respect to this Agreement or any
other Loan Document may be brought in the courts of the State of Maine or of the
United States of America for the District of Maine, as the Lender may elect,
and, by execution and delivery of this Agreement, the Borrower accepts, for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Borrower irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified air mail,
postage prepaid, to the Borrower at its address for notices as specified herein,
such service to become effective 30 days after such mailing. Nothing herein
shall affect the right to serve process in any other manner permitted by law or
the right of the Lender to bring legal action or proceedings in any other
competent jurisdiction. The Borrower agrees that any action commenced by the
Borrower asserting any claim arising under or in connection with this Agreement
shall be brought in the courts of the State of Maine located in the City of
Portland or in the courts of the United States of America for the District of
Maine, that any counterclaim in an action brought by Lender shall be brought in
the same court as the original claim, and that such courts shall, unless waived
by the Lender, have exclusive jurisdiction with respect to any such action. The
Borrower agrees that final judgment against it in any action or proceeding
brought in any of the aforementioned courts shall be conclusive and may be
enforced in any other jurisdiction by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and of the
amount of its indebtedness. THE BORROWER WAIVES ANY RIGHT TO STAY, DISMISS OR
OBJECT TO ANY ACTION OR PROCEEDING BROUGHT BEFORE SUCH COURTS ON THE BASIS OF
VENUE OR FORUM NON CONVENIENS.
7.5 Amendment, etc. No amendment or waiver of any provision of this
Agreement or the other Loan Documents, nor consent to any departure by the
either party therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Borrower and the Lender. Any amendment,
modification or supplement of or to any provision of this Agreement, any waiver
of any provision of this Agreement, and any consent to any departure by the
Borrower from the terms of any provision of this Agreement, shall be effective
only in the specific instance and for the specific purpose for which made or
given.
7.6 Severability. If any provision of this Agreement is prohibited or
unenforceable in any jurisdiction or in any particular circumstance, such
provision (i)
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shall, as to such jurisdiction or circumstance, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction or circumstance and (ii) shall (without any further
act or deed) be replaced by a provision as similar to such prohibited or
unenforceable provision as possible as shall be enforceable and not prohibited
in such jurisdiction or circumstance.
7.7 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the Lender and the Borrower and their respective successors and
assigns (except as otherwise expressly provided herein) and nothing contained
herein shall be deemed to confer upon anyone other than the Lender, the Borrower
and their respective successors and assigns any right to insist on or to enforce
the performance or observance of any of the obligations contained herein. All
conditions to the obligations of the Lender to make Advances hereunder are
imposed solely and exclusively for the benefit of the Lender and its successors
and assigns and no other person shall have standing to require satisfaction of
such conditions in accordance with their terms and no other person shall under
any circumstances be deemed to be a beneficiary of such conditions.
7.8 Survival. All of the representations, warranties, terms, covenants,
agreements and conditions contained in this Agreement and the other Loan
Documents shall specifically survive the execution and delivery of this
Agreement and the other Loan Documents and the Advances and shall, unless
otherwise expressly provided, continue in full force and effect until the Loan,
together with interest thereon, and all other obligations of the borrower under
the Loan Documents are paid in full. Furthermore, the provisions of Section 6
shall survive the payment in full of the Note and the termination of this
Agreement.
7.9 No Usury. This Agreement is subject to the condition that at no
time shall the Borrower be obligated or required to pay interest at a rate which
could subject the holder of the Note to either civil or criminal liability,
forfeiture or loss of principal, interest or other sums as a result of being in
excess of the maximum interest rate which the Borrower is permitted by law to
contract or agree to pay or which the holder of the Note is permitted to
receive. If by the terms of the Note, the Borrower is at any time required or
obligated to pay interest at a rate in excess of such maximum rate, the interest
rate under the Note shall be deemed to be immediately reduced to such maximum
rate for so long as such maximum rate shall be in effect and shall thereafter be
payable at the rate therein provided.
7.10 Adjustment. The Borrower expressly agrees that to the extent the
Borrower makes a payment or payments hereunder or under the Note and such
payment or payments, or any part thereof, are subsequently invalidated, declared
to be fraudulent or preferential, set aside or are required to be repaid to a
trustee, receiver, or any other party under any bankruptcy act, state or federal
law, common
-8-
<PAGE>
law or equitable cause, then the indebtedness to the Lender or part thereof
intended to be satisfied by such payment or payments shall be revived and
continued in full force and effect as if said payment or payments had not been
made.
7.11 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument.
7.12 Rights. All rights, powers, privileges, protections and benefits
of any party hereto under this Agreement and/or the other Loan Documents shall
be construed to be cumulative and supplementary and shall not be limited because
the terms of any Loan Document provide rights, powers, privileges or benefits
more limited in scope than that provided in any other Loan Document.
7.13 Entire Agreement. This Agreement and any other agreement, document
or instrument attached hereto or referred to herein integrate all the terms and
conditions mentioned herein or incidental hereto, and supersede all oral
negotiations and prior writings with respect to the subject matter hereof. The
parties hereto acknowledge that the Lender has not made any agreement or
commitment to provide any financing except as set forth herein.
SECTION 8. WAIVER OF JURY TRIAL.
EXCEPT TO THE EXTENT PROHIBITED BY LAW WHICH CANNOT BE WAIVED, EACH
PARTY HERETO WAIVES TRIAL BY JURY IN CONNECTION WITH ANY ACTION OR PROCEEDING OF
ANY NATURE WHATSOEVER ARISING UNDER, OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY, AND ANY COURSE OF DEALING OR REPRESENTATIONS, WARRANTIES, STATEMENTS OR
AGREEMENTS MADE OR ALLEGEDLY MADE IN CONNECTION HEREWITH OR THEREWITH AND IN
CONNECTION WITH ANY CLAIM, COUNTERCLAIM, OFFSET OR DEFENSE ARISING IN CONNECTION
WITH SUCH ACTION OR PROCEEDING, WHETHER ARISING UNDER STATUTE (INCLUDING ANY
FEDERAL OR STATE CONSTITUTION) OR UNDER THE LAW OF CONTRACT, TORT OR OTHERWISE
AND INCLUDING, WITHOUT LIMITATION, ANY CHALLENGE TO THE LEGALITY, VALIDITY,
BINDING EFFECT OR ENFORCEABILITY OF THIS SECTION 8 OR THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or representatives thereunto duly
authorized, all as of the date first above-mentioned.
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<PAGE>
Witness: FIVECOM, INC.
/s/ Alexander A. Bernhardt By: /s/ Victor Colantonio
------------------------------- --------------------------
Title: President
--------------------------
CENTRAL MAINE POWER COMPANY
/s/ Joe Fay By: /s/ Arthur Adelberg
------------------------------ --------------------------
Title: Vice President
--------------------------
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<PAGE>
<TABLE>
<CAPTION>
LIST OF EXHIBITS
<S> <C>
Exhibit 1.2 Request for Advance
Exhibit 1.4 Note
Exhibit 2.1 Security Agreement
Exhibit 2.2 Opinion of Counsel
Exhibit 2.3 Closing Certificate
Exhibit 2.4 Standstill Agreement
</TABLE>
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<PAGE>
EXHIBIT 1.2
TO
LOAN AGREEMENT
REQUEST FOR ADVANCE
Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
Attn: Gerald C. Poulin, Vice President
Generation and Technical Support
MaineCom Services
41 Anthony Avenue
Augusta, Maine 04330
Attn: Mark E. Curtis, President
Re: Loan Agreement ("Agreement") dated as of November __, 1995, between
Central Maine Power Company (the "Lender") and FiveCom, Inc. (the
"Borrower").
Gentlemen:
This letter constitutes a Request for Advance pursuant to Section 1.2
of the Agreement. A facsimile transmission of this Request for Advance shall be
deemed to be an original.
In accordance with the terms of the Agreement, you are hereby requested
to make an Advance in an amount of $_________________ on ____________________
[10 business days from the date hereof].
The proceeds of the requested Advance will be used for the following
purpose[s]:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Copies of all relevant invoices are attached hereto.
In order to induce you to make the Advance requested herein, the
Borrower hereby certifies that:
1. All Loan Documents are in full force and effect.
<PAGE>
2. This Credit Request constitutes a representation and warranty
by the Borrower to you that (i) no Event of Default exists,
(ii) all representations and warranties of the Borrower set
forth in the Agreement are true as of the date hereof, and
(iii) all other conditions precedent set forth in the
Agreement are satisfied as at the date hereof.
Unless otherwise indicated herein, all capitalized terms used herein
are intended to have the respective meanings set forth in the Agreement.
FIVECOM, INC.
By: ____________________________
Title: __________________________
Date: __________________
-2-
<PAGE>
EXHIBIT 1.4
TO
LOAN AGREEMENT
PROMISSORY NOTE
$210,000 November __, 1995
Portland, Maine
FOR VALUE RECEIVED, FIVECOM, INC., a Massachusetts corporation
("FiveCom"), promises to pay to the order of CENTRAL MAINE POWER COMPANY, a
Maine corporation ("CMP"), the principal sum of Two Hundred Ten Thousand Dollars
($210,000.00)], or so much thereof as been advanced under the Loan Agreement of
even date herewith between CMP and FiveCom (the "Loan Agreement"), with interest
on said principal sum at the rate of nine percent (9%) per annum, on the earlier
to occur of (a) January 31, 1995 and (b) the Closing, as defined in the Stock
Subscription Agreement dated of even date herewith between MaineCom Services,
Inc. and FiveCom.
This Note is the Note as defined in the Loan Agreement, which governs
amendment of this Note. Capitalized terms used herein without definition shall
have the meanings set forth in the Loan Agreement.
Upon the occurrence of an Event of Default, then the holder may, at its
option, without further demand and notice, declare the entire outstanding
balance and accrued interest due and payable. Failure to exercise this option
shall not constitute a waiver of the right to exercise the same in the event of
any subsequent default. Interest shall accrue on all amounts due hereunder at
the rate of fourteen percent per annum (14%) from the date of such Event of
Default until such amounts are paid.
This Note may be prepaid in whole or in part without penalty.
All principal and interest due hereunder shall be paid to the holder
hereof at its principal office or to such other parties or addresses as the
holder hereof may from time to time designate in writing to FiveCom or any other
parties liable hereunder.
This Note is subject to the condition that at no time shall FiveCom be
obligated or required to pay interest at a rate which could subject the holder
hereof to either civil or criminal liability, forfeiture or loss of principal,
interest or other sums as a result of being in excess of the maximum interest
rate which FiveCom is permitted by law to contract or agree to pay or which the
holder hereof is permitted to receive. If by the terms of this Note FiveCom is
at any time required or obligated to pay interest at a rate in excess of such
maximum rate, the interest rate under this Note shall be deemed to be
immediately reduced to such maximum rate for so long as such
<PAGE>
maximum rate shall be in effect and shall thereafter be payable at the rate
herein provided.
In the event that legal proceedings are instituted to collect any
amount due under this Note, FiveCom agrees to pay to the holder hereof, in
addition to the amount of the unpaid balance of principal and interest, all
costs and expenses of such proceedings, including reasonable attorneys' fees.
FiveCom hereby waives demand, protest, presentment and notice of every
kind, and waives recourse to suretyship defenses generally, including extensions
of time, releases of security, and other indulgences which may be granted from
time to time by the holder of this Note to FiveCom.
If any obligation or portion of this Note is determined to be invalid
or unenforceable under the law, such invalidity or unenforceability shall not
affect the validity or enforceability of the remaining obligations or portions
of this Note.
This Note shall be governed by and construed and interpreted in
accordance with the laws of the State of Maine.
This Note is secured under the Security Agreement of even date between
FiveCom and CMP.
This Note evidences a loan for business and commercial purposes and not
for personal, family or household purposes.
WITNESS: FIVECOM, INC.
_______________________ By: ______________________________
Victor Colantonio, President
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<PAGE>
EXHIBIT 2.1
to Loan Agreement
SECURITY AGREEMENT
SECURITY AGREEMENT, made this ____ day of November, 1995, by and
between Central Maine Power Company, a Maine corporation having its principal
place of business in Augusta, Maine (the "Lender"), and FiveCom, Inc., a
Massachusetts corporation, with its principal place of business in Waltham,
Massachusetts (the "Borrower").
PRELIMINARY STATEMENT
The Borrower and the MaineCom Services, a wholly-owned subsidiary of
Lender ("MaineCom") are entering into a Stock Subscription Agreement of even
date herewith (the "Stock Subscription Agreement"), under which MaineCom agrees,
subject to the conditions contained therein, to purchase Series B Preferred
Stock of the Borrower for $10,000,000. Closing is conditioned upon, among other
things, Borrower closing on a third-party loan in an additional amount of at
least $25,000,000. Borrower has determined that it will need operating funds
before such closing, and has requested Lender to extend credit pursuant to a
Loan Agreement of even date herewith (the "Loan Agreement"). Lender has required
collateral for such loan, and it is the intent of the parties that such
collateral be provided under the terms hereunder.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, and to induce the Lender to enter into the Loan
Agreement and to make the Loan under the Loan Agreement, the Borrower and the
Lender hereby agree as follows:
1. Definitions. (a) Unless otherwise defined herein, terms defined in
the Loan Agreement and used herein or in the recitals hereto have the meanings
given to them in the Loan Agreement, and the following terms which are defined
in the Uniform Commercial Code in effect in the State of Maine on the date
hereof are used herein as so defined: accounts, chattel paper, farm products,
general intangibles, instruments and inventory.
(b) As used in this Security Agreement, the following terms shall have
the following meanings (such definitions to be equally applicable to both
singular and plural forms of the terms defined):
"Code": the Uniform Commercial Code from time to time in
effect in the State of Maine, except that "Code" may mean the Uniform
Commercial Code as the same may from time to time be in effect in the
Commonwealth of Massachusetts with respect to the provisions hereof
relating to the creation and enforcement of security interests on
tangible personal property of the Borrower located in the Commonwealth
of Massachusetts.
<PAGE>
"Collateral": as defined in Section 2 of this Security
Agreement.
"Contracts": the contracts listed on Schedule 4.7 to the Stock
Subscription Agreement and all other contracts now or in the future
from time to time entered into by Borrower, as any of the same may be
amended, supplemented or otherwise modified from time to time,
including, without limitation, (a) all rights of the Borrower to
receive moneys due and to become due to it thereunder or in connection
therewith, (b) all rights of the Borrower to damages arising out of or
for breach or default in respect thereof and (c) all rights of the
Borrower to exercise all remedies thereunder.
"Equipment": as defined in Section 2 of this Security
Agreement.
"Lien": any mortgage, deed of trust, security interest,
pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other) or preference, priority or other security
agreement or preferential arrangement of any kind of nature (including,
without limitation, any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement under the Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"Obligations": all obligations of the Borrower under the Loan
Agreement, the Note or any other Loan Document, whether on account of
principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise.
"Proceeds": as defined in the Code and, in any event,
including, but not limited to, (i) any and all proceeds of any
insurance, judgment, indemnity, warranty or guaranty payable to the
Borrower from time to time with respect to any of the Collateral; (ii)
any and all payments (in any form whatsoever) made or due and payable
to the Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of
the Collateral by any Governmental Authority (or any person acting
under color of Governmental Authority); and (iii) any and all other
amounts from time to time paid or payable under or in connection with
any of the Collateral.
"Security Agreement" or "Agreement": this Security Agreement,
as amended, supplemented or otherwise modified from time to time.
(c) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto.
-2-
<PAGE>
(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(e) Terms defined in this Agreement by reference to any other
agreement, document or instrument shall have the meaning assigned to it in such
agreement, document or instrument whether or not such agreement, document or
instrument is then in effect.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, the Borrower hereby grants,
bargains, sells, transfers and assigns to the Lender, a first security interest
in, all of the following property now owned or at any time hereafter acquired by
the Borrower or in which the Borrower now has or at any time in the future may
acquire any right, title or interest (all of which being hereinafter
collectively called the "Collateral:)
(a) all of the Borrower's inventory, equipment, construction materials,
fixtures, chattels, electronic business machines, machinery, apparatus, fittings
and articles of personal property of every kind and nature whatsoever, and all
appurtenances, accessions and additions thereto and substitutions or
replacements and products thereof, currently owned or hereafter acquired by the
Borrower, including but not limited to, all such goods now or hereafter attached
to, or contained in or used or usable in any way in connection with any present
or future operation of its fiber optic transmission system to be known as the
New England Optical Network ("NEON"), and all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such goods
(hereinafter collectively referred to as the "Equipment"), including, but
without limiting the generality of the foregoing, all Equipment kept at the
locations listed on Schedule 3(d) hereto and, to the extent not included
therein, all optical fiber cables, telephone wires, other types of wire and
cable, screens, awnings, shades, blinds, curtains, draperies, carpets, rugs,
storm doors and windows, furniture and furnishings, heating, electrical,
mechanical, lighting, switchboards, lifting, plumbing, ventilating, air
conditioning and air-cooling apparatus, boilers, furnaces, oil burners and
transformers, refrigerating, incinerating, escalator, elevator, power, loading
and unloading equipment and systems, stoves, ranges, laundry, cleaning systems,
communication systems, sprinkler systems and other fire prevention and
extinguishing apparatus and materials, dynamos, generators, ducts, controls,
belting, heaters, motors, engines, machinery, pipes, pumps, tanks, fans,
conduits, appliances, equipment, fittings and fixtures, and motor vehicles of
every kind and description;
-3-
<PAGE>
(c) any and all leases, subleases, underlettings, concession agreements
and licenses of the Equipment, NEON, or any part thereof, now existing or
hereafter entered into by the Borrower;
(d) all Contracts;
(e) (i) all monies, deposits, funds and accounts and all collections,
contract rights, instruments, documents, general intangibles (including all
trademarks, trade names, partnership names, company names, business names,
fictitious business names, trade styles, service marks, logos and other symbols
used in connection therewith, the goodwill associated therewith, all
registrations and recordings thereof and all applications in connection
therewith and all trademark licenses), partnership interests, the plans and
specifications, patent rights, patents, applications for patents, patent
licenses, copyrights, claims, demands and notes or chattel paper arising from or
by virtue of any transactions related to the foregoing; (ii) all permits,
recordings, registrations, filings, consents, orders, authorizations, waivers,
variances, permissions, declarations, licenses, franchises, approvals,
exemptions, certificates, and other rights and privileges obtained in connection
with the foregoing (including, without limitation, all permits and approvals
listed on Schedule 4.14 to the Stock Subscription Agreement); and (iii) all
books, records, documents (including, but not limited to, computer programs,
tapes, and related electronic data and processing software) and instruments of
the Borrower relating in whole or in part to any of the Collateral;
(f) all rents, royalties, issues, profits, revenues, earnings, income
and other benefits, instruments, documents, securities, cash or property derived
from the Collateral or arising from the ownership, operation or management of
NEON or the Equipment, or from any lease or agreement pertaining thereto;
(g) all other personal property of the Borrower comprising NEON
developed, constructed, installed, completed, operated and/or maintained and all
other personal property of the Borrower used in or relating to such development,
construction, installation, completion, operation and maintenance;
(h) all extensions, improvements, betterments, renewals, accessions,
substitutes and replacements of, and all additions and appurtenances to, any and
all of the foregoing, hereafter acquired by or released to the Borrower or
constructed, assembled or placed by the Borrower into NEON, and all conversions
of the security constituted thereby, immediately upon such acquisition, release,
construction, assembling, placement or conversion, as the case may be; and
(i) all Proceeds, both cash and noncash, arising from or by virtue of
the sale, lease or other disposition of any and all of the foregoing or any
interest therein and all products of any and all of the foregoing.
-4-
<PAGE>
3. Borrower's Representations and Warranties. The Borrower hereby
represents and warrants that:
(a) Title to Collateral; No Liens; No Filing, etc. Except for the
security interest granted to the Lender pursuant to this Agreement and the Liens
described in Schedule 3(a) hereto, the Borrower owns each item of Collateral and
has good and marketable title thereto, and none of such property is subject to
any Lien. No security agreement, financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record in any
public office, except such as have been filed in favor of the Lender, pursuant
to this Agreement or as are permitted pursuant to the Loan Agreement.
(b) Perfection. The security interests granted pursuant to this
Agreement (i) constitute perfected security interests in the Collateral in favor
of the Lenders, (ii) are prior to all other Liens on the Collateral in existence
on the date hereof, except the Liens described in Schedule 3(a) hereto and (iii)
are enforceable as such against (x) all creditors of and purchasers from the
Borrower (except purchasers of inventory in the ordinary course of business) and
(y) any person having any interest in the real property where any of the
Equipment is located. The recordings and filings shown on Schedule 3(b) hereto,
all of which recordings and filings have been duly made, are all the recordings,
filings and other action (other than the periodic filing of continuation
statements) necessary and appropriate in order to establish, protect and perfect
the Lender's, lien on and security interest in the right, title, estate and
interest of the Borrower in and to all the Collateral prior and superior to all
other Liens existing on the date hereof and prior and superior to all other
Liens which may exist in the future, except the Liens described in Schedule 3(a)
hereto.
(c) Chief Executive Office. The Borrower's chief executive office and
chief place of business, and the place where it keeps its records concerning the
Collateral, are located at 391 Totten Pond Road, Suite 401, Waltham,
Massachusetts 02154.
(d) Location of Equipment. No item of Equipment is kept at any location
other than the locations listed on Schedule 3(d) hereto.
(e) No Farm Products, Instruments or Chattel Paper. None of the
Collateral constitutes, or is the Proceeds of, farm products. None of the
Collateral is evidenced by any instrument or chattel paper.
(f) Contracts. No consent or authorization of, or filing with or other
act by or in respect of any Person (including, without limitation, any
Governmental Authority), is required in connection with the execution, delivery
or performance by, or the validity or enforceability against, any party of any
of the Contracts other than those which have been duly obtained, made or
performed, and are in full force and effect. Each of the Contracts is in full
force and effect and constitutes a legal, valid
-5-
<PAGE>
and binding obligation of the parties thereto, and is enforceable against each
such party in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity. All governmental approvals and other consents and
approvals required in connection with the execution, delivery, and performance
of the Contracts by the parties thereto have been duly obtained or made, are in
full force and effect and are not subject to appeal or judicial, governmental or
other review. The Borrower has duly performed and complied with all agreements
and conditions required to be performed or complied with by it as of the date
hereof under each Contract. The right, title and interest of the Borrower in, to
and under each Contract are not subject to any defense, offset, counterclaim or
claim which would materially adversely affect the value of such Contract as
Collateral, nor have any of the foregoing been asserted or alleged against the
Borrower as to any Contract.
4. Covenants. The Borrower hereby covenants and agrees with the Lender
that, from and after the date of this Agreement until this Agreement is
terminated and the security interests created hereby are released:
(a) Payment of Obligations. The Borrower shall pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, all
taxes, assessments and governmental charges or levies imposed on the Collateral
or in respect of income or profits therefrom, and all lawful claims against or
with respect to the Collateral which, if unpaid, might become a Lien upon the
property of the Borrower.
(b) Further Documentation; Maintenance of Security Interest. The
Borrower will (i) at any time and from time to time, upon the written request of
the Lender and at the Borrower's sole expense, promptly execute and deliver, or
cause the execution and delivery of, and thereafter register, file or record in
each appropriate governmental office, any document or instrument supplemental to
or confirmatory of this Security Agreement and take such further action as the
Lender may reasonably request for the purpose of obtaining or preserving the
full benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests created hereby; and (ii)
maintain the security interest created by this Security Agreement as a first
perfected security interest, subject only to the Liens described in Schedule
3(a) hereto not create or suffer to exist any Lien on the Collateral (or
attempt, offer or contract to do so) and protect and defend such security
interest and its interest in the Collateral against Liens, claims and demands
asserted by any third Person, other than the Liens described in Schedule 3(a)
hereto and immediately discharge any such Lien so asserted.
-6-
<PAGE>
(c) Insurance. Without limiting any of the other obligations or
liabilities of the Borrower under this Security Agreement, the Borrower shall at
all times carry and maintain, at the Borrower's expense, the insurance required
under Section 4.13 of the Stock Subscription Agreement.
(d) Requirements of Law. The Borrower will comply with all requirements
of law applicable to the Collateral or any part thereof.
(e) Changes of Location, Name, etc. The Borrower will not (i) permit
any of the Equipment to be kept at a location other than those listed on
Schedule 3(d) hereto; or (ii) change the location of its chief executive office
and chief place of business from that specified in Section 3(c) hereof; (iii)
remove its books and records from the location specified in Section 3(c) hereof;
or (iv) change its name, identity or corporate structure to such an extent that
any financing statement filed by the Lender in connection with this Security
Agreement would become seriously misleading, unless it shall have given the
Lender at least 30 days' prior written notice of such change and all action
necessary or advisable in the Lender's opinion to protect and perfect the liens
and security interests with respect to the right, title, and interest of the
Borrower in and to the Collateral created by this Security Agreement shall have
been taken.
(f) Instruments and Chattel Paper. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
instrument or chattel paper, such instrument or chattel paper shall be delivered
to the Lender, duly endorsed in a manner satisfactory to the Lender, to be held
as Collateral pursuant to this Security Agreement.
(g) Further Information. The Borrower will furnish to the Lender from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Lender may reasonably request, all in reasonable detail.
(h) Maintenance of Records. The Borrower will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral
including, without limitation, a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. The Borrower will mark its books and records pertaining to the
Collateral to evidence this Agreement and the security interests granted hereby.
For the further security of the Lender, the Borrower agrees that the Lender,
shall have a special property interest in all of the Borrower's books and
records pertaining to the Collateral and the Borrower shall, upon the
acceleration of the Loan and any other amounts due under any Loan Document,
deliver and turn over any books and records to the Lender or to its
representatives at any time on demand of the Lender. The Lender in turn agrees
to provide the Borrower with reasonable access to such records during normal
business
-7-
<PAGE>
hours and also with such copies of such records (made at the Borrower's expense)
as the Borrower may reasonably request, such access and such copies to be
available subject to the Lender's prior right to use such records to enforce its
rights in or to realize upon the Collateral.
