<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
NETWORK PLUS CORP.
(Exact Name of Registrant as Specified in its Charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4813
(State or Other Jurisdiction of (Primary Standard Industrial 04-3430576
Incorporation or Organization) Classification Code Number) (I.R.S. Employer Identification No.)
</TABLE>
------------------------
234 COPELAND STREET, QUINCY, MASSACHUSETTS 02169; (617) 786-4000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------
JAMES J. CROWLEY, ESQ.
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
234 COPELAND STREET
QUINCY, MASSACHUSETTS 02169
(617) 786-4000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------
WITH A COPY TO:
JEFFREY N. CARP, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 526-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
NUMBER OF PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SHARES TO MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE(1) OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13.5% Series A1 Cumulative Preferred
Stock Due 2009......................... 40,000 $1,000.00 $40,000,000.00 $11,800.00
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act.
------------------------
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 THAT 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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 1998
PROSPECTUS
NETWORK PLUS CORP.
OFFER TO EXCHANGE ONE SHARE OF
13.5% SERIES A1 CUMULATIVE PREFERRED STOCK DUE 2009
FOR EACH OUTSTANDING SHARE OF
13.5% SERIES A CUMULATIVE PREFERRED STOCK DUE 2009
------------------------
Network Plus Corp., a Delaware corporation ("Network Plus" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange up to 40,000 shares of
its 13.5% Series A1 Cumulative Preferred Stock Due 2009 (the "New Preferred
Shares") for up to 40,000 shares of its outstanding 13.5% Series A Cumulative
Preferred Stock Due 2009 (the "Original Preferred Shares", and, together with
the New Preferred Shares, the "Series A Preferred Stock") that were issued in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act").
The terms of the New Preferred Shares are substantially identical in all
respects to the terms of the Original Preferred Shares for which they may be
exchanged pursuant to the Exchange Offer, except that (i) the offer of the New
Preferred Shares will have been registered under the Securities Act and,
therefore, the New Preferred Shares will be freely transferable by holders
thereof (except as provided below) and not bear a legend regarding restrictions
on transfer, (ii) holders of the New Preferred Shares will not be entitled to
certain rights of the holders of the Original Preferred Shares under the
Registration Agreement (as defined), which rights with respect to the Original
Preferred Shares will terminate on consummation of the Exchange Offer and (iii)
the New Preferred Shares will not contain any provisions regarding the payment
of Special Dividends (as defined).
Dividends on each New Preferred Share will accrue from the last date on
which dividends were paid on the Original Preferred Share surrendered in
exchange therefor or, if no dividends have been paid on such Original Preferred
Share, from the date of original issuance of such Original Preferred Share.
Dividends on the New Preferred Shares will accrue at a rate of 13.5% per annum
of the Specified Amount (as defined) and will be payable quarterly in arrears on
March 1, June 1, September 1 and December 1 of each year, commencing December 1,
1998. Dividends will be payable in cash, except that on each dividend payment
date occurring on or prior to September 1, 2003, dividends may be paid, at the
Company's option, either in cash or by allowing such dividends ("Accumulated
Dividends") to be added to the Specified Amount, which shall initially be equal
to the liquidation preference.
The New Preferred Shares will be redeemable at the option of the
Company, in whole or in part, at any time on or after September 1, 2003, at the
redemption prices set forth herein, plus accumulated and unpaid dividends
thereon, if any, to the redemption date. The New Preferred Shares will be
subject to mandatory redemption on September 1, 2009. In addition, the Company
is required to use all or a specified portion of the proceeds of any Senior
Notes Offering or Public Equity Offering (each as defined) to redeem the New
Preferred Shares at the redemption prices and upon the terms set forth herein.
See "Description of the Series A Preferred Stock--Optional Redemption" and
"Description of the Series A Preferred Stock--Mandatory Redemption".