(i) Notices. The Borrower will advise the Lender promptly, in
reasonable detail, of (x) any Lien (other than security interests created
hereby) on, or claim asserted against, any of the Collateral; and (y) of the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the aggregate value of the Collateral or on the
security interests created hereby.
(j) Accounts. The amount represented by the Borrower to the Lender from
time to time as owing by each account debtor or by all account debtors in
respect of the Accounts will at such time be the correct amount actually owing
by such account debtor or debtors thereunder. Other than in the ordinary course
of business as generally conducted by the Borrower over a period of time, the
Borrower will not grant any extension of the time of payment of any of the
accounts, compromise, compound or settle the same for less than the full amount
thereof, release, wholly or partially, any person liable for the payment
thereof, or allow any credit or discount whatsoever thereon.
(k) Maintenance of Collateral. The Borrower shall maintain the
Collateral as provided in the Loan Agreement. The Borrower shall not sell,
assign, lease, transfer, exchange or otherwise dispose of the Collateral, or
grant any option with respect thereto, or attempt, offer or contract to do so,
except as permitted by the Loan Agreement.
(l) Indemnification. The Borrower agrees to pay, and to save the Lender
harmless from, any and all liabilities, costs and expenses (including, without
limitation, legal fees and expenses) except those that are a direct result of
the Lender's gross negligence or willful misconduct (x) with respect to, or
resulting from any delay in paying, any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral, (y) with respect to, or resulting from, any delay in complying with
or failure to comply with any Contract or any agreement relating to the
Collateral or any requirement of law applicable to any of the Collateral, and
(z) in connection with any of the transactions contemplated by this Security
Agreement.
5. Remedies. (a) If an Event of Default shall occur and be continuing,
the Lender may exercise, in addition to all other rights and remedies granted to
it in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Lender without demand of performance or other demand, presentment, protest,
advertisement or notice of any
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<PAGE>
kind (except any notice required by law referred to below) to or upon the
Borrower or any Person (all and each of which demands, defenses, advertisements
and notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Lender or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Borrower, which right or equity is hereby waived
or released. The Borrower further agrees at the Lender's request, to assemble
the Collateral and make it available to the Lender at places which the Lender
shall reasonably select, whether at the Borrower's premises or elsewhere. The
Lender shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care, safekeeping
or otherwise of any of the Collateral or in any way relating to the Collateral
or the rights of the Lender hereunder, including, without limitation, reasonable
attorneys' fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Lender may elect, in accordance with the Loan
Agreement, and only after such application and after the payment by the Lender
of any other amount required by any provision of law, including, without
limitation, Section 9-504(l)(c) of the Code, need the Lender account for the
surplus, if any, to the Borrower. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands it may acquire against the
Lender arising out of the exercise by it of any rights hereunder except those
that are a direct result of the Lender's gross negligence or willful misconduct.
If any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least 10 days before such sale or other disposition. The Borrower shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Borrower to collect such
deficiency.
(b) The Borrower also agrees to pay all costs of the Lender, including
attorneys' fees, incurred with respect to the collection of any of the
Obligations and the enforcement of any of the rights of the Lender hereunder.
(c) The Borrower hereby waives presentment, demand, protest or any
notice (to the extent permitted by applicable law) of any kind in connection
with this Agreement or any Collateral.
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<PAGE>
(d) The foregoing rights and powers of the Lender shall be in addition
to, and not a limitation upon, any rights and powers of the Lender given by law,
custom, elsewhere by this Security Agreement, the Loan Agreement or otherwise.
6. Lender's Appointment as Attorney-in-Fact. (a) The Borrower hereby
irrevocably constitutes and appoints the Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower and in the name of the Borrower or in the Lender's own
name, from time to time in the Lender's discretion, for the purpose of carrying
out the terms of this Security Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement, and, without
limitation, the Borrower hereby gives the Lender the power and right, on behalf
of the Borrower, without notice to or assent by the Borrower, to do the
following:
(i) in the case of any patents or trademarks, to execute and
deliver any and all agreements, instruments documents, and papers as
the Lender may request to evidence the Lender's security interest in
any patent or trademark and the goodwill and general intangibles of the
Borrower relating thereto or represented thereby;
(ii) at any time and from time to time, to execute, in
connection with the sale provided for in Section 5 hereof, any
endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(iii) upon the occurrence and during the continuance of any
Event of Default, (A) to direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Lender or as the Lender shall
direct; (B) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral;
(C) to sign and indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection
with any of the Collateral; (D) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce
any other right in respect of any Collateral; (E) to defend any suit,
action or proceeding brought against the Borrower with respect to any
Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Lender may deem appropriate;
(G) to assign any patent or trademark (along with the goodwill of
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<PAGE>
the business to which any such trademark pertains), throughout the
world for such term or terms on such conditions, and in such manner, as
the Lender shall in its sole discretion determine; (H) to compromise,
settle or otherwise agree to waive, amend or modify the obligation of
any account debtors or obligors under such accounts and Contracts; (I)
to communicate, in its own name or in the name of others, with account
debtors and parties to the Contracts to verify the existence, amount
and terms of any accounts or Contracts; (J) to pay or discharge taxes
and Liens levied or placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the terms of this
Security Agreement or the Loan Agreement and to pay all or any part of
the premiums therefor and the costs thereof; and (K) generally, to
sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Lender were the absolute owner thereof for all purposes, and
to do, at the Lender's option and the Borrower's expense, at any time,
or from time to time, all acts and things which the Lender reasonably
deems necessary to protect, preserve or realize upon the Collateral and
the Lender's Liens thereon and to effect the intent of this Security
Agreement, all as fully and effectively as the Borrower might do.
(b) The Borrower hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof.
(c) All powers, authorizations and agencies contained in this Security
Agreement are coupled with an interest and are irrevocable until this Security
Agreement is terminated and the security interests created hereby are released.
7. Performance by Lender of the Borrower's Obligations. If the Borrower
fails to perform or comply with any of its agreements contained herein, the
Lender, at its option, but without any obligation to do so, may perform or
comply, or otherwise cause performance or compliance, with such agreement. The
expenses of the Lender incurred in connection with such performance or
compliance, together with interest thereon at a rate per annum equal to the
default interest rate specified in the Note, shall be payable by the Borrower to
the Lender on demand and shall constitute Obligations secured hereby.
8. Proceeds. If an Event of Default shall occur and be continuing (a)
all Proceeds received by the Borrower consisting of cash, checks and other
near-cash items shall be paid to the Lender for application in accordance with
the terms of the Loan Agreement, and otherwise shall be held by the Borrower in
trust for the Lender, segregated from other funds of the Borrower, and shall,
forthwith upon receipt by the Borrower, be turned over to the Lender in the
exact form received by the Borrower (duly indorsed by the Borrower to the
Lender, if required), and (b) any and all such Proceeds received by the Lender
(whether from the Borrower or otherwise) may, in
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<PAGE>
the sole discretion of the Lender, be held by the Lender as collateral security
for, and/or then or at anytime thereafter may be applied by the Lender against,
the Obligations (whether matured or unmatured), such application to be in such
order as the Lender shall elect. Any balance of such Proceeds remaining after
the Obligations shall have been paid in full shall be paid over to the Borrower
or to whomsoever may be lawfully entitled to receive the same.
9. Performance of Accounts and Contracts; Limitations on Lender's
Obligations. It is expressly agreed by the Borrower that, anything herein to the
contrary notwithstanding, the Borrower shall remain liable under each account
and Contract to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant to
the terms and provisions of each such account or Contract. The Lender shall have
no obligation or liability under any account or Contract by reason of or arising
out of this Security Agreement or the assignment to or receipt by the Lender of
any payment relating to any account or Contract pursuant hereto, nor shall the
Lender be required or obligated in any manner to perform or fulfill any of the
obligations of the Borrower under or pursuant to any account or Contract, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any account or Contract, or to present or file any claim, or to take any
action to enforce any performance or collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
10. Duty of Lender. The Lender's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the same
manner as the Lender deals with similar property for its own account. Neither
the Lender nor any of its directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Borrower or any other Person
or to take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Lender hereunder are solely to protect the
interest of the Lender in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall be
responsible to the Borrower for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct, and specifically disclaim any
liability for negligence.
11. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, the Borrower authorizes the Lender, to the extent permitted by applicable
law, to file financing statements with respect to the Collateral without the
signature of the
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Borrower in such form and in such filing offices as the Lender reasonably
determines appropriate to perfect the security interests of the Lender under
this Security Agreement. A carbon, photographic or other reproduction of this
Security Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.
12. Notices. Notices hereunder may be given by mail, by telex or by
facsimile transmission, addressed or transmitted as set forth in the Loan
Agreement and shall be effective as provided for in the Loan Agreement. The
Lender and the Borrower may change their addresses and transmission numbers for
notices as provided in the Loan Agreement.
13. Severability. Any provision of this Security 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.
14. Integration. This Security Agreement represents the agreement of
the Borrower with respect to the subject matter hereof and there are no promises
or representations by the Lender relative to the subject matter hereof not
reflected herein or in the other Loan Documents or the Stock Subscription
Agreement.
15. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of
the terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Borrower and the Lender, provided that any provision of this Security
Agreement may be waived by the Lender in a letter or agreement executed by the
Lender or by telex or facsimile transmission from the Lender.
(b) The Lender shall not by any act (except by a written instrument
pursuant to Section 15(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Lender, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Lender would otherwise have on any future occasion.
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<PAGE>
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
16. Successors and Assigns. This Security Agreement shall be binding
upon the successors and assigns of the Borrower and shall inure to the benefit
of the Lender and its successors and assigns.
17. Governing Law. This Security Agreement shall be governed by, and
construed and interpreted in accordance with, the law of the State of Maine.
18. Section Headings. The section headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
19. Term of Security Agreement. This Security Agreement shall remain in
full force and effect and be binding in accordance with and to the extent of its
terms, and the security interest created by this Security Agreement shall not be
released, until payment in full of all the Obligations. To the extent not
otherwise provided by law, if at any time payment, or any part thereof, of any
of the Obligations is rescinded or must otherwise be restored or returned by the
Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or any other person making such payment, or upon
or as a result of the appointment of a receiver, intervenor or conservator of,
or trustee or similar officer for, the Borrower or any such person or any
substantial part of its property, or otherwise, the security interest created by
this Agreement shall continue to secure payment and performance of the
Obligations, as reinstated, all as though such payments had not been made.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or representatives thereunto duly
authorized, all as of the date first above-mentioned.
Witness: FIVECOM, INC.
_____________________ By: _______________________________
Title: ___________________________
CENTRAL MAINE POWER COMPANY
_____________________ By: _______________________________
Title: ___________________________
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<TABLE>
<CAPTION>
LIST OF SCHEDULES
<S> <C>
Schedule 3(a) Permitted Liens
Schedule 3(b) Recordings and filings of financing statements
Schedule 3(d) Locations of Equipment
</TABLE>
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Exhibit 10.34
- --------------------------------------------------------------------------------
CONSTRUCTION LOAN AGREEMENT
between
FIVECOM LLC
and
CENTRAL MAINE POWER COMPANY
Date: October 7, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION..................................................................1
1.1 Definitions.....................................................................................1
1.2 Rules of Interpretation.........................................................................9
2. DISBURSEMENTS............................................................................................9
2.1 Agreement to Make Advances......................................................................9
2.2 Project Budget.................................................................................10
2.3 Amount of Advances.............................................................................10
2.4 Quality of Work................................................................................10
2.5 Cost Overruns and Savings......................................................................10
2.6 Contingency Reserve............................................................................11
2.7 Stored Materials...............................................................................11
2.8 Withheld Portion...............................................................................11
3. MAKING THE ADVANCES.....................................................................................12
3.1 Draw Request...................................................................................12
3.2 Notice and Frequency of Advances...............................................................12
3.3 Deposit of Funds Advanced......................................................................12
3.4 Advances to Contractor.........................................................................12
3.5 Advances to Others.............................................................................12
3.6 Advances Do Not Constitute a Waiver............................................................13
4. THE NOTE: INTEREST AND MATURITY.........................................................................13
4.1 The Note.......................................................................................13
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4.2 The Record.....................................................................................13
4.3 Interest on the Loan...........................................................................13
4.4 Maturity.......................................................................................14
5. FEES: PAYMENTS AND COMPUTATIONS.........................................................................14
5.1 Fees...........................................................................................14
5.2 Funds for Payments.............................................................................14
5.3 Computations...................................................................................15
5.4 Interest on Overdue Amounts....................................................................15
6. COLLATERAL SECURITY.....................................................................................15
7. CERTAIN RIGHTS OF LENDER................................................................................15
7.1 Right to Retain the Construction Inspector.....................................................15
8. REPRESENTATIONS AND WARRANTIES..........................................................................16
8.1 Organization; Authority; Etc...................................................................16
8.2 Title to NEON and the Collateral...............................................................17
8.3 Financial Statements...........................................................................18
8.4 No Material Changes, Etc.......................................................................18
8.5 Franchises, Patents, Copyrights, Etc...........................................................18
8.6 Litigation.....................................................................................18
8.7 No Materially Adverse Contracts, Etc...........................................................19
8.8 Compliance With Other Instruments, Laws, Etc...................................................19
8.9 Tax Status.....................................................................................19
8.10 No Event of Default............................................................................19
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<PAGE>
8.11 Investment Company Act.........................................................................19
8.12 Absence of Financing Statements, Etc...........................................................19
8.13 Setoff, Etc....................................................................................20
8.14 Certain Transactions...........................................................................20
8.15 Employee Benefit Plans; Pension Plans..........................................................20
8.16 Environmental Compliance.......................................................................20
8.17 Condition of Property..........................................................................22
8.18 Compliance with Requirements...................................................................22
8.19 Project Approvals..............................................................................22
8.20 Construction Contract..........................................................................22
8.21 Other Contracts................................................................................22
8.22 Property Taxes: Special Assessments............................................................22
8.23 Violations.....................................................................................23
8.24 Plans and Specifications.......................................................................23
8.25 Project Budget.................................................................................23
8.26 Feasibility....................................................................................23
8.27 Status of NEON.................................................................................23
8.28 Effect of Draw Request.........................................................................24
9. AFFIRMATIVE COVENANTS OF THE BORROWER...................................................................24
9.1 Punctual Payment...............................................................................25
9.2 Pursuit and Completion of Construction.........................................................25
9.3 Correction of Defects..........................................................................25
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9.4 Maintenance of Office..........................................................................25
9.5 Records and Accounts...........................................................................25
9.6 Financial Statements, Certificates and Information.............................................26
9.7 Notices........................................................................................27
9.8 Existence; Maintenance of Project..............................................................28
9.9 Insurance; Bonds...............................................................................28
9.10 Taxes..........................................................................................31
9.11 Inspection of NEON, Other Properties and Books.................................................31
9.12 Compliance with Laws, Contracts, Licenses, and Permits.........................................32
9.13 Project Approvals..............................................................................32
9.14 Use of Proceeds................................................................................32
9.15 Project Costs..................................................................................32
9.16 [Intentionally Deleted]........................................................................33
9.17 NEON Contracts.................................................................................33
9.18 Laborers, Subcontractors and Materialmen.......................................................33
9.19 Further Assurance of Title.....................................................................33
9.20 Publicity......................................................................................33
9.21 Sign Regarding Construction Financing..........................................................34
9.22 Further Assurances.............................................................................34
10. NEGATIVE COVENANTS OF THE BORROWER......................................................................34
10.1 Restriction on Change Orders...................................................................34
10.2 Restrictions on Easements, Covenants and Restrictions..........................................35
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<PAGE>
10.3 No Amendments, Terminations or Waivers.........................................................35
10.4 Sale and Leaseback.............................................................................35
10.5 Compliance with Environmental Laws.............................................................36
10.6 Financial Covenants............................................................................36
10.7 Limitation on Indebtedness.....................................................................36
10.8 Limitation on Liens............................................................................36
10.9 Limitation on Liabilities and Contingent Obligations...........................................36
10.10 Limitations on Fundamental Changes.............................................................37
10.11 Limitation on Sale of Assets...................................................................37
10.12 Limitation on Leasing..........................................................................37
10.13 Limitation on Dividends and Distributions......................................................37
10.14 Limitation on Investments, Loans and Advances..................................................38
10.15 Limitation on Optional Payments and Modification of Debt
Instruments....................................................................................38
10.16 Transactions with Affiliates...................................................................38
10.17 Payments on Inter-Company Indebtedness.........................................................38
11. CONDITIONS TO INITIAL DISBURSEMENT......................................................................38
11.1 Loan Documents.................................................................................38
11.2 Construction Documents.........................................................................39
11.3 Subcontracts...................................................................................39
11.4 Other Contracts................................................................................39
11.5 Certain Undertakings of the NU Entities........................................................39
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<PAGE>
11.6 Certified Copies of Organizational Documents: Good Standing
Certificates...................................................................................39
11.7 Resolutions....................................................................................39
11.8 Authorized Signers.............................................................................40
11.9 Validity of Liens..............................................................................40
11.10 Deliveries.....................................................................................40
11.11 Legal Opinions.................................................................................41
11.12 Lien Search....................................................................................41
11.13 Notices........................................................................................41
11.14 Fees...........................................................................................41
11.15 Representation and Warranties..................................................................41
11.16 Proceedings and Documents......................................................................41
12. CONDITIONS OF THE SECOND DISBURSEMENT AND
SUBSEQUENT ADVANCES.....................................................................................42
12.1 Conditions Satisfied...........................................................................42
12.2 Performance; No Default........................................................................42
12.3 Representations and Warranties.................................................................42
12.4 No Damage......................................................................................42
12.5 Receipt by Lender..............................................................................42
12.6 Release of Retainage...........................................................................42
12.7 ...............................................................................................44
12.8 Construction Inspector Report..................................................................44
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<PAGE>
12.9 Commission Approvals and Recorded Copy of the Easement.........................................44
12.10 Nondisturbance Agreements......................................................................44
12.11 Amendment of Fiber and Duct Agreements: Certain
Undertaking of the NU Entities.................................................................44
12.12 Sales and Marketing Plan and Construction Management Plan......................................44
12.13 Financial Condition of Borrower and NECOM: Feasibility
of NEON........................................................................................45
13. EVENTS OF DEFAULT AND REMEDIES .........................................................................45
13.1 Events of Default..............................................................................45
13.2 Termination of Commitment and Acceleration.....................................................48
13.3 Completion of Project..........................................................................48
13.4 Other Remedies.................................................................................50
13.5 Distribution of Collateral Proceeds............................................................50
13.6 Power of Attorney..............................................................................51
13.7 Waivers........................................................................................51
14. SETOFF..................................................................................................51
15. EXPENSES................................................................................................52
16. INDEMNIFICATION.........................................................................................52
17. LIABILITY OF THE LENDER.................................................................................53
18. RIGHTS OF THIRD PARTIES.................................................................................54
19. SURVIVAL OF COVENANTS, ETC..............................................................................54
20. PARTICIPATION; ETC......................................................................................54
20.1 Participations.................................................................................54
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20.2 Pledge by the Lender...........................................................................55
20.3 No Assignment by the Borrower..................................................................55
21. RELATIONSHIP............................................................................................55
22. NOTICES.................................................................................................55
23. GOVERNING LAW...........................................................................................56
24. CONSENT TO JURISDICTION; WAIVERS........................................................................56
25. HEADINGS................................................................................................57
26. COUNTERPARTS............................................................................................57
27. ENTIRE AGREEMENT........................................................................................57
28. CONSENTS, AMENDMENTS, WAIVERS, ETC......................................................................57
29. TIME IS OF THE ESSENCE..................................................................................58
30. SEVERABILITY............................................................................................58
31. COMPLETION GUARANTEE....................................................................................58
31.1 ...............................................................................................58
31.2 ...............................................................................................58
31.3 ...............................................................................................59
31.4 ...............................................................................................59
32. ISSUANCE AND EXPIRATION OF WARRANT AND RELATED
ANTI- DILUTION SHARES...................................................................................59
</TABLE>
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<PAGE>
CONSTRUCTION LOAN AGREEMENT
---------------------------
THIS CONSTRUCTION LOAN AGREEMENT is made as of the 7th day of October,
1997 by and between FIVECOM LLC, a Massachusetts limited liability company
having its principal place of business at Waltham, Massachusetts (the
"Borrower") and CENTRAL MAINE POWER COMPANY, a Maine investor-owned utility and
Maine corporation with a principal place of business in Augusta, Maine (the
"Lender").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lender and Borrower agree as follows.
1. DEFINITIONS AND RULES OF INTERPRETATION
---------------------------------------
1.1 Definitions. The following terms shall have the meanings set forth
in this Section 1 or elsewhere in the provisions of this Agreement or other Loan
Documents referred to below:
"Advance" - Any disbursement of the proceeds of the Loan or
other funds held by Lender made or to be made by the Lender pursuant to
the terms of this Agreement.
"Agreement" - This Agreement, including the Schedules and
Exhibits hereto.
"Appraisal" - An appraisal of the value of NEON, determined on
an orderly liquidation basis, performed by a qualified independent
appraiser approved by the Lender.
"Borrower" - FiveCom LLC, a Massachusetts limited liability
company.
"Borrower's Requisition" - As defined in Section 3.1 of this
Agreement.
"Business Day" - Any day on which commercial banks in
Portland, Maine are open for the transaction of banking business.
"Closing Date" - The first date on which the conditions set
forth in Section 11 have been satisfied and the Initial Disbursement is
to be made.
"Collateral" - All of (a) NEON, the personal property, rights
and interests of the Borrower and Guarantors that are or are intended
to be subject to the security interests, assignments, and mortgage
liens created by the Security Documents, including, without limitation,
the Fiber and Duct Agreements, as they shall be amended as provided in
Section 12.11 and, when granted, the Easements; (b) the Guaranty and
the security therefor, and (c) all
<PAGE>
construction and building materials, fiber optic cable, conduits,
ducts, connectors, splices, electronic and optronic equipment,
repeaters, junctions, patch panels, alarm monitoring equipment,
revenues, accounts, accounts receivable, furnishings, fixtures,
furniture, machinery, equipment, general intangibles, contract rights
and all items of tangible or intangible personal property now or
hereafter owned or acquired by the Borrower or NECOM, wherever located,
including, without limitation, all property, collateral, and rights as
to which Borrower and NECOM have granted Lender a security interest as
described and provided in the Security Documents and (i) to be located
on or incorporated into NEON, (ii) used in connection with the
construction of the unfinished portions of NEON or (iii) to be used in
connection with the operation or maintenance of NEON or Borrowers and
NECOM's business generally.
"Completion Date" - The date as of which the Lender makes the
final Advance of Retainage pursuant to Section 12.6 hereof, which shall
be no later than twenty-four (24) months after the Closing Date.
"Construction Contract" - The contract, dated August 14, 1996,
together with all "Contract Documents" as defined in the Construction
Contract, between NECOM and the Contractor, and all Change Orders
through the date of this Agreement, providing for the construction of
the unfinished portion of NEON.
"Construction Inspector" - The consulting engineers or
inspectors appointed by the Lender from time to time.
"Construction Period" - The period of time commencing on the
Closing Date and ending on the Completion Date.
"Construction Schedule" - The schedule, broken down by trade,
job and subcontractor, of the estimated dates of commencement and
completion of construction of the unfinished portion of NEON, prepared
by the Contractor, approved by the Lender and attached hereto as
Exhibit A.
"Contingency Reserve" - The amount(s) allocated as contingency
reserve(s) in the Project Budget to be advanced only in accordance with
provisions of Section 2.6 hereof.
"Contractor" - means Seaward Corporation, its successors and
assigns.
"Conversion Date" shall mean the first day of the first month
after the Completion Date.
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"Debt Service Charges" - For any fiscal quarter of the
Borrower and NECOM, the sum of (i) the expenses of each of the Borrower
and NECOM for such period for interest payable with respect to the
Obligations (including the current portion thereof) and for fees
payable hereunder, under the other Loan Documents or in connection with
the Obligations, plus (ii) current maturities of the Obligations for
such period, in each case determined in accordance with generally
accepted accounting principles, plus (iii) the amount of all principal
and interest, and any other fees, payable in connection with the debt
set forth on Schedule 10.6 attached hereto.
"Default" - A condition or event which would, with the giving
of notice or lapse of time or both, constitute an Event of Default.
"Default Rate" - The default rate of interest set forth in the
Note.
"Direct Costs" - The costs of the labor, materials, fixtures,
machinery and equipment used in constructing and equipping the
unfinished portions of NEON, as contemplated under the Fiber and Duct
Agreements, and taking such other steps as are necessary to make NEON
suitable for full commercial operation.
"Disbursement Schedule" - The schedule of the amounts of
Advances anticipated to be requisitioned by the Borrower or NECOM each
month during the term of construction of the unfinished portions of
NEON (including an itemization of Direct Costs and Indirect Costs to be
included in each such requisition), approved by the Lender and attached
hereto as Exhibit B.
"Drawdown Date" - The date on which any Advance is made or is
to be made.
"Draw Request" - With respect to each Advance, the Borrower's
or NECOM's Requisition for such Advance, and documents required by this
Agreement to be furnished to the Lender as a condition to such Advance.
"Easement" - means those certain easements to be granted to
NECOM by the NU Entities on or before the date of the Second
Disbursement, in form and substance satisfactory to Lender, granting
NECOM and its successors, assigns, affiliates, agents and contractors
access to the NU Entities' electric transmission and distribution
system for the purpose of building, maintaining, owning, repairing and
operating of NEON, to be recorded in all appropriate public offices in
the jurisdictions where NEON is located.