The Company is a holding company that conducts substantially all its
operations through subsidiaries, and the New Preferred Shares will be
effectively subordinated to all obligations of the Company's subsidiaries
(including trade payables). The Certificate of Designation permits the Company
and its subsidiaries to incur substantial amounts of additional debt and other
liabilities. See "Description of the Series A Preferred Stock".
The Original Preferred Shares were originally issued and sold on
September 3, 1998 in a transaction exempt from registration under the Securities
Act (the "Initial Offering"). Accordingly, the Original Preferred Shares may not
be reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The New Preferred Shares are being offered hereunder to satisfy certain
obligations of the Company under the Registration Agreement (as defined). Based
upon interpretations by the Staff (the "Staff") of the Securities and Exchange
Commission (the "Commission") issued to third parties, the Company believes that
the New Preferred Shares issued pursuant to the Exchange Offer in exchange for
the Original Preferred Shares may be offered for resale, resold and otherwise
transferred by holders thereof (other than any holder which is (i) an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, (ii) a broker-dealer who acquired Original Preferred Shares directly from
the Company or (iii) a broker-dealer who acquired Original Preferred Shares as a
result of market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Preferred Shares are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such New Preferred Shares. Each broker-dealer
that receives New Preferred Shares for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with any
resale of such New Preferred Shares. The Letter of Transmittal accompanying this
Prospectus (the "Letter of Transmittal") states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Preferred Shares received in
exchange for Original Preferred Shares where such New Preferred Shares were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period ending 90 days
after the completion of this Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution".
The Original Preferred Shares and the New Preferred Shares constitute
new issues of securities with no established trading market. Any Original
Preferred Shares not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Original Preferred Shares are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, and
tendered but unaccepted, Original Preferred Shares could be adversely affected.
Following consummation of the Exchange Offer, the holders of Original Preferred
Shares will continue to be subject to the existing restrictions on transfer
thereof and the Company will have no further obligation to such holders to
provide for the registration under the Securities Act of the Original Preferred
Shares except under certain limited circumstances. See "Registration Rights". No
assurance can be given as to the liquidity of the trading market for either the
Original Preferred Shares or the New Preferred Shares.
The Company will not receive any proceeds from the issuance of New
Preferred Shares in the Exchange Offer. The Exchange Offer is not conditioned
upon any minimum number of Original Preferred Shares being tendered for
exchange. The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless extended (the "Expiration Date"). The date of
acceptance for exchange of the Original Preferred Shares (the "Exchange Date")
will be the first business day following the Expiration Date, upon surrender of
the Original Preferred Shares. Original Preferred Shares tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
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.
------------------------
The date of this Prospectus is , 1998
<PAGE> 3
NOTICE TO INVESTORS
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the New Preferred Shares issued pursuant to
the Exchange Offer in exchange for Original Preferred Shares may be offered for
resale, resold and otherwise transferred by a holder thereof without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that the holder is acquiring the New Preferred Shares in the ordinary
course of its business, is not participating and has no arrangement or
understanding with any person to participate in the distribution of the New
Preferred Shares and is not an "affiliate" of the Company within the meaning of
Rule 405 of the Securities Act. Holders of Original Preferred Shares wishing to
accept the Exchange Offer must represent to the Company that such conditions
have been met. Each broker-dealer who holds Original Preferred Shares acquired
for its own account as a result of market-making or other trading activities and
who receives New Preferred Shares for its own account in exchange for such
Original Preferred Shares pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Preferred
Shares. The Company believes that none of the registered holders of the Original
Preferred Shares is an "affiliate" (as such term is defined in Rule 405 under
the Securities Act) of the Company.
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Preferred
Shares received in exchange for Original Preferred Shares acquired by such
broker-dealer as a result of market-making or other trading activities. The
Letter of Transmittal states that by acknowledging that it will deliver a
prospectus in connection with any resale of such New Preferred Shares, and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. The Company has
agreed to make this Prospectus (as it may be amended or supplemented) available
to any such broker-dealer that requests copies of such Prospectus in the Letter
of Transmittal for use in connection with any such resale for a period of up to
90 days after the completion of this Exchange Offer. See "Plan of Distribution".