"Environmental Laws" - As defined in Section 8.16(a) of this
Agreement.
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"Event of Default" - As defined in Section 13.1 of this
Agreement.
"Fiber and Duct Agreements" - means collectively the Agreement
for the Provision of Fiber Optic Facilities and Services dated
September 27, 1994 between FiveCom, Inc. and the NU Entities, as
previously amended, and all those certain Agreements for the Provision
of Fiber Optic Facilities and Services dated April 10, 1995, May 8,
1995 and August 15, 1995 among FiveCom Inc. and the NU Entities, as
previously amended, all as amended by one or more amendments thereto to
be executed on or before the date of the Second Disbursement, memoranda
of which are to be recorded in all appropriate public offices in the
jurisdictions where NEON is located.
"Governmental Authority" - The United States of America, the
States of Connecticut, Maine and New Hampshire, the Commonwealth of
Massachusetts, any political subdivision of any of them, and any
agency, authority, department, commission, board, bureau, or
instrumentality of any of them.
"Guarantors" - means FiveCom, Inc., NECOM LLC and Mode I
Communications, Inc., a Connecticut corporation.
"Guaranty" - Collectively, each Guaranty, dated or to be dated
on or prior to the Closing Date, made by each Guarantor in favor of the
Lender, pursuant to which each Guarantor guarantees to the Lender the
payment and performance of the Note in such amounts as are listed above
for each individual, such Guaranty to be in form and substance
satisfactory to the Lender.
"Hazardous Materials" - As defined in Section 8.16(b) of this
Agreement.
"Indebtedness" - All obligations, contingent and otherwise,
that in accordance with generally accepted accounting principles should
be classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto, including in any
event and whether or not so classified: (a) all debt and similar
monetary obligations, whether direct or indirect; (b) all liabilities
secured by any mortgage, pledge, security interest, lien, charge, or
other encumbrance existing on Property owned or acquired subject
thereto, whether or not the liability secured thereby shall have been
assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of
others, including any obligation to supply funds to or in any manner to
invest in, directly or indirectly, the debtor, to purchase
indebtedness, or to assure the owner of indebtedness against loss,
through an agreement to purchase goods, supplies, or services for the
purpose of enabling the debtor to make payment
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of the indebtedness held by such owner or otherwise, and the
obligations to reimburse the issuer in respect of any letters of
credit.
"Indirect Costs" - shall mean and include, engineering fees,
architectural fees, property taxes, appraisal costs, commitment fees
and interest payable to the Lender under the Loan, premiums for
insurance, marketing, advertising and leasing costs, brokerage
commissions, legal fees, accounting fees, overhead and administrative
costs, and all other expenses which are expenditures relating to the
construction of NEON and are not Direct Costs.
"Initial Disbursement" - That portion of the total Loan Amount
which is to be disbursed by Lender to Borrower on or about the Closing
Date, in an amount not to exceed $2,100,000, with $150,000 held by
Lender for payment of future fees and costs associated with obtaining
the regulatory approvals referred to in Section 12.9 below.
"Lender" - Central Maine Power Company, a Maine corporation.
"Loan" - The construction loan which is the subject of this
Agreement.
"Loan Amount" - $30,000,000, or such lesser sum as determined
pursuant to Section 2.1 of this Agreement. The Loan Amount includes the
Withheld Portion.
"Loan Checking Account" - As defined in Section 3.3 of this
Agreement.
"Loan Documents" - This Agreement, the Note and the Security
Documents and all other agreements, documents and instruments now or
hereafter evidencing, securing or otherwise relating to the Loan.
"Material Adverse Effect" - as defined in Section 8.4.
"Maturity Date" - the date which is three years after the
Conversion Date.
"NECOM" - NECOM LLC, a Massachusetts limited liability
company.
"NEON" - means the fiber optic cable network which NECOM is
building with the proceeds of the Loan, running through Connecticut,
Massachusetts and New Hampshire, together with all machinery and
equipment needed to operate the same and all fiber optic cable, all in
accordance with the Plans and Specifications, together with the rights
of Borrower and NECOM under the Easement and under the Fiber and Duct
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Agreements in land, buildings and structures on and in which NEON has
been or is to be installed and/or built.
"NEON Loan Amount" - means the Loan Amount less the Withheld
Portion.
"Note" - The Promissory Note in the principal amount of up to
$30,000,000, or so much thereof as may be advanced from time to time,
dated or to be dated on or prior to the Closing Date, made by the
Borrower to the order of Lender, such Note to be in form and substance
satisfactory to the Lender.
"NU Entities" - means Northeast Utilities Service Company, The
Connecticut Light and Power Company, Western Massachusetts Electric
Company and Public Service Company of New Hampshire, their successors
and/or assigns.
"Obligations" - All indebtedness, obligations and liabilities
of the Borrower to the Lender existing on the date of this Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured
or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Agreement or any of the other Loan
Documents or in respect of any of the Advances or the Note or other
instruments at any time evidencing any thereof.
"Outstanding" - With respect to the Advances or the Loan, the
aggregate unpaid principal thereof as of any date of determination.
"Permitted Liens" - means the following:
a. liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings, provided that adequate
reserves acceptable to the Lender with respect thereto are
maintained on the books of Borrower in conformity with
generally accepted accounting principles;
b. carriers', warehousemen's, mechanics', materialmen's,
repairmen's, or other like liens arising in the ordinary
course of business and not overdue for a period of more than
60 days or which are being contested in good faith by
appropriate proceedings;
c. pledges or deposits in connection with workers,
compensation, unemployment insurance and other social security
legislation and
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deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
d. deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary
course of business;
e. easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and
which do not in any case materially detract from the value of
the property subject thereto or materially interfere with the
ordinary conduct of the business of the Borrower; and
f. Liens outstanding on the closing date which are listed on
Schedule 8.2 hereto.
"Person" - Any individual, limited liability company,
corporation, partnership, trust, unincorporated association, business
or other legal entity and any government or any governmental agency or
political subdivision thereof.
"Plans and Specifications" - The plans and specifications for
the unfinished portions of NEON as more particularly identified on
Exhibit C attached hereto.
"Project" - NEON and the rights of Borrower and NECOM under
the Easement and under the Fiber and Duct Agreements in land, buildings
and structures on and in which NEON has been or is to be installed
and/or built.
"Project Approvals" - All approvals, consents, waivers,
orders, agreements, acknowledgments, authorizations, permits and
licenses required under applicable Requirements or under the terms of
any restriction, covenant or easement affecting NEON, or otherwise
necessary or desirable, for the ownership and acquisition of NEON, the
construction and equipping of the unfinished portions of NEON, and the
use, occupancy and operation of NEON, following completion of
construction of NEON, whether obtained from a Governmental Authority or
any other Person.
"Project Budget" - The budget for total estimated Project
Costs for that portion of NEON built pursuant to and as contemplated by
the Fiber and Duct Agreements, previously submitted by the Borrower and
NECOM and approved by the Lender and, at the Lender's option, the
Construction
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Inspector, which includes: (a) a line item cost breakdown for Direct
Costs by construction, engineering and materials; (b) a line item cost
breakdown for Indirect Costs; and (c) a schedule of the sources of
funds to pay Project Costs, indicating by item the portion of Project
Costs to be funded through the Loan.
"Project Costs" - The sum of all Direct Costs and Indirect
Costs that will be incurred by the Borrower or NECOM in connection with
the construction, equipping and completion of the unfinished portions
of NEON contemplated by the Fiber and Duct Agreements.
"Requirements" - Any law, ordinance, code, order, rule or
regulation of any Governmental Authority, relating in any material way
to the acquisition and ownership of NEON, the construction of the
unfinished portions of NEON, or the use and operation of NEON following
the completion of construction of NEON, including those relating to
subdivision control, zoning, building, use and occupancy, fire
prevention, health, safety, sanitation, handicapped access, historic
preservation and protection, tidelands, wetlands, flood control, access
and earth removal, and all Environmental Laws.
"Release" - As defined in Section 8.16(c) of this Agreement
"Retainage" - As defined in Section 2.3 of this Agreement.
"Second Disbursement" - The Advance next following the Initial
Disbursement.
"Security Deed" - The Mortgage and Security Agreement, dated
or to be dated on or prior to the date of the Second Disbursement,
executed and delivered by NECOM in favor of the Lender, pursuant to
which NECOM grants a first mortgage lien and security interest in and
to the Easement and NEON, such Security Deed to be in form and
substance satisfactory to the Lender.
"Security Documents" - The Security Deed, the Security
Agreements, the Collateral Assignment of Contracts, Licenses, Permits
and Intangibles, the UCC Financing Statements, the Guaranty, the Pledge
Agreements and any other agreement, document or instrument now or
hereafter securing the Obligations.
"Stored Materials" - As defined in Section 2.7 of this
Agreement.
"Taking" - Any condemnation for public use of, or damage by
reason of, the action of any Governmental Authority, or any transfer by
private sale in lieu thereof, either temporarily or permanently.
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"Withheld Portion" - means up to $5,000,000 in proceeds of the
Loan, which amount shall be withheld and not disbursed, as provided in
Section 2.8 below.
1.2 Rules of Interpretation
(a) A reference to any agreement, budget, document or schedule
shall include such agreement, budget, document or schedule as revised,
amended, modified or supplemented from time to time in accordance with
its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they
refer.
2. DISBURSEMENTS
2.1 Agreement to Make Advances. Subject to the terms and conditions of
this Agreement, the Lender agrees to lend to the Borrower and the Borrower may
borrow from time to time between the Closing Date and the Completion Date upon
submission by the Borrower of Draw Requests in accordance with Section 3.1, such
amounts as are requested by the Borrower up to a maximum aggregate principal
amount equal to the NEON Loan Amount to pay for Project Costs actually incurred
by the Borrower or NECOM and reflected in the Project Budget as being funded by
the Loan or other funds held by Lender. Each Draw Request for an Advance
hereunder shall constitute a representation and warranty by the Borrower that
the conditions set forth in Section 11, in the case of the Initial Disbursement,
Section 12, in the case of all other Advances, and Section 12.6, in the case of
the Advance of any Retainage withheld pursuant to Section 2.3, have been
satisfied on the date of such Draw Request. All Advances shall be fully secured
by the Security Documents, and shall constitute (for purposes of the Uniform
Commercial Code and other applicable law of each applicable jurisdiction)
"future advances" from Lender to Borrower up to the total NEON Loan Amount. All
Advances may be made to Borrower or to any successor or assign of Borrower, to
the extent permitted hereunder, in respect to the ownership of NEON. Borrower
acknowledges that Lender will have no duty to make
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Advances other than the Initial Disbursement unless and until all of the
conditions set forth in Section 12 have been satisfied in full. Lender's
obligation to make the Initial Disbursement is subject to the satisfaction of
all of the conditions contained in Section 11.
2.2 Project Budget. The Project Budget reflects, by category and line
items, the purposes and the amounts for which funds to be advanced by the Lender
under this Agreement for completing the unfinished portions of NEON are to be
used. Borrower shall supply Lender with updated cost breakdowns and overall
Project Budget amounts with each Draw Request.
2.3 Amount of Advances. In no event shall the Lender be obligated to
advance more than the NEON Loan Amount or other funds held for disbursement by
Lender hereunder, or, if less, total Project Costs actually incurred by the
Borrower or NECOM. In no event shall any Advance for Direct Costs of
constructing the unfinished portions of NEON contemplated by the Fiber and Duct
Agreements exceed an amount equal to (a) the total value of the labor,
materials, fixtures, machinery and equipment completed, or to be completed,
approved and incorporated, or to be incorporated, into NEON prior to the date of
the Draw Request for such Advance, less (b) if the Advance includes sums to be
paid under the Construction Contract, retainage in an amount equal to ten
percent (10%) of the amount of the Advance which represents sums owed under the
Construction Contract ("Retainage"), less (c) the total amount of any Advances
previously made by the Lender for such Direct Costs. Retainage shall be advanced
by the Lender to the Borrower upon satisfaction of the conditions set forth in
Section 12.6. With respect to any other Direct Costs and all Indirect Costs, in
no event shall any Advance exceed an amount equal to the amount of such Direct
Costs and Indirect Costs approved by the Lender, incurred by the Borrower or
NECOM prior to the date of the Draw Request for such Advance, and theretofore
paid or to be paid with the proceeds of such Advance, less the total amount of
any Advances previously made by the Lender for such Direct Costs and Indirect
Costs.
2.4 Quality of Work. No Advance shall be due unless all work done at
the date the Draw Request for such Advance is submitted is done in a good and
workmanlike manner and without defects, as confirmed by the report of the
Construction Inspector.
2.5 Cost Overruns and Savings. If the Borrower becomes aware of any
change in Project Costs which will increase or decrease a category or line item
of Project Costs reflected on the Project Budget (as the Project Budget is
revised from time to time and approved by the Lender), the Borrower shall
immediately notify the Lender in writing and promptly submit to the Lender for
its approval a revised Project Budget. If the revised Project Budget indicates
an increase in a category or line item of Project Costs, no further Advances
need be made by the Lender unless
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and until the revised Project Budget so submitted by the Borrower is approved by
the Lender. If the revised Project Budget indicates a decrease in a category or
line item of Project Costs, no reductions in Project Costs will be made or
savings reallocated by the Borrower or NECOM unless and until (a) the revised
Project Budget so submitted by the Borrower is approved by the Lender, and (b)
in the case of decreases in a category or line item of Direct Costs, the
Borrower has furnished the Lender and the Construction Inspector with evidence
satisfactory to them that the labor performed and materials supplied in
connection with such category or line item of Direct Costs have been
satisfactorily completed in accordance with the Plans and Specifications and
paid for in full.
2.6 Contingency Reserve. The amount allocated as Contingency Reserve in
the Project Budget is not intended to be disbursed and will only be disbursed
for non-budgeted expenditures upon the prior approval of the Lender. The
disbursement of a portion of Contingency Reserve shall in no way prejudice the
Lender from withholding disbursement of any further portion of Contingency
Reserve.
2.7 Stored Materials. Any disbursement for the cost of any materials,
furnishings, fixtures, machinery or equipment not yet incorporated into the
Project ("Stored Materials") shall be contingent upon the Lender receiving
satisfactory evidence that:
(a) the Stored Materials are components in a form ready for
incorporation into NEON;
(b) the Stored Materials are stored at sites that are
protected against theft and damage;
(c) the Stored Materials have been paid for in full or will be
paid for with the funds to be disbursed and all lien rights or claims
of the supplier have been released or will be released upon payment
with disbursed funds;
(d) Lender has or will have upon payment with disbursed funds
a perfected, first priority security interest in the Stored Materials;
and
(e) the Stored Materials are insured for an amount equal to
their replacement cost.
2.8 Withheld Portion. The parties agree that the Withheld Portion of
the Loan is intended to be used to finance the extension of NEON into Boston,
Massachusetts, subject to the conditions set forth in this Section.
Notwithstanding anything to the contrary contained herein, the parties agree
that Lender shall withhold the Withheld Portion of the Loan until (i) Lender
receives approval from its Board of Directors to disburse the Withheld Portion,
and (ii) Lender, Borrower and
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NECOM have entered into agreements satisfactory to Lender governing disbursement
of the Withheld Portion. If there occurs an Event of Default before all of the
Withheld Portion is disbursed, Lender shall, without waiving or foregoing any
other remedies, be entitled to apply the Withheld Portion towards completion of
that portion of NEON contemplated by the Fiber and Duct Agreements. The remedy
in this Section 2.8 is cumulative and not exclusive of Lender's other remedies
under this Agreement.
3. MAKING THE ADVANCES
3.1 Draw Request. At such time as the Borrower shall desire to obtain
an Advance of Loan proceeds (other than the Withheld Portion), the Borrower
shall complete, execute and deliver to Lender the Borrower's Requisition in the
form of Exhibit D attached hereto (hereinafter referred to as "Borrower's
Requisition"). Each Borrower's Requisition shall be accompanied by the items
listed on such form, and such other information, documentation and
certifications as the Lender shall reasonably request.
3.2 Notice and Frequency of Advances. Each Draw Request shall be
submitted to Lender at least ten (10) days prior to the date of the requested
Advance, and no more frequently than once each month.
3.3 Deposit of Funds Advanced. The Borrower shall open and maintain a
loan checking account with a financial institution covered by FDIC deposit
insurance and otherwise satisfactory to Lender (the "Loan Checking Account").
Except as otherwise provided for in Sections 3.4 and 3.5 hereof; the Lender
shall deposit the proceeds of each Advance into the Loan Checking Account.
3.4 Advances to Contractor. Provided that there has been a Borrower's
Requisition and no Event of Default, at its option, the Lender may make any or
all Advances for Direct Costs incurred under the Construction Contract directly
to Contractor for deposit in an appropriately designated special bank account,
and the execution of this Agreement by the Borrower shall, and hereby does,
constitute an irrevocable authorization so to advance the proceeds of the Loan.
No further authorization from the Borrower shall be necessary to warrant such
direct advances to the Contractor and all such advances shall satisfy pro tanto
the obligations of the Lender hereunder and shall be secured by the Security
Deed and the other Security Documents as fully as if made directly to the
Borrower. Lender shall provide Borrower with written notice of any direct
payments made under this Section.
3.5 Advances to Others. Provided that there has been a Borrower's
Requisition and no Event of Default, at its option, the Lender may make Advances
of portions of the proceeds of the Loan to any Person (except affiliates of the
Lender) to whom the Lender in good faith determines payment is due and with whom
the
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Borrower is not in a dispute with respect to such payment, and any portion of
the Loan so disbursed by the Lender shall be deemed disbursed as of the date on
which the Lender makes such disbursement. The execution of this Agreement by the
Borrower shall, and hereby does, constitute an irrevocable authorization so to
advance the proceeds of the Loan. No further authorization from the Borrower
shall be necessary to warrant such direct advances and all such advances shall
satisfy pro tanto the obligations of the Lender hereunder and shall be secured
by the Security Deed and the other Security Documents as fully as if made
directly to the Borrower. Lender shall provide Borrower with written notice of
any direct payments made under this Section.
3.6 Advances Do Not Constitute a Waiver. No Advance made by the Lender
shall constitute a waiver of any of the conditions to the Lender's obligation to
make further Advances nor, in the event the Borrower fails to satisfy any such
condition, shall any such Advance have the effect of precluding the Lender from
thereafter declaring such failure to satisfy a condition to be an Event of
Default.
4. THE NOTE: INTEREST AND MATURITY
4.1 The Note. The obligation of the Borrower to pay the Loan plus
accrued interest on the principal amount thereof, shall be evidenced by the
Note. In the event the Note is lost, destroyed or mutilated at any time prior to
payment in full of the indebtedness evidenced thereby, the Borrower shall
execute a new note substantially in the form of the Note upon receipt of an
affidavit of loss reasonably acceptable to the Borrower. The Note shall not be
necessary to establish the indebtedness of the Borrower to the Lender on account
of Advances made under this Agreement.
4.2 The Record. The Borrower irrevocably authorizes the Lender to make
or cause to be made, at or about the time of the Drawdown Date of any Advance or
at the time of receipt of any payment of the principal of the Note, an
appropriate notation on the Lender's books and records reflecting the making of
such Advance or (as the case may be) the receipt of such payment. The
outstanding amount of the Loan set forth on the Lender's books and records shall
be prima facie evidence of the principal amount thereof owing and unpaid to the
Lender, but the failure to record, or any error in so recording, any such amount
on the Lender's books and records shall not limit or otherwise affect the
obligations of the Borrower hereunder or under the Note to make payments of
principal of or interest on the Note when due.
4.3 Interest on the Loan. The Loan shall bear interest until paid in
full at the rate or rates set forth in the Note. Borrower promises to pay
interest on the Loan in the manner and at the time set forth in the Note.
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4.4 Maturity. Subject to the following sentence, the Borrower promises
to pay to the Lender on the Maturity Date, and there shall become absolutely due
and payable on the Maturity Date, all amounts of the Loan outstanding on such
date, together with any and all accrued and unpaid interest thereon and fees and
costs due thereunder. Notwithstanding anything to the contrary contained in the
preceding sentence, in the event the Maine Public Utilities Commission ("MPUC")
reduces the ceiling of capitalization imposed in its orders in Docket Nos.
95-092 and 97-410 to a level below $50,000,000, the Lender shall have the option
of demanding payment on April 1, 1999 of any amounts of the Loan outstanding on
April 1, 1999 that are necessary to cause Lender to be in compliance with the
MPUC's requirements concerning Lender's capitalization. Lender shall have the
option of demanding payment in full on April 1, 1999 if required by the MPUC.
Lender shall use its best efforts to maintain the $50,000,000 ceiling through
October 1, 2002.
5. FEES: PAYMENTS AND COMPUTATIONS
5.1 Fees. Borrower has agreed to pay Lender a $150,000 commitment fee,
which shall be paid in full on or before the Closing Date.
5.2 Funds for Payments.
(a) All payments of principal, interest, fees and any other
amounts due under the Note or under any of the other Loan Documents
shall be made to Lender at 83 Edison Drive, Augusta, Maine, 04336 or at
such other location that the Lender may from time to time designate, in
each case not later than 3:00 p.m. (Portland, Maine time) on the day
when due in immediately available funds in lawful money of the United
States.
(b) All payments by the Borrower under the Note and under any
of the other Loan Documents shall be made without setoff or
counterclaim and free and clear of and without deduction for any taxes
(other than those calculated based on the net income of Lender),
levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless the
Borrower is compelled by law to make such deduction or withholding.
Lender represents that, as of the date of this Agreement, there are no
such deductions. In the event the need for such deductions arises after
the date of this Agreement, Lender will so inform the Borrower and
Guarantors in writing, whereupon the Borrower and Guarantors shall have
the option of prepaying the Loan in full, without penalty. If any such
obligation to deduct or withhold is imposed upon the Borrower with
respect to any amount payable by it under the Note or under any of the
other Loan Documents, the Borrower will pay to
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the Lender, on the date on which such amount is due and payable under
the Note or under such other Loan Document, such additional amount as
shall be necessary to enable the Lender to receive the same amount
which the Lender would have received on such due date had no such
obligation been imposed upon the Borrower. The Borrower will deliver
promptly to the Lender certificates or other valid vouchers for all
taxes or other charges deducted from or paid with respect to payments
made by the Borrower under the Note or under such other Loan Document.
5.3 Computations. All computations of interest on the Loan shall be
based on a 360-day year and paid for the actual number of days elapsed. Except
as otherwise provided in the Note, whenever a payment thereunder or under any of
the other Loan Documents becomes due on a day that is not a Business Day, the
due date for such payment shall be extended to the next succeeding Business Day,
and interest shall accrue during such extension. The outstanding amount of the
Loan as reflected on the Lender's books and records from time to time shall be
considered correct and binding on the Borrower unless within ten (10) Business
Days after receipt of any notice by the Borrower of such outstanding amount, the
Borrower shall notify the Lender in writing to the contrary.
5.4 Interest on Overdue Amounts. Overdue principal and (to the extent
permitted by applicable law) interest on the Loan and all other overdue amounts
payable under the Note or under any of the other Loan Documents shall bear
interest payable on demand at the Default Rate until such amount shall be paid
in full (whether before or after judgment).
6. COLLATERAL SECURITY
The Obligations shall be secured by a perfected mortgage lien on and
security interest in the Collateral, whether now owned or hereafter acquired,
pursuant to the terms of those Security Documents to which the Borrower, NECOM
or any Guarantor is a party. The payments under the Notes shall also be
guaranteed pursuant to the terms of the Guaranties.
7. CERTAIN RIGHTS OF LENDER
7.1 Right to Retain the Construction Inspector. The Lender shall have
the right to retain, at the Borrower's cost and expense, the Construction
Inspector to perform the following services on behalf of the Lender:
(a) to review and advise the Lender whether in the opinion of
the Construction Inspector, the Project Budget accurately reflects all
Project Costs;
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(b) to review and advise the Lender whether, in the opinion of
the Construction Inspector, the Plans and Specifications are
satisfactory for the intended purposes thereof;
(c) to make periodic inspections for the purpose of assuring
that construction of NEON to date is in accordance with the Plans and
Specifications and to approve the Borrower's then current Draw Request
as being consistent with the Project Budget and the Borrower's
obligations under this Agreement, and to advise the Lender of the
anticipated cost of and time for completion of construction of NEON and
the adequacy of any Contingency Reserve;
(d) to review and advise the Lender on any proposed change
orders or construction change directives; and
(e) to review the Construction Contract and subcontracts, for
the purpose of providing the Lender with an opinion as to the cost of
construction to be incurred to complete NEON, and also for the purpose
of assuring that all such subcontracts are for work required by the
Plans and Specifications to be performed.
The reasonable fees of the Construction Inspector shall be paid by the Borrower.
Neither the Lender nor the Construction Inspector shall have any liability to
the Borrower on account of (i) the services performed by the Construction
Inspector, (ii) any neglect or failure on the part of the Construction Inspector
to perform its services properly, or (iii) any approval by the Construction
Inspector of construction of NEON. Neither the Lender nor the Construction
Inspector assumes any obligation to the Borrower or any other Person concerning
the quality of construction of NEON or the absence therefrom of defects.
8. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
8.1 Organization; Authority; Etc.
(a) Organization: Good Standing. Each of the Borrower and
NECOM (i) is a Massachusetts limited liability company and is validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts, and (ii) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes
such qualification necessary and where failure so to qualify would have
a material adverse effect on its business, financial
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condition or operations. NECOM has all requisite power under its
organizational documents to own NEON. Each of the Borrower and NECOM
has all requisite power under their respective organizational documents
to conduct its business as now conducted and as presently contemplated.