Prior to the Exchange Offer, there has been no public market for the New
Preferred Shares. There can be no assurance as to the liquidity of any markets
that may develop for the New Preferred Shares, the ability of holders to sell
the New Preferred Shares, or the price at which holders would be able to sell
the New Preferred Shares. The Company does not intend to apply for listing of
the New Preferred Shares for trading on any securities exchange or for inclusion
of the New Preferred Shares in any automated quotation system. The National
Association of Securities Dealers, Inc. ("NASD") has designated the Original
Preferred Shares as securities eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages ("PORTAL") market of the NASD and
the Company has been advised that Goldman, Sachs & Co., Lehman Brothers Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated have heretofore acted as
market makers for the Original Preferred Shares. The Company has been advised by
each of the aforesaid market makers that it currently intends to make a market
in the New Preferred Shares. Future trading prices of the New Preferred Shares
will depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
Historically, the market for securities similar to the New Preferred Shares has
been subject to disruptions that have caused substantial volatility in the
prices of such securities. There can be no assurance that any market for the New
Preferred Shares, if such market develops, will not be subject to similar
disruptions. See "Risk Factors -- Absence of Public Market".
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF ORIGINAL PREFERRED SHARES IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
i
<PAGE> 4
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements", including statements
containing the words "believes", "anticipates", "expects" and words of similar
import. All statements other than statements of historical fact included in this
Prospectus including, without limitation, such statements under "Summary", "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" and elsewhere herein, regarding the
Company or any of the transactions described herein, including the timing,
financing, strategies and effects of such transactions and the Company's growth
strategy and anticipated growth, are forward-looking statements. Important
factors that could cause actual results to differ materially from expectations
are disclosed in this Prospectus, including, without limitation, in conjunction
with the forward-looking statements in this Prospectus and/or under "Risk
Factors". The Company does not intend to update these forward-looking
statements.
------------------------
Market data and certain industry forecasts used throughout this Prospectus
were obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, internal surveys and market research, while believed
to be reliable, have not been independently verified, and none of the Company or
the Purchasers makes any representation as to the accuracy of such information.
------------------------
Network Plus and the Network Plus logo are registered service marks of the
Company and Simplicity Pricing is a service mark of the Company. This Prospectus
also makes reference to trade names, trademarks and service marks of other
companies, which are the property of their respective owners.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement", which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the New Preferred Shares
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith is required to file reports and other
information with the Commission. All reports and other information filed by the
Company with the Commission may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such documents can be obtained at the public reference section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission.
ii
<PAGE> 5
While any New Preferred Shares remain outstanding, the Company will make
available, upon request, to any holder and any prospective purchaser of New
Preferred Shares the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act.
Potential investors may also obtain a copy of the Certificate of
Designation governing the Series A Preferred Stock and the Exchange and
Registration Rights Agreement referred to herein by writing to the Company at
234 Copeland Street, Quincy, Massachusetts 02169, Attention: Chief Financial
Officer.
------------------------
THE COMPANY WAS INCORPORATED IN DELAWARE IN JULY 1998, AND ITS WHOLLY OWNED
OPERATING SUBSIDIARY, NETWORK PLUS, INC., WAS INCORPORATED IN MASSACHUSETTS IN
MARCH 1990. THE ADDRESS OF THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE IS 234
COPELAND STREET, QUINCY, MASSACHUSETTS 02169, AND ITS TELEPHONE NUMBER IS (617)
786-4000.
iii
<PAGE> 6
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and related notes, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all references to the Company or Network
Plus refer to Network Plus Corp., a Delaware corporation, and its wholly owned
subsidiary Network Plus, Inc., a Massachusetts corporation ("NPI"). Please refer
to the Glossary for the definitions of certain terms used herein and elsewhere
in this Prospectus.