(b) Authorization. The execution, delivery, and performance of
this Agreement and the other Loan Documents to which the Borrower and
NECOM are to become a party and the transactions contemplated hereby
and thereby (i) are within the authority of the Borrower and NECOM,
(ii) have been duly authorized by all necessary proceedings on the part
of the Borrower and NECOM, (iii) do not conflict with or result in any
breach or contravention of any provision of law, statute, rule or
regulation to which the Borrower or NECOM is subject or any, judgment,
order, writ, injunction, license or permit applicable to the Borrower
or NECOM specifically naming Borrower or NECOM, (iv) do not conflict
with any provision of the Borrower's or NECOM's certificate of
organization, operating agreement, or any material agreement or other
instrument binding upon, the Borrower or NECOM and do not require
approval or consent of, or filing with, any governmental agency or
authority other than those already obtained and the filing of the
Security Deed and any other Security Documents in the appropriate
public records with respect thereto.
(c) Enforceability. The execution and delivery of this
Agreement and the other Loan Documents to which the Borrower or NECOM
is or is to become a party will result in valid and legally binding
obligations of each such Person enforceable against it in accordance
with the respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights, and except to the extent that
availability of the remedy of specific performance or injunctive relief
is subject to the discretion of the court before which any proceeding
therefor may be brought.
8.2 Title to NEON and the Collateral.
(a) Except for Permitted Liens listed on Schedule 8.2, each of
the Borrower and NECOM hold good clear record and marketable title to
such rights in NEON held in its name, and each owns the Collateral held
in their respective names, subject to no rights of others, including
any mortgages, leases, conditional sale agreements, title retention
agreements, liens or other encumbrances, except the lien and security
interests granted to Lender under the Security Documents.
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(b) The Borrower or NECOM, as applicable, owns all of the
assets reflected in its balance sheet delivered to Lender (except
assets sold or otherwise disposed of in the ordinary course of business
since that date), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except Permitted Liens listed
on Schedule 8.2.
8.3 Financial Statements. There has been furnished to the Lender a
balance sheet of each of the Borrower and NECOM. Each such balance sheet fairly
presents in all material respects the financial condition of the applicable
entity as at the close of business on the date thereof. As of the date of this
Agreement, there are no liabilities or contingent liabilities of the Borrower or
NECOM known to Borrower which are not disclosed in said balance sheet and the
related notes thereto other than the Obligations, and except as disclosed on
Schedule 8.3.
8.4 No Material Changes, Etc. Since the effective date of such balance
sheet, there has occurred no material adverse change in the properties, assets,
financial condition or business of the Borrower or NECOM, in the judgment of the
Lender, as shown on or reflected in such balance sheets, or the statement of
income for the fiscal year then ended, other than changes in the ordinary course
of business that have not had any adverse effect either individually or in the
aggregate on the business or financial condition of the Borrower or NECOM, as
applicable (each, a "Material Adverse Effect").
8.5 Franchises, Patents, Copyrights, Etc. Each of the Borrower and
NECOM possesses all franchises, patents, copyrights, trademarks, trade names,
licenses and permits, and rights in respect of the foregoing, adequate for the
conduct of its business substantially as now conducted 'without known conflict
with any rights of others.
8.6 Litigation. Except as disclosed on Schedule 8.6, there are no
actions, suits, proceedings or investigations of any kind pending or, to the
best knowledge of Borrower and NECOM, threatened against the Borrower or NECOM
before any court, tribunal or administrative agency or board that, if adversely
determined, might, either in any case or in the aggregate, have a Material
Adverse Effect on such Person or materially impair the right of such Person to
carry on business substantially as now conducted by it, or result in any
liability not adequately covered by insurance, or for which adequate reserves
are not maintained on the balance sheet of such Person, or which question the
validity of this Agreement or any of the other Loan Documents, any action taken
or to be taken pursuant hereto or thereto, or any lien or security interest
created or intended to be created pursuant hereto or thereto, or which will
materially adversely affect the ability of the Borrower or NECOM to construct
and to use NEON or to pay and perform the Obligations in the manner contemplated
by this Agreement and the other Loan Documents.
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8.7 No Materially Adverse Contracts, Etc. Neither the Borrower nor
NECOM is subject to any provision in its certificate of organization or
operating agreement or any statutory or other legal restriction, or any
judgment, decree, order, rule or regulation that has or is expected in the
future to have materially adverse effect on its business, assets or financial
condition. Neither the Borrower nor NECOM is a party to any contract or
agreement that has or is expected, in the judgment of the Borrower's officers,
to have any materially adverse effect on the business of the Borrower or NECOM.
8.8 Compliance With Other Instruments, Laws, Etc. Neither the Borrower
nor NECOM is in violation of any provision of any agreement or instrument to
which it may be subject or by which it or any of its properties may be bound or
any decree, order, judgment, statute, license, rule or regulation, in any of the
foregoing cases in a manner that could result in the imposition of penalties or
a Material Adverse Effect.
8.9 Tax Status. Each of the Borrower and NECOM (a) has made or filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (b) has paid all taxes and
other governmental assessments and charges shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and by appropriate proceedings, and (c) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and Borrower knows of no basis for any such claim.
8.10 No Event of Default. Nothing that would constitute an Event of
Default has occurred and is continuing.
8.11 Investment Company Act. Neither the Borrower nor NECOM is an
"investment company", or an "affiliated company" or a principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
8.12 Absence of Financing Statements, Etc. There is no financing
statement, security agreement, chattel mortgage, real estate mortgage or other
document filed or recorded with any filing records, registry, or other public
office, that purports to cover, affect or give notice of any present or possible
future lien on, or security interest in, (a) any Collateral owned by the
Borrower or NECOM or (b) any other assets or property of the Borrower or NECOM
or any rights relating thereto, except with respect to Permitted Liens and
Mortgages listed on Schedule 8.2.
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8.13 Setoff, Etc. The Collateral and the Lender's rights with respect
to the Collateral are not subject to any setoff, claims, withholdings or other
defenses. Except with respect to Permitted Liens listed on Schedule 8.2, the
Borrower and NECOM are the owners of the Collateral (other than the membership
interests of Mode 1 Communications, Inc. in Borrower and NECOM) free from any
lien, security interest, encumbrance and any other claim or demand.
8.14 Certain Transactions. Except as set forth on Schedule 8.14 hereto,
none of the members, managers or employees of the Borrower or NECOM is presently
a party to any transaction with the Borrower or NECOM (other than for services
as employees), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
shareholder or such employee or, to the knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any shareholder,
partner or any such employee has a substantial interest or is an officer,
director, trustee or partner.
8.15 Employee Benefit Plans; Pension Plans. Neither the Borrower nor
NECOM maintains or directly contributes to any employee benefit plan or pension
plan. The indirect involvement of Borrower or NECOM in any such plan is as
described on Schedule 8.15 hereto.
8.16 Environmental Compliance. The Borrower makes the following
representations and warranties, to the best of its knowledge:
(a) Neither Borrower nor NECOM is in violation, or alleged
violation, of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without
limitation, those arising under the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Solid
Waste Disposal Act, 42 U.S.C. ss.6901 et seq., the Federal Clean Water
Act, the Federal Clean Air Act, or any other state or local statute,
regulation, ordinance, order or decree relating to human health, safety
or the environment (hereinafter "Environmental Laws"), which violation
involves any property currently owned or leased by the Borrower or
NECOM or would result in a Material Adverse Effect.
(b) Neither Borrower nor NECOM has received notice from any
third party including, without limitation, any federal, state or local
governmental authority, (i) that it has been identified by the United
States Environmental Protection Agency ("EPA") as a potentially
responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B, as amended,
(ii) that any hazardous waste, as defined by 42
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U.S.C. ss.6903(5), any hazardous substances as defined by 42 U.S.C.
ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C.
ss.9601(33), or any toxic substances, oil or hazardous materials or
other chemicals or substances regulated by any Environmental Laws
("Hazardous Materials") which it has generated, transported or disposed
of have been found at any site at which a federal, state or local
agency, or other third party has conducted or has ordered that the
Borrower or NECOM conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it is
or shall be a named party to any claim, action, cause of action,
complaint, or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection
with the release of Hazardous Materials.
(c) Except as set forth on Schedule 8.16 attached hereto: (i)
no portion of any property currently owned or leased by the Borrower or
NECOM has been used by the Borrower or NECOM for the handling,
processing, storage or disposal of Hazardous Materials except in
accordance with applicable Environmental Laws; and no underground tank
or other underground storage receptacle for Hazardous Materials is
located on any portion of any property currently owned or leased by the
Borrower or NECOM; (ii) in the course of any activities conducted by
the Borrower or NECOM, no Hazardous Materials have been generated or
are being used except in accordance with applicable Environmental Laws;
(iii) there has been no past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping (a) "Release") or threatened Release of Hazardous
Materials by the Borrower or NECOM on, upon, into or from any property
currently owned or leased by the Borrower or NECOM, which Release would
have a material adverse effect on the value of any of such property or
any immediately adjacent properties; (iv) to the best of the Borrower's
knowledge, there have been no Releases on, upon, from or into any real
property in the vicinity of any part of any property currently owned or
leased by the Borrower or NECOM which, through soil or groundwater
contamination, may have come to be located on, and which would have a
material adverse effect on the value of, such property; and (v) any
Hazardous Materials that have been generated on any part of such
property by Borrower or NECOM have been transported off-site only by
carriers having an identification number issued by the EPA, treated or
disposed of only by treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the
Borrower's and NECOM's knowledge, operating in compliance with such
permits and applicable Environmental Laws.
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(d) No part of any property currently owned or leased by the
Borrower or NECOM is presently expected to be subject to any
environmental clean-up responsibility law or environmental restrictive
transfer law or regulation, by virtue of the transactions set forth
herein and contemplated hereby.
8.17 Condition of Property. No real or personal property owned or
leased by the Borrower or NECOM nor any part of any of any such property is now
damaged or injured as result of any fire, explosion, accident, flood or other
casualty or has been the subject of any Taking, and to the knowledge of the
Borrower, no Taking is pending or contemplated.
8.18 Compliance with Requirements. The Plans and Specifications and
construction of NEON pursuant thereto and the operation and maintenance of NEON
contemplated thereby comply in all material respects with all Requirements.
8.19 Project Approvals. Except as set forth on Schedule 8.19(a) hereto,
the Borrower and NECOM have obtained all Project Approvals. All Project
Approvals obtained by the Borrower or NECOM are listed and described on Schedule
8.19(b) hereto, and, to the best of Borrower's or NECOM's knowledge, have been
validly issued and are in full force and effect. Borrower and NECOM have
complied with all terms and conditions of the Project Approvals capable of being
complied with prior to this date. The Borrower has no reason to believe that any
of the Project Approvals not heretofore obtained by the Borrower or NECOM will
not be obtained by the Borrower or NECOM in the ordinary course following
completion of the construction of NEON in accordance with the Plans and
Specifications.
8.20 Construction Contract. The Construction Contract is in full force
and effect and both NECOM and, to the best of Borrower's and NECOM's knowledge,
the Contractor is in full compliance with its obligations under the Construction
Contract. The work to be performed by the Contractor under the Construction
Contract is the work called for by the Plans and Specifications, and all work
required to complete NEON in accordance with the Plans and Specifications is
provided for under the Construction Contract.
8.21 Other Contracts. Except as set forth on Schedule 8.21, neither the
Borrower nor NECOM has made any contract or arrangement of any kind or type
whatsoever (whether oral or written, formal or informal), the performance of
which by the other party thereto could give rise to a lien or encumbrance on
NEON.
8.22 Property Taxes: Special Assessments. There are no unpaid or
outstanding property or other taxes or assessments on or against any property
owned or leased by Borrower or NECOM or any part thereof which are payable by
the Borrower or NECOM (except only property taxes not yet due and payable). The
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Borrower has delivered to the Lender true and correct copies of all relevant
property tax bills for the past fiscal tax year. No abatement proceedings are
pending with reference to any real estate taxes assessed against any property
owned or leased by Borrower. There are no betterment assessments or other
special assessments presently pending with respect to any part of any property
owned or leased by Borrower, and neither the Borrower nor NECOM has received any
notice of any such special assessment being contemplated.
8.23 Violations. Neither the Borrower nor NECOM has received any
notices of, or has any knowledge of, any violations of any applicable
Requirements or Project Approvals.
8.24 Plans and Specifications. The Borrower has made available for
Lender 5 inspection the Plans and Specifications. The Plans and Specifications
comply with all Requirements, all Project Approvals, and all restrictions,
covenants and easements affecting NEON, and are ready for presentation to the
Construction Inspector and such Governmental Authority as is required for
construction of NEON.
8.25 Project Budget. The Project Budget accurately reflects all Project
Costs.
8.26 Feasibility. Each of the Construction Schedule and the
Disbursement Schedule is realistic, feasible and accurate as of the date hereof.
8.27 Status of NEON. The Borrower makes the following representations
and warranties concerning NEON:
(a) No Asbestos. No asbestos is located in NEON or on any
property owned or leased by the Borrower or NECOM except as disclosed
on Schedule 8.27(a).
(b) Compliance with Law. The portions of NEON presently
constructed do not violate any applicable federal or state law or
governmental regulation, or any local ordinance, order or regulation,
including but not limited to laws, regulations, or ordinances relating
to zoning, building use and occupancy, subdivision control, fire
protection, health and sanitation, except for violations (i) that do
not result in a Material Adverse Effect or (ii) that would result in
the revocation of any permit or approval or require the demolition or
replacement of any structure.
(c) No Required Real Property Consents, Permits Etc. Except as
set forth on Schedule 8.27(c), neither the Borrower nor NECOM has
received any notices of, nor has any knowledge of, any approvals,
consents, licenses, permits, utility installations and connections
(including, without limitation, drainage facilities), required for the
maintenance, operation, servicing and use
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of NEON for its intended use which have not been granted, effected, or
performed and completed (as the case may be) or any fees or charges
therefor which have not been fully paid. No such approvals, consents,
permits or licenses, (including, without limitation, any railway siding
agreements) will terminate, or become void or voidable or terminable on
any foreclosure sale of any part of NEON pursuant to the Security
Documents. There are no outstanding notices, suits, orders, decrees or
judgments specifically naming Borrower or NECOM relating to zoning,
building use and occupancy, fire, health, sanitation, or other
violations affecting, against, or with respect to, NEON or any part
thereof.
(d) Insurance. Neither the Borrower nor NECOM has received any
notices from any insurer or its agent requiring performance of any work
with respect to NEON or canceling or threatening to cancel any policy
of insurance, and NEON, in its present state, complies in all material
respects with the requirements of each of Borrower's and NECOM's
insurance carriers.
(e) Eminent Domain. There are no pending eminent domain
proceedings against NEON or any part thereof, and, to the Borrower's
knowledge, no such proceedings are presently threatened or contemplated
by any taking authority.
(f) Other Material Agreements: No Options. Except as listed on
Schedule 8.27(f), there are no material agreements pertaining to NEON
or the operation or maintenance thereof other than as described in this
Agreement (including the Schedules hereto) or otherwise disclosed in
writing to the Lender by the Borrower; and no person or entity has any
right or option to acquire the Project or any portion thereof or
interest therein, except as otherwise set forth in the Fiber and Duct
Agreements.
8.28 Effect of Draw Request. Each Draw Request submitted to the Lender
as provided in Section 3.1 hereof shall constitute an affirmation that the
representations and warranties contained in Section 8 of this Agreement and in
the other Loan Documents remain true and correct as of the date thereof; and
unless the Lender is notified to the contrary, in writing, prior to the Drawdown
Date of the requested Advance or any portion thereof, shall constitute an
affirmation that the same remain true and correct on the Drawdown Date.
9. AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower covenants and agrees that, so long as the Loan is
outstanding or the Lender has any obligation to make any Advances:
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9.1 Punctual Payment. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loan and all other amounts
provided for in the Note, this Agreement and the other Loan Documents to which
the Borrower is a party, all in accordance with the terms of the Note, this
Agreement and such other Loan Documents.
9.2 Pursuit and Completion of Construction. The Borrower and NECOM will
diligently pursue construction of NEON in accordance with the Construction
Schedule, and will complete construction of NEON prior to the Completion Date,
all in accordance with the Plans and Specifications, in full compliance with all
restrictions, covenants and easements affecting NEON, all Requirements, and all
Project Approvals, and with all terms and conditions of the Loan Documents,
without deviation from the Plans and Specifications unless the Borrower obtains
the prior written approval of the Lender. The Borrower or NECOM will pay all
sums and perform all such acts as may be necessary or appropriate to complete
such construction of NEON in accordance with the Plans and Specifications and in
frill compliance with all restrictions, covenants and easements affecting the
Project, all Requirements and all Project Approvals, and with all terms and
conditions of the Loan Documents, all of which shall be accomplished on or
before the Completion Date, free from any liens, claims or assessments (actual
or contingent) asserted against NEON for any material, labor or other items
furnished in connection therewith. The Borrower will furnish evidence of
satisfactory compliance with this Section 9.2 to the Lender on or before the
Completion Date.
9.3 Correction of Defects. The Borrower will promptly correct or cause
to be corrected all defects in NEON or any departure from the Plans and
Specifications not previously approved by the Lender. The Borrower agrees that
any Advance made by the Lender, whether before or after such defects or
departures from the Plans and Specifications are discovered by, or brought to
the attention of the Lender, shall not constitute a waiver of the Lender's right
to require compliance with this Section 9.3.
9.4 Maintenance of Office. The Borrower will, and will cause NECOM to,
maintain its chief executive office in Waltham, Massachusetts, or at such other
place in the United States of America as the Borrower shall designate upon
written notice to the Lender, where notices, presentations and demands to or
upon the Borrower in respect of the Loan Documents may be given or made.
9.5 Records and Accounts. The Borrower will, and will cause NECOM to:
(a) keep true and accurate records and books of account in which full, true and
correct entries will be made in accordance with generally accepted accounting
principles and (b) maintain adequate accounts and reserves for all taxes
(including income taxes), depreciation and amortization of its properties
contingencies, and other reserves.
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9.6 Financial Statements, Certificates and Information. The Borrower
will deliver to the Lender:
(a) as soon as practicable, but in any event not later than
one hundred and twenty (120) days after the end of each fiscal year of
the Borrower and NECOM, the balance sheet of the Borrower and NECOM at
the end of such year, and the related statement of income, statement of
changes in fund balances and statement of cash flows for such year,
each setting forth in comparative form the figures for the previous
fiscal year and all such statements to be in reasonable detail,
prepared in accordance with generally accepted accounting principles,
audited by an independent certified public accountant acceptable to the
Lender, together with a certification by the principal financial or
accounting officer of the Borrower and NECOM (or of their manager) that
the information contained in such financial statements fairly presents
the financial position of the Borrower and NECOM on the date thereof;
(b) upon request by the Lender, as soon as practicable, but in
any event not later than sixty (60) days after the end of each of the
first three (3) fiscal quarters of the Borrower and NECOM, copies of
the unaudited balance sheet of the Borrower and NECOM as at the end of
such quarter, and the related unaudited statement of income, and
statement of cash flows for the portion of the Borrower and NECOM's
fiscal year then elapsed, all in reasonable detail and prepared in
accordance with generally accepted accounting principles, together with
a certification by the principal financial or accounting officer of the
Borrower and NECOM (or of their manager) that the information contained
in such financial statements fairly presents the financial position of
the Borrower and NECOM on the date thereof (subject to year-end
adjustments).
(c) concurrently with the delivery of the financial statements
referred to in subsections (a) and (b) above, a letter from the
president or vice president of the manager of the Borrower and NECOM
stating that, to such officer's knowledge, each of the Borrower and
NECOM during such year has observed or performed all of its covenants
and other agreements and satisfied every condition contained in this
Agreement and the other Loan Documents to be observed, performed or
satisfied by it, and that such officer has obtained no knowledge of any
Default or Event of Default except as specified in such letter.
(d) from time to time such other financial data and
information as the Lender may reasonably request.
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9.7 Notices.
(a) Defaults. The Borrower will promptly notify the Lender in
writing of the occurrence of any Default or Event of Default,
specifying the nature and existence of such Default or Event of Default
and what action the Borrower is asking or proposes to take with respect
thereto. If any Person shall give any notice or take any other action
in respect of a claimed default (whether or not constituting an Event
of Default) under this Agreement or under any note, evidence of
indebtedness, indenture or other obligation to which or with respect to
which the Borrower or any Guarantor is a party or obligor, whether as
principal or surety, and such default would permit the holder of such
note or obligation or other evidence of indebtedness to accelerate the
maturity thereof, which acceleration would have a material adverse
effect on the Borrower or such Guarantor, the Borrower shall forthwith
give written notice thereof to the Lender, describing the notice or
action and the nature of the claimed default.
(b) Environmental Events. The Borrower will promptly give
notice to the Lender (i) of any violation of any Environmental Law that
the Borrower or NECOM reports in writing or is reportable by any Person
in writing (or for which any written report supplemental to any oral
report is made) to any federal, state or local environmental agency and
(ii) upon becoming aware thereof, of any inquiry, proceeding,
investigation, or other action, including a notice from any agency of
potential environmental liability, or any federal, state or local
environmental agency or board, that in either case involves NEON or has
the potential to materially affect the assets, liabilities, financial
conditions or operations of the Borrower or NECOM or the Lender's liens
or security interests pursuant to the Security Documents.
(c) Notification of Claims against Collateral. The Borrower
will, immediately upon becoming aware thereof, notify the Lender in
writing of any setoff, claims, withholdings or other defenses to which
any of the Collateral, or the Lender's rights with respect to the
Collateral, are subject.
(d) Notice of Nonpayment. The Borrower will immediately notify
the Lender in writing if the Borrower or NECOM receives any written
notice from any laborer, subcontractor or materialman to the effect
that such laborer, subcontractor or material man has not been paid when
due or any labor or materials furnished in connection with the
construction of NEON.
(e) Notice of Litigation and Judgments. The Borrower will give
notice to the Lender in writing within fifteen (15) days of becoming
aware of any litigation or proceedings threatened in writing or any
pending litigation and proceedings affecting NEON or affecting the
Borrower or any Guarantor or to
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which the Borrower or any Guarantor is or is to become a party
involving an uninsured claim against the Borrower or such Guarantor
that could reasonably be expected to have a materially adverse effect
on the performance by the Borrower or such Guarantor of their
respective obligations under the Loan Documents and stating the nature
and status of such litigation or proceedings. The Borrower will give
notice to the Lender, in writing, in form and detail satisfactory to
the Lender, within ten (10) days of any judgment not covered by
insurance, final or otherwise, against the Borrower or NECOM in an
amount in excess of $50,000.
9.8 Existence; Maintenance of Project. The Borrower will do or cause to
be done all things necessary to preserve and keep in full force and effect its
and NECOM's existence as Massachusetts limited liability companies. The Borrower
will do or cause to be done all things necessary to preserve and keep in full
force all of its rights and franchises and those of NECOM. The Borrower (a) will
cause all of its and NECOM's properties used or useful in the conduct of their
business to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment, (b) will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Borrower may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times, and (c) will continue, and will cause NECOM to continue to engage
primarily in the businesses now conducted by them and in related businesses.
9.9 Insurance; Bonds.
(a) The Borrower and NECOM will obtain and maintain, or will
cause to be obtained and maintained, insurance with respect to NEON and
the construction thereof as is customarily maintained by owners,
operators and lessees of comparable telecommunications facilities and
in any event carry and maintain and shall cause NECOM to carry and
maintain at least the minimum insurance coverage set forth in this
Section 9.9. All insurance carried pursuant to this Section 9.9 shall
be written on such forms and with terms, conditions, limits and
deductibles (or self-insured retentions) and placed with such
financially sound and recognized insurers as shall be satisfactory to
the Lender.
i. Borrower or NECOM shall carry and maintain the
insurance required under the Security Deed.
ii. Borrower and NECOM shall carry and maintain (i)
workers' compensation insurance in accordance with
statutory provisions and (ii) employers' liability
insurance with limits of not less than $ 1,000,000
including occupational disease coverage.
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iii. Borrower and NECOM shall carry and maintain
comprehensive or business automobile liability
insurance covering owned (if any), non-owned, leased,
or hired vehicles against bodily injury or property
damage. Such coverage shall have a limit of not less
than $1,000,000.
iv. Borrower and NECOM shall carry and maintain
comprehensive or commercial general liability
insurance with a limit of not less than $ 1,000,000.
Such coverage shall include, but not limited to
premises/operations, explosion, collapse, underground
hazards, sudden and accidental pollution, contractual
liability, independent contractors,
products/completed operations, property damage and
personal injury liability.
v. Borrower and NECOM shall carry and maintain umbrella
liability insurance with a limit of not less than
$24,000,000, supplementing the coverage from the
policies required under subsections ii, iii, iv and v
above.
(b) Endorsements. Any insurance carried and maintained in
accordance with this Section 9.9 shall be endorsed as follows:
i. The Lender shall be an additional insured except on
workers' compensation policies. It shall be
understood that any obligation imposed upon Borrower
and NECOM, including but not limited to the
obligation to pay premiums, shall be the sole
obligation of each of Borrower and NECOM and not that
of the Lender. The Lender shall be named as loss
payee, as its interest may appear, with regard to any
claims payments made under the insurance required to
be maintained pursuant to subsection (a)(i).
ii. with respect to the insurance required to be
maintained pursuant to subsection (a)(i), the
interests of the Lender shall not be invalidated by
any action or inaction of the Borrower, or any other
Person, and shall insure the Lender regardless of any
breach or violation by NECOM or any other Person, of
any warranties, declarations or conditions of such
policies;
iii. the insurers thereunder shall waive all rights of
subrogation against the Lender, any right of setoff
or counterclaim and any other right to deduction,
whether by attachment or otherwise;
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iv. such insurance shall be primary without right of
contribution of any other insurance carried by or on
behalf of the Lender with respect to their interests
as such in the facilities;
v. if such insurance is canceled for any reason
whatsoever, except for nonpayment of premium, or any
changes are initiated by the carrier which affect the
interest of the Lender such cancellation or change
shall not be effective as to the Lender until thirty
(30) days, except for non-payment of premium which
shall be ten (10) days, after receipt by the Lender
of written notice sent by registered mail from such
insurer.
(c) Application of Payment. Except as provided in the Security
Deed, all payments received by the Borrower or NECOM from any insurer
with respect to loss or damage to NEON shall promptly be applied to the
repair of NEON.
(d) Evidence of Insurance. At Closing Date, and at each policy
renewal, but not less than annually, Borrower shall provide to Lender
approved certification of all required insurance acceptable to the
Lender. Such certification shall be executed by each insurer or by an
authorized representative of each insurer. Such certificate shall
identify the underwriters, the type of insurance, the limits,
deductibles, and term thereof and shall specifically list the special
provisions delineated for such insurance required by Section 9.9. Upon
request, Borrower shall furnish the Lender with copies of all insurance
policies, binders, and cover notes or other evidence of such insurance
required thereunder.
(e) No Duty of Lender to Verify. No provision of this
Agreement of any provision of any other Loan Document shall impose on
the Lender any duty or obligation to verify the existence or adequacy
of the insurance coverage, nor shall the Lender be responsible for any
representations or warranties made by thereof to any insurance company
or underwriter. The Lender may, at its sole option, obtain any
insurance, if not provided by the Borrower or NECOM, that Lender deems
necessary and, in such event, the Borrower or NECOM shall reimburse the
Lender, upon demand, for the reasonable cost thereof.
(f) The Borrower or NECOM will require the Contractor to
obtain and maintain at all times during the construction of NEON the
insurance required by the Construction Contract and such other
insurance as may be reasonably required by the Lender (including,
without limitation, commercial general liability insurance,
comprehensive automobile liability insurance, all-risk contractor's
equipment floater insurance, workmen's compensation
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insurance and employer liability insurance), all such insurance to be
in such amounts and form, to include such coverage and endorsements,
and to be issued by such insurers as shall be approved by the Lender,
and to contain the written agreement of the insurer to give the Lender
thirty (30) days prior written notice of cancellation, non-renewal,
modification or expiration. The Borrower or NECOM will provide or will
cause the Contractor to provide the Lender with certificates evidencing
such insurance upon the request of the Lender.
9.10 Taxes.
(a) The Borrower will pay or cause to be paid all taxes,
assessments and other governmental charges imposed upon it or NECOM
with respect to NEON or imposed upon NEON at the time and in the manner
required by the Security Deed. The Borrower will promptly pay and
discharge, or cause to be paid and discharged (by bonding or otherwise)
all claims for labor, material or supplies that if unpaid might by law
become a lien or charge against NEON or any part thereof or might
affect the first priority of the lien created by the Security Documents
with respect to any Advance made or to be made by the Lender under this
Agreement.
(b) The Borrower will duly pay and discharge, or cause to be
paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges imposed upon it or NECOM and
their other real properties, sales and activities, or any part thereof,
or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by law become a lien
or charge upon any part of NEON; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by
appropriate proceedings and if the Borrower or NECOM, as applicable,
shall have set aside on its books adequate reserves with respect
thereto; and provided further that the Borrower will pay or cause to be
paid all such taxes, assessments, charges, levies or claims forthwith
upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor.
9.11 Inspection of NEON, Other Properties and Books.
(a) The Borrower shall permit or cause NECOM to permit the
Lender and the Construction Inspector to visit and inspect NEON and all
materials to be used in the construction thereof and will cooperate
with the Lender and the Construction Inspector during such inspections
(including making available working drawings of the Plans and
Specifications); provided that this provision shall not be deemed to
impose on the Lender or the Construction Inspector any obligation to
undertake such inspections, and further provided that any
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such inspection shall not unreasonably disrupt the operations of the
Borrower, including any construction then being performed.
(b) The Borrower shall permit or cause NECOM to permit the
Lender at the Borrower's expense to visit and inspect any of the other
properties of the Borrower or NECOM to examine the books of account of
the Borrower and NECOM (and to make copies thereof and extracts
therefrom) and to discuss the affairs, finances and accounts of the
Borrower and NECOM with, and to be advised as to the same by their
officers or their manager's officers, all at such reasonable times and
intervals as the Lender may reasonably request; provided that the
Borrower shall only be obligated to pay the expenses associated with
one such investigation during any twelve (12) month period.
9.12 Compliance with Laws, Contracts, Licenses, and Permits. The
Borrower will comply, and will cause NECOM to comply, in all material respects,
with: (a) the applicable laws and regulations wherever its business is
conducted, including all Environmental Laws and all Requirements; (b) the
provisions of its and NECOM's respective certificate of organization and
operating agreement; (c) all agreements and instruments by which it or any of
its properties may be bound, including, in the case of NECOM, the Construction
Contract, and all restrictions, covenants and easements affecting NEON; (d) all
applicable decrees, orders and judgments; and (e) all licenses and permits
required by applicable laws and regulations for the conduct of its business or
the ownership, use or operation of its properties, including all Project
Approvals.
9.13 Project Approvals. The Borrower will promptly obtain, or cause to
be obtained, all Project Approvals not heretofore obtained (including those
listed and described on Schedule 8.19(a) hereto and any other Project Approvals
which may hereafter become required, necessary or desirable) and will furnish
the Lender with evidence that such Project Approvals have been obtained promptly
upon its request. The Borrower will give, or will cause to be given, all such
notices to, and take all such other actions with respect to, such Governmental
Authority as may be required under applicable Requirements to construct NEON and
to use, occupy and operate NEON following the completion of the construction.
The Borrower will duly perform and comply, or will cause NECOM to perform and
comply with all of the terms and conditions of all Project Approvals obtained at
any time, including all Project Approvals listed and described on Schedules
8.19(a) and 8.19(b) hereto.
9.14 Use of Proceeds. The Borrower will cause the proceeds of the Loan
to be used for the purpose of paying for Project Costs in accordance with the
Project Budget, and such other costs as Lender may approve in writing.
9.15 Project Costs. The Borrower will pay or cause to be paid all
Project Costs in excess of the NEON Loan Amount, regardless of the amount.
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9.16 [Intentionally Deleted]
9.17 NEON Contracts. The Borrower will cause all contracts entered into
after the date hereof for the use of NEON to include language binding the other
party in the event of Lender foreclosure in a similar manner to what is provided
in a real estate nondisturbance, attornment and subordination agreement, and, at
the request of Lender, will exert reasonable efforts to cause existing contracts
to be amended to contain such language. The Lender shall have the right, and the
Borrower hereby authorizes the Lender to communicate directly with such other
parties to verify any information delivered to the Lender by the Borrower or
NECOM concerning such contract or contracts.
9.18 Laborers, Subcontractors and Materialmen. The Borrower will
furnish, or cause to be furnished, to the Lender, upon request at any time, and
from time to time, affidavits listing all laborers, subcontractors, materialmen,
and any other Persons who might or could claim statutory or common law liens and
who are furnishing or have furnished labor or material to the construction of
NEON or any part thereof, together with affidavits, or other evidence
satisfactory to the Lender, showing that such parties have been paid all amounts
then due for labor and materials furnished for the construction of NEON. The
Borrower will also furnish to the Lender, at any time and from time to time upon
demand by the Lender, lien waivers bearing a then- current date and prepared on
a form satisfactory to the Lender from the Contractor and such subcontractors or
materialmen as the Lender may designate.
9.19 Further Assurance of Title. The Borrower will further assure title
as follows: If at any time the Lender or the Lender's counsel has reason to
believe that any Advance is not secured or will or may not be secured by the
Security Documents as a first lien or security interest on NEON, then the
Borrower shall, within ten (10) days after written notice from the Lender, do
all things and matters reasonably necessary, to assure to the satisfaction of
the Lender and the Lender's counsel that any Advance previously made hereunder
or to be made hereunder is secured or will be secured by the Security Documents
as a first lien or security interest on NEON, and the Lender, at its option, may
decline to make further Advances hereunder until the Lender has received such
assurance, but nothing in this Section 9.19 shall limit the Lender's right to
require endorsements extending the effective date of the Title Policy as herein
set forth.
9.20 Publicity. The Borrower will permit the Lender to obtain publicity
in connection with the construction of NEON through press releases and
participation in such events as ground breaking and opening ceremonies. The
Borrower will give the Lender ample advance notice of such events and will
cooperate with and provide to the Lender as much assistance as reasonably
possible in connection with obtaining
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such publicity. Borrower shall have the right to approve any press releases,
such approval not to be unreasonably withheld. The parties shall use their best
efforts to keep the terms of this Agreement confidential at all times.
9.21 Sign Regarding Construction Financing. If requested by the Lender,
the Borrower will cause, at its reasonable cost and expense, a sign to be
erected and maintained on a suitable and permitted location, such sign
indicating that the construction financing for the Project is being provided by
the Lender, such location and sign to be subject to the approval of the Lender.
9.22 Further Assurances.
(a) Regarding Construction. The Borrower will furnish or cause
to be furnished to the Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and
specifications, title and other insurance, reports and agreements and
each and every other document and instrument required to be furnished
by the terms this Agreement or the other Loan Documents, all at the
Borrower's expense.
(b) Regarding Preservation of Collateral. The Borrower will
execute and deliver or cause to be executed and delivered to the Lender
such further documents, instruments, assignments and other writings,
and will do such other acts necessary or desirable, to preserve and
protect the Collateral at any time securing or intended to secure the
Obligations, as the Lender may require.
(c) Regarding this Agreement. The Borrower will cooperate
with, and will do such further acts and execute such further
instruments and documents as the Lender shall reasonably request to
carry out to its satisfaction the transactions contemplated by this
Agreement and the other Loan Documents. In particular and without
limiting the generality of the foregoing, Borrower and NECOM shall
execute such amendments to the Loan Documents and supplemental
documents, including the Security Deed, as Lender may reasonably
require in connection with the Second Disbursement and Advances
thereafter.
10. NEGATIVE COVENANTS OF THE BORROWER
The Borrower and NECOM covenant and agree that, so long as the Loan is
outstanding or the Lender has any obligation to make any Advances:
10.1 Restriction on Change Orders. Neither the Borrower nor NECOM will
cause, permit or suffer to exist any deviations from the Plans and
Specifications and
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will not approve or consent to any change order or construction change directive
in an amount in any one instance exceeding $75,000 and in the aggregate
exceeding $250,000 without the prior approval of (i) the Lender, which approval
shall not be unreasonably withheld, and (ii) the surety company or companies, if
any, issuing any Payment and Performance Bonds, if the failure to obtain such
approval could relieve such surety from any obligation under such bonds.
10.2 Restrictions on Easements, Covenants and Restrictions. Except as
listed on Schedule 8.2, and, other than leases in the ordinary course of
business, the Borrower and NECOM will not create or suffer to be created or to
exist any easement, right of way, restriction, covenant, condition, license or
other right in favor of any Person which affects or might affect title to any
part of NEON or the use of NEON or any part thereof without (i) submitting to
the Lender the proposed instrument creating such easement, right of way,
covenant, condition, license or other right, accompanied by a survey showing the
exact proposed location thereof and such other information as the Lender may
reasonably request, and (ii) obtaining the prior approval of the Lender.
10.3 No Amendments, Terminations or Waivers.
(a) The Borrower and NECOM will not permit the Construction
Contract, or any of the terms and conditions thereof, to be amended,
supplemented or otherwise modified, whether by change order or
otherwise, without in each case the prior written approval of the
Lender, and of any surety or surety companies issuing any Payment and
Performance Bonds, if the failure to obtain such approval could relieve
such surety from any obligation under such bonds.
(b) The Borrower and NECOM will not, directly or indirectly,
terminate or cancel or cause or permit to exist any condition which
would result in the termination or cancellation of, or which would
relieve the performance of any obligations of any other party under the
Construction Contract.
(c) The Borrower and NECOM will not, directly or indirectly,
waive or agree or consent to the waiver of, the performance of any
obligations of any other party under the Construction Contract.
10.4 Sale and Leaseback. The Borrower will not, and will not permit
NECOM to, enter into any arrangement, directly or indirectly, whereby the
Borrower or NECOM shall sell or transfer any property owned by it in order then
or thereafter to lease such property or lease other property that the Borrower
or NECOM intends to use for substantially the same purpose as the property being
sold or transferred.
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10.5 Compliance with Environmental Laws. The Borrower and NECOM will
not do or permit to be done any of the following: (a) use any property owned or
leased by the Borrower or NECOM or any portion thereof as a facility for the
handling, processing, storage or disposal of Hazardous Materials in
contravention of any law, ordinance or regulation; (b) cause or permit to be
located on any portion of such property any underground tank or other
underground storage receptacle for Hazardous Materials except in full compliance
with Environmental Laws; (c) generate any Hazardous Materials on any portion of
such property except in full compliance with Environmental Laws; or (d) conduct
any activity at any property owned or leased by the Borrower or NECOM or use any
portion of such property in any manner so as to cause a Release.
10.6 Financial Covenants. Borrower and NECOM covenant and agree that so
long as the Loan is outstanding, neither will incur capital expenditures in any
fiscal year in excess of $100,000 in the aggregate (exclusive of approved items
in the Project Budget).
10.7 Limitation on Indebtedness. Without the prior written consent of
the Lender, Borrower and NECOM shall not create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness with respect to the Loan;
(b) Indebtedness incurred pursuant to any other document
evidencing the Loan;
(c) Indebtedness outstanding on the closing date of the Loan
and listed on Schedule 10.7(c) hereto; and
(d) any other indebtedness of the Borrower or NECOM, including
capitalized leases, incurred in the ordinary course of business, in an
amount not to exceed, in any one instance, $50,000 and, in the
aggregate, $100,000.
10.8 Limitation on Liens. Borrower and NECOM shall not create, incur,
assume or suffer to exist any lien upon the Project or upon any of its
respective property, assets or revenues, whether now owned or hereafter
acquired, except for Permitted Liens. For purposes of this Agreement, Permitted
Liens include those liens listed on Schedule 8.2 hereto.
10.9 Limitation on Liabilities and Contingent Obligations. Borrower and
NECOM shall not create, incur, assume or suffer to exist any liability or
contingent obligation except:
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(a) contingent obligations of the Borrower or NECOM in
existence on the closing date and listed on Schedule 10.9 (a) hereto;
and
(b) contingent obligations of the Borrower or NECOM, incurred
in the ordinary course of business, in an amount not to exceed, in the
aggregate, $100,000 as to each.
10.10 Limitations on Fundamental Changes. Borrower and NECOM shall not
enter into any transaction of merger or consolidation or amalgamation, any
operation and management agreement (other than with MaineCom Services), or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets, except as otherwise permitted herein,
or any interest therein, or enter into any transaction to acquire by purchase or
otherwise (except as a contribution to its capital) any of the business,
property or fixed assets of, or any stock or other evidence of beneficial
ownership of, any entity, in each case without the prior written consent of the
Lender.
10.11 Limitation on Sale of Assets. Borrower and NECOM shall not
convey, sell, lease (except leases in the ordinary course of business), assign,
transfer or otherwise dispose of, any of its property, business or assets
(including, without limitation, receivables and leasehold interests) whether now
owned or hereafter acquired except obsolete or worn out property disposed of in
the ordinary course of business or immaterial property no longer useful in its
business.
10.12 Limitation on Leasing. Borrower and NECOM shall not incur,
create, assume or suffer to exist any lease of property, real or personal,
whether pursuant to a financing lease or an operating lease, whether as lessor
or lessee, except:
(a) leases listed on Schedule 10.12 hereto and replacement
leases for comparable assets at prevailing market rates;
(b) leases of property (i) immaterial to the business,
operations or financial condition of Borrower or NECOM or (ii) in the
ordinary course of Borrowers and NECOM's business, in either case under
which Borrower or NECOM is the lessor; and
(c) as lessee under leases which are not financing leases,
provided that the aggregate net present value of payments under all
such leases, determined in accordance with GAAP, at any time shall not
exceed $100,000, based on a discount rate of 10% per annum.
10.13 Limitation on Dividends and Distributions. So long as the Loan
shall be outstanding, Borrower and NECOM shall not, without the prior written
consent of
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the Lender, declare any dividend on, or make any payment or distribution on
account of, or set apart assets for a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition of, ownership
interests in the Borrower or NECOM, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property.
10.14 Limitation on Investments, Loans and Advances. Borrower and NECOM
shall not make any advance, loan, extension of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other securities of, or
make any other investment in, any entity, except (a) extensions of trade credit
in the ordinary course of business; (b) investments in cash equivalents; (c) as
contemplated by the Loan Documents; and (d) with the prior written consent of
the Lender.
10.15 Limitation on Optional Payments and Modification of Debt
Instruments. Borrower and NECOM shall not make any optional payment or
prepayment on or redemption of any indebtedness other than the Loan without the
prior written consent of the Lender.
10.16 Transactions with Affiliates. After the Closing Date, Borrower
and NECOM shall not enter into any transaction, including, without limitation,
any purchase, sale, lease or exchange of property or the rendering of any
service with any affiliate unless such transactions are in the ordinary course
of Borrower's or NECOM's business and are upon fair and reasonable terms no less
favorable to Borrower or NECOM, as the case may be, than it would obtain in a
comparable arm's length transaction with an entity not an affiliate.
10.17 Payments on Inter-Company Indebtedness. After the Closing Date,
Borrower and NECOM shall not make any payment on any indebtedness of any
affiliate of Borrower or NECOM if; after giving effect thereto, a default or
event of default under the Loan Documents would arise therefrom or otherwise be
in existence.
11. CONDITIONS TO INITIAL DISBURSEMENT
The obligation of the Lender to make the Initial Disbursement shall be
subject to the satisfaction of the following conditions precedent:
11.1 Loan Documents. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to the Lender. The
Lender shall have received a fully executed original of each such document.
Those Security Documents that are required to be filed in public offices to
perfect the liens contemplated hereunder shall have been filed in all of such
offices.
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11.2 Construction Documents. The Construction Contract shall be in full
force and effect, and shall be in form and substance satisfactory to the Lender.
The Lender shall have received a certified or a fully executed copy of each such
document.
11.3 Subcontracts. The Borrower shall have delivered to the Lender, and
the Lender shall have approved, a list of all subcontractors and materialmen who
have been or, to the extent identified by the Borrower, will be supplying labor
or materials for the construction of NEON, and if requested, correct and
complete photocopies of all executed subcontracts and contracts.
11.4 Other Contracts. The Borrower shall have delivered to the Lender
correct and complete photocopies of all other executed contracts with
contractors, engineers or consultants for the construction of the unfinished
portions of NEON, and of all development, management, brokerage, sales or
leasing agreements for NEON.
11.5 Certain Undertakings of the NU Entities. The NU Entities shall
have agreed in writing (i) to file with the utility regulatory authorities in
Connecticut, Massachusetts and New Hampshire (A) applications for authority to
grant the Easement to NECOM and (B) applications for authority to transfer to
NECOM those portions of NEON built before the Initial Disbursement; (ii) to
obtain nondisturbance agreements in form and substance satisfactory to Lender
with each of the NU Entities' indenture trustees who holds a mortgage lien on
the transmission and distribution system on which NEON will be located; and
(iii) to amend the Fiber and Duct Agreements as contemplated by Section 12.11
below.
11.6 Certified Copies of Organizational Documents: Good Standing
Certificates. The Lender shall have received from the Borrower and each
Guarantor (a) a copy, certified as of a recent date by its secretary or the duly
authorized officer of its manager to be true and complete, of its operating
agreement (for limited liability companies) or bylaws (for corporations), as in
effect on such date of certification, (b) a copy of its charter document
certified as of a recent date by the relevant Secretary of State, and (c) a
certificate by the Secretary of State of its domicile, dated as of a recent
date, stating that it is in legal existence and good standing, and (d)
certificates of good standing as a foreign limited liability company or
corporation, as the case may be, dated as of a recent date, from the Secretary
of State of each jurisdiction in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify would have
a material adverse effect on its business, financial condition or operations.
11.7 Resolutions. All action necessary for the valid execution,
delivery and performance by the Borrower and each Guarantor of this Agreement
and the other
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Loan Documents to which it is or is to become a party shall have been duly and
effectively taken, and evidence thereof satisfactory to the Lender shall have
been provided to the Lender. The Lender shall have received from the Borrower
and each Guarantor true copies of the resolutions adopted by its governing body
authorizing the transactions described herein, each certified by a secretary or
comparable officer as of a recent date to be true and complete.
11.8 Authorized Signers. [Intentionally Omitted]
11.9 Validity of Liens. The Security Documents shall be effective to
create in favor of the Lender a legal, valid and enforceable first lien and
security, interest in the Collateral, subject only to Permitted Liens. All
filings, recordings, deliveries of instruments and other actions necessary or
desirable in the opinion of the Lender to protect and preserve such lien and
security interest shall have been duly effected. The Lender shall have received
evidence thereof in form and substance satisfactory to the Lender.
11.10 Deliveries. The following items or documents shall have been
delivered to the Lender by the Borrower and shall be in form and substance
satisfactory to the Lender:
(a) Insurance. Duplicate originals or certified copies of
all policies of insurance required hereunder or under the Security Deed
to be obtained and maintained by the Borrower and NECOM during the
construction of NEON, and certificates of insurance evidencing the
insurance required by Section 9.9 to be obtained and maintained by the
Contractor.
(b) Evidence of Sufficiency of Funds. Evidence that the
proceeds of the Loan will be sufficient to cover all Project Costs
reasonably anticipated to be incurred to complete NEON prior to the
Completion Date.
(c) Evidence of Project Approvals. Evidence as to the
obtaining of all Project Approvals which are required, necessary or
desirable for the construction of NEON and the access thereto, except
as disclosed on Schedule 11.10 (a) hereto.
(d) Environmental Report. At the option of Lender, an
environmental site assessment report or reports of one or more
qualified environmental engineering or similar inspection firms
approved by the Lender, which report or reports shall indicate a
condition of NEON in all respects satisfactory to the Lender in its
sole discretion and upon which report or reports the Lender is
expressly entitled to rely.
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(e) Taxes. Evidence of payment of all real estate taxes and
municipal charges on the Project which were due and payable prior to
the Closing Date.
(f) Such other items as are shown on the Closing Agenda
attached hereto as Schedule 11.10(f).
11.11 Legal Opinions. The Lender shall have received favorable opinions
in form and substance satisfactory to the Lender and the Lender's counsel,
addressed to the Lender and dated as of the Closing Date, from counsel
reasonably acceptable to Lender, in form and substance satisfactory to Lender
and its counsel.
11.12 Lien Search. The Lender shall have received a certification from
a Person satisfactory to the Lender (which shall be updated from time to time at
the Borrower's expense upon request by the Lender) that a search of the public
records disclosed no conditional sales contracts, security agreements, chattel
mortgages, leases of personalty, financing statements or title retention
agreements which affect the Collateral other than Permitted Liens.
11.13 Notices. All notices required by any Governmental Authority under
applicable Requirements to be filed prior to commencement of construction of the
unfinished portions of NEON shall have been filed.
11.14 Fees. The Borrower shall have paid to the Lender the commitment
fee pursuant to Section 5.1.
11.15 Representation and Warranties. The representations and warranties
made by the Borrower and the Guarantors in the Loan Documents or otherwise made
by or on behalf of the Borrower or the Guarantors in connection therewith or
after the date thereof shall have been true and correct in all respects when
made and shall also be true and correct in all respects on the Closing Date.
11.16 Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory to the Lender and the Lender's counsel in form and substance,
and the Lender shall have received all information and such counterpart
originals or certified copies of such documents and such other certificates,
opinions or documents as the Lender and the Lender's counsel may reasonably
require.
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12. CONDITIONS OF THE SECOND DISBURSEMENT AND SUBSEQUENT ADVANCES
The obligation of the Lender to make the Second Disbursement and any
subsequent Advances after the Second Disbursement shall be subject to the
complete satisfaction of all of the following conditions precedent:
12.1 Conditions Satisfied. All conditions precedent to the Initial
Disbursement and any prior Advance shall continue to be satisfied as of the
Drawdown Date of any subsequent Advance.
12.2 Performance; No Default. The Borrower and NECOM shall have
performed and complied with all terms and conditions herein required to be
performed or complied with by it on or prior to the Drawdown Date of such
Advance, and on the Drawdown Date of such Advance there shall exist no Default
or Event of Default.
12.3 Representations and Warranties. Each of the representations and
warranties made by the Borrower and the Guarantors in the Loan Documents or
otherwise made by or on behalf of the Borrower or the Guarantors in connection
therewith after the date thereof shall have been true and correct in all
respects on the date on when made and shall also be true and correct in all
material respects on the Drawdown Date of such Advance (except to the extent of
changes resulting from transactions contemplated or permitted by the Loan
Documents and changes occurring in the ordinary course of business that singly
or in the aggregate are not adverse).
12.4 No Damage. NEON shall not have been materially injured or damaged
by fire, explosion, accident, flood or other casualty, unless the Lender shall
have received insurance proceeds sufficient in the judgment of the Lender to
effect the satisfactory restoration of NEON and to permit the completion thereof
on or prior to the Completion Date.
12.5 Receipt by Lender. The Lender shall have received a Draw Request
complying with the requirements hereof, including those set forth in Section
3.1, with all attachments thereto being in form and substance satisfactory to
the Lender, and the Contractor shall have duly executed and delivered to the
Lender a consent to the assignment of the Construction Contract, in form and
substance satisfactory to the Lender.
12.6 Release of Retainage. In addition to the conditions hereinbefore
set forth in this Section 12, the Lender's obligation to make any Advance of
Retainage shall be subject to receipt by the Lender of the following:
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(a) Project Approvals. Evidence satisfactory to the Lender
that all Project Approvals have been obtained from, all notices given
to, and all such other actions taken with respect to, such Governmental
Authority as may be required under applicable requirements for the
permanent operation and maintenance of NEON for its intended use,
together with copies of all such Project Approvals.