THE COMPANY
OVERVIEW
Network Plus, founded in 1990, is a leading facilities-based integrated
communications provider ("ICP") offering switched long distance, data and
enhanced telecommunications services. The Company's customers consist primarily
of small and medium-sized businesses located in major markets in the
Northeastern and Southeastern regions of the United States. The Company also
provides international wholesale transport and termination services to major
domestic and international telecommunication carriers. In addition, the Company
intends to offer local services on a commercial basis beginning in the third
quarter of 1998. As of July 15, 1998, the Company served over 34,000 customers
representing in excess of 150,000 access lines and 30,000 toll-free numbers. All
customers are directly invoiced by the Company on a Network Plus bill. As of
July 15, 1998, the Company had a 152-person sales force located in eight
regional offices, and in 1997 had total revenue of $98 million.
The Company owns network components where economically advantageous and
leases components where more capital efficient. The Company has switches in
Quincy, Massachusetts and Orlando, and intends to add switches throughout the
second half of 1998 and continuing through 1999 in Atlanta, Chicago, Los Angeles
and New York City as well as multiple local traffic switches in the Northeastern
and Southeastern regions of the United States. In May 1998, over 60% of the
Company's revenue was generated by customer traffic carried on its network, and
the Company expects this percentage to increase as the Company further expands
its facilities-based infrastructure. The Company recently entered into two
20-year indefeasible right-of-use ("IRU") agreements pursuant to which it
acquired 625 route miles of dark fiber (1,830 digital fiber miles), that, when
fully deployed and activated, will form a redundant fiber ring connecting major
markets throughout New England and the New York metropolitan area and provide
the Company with significant transmission capacity.
The Company believes that, because of its large and highly focused sales
force and superior customer support, the Company will be successful in rapidly
acquiring new customers, cross-selling local services to its existing long
distance customers, continuing to migrate "off-net" long distance customers to
its network, cross-selling enhanced products and services and maintaining a high
rate of customer retention. The Company experienced a compounded annual growth
rate in customers in the three-year period ended December 31, 1997 of 68%.
The Company's business strategy is to leverage its eight-year operating
history, existing customer base and substantial in-region experience to (i) be a
one-stop ICP offering comprehensive bundled voice and data solutions, (ii)
acquire and retain market share through its direct sales force and focused
customer service, (iii) enhance its facilities-based infrastructure where
economically advantageous and continue the migration of traffic to its network,
(iv) build and retain market share through advanced technologies and an advanced
operational support system, (v) target the market of small and medium-sized
businesses, which the Company believes to be underserved, with a focus on the
Northeastern and Southeastern regions of the United States, (vi) increase
international wholesale sales and (vii) expand through strategic acquisitions
and alliances.
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1
<PAGE> 7
NETWORK INFRASTRUCTURE
The Company pursues a capital-efficient network deployment strategy that
involves purchasing switches and acquiring or leasing fiber optic transmission
facilities on an incremental basis to satisfy customer demand. The Company
believes that its switch-based, lease-or-acquire transport strategy provides
significant competitive advantages. By owning network components, the Company is
able to generate higher operating margins and maintain greater control over its
network operations. The Company structures its network expansion decisions in a
manner designed to (i) reduce up-front capital expenditures required to enter
new markets, (ii) avoid the risk of stranded investment in under-utilized fiber
networks and (iii) enter markets and generate revenue and positive cash flow
more rapidly than if the Company first constructed its own facilities. Where
market penetration does not economically justify the deployment of its own
network, the Company utilizes the networks of alternative carriers.