(b) Approval by Construction Inspector. Notification from
the Construction Inspector to the effect that NEON has been completed
in a good and workmanlike manner in accordance with the Plans and
Specifications.
(c) [Intentionally Omitted]
(d) Certificate of NECOM. A certificate of NECOM that NEON
has been completed in accordance with the Plans and Specifications and
that NEON complies with all applicable Requirements and Project
Approvals and are in all respects (except for work to be performed by
users) ready for use.
(e) Payment of Costs. Evidence satisfactory to the Lender
that all sums due in connection with the construction of NEON have been
paid in full (or will be paid out of the funds requested to be
advanced) and that no party claims or has a right to claim any
statutory or common law lien arising out of the construction of NEON or
the supplying of labor, material, and/or services in connection
therewith.
(f) Final Lien Waivers. Final lien waivers (on AIA Document
G706 or other form satisfactory to the Lender) from the Contractor and
such laborers, subcontractors and materialmen as may be requested by
the Lender, duly executed and notarized.
(g) Consent by Surety. Evidence satisfactory to the Lender
that the surety company or companies issuing any Payment and
Performance Bonds have consented to final payment to the Contractor or
any subcontractor named as principal therein.
(h) Warranties. Copies of the warranties issued to NECOM by
subcontractors and manufacturers for labor performed and materials
supplied in connection with the construction of NEON.
(i) Insurance. Duplicate original or certified copies of all
policies of insurance required hereunder or under the Security Deed to
be obtained and maintained following completion of construction of
NEON.
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12.7 The date as of which the Lender makes the final Advance of
Retainage pursuant to Section 12.6 above (the "Completion Date") shall be no
later than twenty-four months from the Closing Date.
12.8 Construction Inspector Report. If requested by Lender at any time
after the Initial Disbursement, the Lender shall have received a report or
written confirmation from the Construction Inspector satisfactory to Lender in
its sole discretion that (a) the Construction Inspector has reviewed the Plans
and Specifications, (b) the Plans and Specifications have been reviewed and
approved by each Governmental Authority to which the Plans and Specifications
are required under applicable Requirements to be submitted, (c) the Construction
Contract satisfactorily provides for the construction of the unfinished portions
of NEON and (d) in the opinion of the Construction Inspector, construction of
NEON can be completed on or before the Completion Date for an amount not greater
than the amount allocated for such purpose in the Project Budget.
12.9 Commission Approvals and Recorded Copy of the Easement. Attested
copies of the orders of each of the utility commissions in Connecticut,
Massachusetts and New Hampshire approving the grant of the Easement and
approving of the transfer of NEON to NECOM, together with copies of the
Easement, to be recorded in each public office where the Easement is required by
law to be recorded. The orders and the Easement shall be satisfactory to Lender
in its sole discretion. Borrower and/or NECOM shall at all times diligently
pursue the recording of the Easement in all such public offices.
12.10 Nondisturbance Agreements. Executed nondisturbance agreements
with any party having a mortgage on or other security interest in the
Structures, Duct System or Cable (as such terms are defined in the Fiber and
Duct Agreements), or the equivalent acceptable to Lender in its sole discretion.
12.11 Amendment of Fiber and Duct Agreements: Certain Undertaking of
the NU Entities. The Fiber and Duct Agreements shall have been amended as
follows: (a) to provide that the time for construction of the Project covered by
the Fiber and Duct Agreements shall be extended to at least sixty (60) months;
(b) with respect to the transmission and distribution system covered by the
Fiber and Duct Agreements, to provide Borrower, as much as possible, with the
rights of a lessee under the Bankruptcy Code; and (c) to provide for transfer of
NEON, including existing Segments (as defined in the Fiber and Duct Agreements)
and Segments yet to be built, to NECOM. Such amendment shall be to Lender's
satisfaction in its sole discretion.
12.12 Sales and Marketing Plan and Construction Management Plan.
Borrower and NECOM shall have delivered a sales and marketing plan and a
construction management plan for NEON satisfactory to Lender in all respects.
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12.13 Financial Condition of Borrower and NECOM: Feasibility of NEON.
Lender shall be satisfied in its sole and absolute discretion that (i) there has
been no adverse change in the financial condition of Borrower, NECOM or any
Guarantor, (ii) that NEON is still feasible, and (iii) no condition or
circumstance has occurred, and there is no threat of any condition or
circumstance occurring, that could adversely affect Borrower, NECOM, any
Guarantor or NEON.
13. EVENTS OF DEFAULT AND REMEDIES
13.1 Events of Default. The occurrence of any one or more of the
following conditions or events shall constitute an "Event of Default":
(a) any failure by the Borrower to pay as and when due and
payable any interest on or principal of or other sum payable under the
Note, which failure is not cured within seven (7) days of the day for
performance; or
(b) any failure by the Borrower or NECOM to pay as and when
due and payable any interest on or principal of or other sum payable
under any other loan not cured within any applicable grace period; or
(c) [Intentionally Deleted]
(d) any failure by the Borrower to pay as and when due and
payable any other sums to be paid by the Borrower to the Lender under
this Agreement, other than as specified in (a) above, and such further
continuance for a period of ten (10) days after notice thereof from the
Lender; or
(e) title to the Collateral becomes unsatisfactory to the
Lender by reason of any lien, charge, encumbrance, title condition or
exception (including without limitation, any mechanic's, materialman's
or similar statutory or common law lien or notice thereof), other than
Permitted Liens, or any termination of the Easement or the Fiber and
Duct Agreements, and such matter causing title to be or become
unsatisfactory is not cured or removed (including by bonding) within
twenty (20) days after notice thereof from the Lender to the Borrower;
or
(f) [Intentionally Deleted]
(g) NEON is not completed by the Completion Date or, in the
reasonable judgment of the Lender, construction of NEON will not be
completed by the Completion Date; or
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(h) NEON or any part of it is materially injured by fire,
explosion, accident, flood or other casualty, unless the Lender shall
have received insurance proceeds sufficient in the reasonable judgment
of the Lender to effect the satisfactory restoration of such part of
NEON and to permit the completion of NEON on or prior to the Completion
Date; or
(i) NEON or any part of it is subject to a Taking which
cannot be remedied by substitution of other property or rights
satisfactory to Lender in all respects, such substitution occurring
within sixty (60) days of such Taking; or
(j) [Intentionally Deleted]
(k) [Intentionally Deleted]
(l) any Guarantor denies such Guarantor has any liability or
obligations under the Guaranty or any other Loan Document to which any
Guarantor is subject, or shall notify the Lender of the Guarantor's
intention to attempt to cancel or terminate the Guaranty, or shall fail
to observe or comply with any term, covenant, condition and agreement
under the Guaranty; or
(m) any representation or warranty made or deemed to be made
by or on behalf of the Borrower or the Guarantors in this Agreement or
in any of the other Loan Documents, or in any report, certificate,
financial statement, Draw Request, document or other instrument
delivered pursuant to or in connection with this Agreement, any Advance
or any of the other Loan Documents, shall prove to have been false or
incorrect in any material respect upon the date of when made or deemed
to be made or repeated; or
(n) any dissolution, termination, partial or complete
liquidation, merger or consolidation of the Borrower or NECOM, or any
sale, transfer or other disposition of all or substantially all of the
assets of the Borrower or NECOM other than as permitted under the terms
of this Agreement; or
(o) any suit or proceeding shall be filed against the
Borrower or any Guarantor or NEON which would have a material adverse
effect on the ability of the Borrower or such Guarantor to perform each
and every one of their respective obligations under and by virtue of
the Loan Documents; or
(p) any failure by the Borrower or NECOM to obtain any
Project Approvals, or the revocation or other invalidation of any
Project Approvals previously obtained, unless Borrower or NECOM is able
to substitute any Project Approval that is revoked or invalidated
within a reasonable time after the date of revocation or invalidation,
provided Borrower or NECOM, ass the
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case may be, makes a good faith effort to replace such Project Approval
and the pursuit of such replacement Project Approval does not cause a
delay in the Project schedule; or
(q) the Borrower or any Guarantor shall file a voluntary
petition in bankruptcy under Title 11 of the United States Code, or an
order for relief shall be issued against the Borrower or any Guarantor
in any involuntary petition in bankruptcy, under Title 11 of the United
States Code, or the Borrower or any Guarantor shall file any petition
or answer seeking or acquiescing in any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
for itself under any present or future federal, state or other law or
regulation relating to bankruptcy, insolvency or other relief of
debtors, or the Borrower or any Guarantor shall seek or consent to or
acquiesce in the appointment of any custodian, trustee, receiver,
conservator or liquidator of the Borrower or any Guarantor,
respectively, or of all or any substantial part of its respective
property or the Borrower or any Guarantor shall make an assignment for
the benefit of creditors, or the Borrower or any Guarantor shall fail
generally to pay its debts as such debts become due, or the Borrower or
any Guarantor shall give notice to any governmental authority or body
of insolvency or pending insolvency or suspension of operations; or
(r) a court of competent jurisdiction shall enter any order,
judgment or decree approving a petition filed against the Borrower or
any Guarantor seeking any reorganization, arrangement, composition,
readjustment, liquidation or similar relief under any present or future
federal, state or other law or regulation relating to bankruptcy,
insolvency or other relief for debtors, or appointing any custodian,
trustee, receiver, conservator or liquidator of all or any substantial
part of its property; or
(s) any uninsured final judgment in excess of $250,000 shall
be rendered against the Borrower or any Guarantor other than Mode I and
shall remain in force, undischarged, unsatisfied and unstayed, for more
than thirty (30) days, whether or not consecutive, which in Lender's
sole discretion adversely affects the Collateral or Borrower's ability
to repay the Loan; or
(t) any of the Loan Documents shall be canceled, terminated,
revoked or rescinded otherwise than in accordance with the terms
thereof or with the prior written approval of the Lender, or any action
at law, suit inequity or other legal proceeding to cancel, revoke or
rescind any of the Loan Documents shall be commenced by or on behalf of
the Borrower or the Guarantor which is a party thereto or any of their
respective members, stockholders, partners or beneficiaries, or any
court or any other governmental or regulatory authority or agency of
competent jurisdiction shall make a
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determination that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is illegal, invalid
or unenforceable in accordance with the terms thereof; or
(u) any failure by the Borrower to duly observe or perform
any other term, covenant, condition or agreement under this Agreement
and continuance of such failure for a period of thirty (30) days after
written notice thereof from the Lender; or
(v) any "Event of Default", as defined in any of the other
Loan Documents, shall occur.
13.2 Termination of Commitment and Acceleration. If any one or more of
the Events of Default shall occur, the Lender may by written notice to the
Borrower declare its obligations to make Advances hereunder to be terminated,
whereupon the same shall terminate and the Lender shall be relieved of all
obligations to make Advances to the Borrower, and/or declare all unpaid
principal of and accrued interest on the Note, together with all other amounts
owing under the Loan Documents, to be immediately due and payable, whereupon
same shall become and be immediately due and payable, anything in the Loan
Documents to the contrary notwithstanding, and without presentment, protest,
demand or other notice of any kind, all of which are hereby expressly waived by
the Borrower; provided that if any one or more of the Events of Default
specified in Sections 13.1(q) or 13.1(r) shall occur, the Lender's obligations
to make Advances hereunder automatically shall so terminate and all unpaid
principal of and accrued interest on the Note, together with all other amounts
owing under the Loan Documents, automatically shall become and be immediately so
due and payable, without any declaration or other act on the part of the Lender.
13.3 Completion of Project. If any one or more of the Events of Default
shall have occurred, and whether or not the Lender shall have terminated its
obligations to make Advances and accelerated the maturity of the Loan pursuant
to Section 13.2, the Lender, if the construction of NEON has not been fully
completed, may cause NEON to be completed and may enter upon any property owned
or leased by the Borrower or NECOM and construct, equip and complete NEON in
accordance with the Plans and Specifications, with such changes therein as the
Lender may, from time to time, and in its sole discretion, deem appropriate. In
connection with any construction of NEON undertaken by the Lender pursuant to
the provisions of this Section 13.3, the Lender may:
(a) use any funds of the Borrower, including any balance
which may be held by the Lender as security or in escrow, and any funds
remaining unadvanced under the Loan;
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(b) employ existing contractors, subcontractors, agents,
engineers, and the like, or terminate the same and employ others;
(c) employ security watchmen to protect Collateral;
(d) make such additions, changes and corrections in the
Plans and Specifications as shall, in the judgment of the Lender, be
necessary or desirable;
(e) take over and use any, and all Collateral contracted for
or purchased by the Borrower or NECOM, if appropriate, or dispose of
the same as the Lender sees fit;
(f) execute all applications and certificates on behalf of
the Borrower or NECOM which may be required by any Governmental
Authority or Requirements or contract documents or agreements;
(g) pay, settle or compromise all existing or future bills
and claims which are or may be liens against NEON, or may be necessary
for the completion of NEON or the clearance of title to NEON;
(h) complete the marketing of the Project, enter into new
agreements with customers of Borrower and NECOM, and modify or amend
existing agreements, all as the Lender shall deem to be necessary or
desirable;
(i) prosecute and defend all actions and proceedings in
connection with the construction of NEON or in any other way affecting
NEON and take such action and require such performance as the Lender
deems necessary under any Payment and Performance Bonds; and
(j) take such action hereunder, or refrain from acting
hereunder, as the Lender may, in its sole and absolute discretion, from
time to time determine, and without any limitation whatsoever, to carry
out the intent of this Section 13.3.
The Borrower shall be liable to the Lender for all costs paid or incurred for
the construction equipping and completion of NEON, whether the same shall be
paid or incurred pursuant to the provisions of this Section 13.3 or otherwise,
except to the extent any such cost is paid or incurred in bad faith, and all
payments made or liabilities incurred by the Lender hereunder of any kind
whatsoever shall be deemed Advances made to the Borrower under this Agreement
and shall be secured by the Security Deed and the other Security Documents. To
the extent that any costs so paid or incurred by the Lender, together with all
other Advances made by the Lender hereunder, exceed the NEON Loan Amount, the
amount of such excess costs shall be
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added to the NEON Loan Amount, and the Borrower's obligation to repay the same,
together with interest thereon at the Default Rate, shall be deemed to be
evidenced by this Agreement and secured by the Security Deed and the other
Security Documents. In the event the Lender takes possession of NEON and assumes
control of such construction as aforesaid, it shall not be obligated to continue
such construction longer than it shall see fit and may thereafter, at any time,
change any course of action undertaken by it or abandon such construction and
decline to make further payments for the account of the Borrower whether or not
NEON shall have been completed. For the purpose of this Section 13.3, the
construction, equipping and completion of NEON shall be deemed to include any
action necessary to cure any Event of Default by the Borrower or any Guarantor
under any of the terms and provisions of any of the Loan Documents.
13.4 Other Remedies. If any one or more of the Events of Default shall
have occurred, and whether or not the Lender shall have terminated its
obligations to make Advances or accelerated the maturity of the Loan pursuant to
Section 13.2, the Lender may proceed to protect and enforce its rights and
remedies under this Agreement, the Note or any of the other Loan Documents by
suit in equity, action at law or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Agreement
and the other Loan Documents or any instrument pursuant to which the Obligations
are evidenced, including as permitted by applicable law the obtaining of the ex
parte appointment of a receiver, and, if any amount owed to the Lender shall
have become due, by declaration or otherwise, proceed to enforce the payment
thereof or any other legal or equitable right of the Lender. No remedy conferred
upon the Lender or the holder of the Note in this Agreement or in any of the
other Loan Documents is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or thereunder or now or hereafter existing at law or in
equity or by statute or any other provision of law.
13.5 Distribution of Collateral Proceeds. In the event that, following
the occurrence or during the continuance of any Default or Event of Default, the
Lender receives any moneys in connection with the enforcement of any the
Security Documents, or otherwise with respect to the realization upon any of the
Collateral, such moneys shall be distributed for application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Lender for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Lender in connection with the collection of such
moneys by the Lender, for the exercise, protection or enforcement by
the Lender of all or any of the rights, remedies, powers and privileges
of the Lender under this Agreement or any of the other Loan Documents
or in respect of the Collateral or in support of any provision of
adequate indemnity to the Lender against any taxes or liens which
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by law shall have, or may have, priority over the rights of the Lender
to such moneys;
(b) Second, to all other Obligations in such order or
preference as the Lender may determine; provided, however, that the
Lender may in its discretion make proper allowance to take into account
any Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Lender of all of the
Obligations, to the payment of any obligations required to be paid
pursuant to ss.9-504(l)(c) of the Uniform Commercial Code of the State
of Maine; and
(d) Fourth, the excess, if any, shall be returned to the
Borrower or to such other Persons as are entitled thereto.
13.6 Power of Attorney. For the purposes of carrying out the provisions
and exercising the rights, remedies, powers and privileges granted by or
referred to in this Section 13, the Borrower hereby irrevocably constitutes and
appoints the Lender its true and lawful attorney-in-fact, with full power of
substitution, to execute, acknowledge and deliver any instruments and do and
perform any acts which are referred to in this Section 13, in the name and on
behalf of the Borrower. The power vested in such attorney-in-fact is, and shall
be deemed to be, coupled with an interest and irrevocable.
13.7 Waivers. The Borrower hereby waives to the extent not prohibited
by applicable law (a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions hereof or of any
of the other Loan Documents), protests and notices of dishonor, (b) any
requirement of diligence or promptness on the Lender's part in the enforcement
of its rights (but not fulfillment of its obligations) under the provisions of
this Agreement or any of the other Loan Documents, and (c) any and all notices
of every kind and description which may be required to be given by any statute
or rule of law and any defense of any kind which the Borrower may now or
hereafter have with respect to its liability under this Agreement or under any
of the other Loan Documents.
14. SETOFF
Regardless of the adequacy of any Collateral, during the continuance of
any Event of Default, any deposits (general or specific, time or demand,
provisional or final, regardless of currency, maturity, or the branch of the
Lender where such deposits are held) or other sums credited by or due from the
Lender to the Borrower and any securities or other property of the Borrower in
the possession of the Lender may be applied to or set off against the payment of
the Obligations and any and all
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other liabilities, direct, or indirect, absolute or contingent, due or to become
due, now existing, or hereafter arising, of the Borrower to the Lender.
15. EXPENSES
The Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Agreement, the other Loan Documents and the other agreements
and instruments mentioned herein, (b) any taxes (including any interest and
penalties in respect thereto) payable by the Lender (other than taxes based upon
the Lender's net income), including any recording, mortgage or intangibles taxes
in connection with the Security Deed, or other taxes payable on or with respect
to the transactions contemplated by this Agreement, including any taxes payable
by the Lender in connection with this Agreement and the transactions
contemplated hereby after the Closing Date (the Borrower hereby agreeing to
indemnify the Lender with respect thereto), (c) the reasonable fees, expenses
and disbursements of the Lender's counsel or any local counsel to the Lender
incurred in connection with the preparation, administration or interpretation of
the Loan Documents and other instruments mentioned herein, the making of each
Advance hereunder, and amendments, modifications, approvals, consents or waivers
hereto or hereunder, (d) the reasonable fees, expenses and disbursements of the
Lender incurred in connection with the preparation, administration or
interpretation of the Loan Documents and other instruments mentioned herein, and
the making of each Advance hereunder (including all Appraisal fees, and surveyor
fees), (e) all reasonable out-of-pocket expenses (including reasonable
attorneys' fees and costs, which attorneys may be employees of the Lender, and
the fees and costs of consultants, accountants, auctioneers, receivers, brokers,
Project managers, appraisers, investment bankers or other experts retained by
the Lender) in connection with (i) the enforcement of or preservation of rights
under any of the Loan Documents against the Borrower or any Guarantor or the
administration thereof after the occurrence of a Default or Event of Default and
(ii) any litigation, proceeding or dispute whether arising hereunder or
otherwise, in any way related to the Lender's relationship with the Borrower or
such Guarantor, and (f) all fees, expenses and disbursements of the Lender
incurred in connection with UCC searches, UCC filings, title rundowns, title
searches or mortgage recordings. The covenants of this Section 15 shall survive
payment or satisfaction of payment of all amounts owing with respect to the
Note.
16. INDEMNIFICATION
The Borrower agrees to indemnify and hold harmless the Lender from and
against any and all claims, actions and suits, whether groundless or otherwise,
and from and against any and all liabilities, losses, damages and expenses of
every nature and character arising out of this Agreement or any of the other
Loan Documents or the transactions contemplated hereby and thereby including,
without limitation, (a) any brokerage, leasing, finders or similar fees, (b) any
disbursement of the proceeds
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<PAGE>
of any of the Advances, (c) any condition of NEON whether related to the quality
of construction or otherwise, (d) any actual or proposed use by the Borrower or
NECOM of the proceeds of any of the Advances, (e) any actual or alleged
violation of any Requirements or Project Approvals, (f) the Borrower or any
Guarantor entering into or performing this Agreement or any of the other Loan
Documents or (g) with respect to the Borrower or NECOM and its properties and
assets, the violation of any Environmental Law, the Release or threatened
Release of any Hazardous Materials or any action, suit, proceeding or
investigation brought or threatened with respect to any Hazardous Materials
(including, but not limited to claims with respect to wrongful death, personal
injury or damage to Project), in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs of internal
counsel incurred in connection with any such investigation, litigation or other
proceeding. In litigation, or the preparation therefor, the Lender shall be
entitled to select its own counsel and, in addition to the foregoing indemnity,
the Borrower agrees to pay promptly the reasonable fees and expenses of such
counsel; provided, however, that this indemnification shall not apply to any
claim, action, or suit, liability, loss, damages or expense to the extent caused
by the willful act of the Lender. The obligations of the Borrower under this
Section 16 shall survive the repayment of the Loan and shall continue in full
force and effect so long as the possibility of such claim, action or suit
exists. If, and to the extent that, the obligations of the Borrower under this
Section 16 are unenforceable for any reason, the Borrower hereby agrees to make
the maximum contribution to the payment in satisfaction of such obligations
which is permissible under applicable law.
17. LIABILITY OF THE LENDER
No action shall be commenced by the Borrower for any claim against the
Lender under the terms of this Agreement unless written notice thereof,
specifically setting forth the claim of the Borrower, shall have been given to
the Lender within fifteen (15) days after the occurrence of the event or within
fifteen (15) days after the Borrower has acquired knowledge of the occurrence of
the event which the Borrower alleges gave rise to such claim, and failure to
give such notice shall constitute a waiver of any such claim. The liability of
the Lender to the Borrower for any breach of the terms of this Agreement by the
Lender shall not exceed a sum equal to the amount which the Lender shall be
determined to have failed to advance in consequence of a breach by the Lender of
its obligations under this Agreement, together with interest thereon at the rate
payable by the Borrower under the terms of the Note for Advances which the
Borrower is to receive hereunder, computed from the date when the Advance should
have been made by the Lender to the date when the Advance is, in fact, made by
the Lender, and, upon the making of any such payment by the Lender to the
Borrower, the same shall be treated as an Advance under this Agreement, in the
same fashion as any other Advance under the terms of this Agreement. In no event
shall the Lender be liable to the Borrower, or anyone claiming by, under or
through the Borrower, for any special, exemplary, punitive or
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consequential damages, whatever the nature of the breach of the terms of this
Agreement by the Lender, such damages and claims therefor being expressly waived
by the Borrower.
18. RIGHTS OF THIRD PARTIES
All conditions to the performance of the obligations of the Lender
under this Agreement, including the obligation to make Advances, are imposed
solely and exclusively for the benefit of the Lender and no other Person shall
have standing to require satisfaction of such conditions in accordance with
their terms or be entitled to assume that the Lender will refuse to make
Advances in the absence of strict compliance with any or all thereof and no
other Person shall, under any circumstances, be deemed to be a beneficiary of
such conditions, any and all of which may be freely waived in whole or in part
by the Lender at any time if in its sole discretion it deems it desirable to do
so. In particular, the Lender makes no representations and assumes no
obligations as to third parties concerning the quality of the construction by
the Borrower or NECOM of NEON or the absence therefrom of defects.
19. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Note, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrower or the Guarantors pursuant
hereto and thereto shall be deemed to have been relied upon by the Lender,
notwithstanding any investigation heretofore or hereafter made by it, and shall
survive the making by the Lender of the Advances, as herein contemplated, and
shall continue in full force and effect so long as any amount due under this
Agreement or the Note or any of the other Loan Documents remains outstanding or
the Lender has any obligation to make any Advances. All statements contained in
any certificate or other paper delivered to the Lender at any time by or on
behalf of the Borrower or the Guarantors pursuant hereto or in connection with
the transactions contemplated hereby shall constitute representations and
warranties by the Borrower or the Guarantors hereunder.
20. PARTICIPATION; ETC.
20.1 Participations. The Lender may sell participations to one or more
Persons in all or any portion of the Lender's rights and obligations under this
Agreement and the other Loan Documents; provided that (a) any such sale or
participation shall not affect the rights and duties of the Lender hereunder to
the Borrower or under any other Loan Document to any Guarantor and (b) the only
rights granted to the participant pursuant to such participation arrangements
with respect to waivers, amendments or modifications of the Loan Documents shall
be the right to approve waivers, amendments or modifications that would reduce
the
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<PAGE>
principal of or the interest rate on the Loan, extend the term or increase the
amount of the Loan or extend any regularly scheduled payment date for principal
or interest.
20.2 Pledge by the Lender. The Lender may at any time pledge all or any
portion of its interest and rights under this Agreement (including all or any
portion of the Note) to any Person. No such pledge or the enforcement thereof
shall release the Lender from its obligations hereunder or under any of the
other Loan Documents.
20.3 No Assignment by the Borrower. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior approval of the Lender.
21. RELATIONSHIP
The relationship between the Lender and the Borrower is solely that of
a lender and borrower, and nothing contained herein or in any of the other Loan
Documents shall in any manner be construed as making the parties hereto
partners, joint venturers or any other relationship other than lender and
borrower.