In addition to its 625 route miles of dark fiber, Network Plus currently
owns and maintains (i) a Northern Telecom, Inc. ("Nortel") international gateway
and interexchange switch in Quincy, Massachusetts, and (ii) a Nortel
interexchange switch in Orlando. The Company is currently deploying both a
Nortel international gateway and interexchange switch in Los Angeles and a
Nortel interexchange switch in Chicago. The Company has a Network Operations
Center in Quincy, Massachusetts, which monitors the Company's entire network
from a central location, increasing the security, reliability and efficiency of
the Company's operations. The Company is also planning the deployment of local
switching facilities throughout the Northeastern and Southeastern regions of the
United States. The Company intends to further expand its network in geographic
areas where customer concentrations or traffic patterns make expansion
economically advantageous.
SERVICES
Network Plus offers retail telecommunications services primarily to small
and medium-sized businesses. Retail offerings currently include long distance
and toll-free services (both with and without Advanced Intelligent Network
("AIN") features), multiple access options, calling and debit card, paging,
data, and custom management control features. The Company plans to add local
exchange services, Internet services and additional AIN features in the latter
part of 1998 and into 1999. The Company also offers international wholesale
services primarily to interexchange carriers ("IXCs") and international
telecommunications carriers. In May 1998, retail and wholesale offerings
accounted for approximately 78% and 22%, respectively, of the Company's total
revenue.
LARGE AND GROWING SALES FORCE
As of July 15, 1998, Network Plus had a 152-member, highly focused sales
force consisting of a 140-person direct retail sales force, a six-person
international wholesale sales force and a six-person agent and reseller sales
force. The Company's sales approach is to build long-term relationships with its
customers, with the intent of becoming the single-source provider of their
telecommunications services. The Company trains its sales force in-house with a
customer-focused program that promotes increased sales through both customer
attraction and customer retention. All members of the sales force are given
incentives through a commission structure under which commissions are paid on an
ongoing basis for as long as a customer continues to purchase services from the
Company. This "lifetime residual" is intended to motivate the sales force to
remain actively involved with customers and participate in the customer
retention and support process. The Company believes that this customer
support-focused commission structure and in-house training are unique in the
industry and provide the Company with a competitive advantage in attracting and
retaining customers. The sales force is currently located in eight offices and,
by year end 1999, the Company expects to open additional sales offices and
expand its sales force to approximately 400 members. The Company expects that it
will continue to utilize a modular sales force structure and that existing
employees with substantial sales experience will manage new sales offices,
ensuring a continuation of the Company's customer-focused culture. The Company's
sales force director,
2
<PAGE> 8
regional sales directors, branch managers and team leaders have an average
employment tenure of over five years with the Company.
MANAGEMENT
Robert T. Hale, Jr., the Company's President and Chief Executive Officer
and a Director and co-founder, has more than 10 years of experience in the
telecommunications industry. Robert T. Hale, the Company's Chairman and
co-founder, has more than eight years of experience in the telecommunications
industry, is a Director and former Chairman of the 600-member Telecommunications
Reseller Association (the "TRA") and has been Chairman of the TRA's Underlying
Carrier Committee since 1992. Network Plus's eight-member Executive Officer
group has an average employment tenure of more than three years with the Company
and an average of over 11 years of experience in the telecommunications
industry. The Company believes that the quality, tenure and teamwork of its
management team will be critical factors in the implementation of its expansion
strategy.
MARKET OPPORTUNITY
As a result of the Telecommunications Act of 1996 (the "Telecommunications
Act") and other federal, state and international initiatives, numerous
telecommunications markets have been opened to competition. In addition, the
increasing globalization of the world economy, along with an increased reliance
on data transmission and Internet access, has expanded the traditional
telecommunications markets. After completing its planned expansion, the Company
expects to have 18 sales offices in 12 states in the Northeastern and
Southeastern regions of the United States. According to industry data, in 1997
there were approximately 8.7 million business lines in the Company's markets in
the Northeastern region (the New England states, New York and New Jersey) and
4.8 million business lines in the Company's markets in the Southeastern region
(Florida, Georgia, North Carolina, South Carolina and Tennessee). The Company
anticipates significant demand for its services, based on its belief that small
and medium-sized businesses are not aggressively targeted by large
telecommunications providers and are underserved with respect to customer
service and support.