22. NOTICES
Each notice, demand, election or request provided for or permitted to
be given pursuant to this Agreement (hereinafter in this Section 22 referred to
as "Notice") must be in writing and shall be deemed to have been properly given
or served by personal delivery or by sending same by overnight courier or by
depositing same in the United States Mail, postpaid and registered or certified,
return receipt requested, and addressed as follows:
If to the Lender: Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
Attn: Treasurer
With a copy to: Kimball L. Kenway, Esq.
Curtis Thaxter Stevens Broder & Micoleau LLC
One Canal Plaza
P.O. Box 7320
Portland, Maine 04112
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<PAGE>
If to the Borrower and/or
NECOM: FiveCom LLC/NECOM LLC
c/o FiveCom, Inc., Manager
391 Totten Pond Road, Suite 401
Waltham, Massachusetts 02154
Attn: President
With a copy to: Alexander A. Bernhard, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Each Notice shall be effective upon being personally delivered or upon
being sent by overnight courier or upon being deposited in the United States
Mail as aforesaid. The time period in which a response to such Notice must be
given or any action taken with respect thereto (if any), however, shall commence
to run from the date of receipt if personally delivered or sent by overnight
courier, or if so deposited in the United States Mail, the earlier of three (3)
Business Days following such deposit or the date of receipt as disclosed on the
return receipt. Rejection or other refusal to accept or the inability to deliver
because of changed address for which no Notice was given shall be deemed to be
receipt of the Notice sent. By giving at least thirty (30) days, prior Notice
thereof, the Borrower or the Lender shall have the right from time to time and
at any time during the term of this Agreement to change their respective
addresses and each shall have the right to special as its address any other
address within the United States of America.
23. GOVERNING LAW
This Agreement and each of the other Loan Documents, except as
otherwise specifically provided therein, are contracts under the laws of the
State of Maine and shall for all purposes be construed in accordance with and
governed by the laws of said State (excluding the laws applicable to conflicts
or choice of law).
24. CONSENT TO JURISDICTION; WAIVERS
THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO
PERSONAL JURISDICTION IN THE STATE OF MAINE OVER ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE CONSTITUTION OF THE UNITED
STATES AND THE CONSTITUTIONS AND LAWS OF ANY STATE (I) TO THE RIGHT, IF ANY, TO
TRIAL BY JURY AND (II) TO OBJECT TO JURISDICTION WITHIN THE STATE OF MAINE OR
VENUE IN ANY PARTICULAR FORUM WITHIN THE STATE OF MAINE.
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25. HEADINGS
The captions in this Agreement are for convenience of reference only
and shall not define or limit the provisions hereof.
26. COUNTERPARTS
This Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Agreement it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against whom enforcement is sought.
27. ENTIRE AGREEMENT
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. There are no implicit or oral
understandings or agreements not fully and accurately set forth in this
Agreement. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except as provided in Section 28. It is understood and
agreed that no officer or employee of Lender has any authority to modify, alter
or amend this Agreement orally. It is further understood and agreed that at no
time will any oral agreement that is inconsistent with the terms of this
Agreement be enforceable against Lender. Borrower acknowledges that it and its
counsel have had an opportunity to review this Agreement.
28. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Except as otherwise expressly set forth in any particular provision of
this Agreement, any consent or approval required or permitted by this Agreement
to be given by the Lender may be given, and any term of this Agreement or of any
other instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower of any terms of this Agreement or such
other instrument or the continuance of any Default or Event of Default may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Lender. No waiver
shall extend to or affect any obligation not expressly waived or impair any
right consequent thereon. No course of dealing or delay or omission on the part
of the Lender in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No Advance made by the Lender hereunder during
the continuance of any Default or Event of Default shall constitute a waiver
thereof. No
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notice to or demand upon the Borrower shall entitle the Borrower to other or
further notice or demand in similar or other circumstances.
29. TIME IS OF THE ESSENCE
Time is of the essence with respect to each and every covenant,
agreement and obligation of the Borrower under this Agreement and the other Loan
Documents.
30. SEVERABILITY
The provisions of this Agreement are severable, and if any one clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.
31. COMPLETION GUARANTEE
31.1 Borrower hereby guarantees the prompt performance and completion
when due of all of the construction and work required of Contractor under the
Construction Contract and the prompt payment when due of all costs, expenses and
other billings pertaining to the design, construction and completion of NEON as
the same now is contemplated and as the same may be increased by modifications
and amendments to the Construction Contract and the Plans and Specifications
therefor, including all overruns in such costs, expenses and billings, however
the same may be caused; such costs, expenses and billings to include not only
the cost of the Contractor and all other contractors, materialmen, suppliers,
professional and other services, governmental taxes and assessments upon the
Project, premiums for casualty and other insurance policies required by the
Lender, but also all costs pertaining to finally completing NEON so that it
complies with all applicable laws and ordinances and is ready for operation.
31.2 This shall be a continuing, unconditional and absolute guaranty
without defenses whatsoever. Borrower hereby waives notice of acceptance of this
guaranty, notice of any advance, credit given or other transaction resulting, or
which may result, in any obligation of the Borrower to the Lender under the
terms hereof, and in addition, waives presentment, demand, protest, notice of
dishonor, notice of any nonperformance or other default, and hereby waives
recourse to all suretyship defenses generally, including, but not limited to,
(a) extensions of time, any forbearance, any waiver, and any other indulgences
which may be granted by the Borrower, the Lender or any other person or party,
to the Contractor, or to any other party liable under the Construction Contract,
or to any subcontractors or materialmen, (b) extensions of time, any
forbearance, any waiver, and other
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indulgences which may be granted by the Lender, or any other person or party
related to or associated with the Borrower, (c) any modifications or amendments
to the Construction Contract or to the Plans and Specifications or to any other
documents to which the Construction Contract may refer, which modifications or
amendments may be made without notice to or consent of the Borrower, (d) any act
or omission to act by or on behalf of the Lender or other person or party, (e)
any release of security, whether intentional or unintentional, (f) any release
of any liable party or parties to the Construction Contract, whether intentional
or unintentional, and (g) the invalidity, unenforceability or failure of
priority, in whole or in part, by any security or other guaranty taken or to be
taken by the Lender for the performance of the obligations guaranteed hereby.
31.3 The Borrower hereby grants to the Lender full power in its
uncontrolled discretion, and without notice to the Borrower, to deal in any
manner with the obligations guaranteed hereby and with any security therefor.
The Lender shall not be required to make any demand upon or pursue or exhaust
any recourse or remedies which it may have against the Contractor, or against
any other persons or parties or against any property mortgaged or pledged as
security for repayment of the Note, but upon nonperformance of or breach in the
Contractor's obligations under the Construction Contract or upon nonpayment of
construction or other costs or expenses as aforesaid, the Lender hereof may
immediately enforce payment or performance, or both, from the Borrower pursuant
to this Agreement.
31.4 The Borrower hereby waives any right to extension or to
exoneration and waives contribution from any co-surety or any security taken by
the Lender for the performance of the obligations guaranteed hereby and defers
any rights of subrogation until all the obligations guaranteed hereby are duly
performed in full, and the Borrower defers any right to reimbursement from
responsible parties until all of the obligations guaranteed hereby are duly
performed in full.
32. ISSUANCE AND EXPIRATION OF WARRANT AND RELATED ANTI-DILUTION SHARES.
At the Closing, Borrower shall issue to Lender a warrant in the
Borrower amounting to a five percent (5%) ownership interest in the Borrower, in
consideration of a payment of $1.00 from Lender to Borrower, such warrant to be
in the form attached hereto as Exhibit E hereto. The parties agree that the fair
market value of such warrant as of the date hereof is $532,803. The warrant
shall expire as provided in Section 1.2 thereof.
By its signature in the Joinder Agreement below, FiveCom, Inc. agrees
that upon exercise of such warrant, it shall issue to MaineCom Services
("MaineCom") 773,891 additional shares of Series B Preferred Stock in
satisfaction of the requirement in Section 3.4 of the Stock Subscription
Agreement between FiveCom, Inc. and
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MaineCom dated as of November 22, 1995, as amended. Such number of shares shall
be subject to adjustment. FiveCom, Inc. agrees (a) that all conditions to such
issuance in such Stock Subscription Agreement, other than exercise of the
warrant, have been satisfied, and (b) that MaineCom may rely on this Section 32
as a third-party beneficiary.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as a sealed instrument as of the date first set forth above.
WITNESS: CENTRAL MAINE POWER COMPANY,
Lender
/s/ Scott E. Pueschel By: /s/ Curtis I. Call
- --------------------------- ------------------------------------
Curtis I. Call, its Treasurer
FIVECOM LLC
BY: FiveCom, Inc., its Manager
/s/ Scott E. Pueschel By: /s/ Victor Colantonio, President
- --------------------------- ------------------------------------
Victor Colantonio, Its President
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JOINDER AGREEMENT
-----------------
NECOM LLC hereby joins in this Agreement, agrees to be bound by all of
the terms and conditions of this Agreement and agrees to perform all of the
obligations and covenants of the Borrower set forth herein. FiveCom, Inc. joins
in this Agreement for the purpose of making the representations and warranties
to Lender contained in Section 8 above both for itself (as if it were directly
named in such Section as a party making such representations and warranties),
for the purposes of its agreement in Section 32 to issue stock to MaineCom, and
on behalf of Borrower and NECOM
IN WITNESS WHEREOF, NECOM LLC and FiveCom Inc. have caused this
Joinder Agreement to be executed as of the day and year first written above.
WITNESS: NECOM LLC
BY: FiveCom, Inc., its Manager
/s/ Scott E. Pueschel By: /s/ Victor Colantonio, President
- ----------------------------- ------------------------------------
Victor Colantonio, Its President
FIVECOM LLC
/s/ Scott E. Pueschel By: /s/ Victor Colantonio, President
- ----------------------------- ------------------------------------
Victor Colantonio, Its President
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EXHIBIT D
---------
BORROWER'S REQUISITION
----------------------
BORROWER: FiveCom LLC
PROJECT: As described in the Construction Loan Agreement
dated _________ 1997 between Borrower and Central
Maine Power Company (the "Construction Loan
Agreement")
PERIOD COVERED: ___________
REQUISITION NO: ___________
NEON LOAN AMOUNT: $25,000,000
Pursuant to the Construction Loan Agreement, the Borrower hereby authorizes and
requests an advance against the proceeds of the Note for the following purposes
and the following amounts:
<TABLE>
<S> <C> <C>
1. Direct Cost incurred to the end of period covered (from Schedule I): ________
2. Total Direct Costs incurred: ________
3. Less amount previously advanced: ________
4. Amount requisitioned for period covered: ________
5. Balance to complete: ________
6. Total of lines 2 & 5: ________
7. Indirect Costs incurred to end of period covered (from Schedule II): ________
</TABLE>
Details of Direct Costs requisitioned are listed on Schedule I attached and,
with respect to Direct Costs incurred under the Construction Contract, on the
[standard AIA] form attached. Details of Indirect Costs are listed on Schedule
II attached.
Attached hereto are each of the following (check as applicable):
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_____ (a) invoices for all items listed on Schedules I and II
_____ (b) Written lien waivers from the Contractor with respect to
work done and materials supplied and to be paid for pursuant to the
requested Advance and from such laborers, subcontractors and
materialmen for work done and materials supplied by them which were
paid for pursuant to the next preceding Draw Request (MUST BE CHECKED
FOR EACH DRAW);
_____ (c) If the amount requested includes amounts to be paid to
the Contractor under the Construction Contract, (i) a completed and
fully itemized Application and Certificate for Payment (AIA Document
G702 or similar form approved by the Lender) containing the
certification of the Contractor as to the accuracy of same, and showing
all subcontractors and materialmen by name and trade or job, the total
amount of each subcontract or purchase order, the amount theretofore
paid to each subcontractor or materialman as of the date of such
application, and the amount to be paid from the proceeds of the Advance
to each subcontractor and materialman; (ii) a certificate of the
Contractor in the form attached hereto; and (iii), if requested by
Lender, copies of requisitions and invoices from subcontractors and
materialmen supporting all items of cost covered by such application;
_____ (d) A written request for any necessary changes in the Plans
and Specifications, the Project Budget, the Disbursement Schedule or
the Construction Schedule;
_____ (e) Copies of all change orders, accompanied by a change
order summary prepared by and executed by the Borrower, and, to the
extent requested by the Lender, copies of all subcontracts, of all
inspection or test reports and other documents relating to the
construction of NEON, not previously delivered to the Lender;
_____ (f) Approval of the Draw Request for such Advance by the
Construction Inspector, accompanied by a certificate or report from the
Construction Inspector to the effect that in its opinion, based on
on-site observations and submissions by the Contractor, the
construction of NEON to the date thereof was performed in a good and
workmanlike manner and in accordance with the Plans and Specifications,
stating the estimated total cost of construction of NEON, stating the
percentage of in-place construction of NEON, and stating that the
remaining non-disbursed portion of the Loan allocated for such purpose
in the Project Budget is adequate to complete the construction of NEON;
_____ (f) Evidence that one hundred percent (100%) of the cost of
the remaining construction work is covered by firm fixed price or
guaranteed
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maximum price, or other, contracts or subcontracts, or orders for the
supplying of materials, with contractors, subcontractors, materialmen
or suppliers satisfactory, to the Lender;
_____ (f) Evidence of payment by Borrower of any fees incurred for
the construction inspection of NEON performed in connection with each
Draw Request; and
_____ (g) Other items requested by the Lender.
In connection with and in order to induce Central Maine Power Company (the
"Lender") to advance the amount requested above, and knowing that the Lender
will rely thereon in doing so, the Borrower hereby represents, warrants and
stipulates as follows:
1. There is existing no Event of Default as defined in the Construction
Loan Agreement and no condition or event which with the lapse of time or the
giving of notice, or both, would constitute an Event of Default under, or a
violation of, the Construction Loan Agreement, Note, Security Deed or any of the
other Loan Documents. The Borrower has duly complied with and observed all of
the terms, covenants, and conditions of each of the Loan Documents required to
be performed by the Borrower to the date of this requisition, and unless the
Lender is notified to the contrary prior to the disbursement of the advance
requested above, will be so on the date thereof.
2. The representations and warranties of the Borrower and the
Guarantors contained in the Loan Documents are true and correct on the date of
this requisition, and unless the Lender is notified to the contrary prior to the
disbursement of the amount requested above, will also be true and correct on the
date thereof.
3. The amounts and percentages set forth on Schedules I and II attached
hereto are true and correct to the best of the Borrower's knowledge and
A. The total amount advanced under the Note after the honoring of this
requisition, plus retainage held, plus the Borrower's required equity funds
provided for in the Construction Loan Agreement, shall not exceed the Direct
Costs incurred, plus Indirect Costs, and
B. After the honoring of this requisition, the Note amount not yet
advanced, less the retainage held, shall be sufficient to pay for all Direct
Costs and Indirect Costs not yet paid and which will be required to complete
construction of NEON and to carry NEON through the maturity date of the Loan as
required or contemplated by the Construction Loan Agreement.
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4. All sums previously requisitioned have been applied to the payment
of the Direct and Indirect Costs heretofore incurred and the proceeds of any
advance made in accordance with this request will be applied solely to payment
of the Direct Costs and Indirect Costs itemized in this requisition.
5. Construction of NEON to date has in every respect been performed
fully in accordance with the Plans and Specifications and the Construction Loan
Agreement.
6. No amendments, modifications or changes have been made to the
[Engineer]'s contract, the Construction Contract or the Plans and
Specifications, except such as have had Lender's prior written approval.
7. Capitalized terms not defined herein shall have the same meaning as
set forth in the Construction Loan Agreement.
DATED: _____________,1997. FIVECOM LLC
BY: FiveCom, Inc., its Manager
By: ___________________________
Name:
Title:
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CONTRACTOR'S REQUISITION CERTIFICATE
------------------------------------
Application for Payment No. ______
TO: CENTRAL MAINE POWER COMPANY (the "Lender")
FROM: SEAWARD CORPORATION ("Contractor")
RE: Construction of Fiber Optic Network on Northeast Utilities
Electric Distribution System from Connecticut to Maine (the
"Project") FiveCom LLC ("Owner").
We are the general contractor for the construction of NEON, and to
induce Lender to advance loan proceeds to assist in funding construction of NEON
and knowing that Lender will rely on this certificate in doing so, we hereby
certify as follows:
1. In reference to our contract with the Owner dated August 14, 1996
for construction of NEON (the "Construction Contract"), and the Plans and
Specifications therefor, 100 amendments, modifications or changes have been made
to the Construction Contract or the Plans and Specifications except (i) those
made before the date of the Construction Contract and (ii) those that have had
your prior written approval. There are no pending change orders except as
follows:
-----------------------------------------------------------------------
2. The Owner is not in default of any of the Owner's obligations to us
as of the date hereof except as follows:
-----------------------------------------------------------------------
3. We have paid in full all our obligations to subcontractors, workmen,
suppliers and materialmen for and with respect to all labor and materials
supplied through and including the date of our last Application for Payment,
except for any reasonable retainage, which we are holding in accordance with the
terms of such obligations and the Construction Contract.
4. Effective upon receipt of payment pursuant to this requisition, we
waive and release any and all rights to claim any lien for labor done or
materials furnished up to an amount equal to the amount of this Application for
Payment, plus the amount of all our previously funded applications.
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Executed as an instrument under seal this _______ day of____________,
199__.
SEAWARD CORPORATION, Contractor
By: ___________________________
Name:
Title:
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Schedule 8.2 - Permitted Liens
------------------------------
Liens evidenced by the following UCC-1 Financing Statements:
1. UCC-1 Financing Statement number 135-97-454529 filed with the
Massachusetts Secretary of State on March 14, 1997 and listing borrower
as debtor and Peoples Heritage Savings Bank as secured party, and
corresponding filings which may have been made in additional
jurisdictions.
2. UCC-1 Financing Statement number 135-96-409155 filed with the
Massachusetts Secretary of State on August 8, 1996 and listing NECOM as
debtor and Applied Telecommunications Technologies, Inc. as secured
party, and corresponding filings which may have been made in additional
jurisdictions.
3. UCC-1 Financing Statement number 135-94-258-539 filed with the
Massachusetts Secretary of State on September 2, 1994 and listing
FiveCom, Inc. as debtor and Applied Telecommunications Technologies,
Inc. as secured party, as amended, and corresponding filings which may
have been made in additional jurisdictions.
4. UCC-1 Financing Statement number 135-96-361561 filed with the
Massachusetts Secretary of State on January 5, 1996 and listing
FiveCom, Inc. as debtor and Applied Telecommunications Technologies,
Inc. as secured party, and corresponding filings which may have been
made in additional jurisdictions.
5. UCC-1 Financing Statement number 135-97-449473 filed with the
Massachusetts Secretary of State on February 18, 1997 and listing
FiveCom, Inc. as debtor and Vanguard Financial Service, Corp. as
secured party, and corresponding filings which may have been made in
additional jurisdictions.
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Schedule 8.3 - Financial Statements
-----------------------------------
The following liabilities are not reflected in the balance sheet:
1. Payments due under employment contracts.
2. $18.6 million payment bond and promissory note.
3. Correspondence has been passed between FiveCom, Inc. and KMT
Construction Company ("KMT') wherein KMT has asserted its claim to
certain amounts withheld by FiveCom, Inc. and FiveCom, Inc. has
asserted that KMT is not entitled to such amounts withheld. Since such
correspondence, KMT has entered into bankruptcy. KMT has not made a
claim against FiveCom, Inc. and FiveCom, Inc. has not filed a claim
against KMT in the bankruptcy proceedings. However, the bankruptcy is
not yet resolved. FiveCom, Inc. withheld $48,000 from KMT in order to
remedy any corrections necessary to the cable which KMT had installed.
4. Clearance of certain real estate easements, including, but not limited
to the Ayer easement and the Clapp easement.
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Schedule 8.6 - Litigation
-------------------------
1. While neither the Borrower nor NECOM have been threatened with
litigation, they are aware of the fact that Dan Ayer has taken the
position with Northeast Utilities that the easement granted to
Northeast Utilities on Mr. Ayer's property does not include the right
to install fiber optic cable. Neither the Borrower nor NECOM are able
to evaluate the merits of this position and they are unable to
determine what the potential impact of this position might be.
2. While neither the Borrower nor NECOM have been threatened with
litigation, they are aware of the fact that Terry Clapp has expressed
concerns related to the easement granted on his property. Neither the
Borrower nor NECOM are able to evaluate the merit of Mr. Clapp's
concerns and they are unable to determine what the potential impact of
his concerns might be.
-70-
<PAGE>
Schedule 8.7 - No Materially Adverse Contracts, Etc.
----------------------------------------------------
None.
-71-
<PAGE>
Schedule 8.14 - Certain Transactions
------------------------------------
1. Victor Colantonio is a member of Borrower and is an officer and
director of FiveCom, Inc. FiveCom, Inc. is the manager of Borrower and
of NECOM.
2. Michael Musen is a member of Borrower and is an officer of FiveCom,
Inc. FiveCom, Inc. is the manager of Borrower and of NECOM.
3. Borrower and Connecticut Light and Power have executed a contract for
the performance of services in engineering work. Connecticut Light and
Power is a wholly owned subsidiary of Northeast Utilities. Mode 1
Communications, Inc., another wholly owned subsidiary of Northeast
Utilities, is a member of both the Borrower and NECOM.
-72-
<PAGE>
Schedule 8.15 - Employee Benefit Plans; Pension Plans
-----------------------------------------------------
1. Borrower and NECOM are each billed by FiveCom, Inc. for the pro rata
costs incurred by each of them under the Pilgrim Health Plan agreement.
2. Borrower and NECOM are each billed by FiveCom, Inc. for the pro rata
costs incurred by each of them under the SBSB (Delta Dental) Plan
agreement:
3. It is anticipated that FiveCom, Inc. will allocate to Borrower and
NECOM the costs of additional employee benefit plans, including but not
limited to employee pension plans. It is anticipated that such plans
will be no less favorable to the employees of Borrower and NECOM than
similar benefit plans currently offered to similarly situated
executives of Central Maine Power Company.
-73-
<PAGE>
Schedule 8.16 - Environmental Compliance
----------------------------------------
None.
-74-
<PAGE>
Schedule 8.19(a) - Project Approvals (Exceptions)
-------------------------------------------------
1. Borrower submitted an application for approval to Lawrence, MA and an
application for approval to Derry, NH. Neither of the application
approvals have yet been granted.
2. Additional permits may be needed in the normal conduct of Borrower's
and NECOM's business for the installation of cable on the NEON system.
3. Borrower and/or NECOM may need landowner approvals throughout the NEON
system because existing easements may not permit the installation of
fiber optic cable.
4. Additional permits may be needed in Connecticut, Massachusetts, New
Hampshire and Maine from public utility commissions to permit the grant
of easements and to permit the transfer of ownership of existing cable.
5. Trustee consents under various loan and bond indentures may be needed
in order to establish the priority of Central Maine Power Company's
lien.
-75-
<PAGE>
Schedule 8.19(b) - Project Approvals
------------------------------------
1. Occupancy of the Public Ways: Springfield, MA
2. Municipal Approval and Building Permit: Manchester, NH
3. Municipal Approval and Building Permit: Dover, NH
4. Building Permit: Goffstown, NH
5. Municipal Permit: Nashua, NH
6. Municipal Permit: Merrimack, NH
7. Siting Counsel: State of Connecticut
8. PUC Stipulation: State of New Hampshire
9. PUC Stipulation: State of Maine
10. Use of trademarks and servicemarks: U.S. Copyright and Patent Office
-76-
<PAGE>
Schedule 8.21 - Other Contracts
-------------------------------
None.
-77-
<PAGE>
Schedule 8.27(a) - No Asbestos
------------------------------
1. Neither the Borrower nor NECOM are aware of any asbestos located in
NEON or on any property owned or leased by the Borrower or NECOM.
-78-
<PAGE>
Schedule 8.27(c) - No Required Real Property Consents, Permits, Etc.
--------------------------------------------------------------------
1. Neither the Borrower nor NECOM are aware of any outstanding notices,
suits, orders, decrees or judgments specifically naming Borrower or
NECOM relating to zoning, building use and occupancy, fire, health,
sanitation or other violations affecting, against or with respect to,
NEON or any part thereof.
-79-
<PAGE>
Schedule 8.27(f) - Other Material Agreements; No Options
--------------------------------------------------------
None.
-80-
<PAGE>
Schedule 10-7(c) - Indebtedness
-------------------------------
1. Notes number 305, 314, 316, 317, 318 and 319 (the "Notes") are payable
to Applied Telecommunications Technologies, Inc. in monthly principal
and interest instruments of $41,535. As of August 31, 1997, the
outstanding balance on the Notes was $666,710. At August 31, 1997, the
current portion of the Notes amounted to $237,190. The long term debt
still owing under the Notes, as of August 31, 1997, was $429,580.
2. Statements in Schedule 10.9(a) are incorporated in full by this
reference into this schedule.
3. Statements in Schedule 10.12 are incorporated in full by this reference
into this schedule.
-81-
<PAGE>
Schedule 10.8 - Limitation on Liens
-----------------------------------
1. Statements in Schedule 8.2 are incorporated in full by this reference
into this schedule.
-82-
<PAGE>
Schedule 10.9(a) - Contingent Obligations
-----------------------------------------
1. Borrower and NECOM lease fiber capacity and inherent in such leasing
are the contingent obligations of Borrower and NECOM to pay rental fees
for duct, distribution and transmission structures pursuant to Section
22 of the Northeast Utilities Fiber Agreement dated September 27, 1994,
as amended (the "Northeast Utilities Fiber Agreement"). Borrower and
NECOM are also obligated to pay insurance, taxes, fees for restoration
and maintenance and other obligations all subject to the Northeast
Utilities Fiber Agreement and further subject to contracts between
Borrower and its customers and NECOM and its customers.
2. Photocopier lease with Vanguard Financial Service Corp. having a three
year term expiring January 2000 and with annual lease payments in the
amount of $4,158.
3. Automobile lease with Clark & White Inc. having a two year term
expiring February 1998 and with annual lease payments in the amount of
$5,370.48.
4. Automobile lease with Heritage C/P JE having a three year term expiring
April 1998 and with annual lease payments in the amount of $5,688.
5. Office space lease with Totten Pond LLC for the space leased at 391
Totten Pond Road having a three year term expiring March 1998 and with
annual lease payments of $54,100.
6. Cable lease agreement with Massachusetts Mutual Life Insurance Company
having a ten year term expiring December 2005 and with annual lease
payments to be made in the range of $2,400 to $3,449.
7. Promissory Note contingent liability on $18.6 Million bond.
-83-
<PAGE>
Schedule 10.12 - Leases
-----------------------
1. Leases of fiber optic capacity to customers of Borrower and NECOM in
the ordinary course of business.
2. Statements in Schedule 10.9(a) are incorporated in full by this
reference into this schedule.
3. Statements in Schedule 10.7(c) are incorporated in full by this
reference into this schedule.
-84-
<PAGE>
Schedule 11.10(c) - Evidence of Project Approvals
-------------------------------------------------
1. Statements in Schedule 8.19(a) are incorporated in full by this
reference into this schedule.
2. Statements made in the legal opinion provided by Ruth Baker-Batiste are
incorporated in full by this reference into this schedule.
-85-
Exhibit 10.35
PEOPLES HERITAGE SAVINGS BANK
CONSTRUCTION LOAN AGREEMENT
THIS AGREEMENT made on March 11, 1997 by and between FIVECOM OF MAINE
LLC, a Massachusetts limited liability company ("Borrower"), FIVECOM LLC, a
Massachusetts limited liability company ("Owner") and PEOPLES HERITAGE SAVINGS
BANK, a savings institution having its principal place of business at One
Portland Square, Portland, Maine 04112-9540 (hereinafter called the "Lender").
1. Loan. Borrower has given to the Lender contemporaneously herewith a
certain Note in the original principal amount of One Million Six Hundred
Thousand Dollars ($1,600,000) (the "Note"), secured in part by a Loan and
Security Agreement ("Security Agreement") creating a security interest in
certain assets of the Maker (which assets are hereinafter collectively referred
to as the "Collateral"), and being more particularly described in the Security
Agreement. All capitalized terms not otherwise defined herein are defined, and
given the same meaning, as in the Note, the Security Agreement or other
documentation securing or governing the Note (collectively, including the Note,
the "Loan Documents").
2. Improvements. Borrower and Owner will cause to be installed a Fiber
Optic Network ("Improvements") in accordance with the specifications, drawings
and plans ("Plans") identified in an Agreement for the Provision of Fiber Optic
Facilities and Services between Central Maine Power Company and Borrower, dated
January 7, 1997, under a construction contract (the "Contract") entered into by
Owner with CMP International Consultants, a/b/a E/PRO Engineering and
Environmental Consulting, a Maine corporation (the "Contractor"), dated January
17, 1997, as modified by Change Order #1, dated February 27, 1997, copies of the
Plans and Contract being separately delivered to Lender, and will use the
proceeds of the Note to so install said Improvements.
3. Covenants, Warranties and Agreements. In consideration of the making
of the loan evidenced by the Note (the "Loan"), and periodic advances of the
proceeds thereof, the Borrower and the Owner covenant, warrant and agree as
follows:
a. To proceed on or before the date hereof with the construction of the
Improvements according to the Plans and the Contract, all to be in accordance
with all applicable building laws, ordinances, and restrictions, if any, and to
continue the construction with diligence and without undue delay to completion
in accordance with the Contract, the Plans, this agreement, and the requirements
of all governmental authorities having jurisdiction, all to be finally completed
by July 11, 1997;
<PAGE>
b. To comply with all applicable building, zoning, environmental and
land use laws and ordinances, and all restrictions or other encumbrances
affecting the Improvements, to obtain and keep in force valid building permits
and all other necessary permits, and to fulfill in every way the requirements of
any governmental agency, and any other rating or inspection organization,
bureau, association or office having jurisdiction;
c. That each will, in proceeding with the construction and use of the
Improvements, comply with all applicable statutes, ordinances, regulations and
other governmental requirements relating to the construction and operation of
fiber optic communication networks
d. That each will, in proceeding with the construction and use of the
Improvements, comply with all applicable statutes, ordinances, regulations and
other governmental requirements relating to the discharge, accumulation and
disposal of waste materials and by-products, whether solid, liquid, gaseous, or
of any other nature;
e. To keep the Collateral and Improvements free from mechanic's liens,
other liens and claims, whether inferior or superior to the lien of the security
interests created under the Security Agreement ("Security Interests"), and a
termination of the Security Interests and taking of new Security Interests in
substitution therefor shall not release or diminish this obligation; to keep the
Improvements in good repair and insured against loss by fire and other casualty
to an amount and by such companies as shall be satisfactory to Lender, and
maintain such insurance for the benefit of and first payable in case of loss to
Lender or its assigns; such policies of insurance may be endorsed to make loss,
during construction payable to the Contractor, as its interest may appear. In
case of insured loss, Lender, at its option, may credit all or part of the
insurance proceeds to the outstanding debt of Borrower, or may use all or part
thereof for rebuilding or repairing the loss or damage; to provide or cause to
be provided workmen's compensation insurance and public liability and any other
insurance required by any applicable law or by the general conditions of the
Plans;
f. To furnish all waivers of liens or claims on the Collateral, and
such other surveys, releases and assurances as Lender may reasonably deem
necessary or may request for its protection;
g. To pay all indebtedness as required by the Loan Documents and
otherwise comply - with all terms and conditions set forth in the Note, Security
Agreement, and this Agreement, and to execute and deliver to Lender such further
documents and security instruments as Lender may reasonably require for its
protection or to implement the intent of this Agreement;
-2-
<PAGE>
h. To pay on demand to Lender added funds should additional
construction costs and related costs of Improvements beyond original estimates
be reasonably determined necessary by Lender in order to complete the
Improvements;
i. Borrower and Owner each covenants that it will hold in trust each
advance received by it hereunder for application to the items for which such
advance was requested and approved, and that it will not transfer, assign or
pledge any of its right, title and interest in, or title to, any funds deposited
by Borrower or Owner with Lender or reserved by Lender for Borrower or Owner,
without the prior written consent of Lender;
j. To furnish Lender, upon its request, executed copies of all
construction contracts and subcontracts, change orders, invoices, bonds,
estimates with respect to the Improvements, and also upon its request to give
sworn statements setting forth names of contractors, subcontractors, and all
others furnishing labor, materials and services in connection with the
Improvements, including amounts due, amounts paid and total contract prices;
k. Lender shall have the right to retain, at Borrower's cost and
expense, either an officer or employee of Lender or an outside consulting
architect, engineer or inspector to (i) advise Lender as to the accuracy of the
budget for the construction of the Project, (ii) as to whether the final plans
and specifications for the Project are satisfactory for the intended purposes,
(iii) to make periodic inspections of the construction of the Project and to
approve requisitions, (iv) to advise Lender as to any requested change orders,
and (v) to review any construction contracts related to the Project. Lender, or
any of its officers or employees, or any inspector retained by Lender will not
assume any obligations to Borrower or Owner or any other party concerning the
quality of the construction of the Project as a result of any inspection
activities.
l. At the time of the first disbursement of Loan proceeds and at all
times thereafter, there shall remain sufficient unadvanced Loan proceeds to meet
at least Fifty Percent (50%) of all remaining direct and indirect construction
and related costs of the Improvements;
m. The Loan proceeds shall be advanced to finance the construction of
the Project in accordance with plans and specifications which shall be subject
to Lender approval. Lender will make disbursements on account of the Loan not
more often than once monthly after receipt of (i) written certification by a
site inspector approved by Bank that the work is proceeding to his satisfaction
and in accordance with the approved plans and specifications, and that the
undisbursed amount of the Loan will be sufficient to complete at least Fifty
Percent (50%) of the remaining work, (ii) evidence satisfactory to Lender,
including lien waivers from all contractors, subcontractors, suppliers, and
suppliers of subcontractors for services and materials
-3-
<PAGE>
already provided, that there are no mechanic's or other liens prior to Lender's
Security Interest (excepting only de minimis liens), and (iii) an updated
construction budget and requisition form. Lender may also require updating of
cost breakdowns, surveys and title insurance policies without further exceptions
as conditions of each advance and shall contain such other terms and conditions,
including commencement and completion dates as Lender may reasonably require.
n. On completion of the work such inspector shall certify to Lender
that all of the work was performed to his satisfaction, in accordance with the
approved plans and specifications, and in compliance with all applicable codes,
ordinances, rules and regulations relating to the construction of the Project.
o. To allow Lender, through its agents and employees, to inspect the
Improvements, including, without limitation, all work done, all materials,
supplies, equipment and fixtures furnished, installed or stored in, on or about
the Collateral, and all books, subcontracts, and records of Borrower or Owner at
all reasonable times, which inspections Borrower and Owner each acknowledges are
for the sole benefit of Lender in its capacity as a lender;
p. To pay all reasonable costs, charges and expenses, including legal
fees, heretofore or hereafter incurred by Lender in connection with this
Agreement, the Note, the Security Agreement and any other documents executed
herewith or pursuant hereto or in connection with the enforcement of Lender's
rights hereunder or under the Note, the Security Agreement or any other security
instruments held by Lender in the event of a default hereunder or thereunder and
further, including the reasonable expense of any independent architect,
engineer, consultant or other expert retained by Lender to protect its interest
in connection with the Loan or the construction of the Improvements;
q. To pay when due all taxes and any assessments relating to the
Improvements and Collateral;
r. Not to make any changes in the Plans, or changes by altering or
adding to the work contemplated, or orders for extra work, which will result in
a net Improvement cost increase, or will change the design concept, or will
result in a net cumulative Improvement cost decrease of more than Two Percent
(2%) of the Contract amount without the prior written approval of the Lender and
under such conditions as the Lender may establish; and
s. Within thirty (30) days of completion of the Improvements, to
furnish to the Lender satisfactory evidence that all work requiring inspection
by all governmental authorities having jurisdiction has been duly inspected and
approved by such authorities, as well as by the rating or inspection
organization, bureau,
-4-
<PAGE>
association or office having jurisdiction; and that all requisite certificates
of occupancy or use and other approvals have been issued.
4. Assignment of Contracts, Specifications and Permits. Borrower and
Owner each hereby assigns and transfers, and grants a present security interest
in, all of its rights and interests as owner in all Contracts and Agreements
("Contracts") with architects, engineers, contractors, subcontractors, material
providers and others ("Contracting Parties") relating to design, construction
and furnishing of the Improvements, now existing or hereafter arising, and also
all rights and interests in the Plans and all other drawings, plans,
specifications, documents, studies and other materials prepared by or on behalf
of the Borrower, Owner or the Contracting Parties ("Specifications") and also
all permits, licenses, approvals including all applications therefore
("Permits"), to Lender, provided, however, that Lender may not exercise such
rights and interests unless and until Borrower shall have defaulted in its
obligations to Lender under the Loan Documents. Lender shall have no obligation
or liability to perform the obligations of Borrower or Owner under the
Contracts, Plans and/or Permits until Lender assumes such obligations by notice
in writing to Contracting Parties; the Contracting Parties are hereby
authorized, upon receiving such written notice from Lender, to recognize Lender
as the owner of all rights and interest of the Borrower and Owner in the
Contracts, Specifications and Permits; Borrower and Owner each acknowledges that
it remains fully liable to perform its obligations under the Contracts,
Specifications and Permits.
5. Requisition Procedures. Lender agrees by acceptance of this
Agreement, all other Loan documents required by it, and said commitment loan fee
to lend and advance to Borrower or Owner the amount of the Note, or such lesser
amount as may be required to complete the Improvements as determined by Lender,
subject to the covenants and provisions of this Agreement and all other Loan
documents required by it, in periodic installments as the Improvements progress
in accordance with the Plans, upon written application by Borrower or Owner and
upon satisfactory evidence to Lender of stages of completion as certified by a
qualified person agreeable to Lender.
a. The Borrower or Owner shall make monthly applications on forms
approved by the Lender for such advances of Loan proceeds from the Lender.
Applications for advances with respect to the Improvements shall be for amounts
equal to:
i. Fifty Percent (50%) of the total value of classes of
the work acceptably completed; less
ii. prior advances;
-5-
<PAGE>
iii. but in no case shall any such advance be less than
Five Percent (5%) of the Contract price.
b. Values shall be computed in accordance with the amounts assigned to
classes of the work in the detailed construction budget, as approved by Lender
and incorporated herein by reference. Funding of the final requisition shall be
withheld pending certification of final completion and release or termination of
all mechanic's, material providers', and other liens against the Collateral.
c. Each application shall be filed at least five (5) days before the
date the advance is desired, and the Borrower and Owner shall be entitled
thereon only to such amount as may be approved by the Lender. Prior to each
advance of Loan proceeds, Lender reserves the right to request updates of
previously delivered opinions of counsel, and evidence satisfactory to it that
there has been no material adverse change since the date of the application for
the Loan, or since any of the preceding advances or disbursements, in the record
title to the Lender's security, or in the financial or any other condition of
the Borrower which would warrant, in Lender's judgment, withholding or not
making any such advance, and Lender may require Borrower or Owner to obtain from
the Contractor and all subcontractors and material providers dealing directly
with the Contractor, acknowledgments of payment and releases of liens down to
the date covered by the last advance, and concurrently with the final payment
for the Improvements. Such acknowledgments and releases shall be satisfactory in
form and substance to the Lender and shall cover all work done, labor performed
and materials (including equipment and fixtures) furnished in connection with
the Improvements.
d. Such disbursements or advances of Loan proceeds may be made at the
discretion of Lender directly to Borrower, or to any contractor, subcontractor,
material man, or other person or entity providing labor, services or materials,
or jointly to two or more of them, or may be applied by Lender to the discharge
of any liens or other encumbrances upon the Collateral or upon any materials
stored thereon or therein. Lender in any event reserves the right to verify
payments for Improvement costs from Borrower's checkbooks and records. Lender,
without being obligated to do so, may make advances hereunder after maturity of
the Note or expiration of the agreed upon term for making the Improvements
without in any way detracting from or limiting its rights hereunder or under the
Note, Security Agreement, or any other instrument or agreement relating to the
Loan.
6. Defaults. The parties hereto agree that this Agreement is primarily
one among Borrower, Owner and Lender and if at any time before the entire Loan
has been advanced:
a. the interest of the Borrower in the Collateral shall pass from
Borrower voluntarily or involuntarily; or
-6-
<PAGE>
b. if any court action affecting any part of the Loan proceeds
remaining to be advanced is pending: or
c. if the Improvements shall be substantially damaged in any manner; or
d. if the Borrower or Owner shall have violated or failed to perform,
in any material respect any of the covenants or conditions contained in this
Agreement, the Note, Security Agreement or any other instrument or agreement
securing or relating to the Loan: or
e. if any representation made by the Borrower or the Owner herein or in
any certificate, statement or survey furnished by or on behalf of Borrower or
Owner, shall prove to have been false in any material respect when made or
furnished; or
f. if the Lender shall not have a valid, perfected lien of record on
the Collateral for the equal and ratable security of the full amount of all
advances outstanding under this Agreement; or
g. if the Lender shall determine in good faith that the Improvements
are not being properly constructed in accordance with the Contract, the Plans,
and the requirements of any governmental body having jurisdiction; or
h. if Borrower and Owner at any time prior to the completion of the
Improvements both abandon the work or there is any substantial suspension of
work for a period in excess of twenty (20) days irrespective of the cause
thereof; or
i. if Borrower or Owner make any changes in the Plans or other contract
documents, or enter into any additional contract for the construction of the
Improvements without first having obtained the written consent of Lender in
contravention of ss.3(r); or
j. if the Collateral or any part thereof are condemned or taken by
exercise of the right of eminent domain or are purchased in lieu of the exercise
of such right; or
k. there occurs the dissolution, termination of existence, insolvency,
appointment of a receiver of any part of the property of, assignment for the
benefit of creditors by or the commencement of any proceedings under any
bankruptcy or insolvency law or any other law relating to the relief of debtors
by or against the Borrower or Owner, THEN, in any such case, so long as such
event or condition continues uncured and not expressly waived or consented to in
writing by the Lender, the Lender shall not be required to advance any part of
the remainder of the Loan and it may elect to terminate this Agreement, and may
at any time thereafter
-7-
<PAGE>
declare the unpaid principal of and all accrued interest on the Note to be
immediately due and payable without notice or demand, and may take such other
action as the law and/or the Loan Documents allow: it being expressly agreed
that full, material performance or observance of said provisions shall be
conditions precedent to the Lender's undertaking to advance the remainder of the
Loan or any part thereof; no creditor of Borrower, Owner or any other person,
entity or court shall have any claim upon the unadvanced remainder of the Loan,
and Lender shall in no case be a trustee or fiduciary for anyone with respect
thereto; provided, however, that such conditions precedent or any of them may be
waived at any time by the Lender by an express written waiver, but no waiver at
any time of any of said conditions shall be construed as a right to subsequent
waiver of the same provision or condition.
7. Lender Rights. If Lender elects to terminate this Agreement in
accordance with ss.6, it may use and apply any funds deposited with it by the
Borrower or Owner, regardless of the purpose for which such funds were
deposited, in such manner and for such purposes as the Lender may determine.
When an event or condition of default continues uncured for more than fifteen
(15) days, Lender may, in addition to any and all other rights and remedies
available to it, take possession of the Collateral and assume control of the
Improvements and the work and cause them thereafter to be carried on in such
manner as Lender may deem advisable. In such event Lender shall not be obligated
to continue the Improvements to completion. To this end, the Lender or its
agents may enter into and upon and take possession of the Collateral and perform
any and all work and labor necessary to complete the Improvements substantially
according to the Plans, and employ watchmen to protect the Collateral from
injury. All supplies and construction materials of the Borrower at the time of
such entry situated on or near the Collateral shall become the property of the
Lender without payment therefor to be used in said completion and the Lender is
given full power and authority to make such entry and to enter into such
contracts or arrangements as may be necessary to complete the Improvements;
money so expended by Lender shall be added to the principal amount of the Loan
and be deemed to have been paid to the Borrower and secured by the Security
Agreement and shall be payable by the Borrower on demand with interest at the
same rate as is called for by the Note. Borrower and Owner each hereby assigns
all its right, title and interest in and to all contracts, now or hereafter
existing, for the Improvements, to the Lender for Lender's use in the event that
it enters the Collateral for the purpose of completing the Improvements, but it
is agreed that in any event Lender shall not be bound by any such contracts or
under any obligation to fulfill the Borrower's or Owner's commitments thereunder
unless and until Lender elects to do so in writing with the various contractors,
material providers or other parties to such contracts. For the above purposes,
the Borrower and Owner each hereby makes, constitutes and appoints the Lender
its true and lawful attorney-in-fact with full power of substitution in the
Collateral, with full, complete and irrevocable authorization to complete the
Improvements in the name of
-8-
<PAGE>
the Borrower or Owner and to bind Borrower or Owner to any contracts,
commitments or undertakings deemed necessary or advisable by Lender for the
purpose of completing the Improvements in accordance with the Plans. The
Borrower and Owner each hereby empowers the Lender as such attorney as follows:
a. To use any funds of the Borrower or Owner, including any balance
which may be held in escrow and any funds which may remain unadvanced hereunder
for the purpose of completing the Improvements substantially in the manner
called for by the Plans, or to such other degree of completion as Lender may
deem necessary or advisable;
b. To make such additions, changes and corrections in the Plans as
shall be necessary or desirable to complete the Improvements in substantially
the manner contemplated by the Plans;
c. To employ such contractors, subcontractors, agents, architects,
engineers, consultants and inspectors as shall be required for said purposes;
d. To pay, settle or compromise all existing bills and claims which may
be liens against the Collateral, or as may be necessary or desirable for the
completion of the Improvements, or for clearance of title;
e. To execute all applications and certificates in the name of the
Borrower or Owner which may be required by any of the contract documents;
f. To prosecute and defend all actions or proceedings in connection
with the Collateral or the construction of the Improvements and to take such
action and require such performance as it deems necessary under the accepted
guaranty of completion; and
g. To do any and every act which the Borrower or Owner might do in its
own behalf. It is further understood and agreed that this power-of-attorney,
which shall be deemed to be a power coupled with an interest, cannot be revoked.
The Borrower hereby assigns and quit-claims to the Lender all sums unadvanced
under the Security Agreement and all sums due in escrow conditioned upon the use
of said sums for the completion of the Improvements, such assignment to become
effective only in case of default.
8. Borrower-Lender Relationship. It is understood between the parties
hereto that Borrower and/or Owner has selected all contractors, subcontractors,
material providers, as well as all others furnishing services or materials to or
for the Collateral and Improvements and Lender has and shall have no
responsibility whatsoever for them or for the quality of their materials or
workmanship, it being understood that Lender's sole function is that of a
commercial lender and the only
-9-
<PAGE>
consideration passing from Lender to Borrower or Owner is the Loan proceeds in
accordance with and subject to the terms of this Agreement. It is also agreed
that neither Borrower nor Owner shall have any right to rely on any procedures
required by Lender herein, such procedures being solely for the protection of
the Lender in its capacity as Lender and no one else. Borrower and Owner each
hereby agrees to hold and save Lender harmless and indemnify it against and from
any and all claims, of any kind, or any persons, including but without limiting
the generality of the foregoing, employees and invitees of Borrower or Owner,
and of any contractor constructing the Improvements and the employees,
subcontractors and suppliers of any such contractor, arising from or out of the
construction, implementation, use or possession of the Improvements, except to
the extent that Lender exercises its rights to complete construction and such
liability is found to have arisen due to Lender's grossly negligent, reckless or
intentional acts.
9. Binding. The Borrower, Owner and Lender agree that all the
provisions herein shall be binding upon and inure to the benefit of their
respective legal representatives, successors and assigns except as herein
provided, and shall in all respects be governed by the laws of the State of
Maine. As used in this Agreement, the term "Lender" shall be deemed to include
any person or entity to whom the Note and Security Agreement referred to herein
shall be assigned, in whole or in part.
10. Contractor. The Contractor joins in this Agreement for the purpose
of agreeing with Lender that should Lender, its successors or assigns, under the
terms of this Agreement request it as Contractor to complete the Improvements
under its written contract with Owner, it shall so complete the Improvements in
consideration of the payments to be made to it tinder the terms thereof, shall
comply with all other terms of said contract, and shall recognize Lender's
rights under its Note, Security Agreement and this Agreement, conditioned upon
Lender, at such time, agreeing in writing to perform all obligations of Owner
tinder said contracts. In addition Contractor agrees that the contract shall not
be terminated by it without a fifteen (15) day prior written notice to Lender,
which shall have said period at its option to cure any defect or breach by
Borrower or Owner in said contract. The Borrower, Owner and Contractor each
agree to observe the requirements of this Agreement, and not to make any changes
in the Plans which would entail any substantial variance in accepted plans,
specifications or contract price, or to amend the Contract, or make any changes
by altering or adding to the work contemplated thereby, nor to enter into any
other contract, construction or work relating to the Collateral or the
Improvements without first having obtained the prior written consent of the
Lender and any necessary consent of any corporate surety, except as permitted
herein. Should any additional work be consented to in the future by Lender, it
shall be fully governed by the terms and conditions of this Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Construction Loan Agreement, the day and year first above written.
WITNESSES: FIVECOM OF MAINE LLC
By: FiveCom, Inc., its Manager
/s/ Bruce Tompkins By: /s/ Victor Colantonio, President
- ----------------------------- --------------------------------
FIVECOM OF MAINE LLC
By: FiveCom, Inc., its Manager
/s/ Bruce Tompkins By: /s/ Victor Colantonio, President
- ----------------------------- --------------------------------
PEOPLES HERITAGE SAVINGS BANK
/s/ Bruce Tompkins By: /s/ Roger C. Levesque
- ----------------------------- --------------------------------
Roger C. Levesque, Vice President
CMP INTERNATIONAL CONSULTANTS
/s/ J. D. Fay By: /s/ Robert Letourneau
- ----------------------------- --------------------------------
Robert Letourneau, Vice President
-11-
<PAGE>
CONSTRUCTION LOAN AGREEMENT AMENDMENT
Agreement made on April 9, 1997 by and between FIVECOM, LLC a
Massachusetts limited liability company ("Owner") and PEOPLES HERITAGE SAVINGS
BANK ("Lender").
Recitals
Owner, Lender, FiveCom of Maine LLC ("Borrower") and CMP International
Consultants ("Contractor") entered into a Construction Loan Agreement relating
to the construction of a fiber optic network in Maine dated March 11, 1997. In
the signature lines on Page 9 of the Contract, "FiveCom LLC" was erroneously
referenced as "FiveCom of Maine LLC".
NOW, THEREFORE, FiveCom LLC hereby confirms, effective as of March 11,
1997, its status a a party to the Contract, namely the "Owner" in accordance
with the terms and conditions thereof.
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
erefernce above.
WITNESSES: FIVECOM LLC, "Owner"
By: FiveCom, Inc., Manager
/s/ illegible By: /s/ Victor Colantonio
- ----------------------------- ---------------------------------
Victor Colantonio, President
PEOPLES HERITAGE SAVINGS BANK
/s/ illegible By: /s/ Roger C. Levesque
- ----------------------------- ---------------------------------
Roger C. Levesque, Vice President
-12-
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all reference to our Firm included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 3, 1998