BUSINESS STRATEGY
Network Plus intends to undertake an aggressive growth strategy to meet its
goal of becoming the ICP of choice providing one-stop telecommunications
solutions to customers in its markets. The Company's future success will depend
upon its ability to implement this strategy. Unlike many emerging
telecommunications companies, the Company has a proven eight-year operating
history. The Company believes that the collective talent and telephony
experience of its management and employee base provide a competitive advantage
and position the Company to effectively implement its growth strategy, which
includes the following:
PROVIDE INTEGRATED TELECOMMUNICATIONS SERVICES
A key element in the Company's growth will be the implementation of a
marketing and operating plan that emphasizes an integrated voice and data
telecommunications solution. To a large extent, customers the Company expects to
target have not previously had the opportunity to purchase bundled services from
a single provider. The Company believes that these customers will prefer one
source for all of their telecommunications requirements, including products,
billing and service. The Company intends to be the single source of, and provide
a consolidated bill for, integrated local, long distance and other
telecommunications services, in addition to providing a single point of contact
for customer service, product inquiries, repairs and billing questions. The
Company believes that offering one-stop integrated communications services will
enable it to further penetrate its
3
<PAGE> 9
- --------------------------------------------------------------------------------
existing markets, expand its customer base, capture a larger portion of its
customers' total expenditures on telecommunications services and increase
customer retention.
EXPAND SALES FORCE AND FOCUS ON CUSTOMER SERVICE
The Company intends to significantly expand its sales force to both acquire
and support a growing customer base. As of July 15, 1998, the Company's sales
force consisted of 152 members and is expected to grow to approximately 400 by
year end 1999. To support its customer base, the Company provides customer
service 24 hours per day, 365 days per year, and estimates that its customer
service representatives currently have an average response time for answering
incoming calls of under 15 seconds. In addition, the commission structure of the
Company's direct retail sales force is designed to promote a high level of
ongoing customer care and to assure that the sales staff remains actively
involved in the customer service process. Similarly, the compensation of
customer support personnel is designed to promote a high level of ongoing
customer care and retention. The Company believes that its sales and customer
service processes have resulted in a customer retention rate that is higher than
that of many competitors and differentiate the Company as a customer-focused
ICP, giving it a competitive advantage.
ENHANCE FACILITIES-BASED INFRASTRUCTURE
The Company intends to continue the migration of customer traffic to its
own network and to cross-sell new services, such as local service, to its
customers. Expansion of the Company's facilities-based infrastructure with both
fiber and switches will increase the proportion of telecommunications traffic
that is originated or terminated on its network, which the Company believes will
result in higher long-term operating margins and greater control over its
operations. The Company's approach to network design is structured to minimize
the capital investment necessary to provide service, avoid spending capital
where not economically justifiable, better match the commitment of capital to
the onset of revenue-generating activities and generate cash flow more quickly.
Throughout the second half of 1998 and continuing through 1999, the Company
intends to enhance its facilities by purchasing and installing (i) Nortel
interexchange switches in Chicago and New York, (ii) a Nortel interexchange and
local switch in Atlanta, (iii) a Nortel interexchange and international gateway
switch in Los Angeles and (iv) multiple Nortel local traffic switches throughout
the Northeastern and Southeastern regions of the United States. In addition, the
Company intends to begin offering high-quality dedicated and dial-up Internet
services.
CONTINUE INVESTING IN ADVANCED TECHNOLOGIES AND AN ADVANCED OPERATIONAL SUPPORT
SYSTEM
Network Plus expects to continue to invest in advanced technologies that
provide strategic advantages by integrating the Company's network facilities
with its operational support system ("OSS") to enhance service response time.
The Company intends to deploy Nortel's Service Builder throughout its network
infrastructure, which will elevate the Company's network from a state-of-the-art
SS7 network to a next-generation intelligent network. Service Builder will also
permit the rapid deployment of "designer" intelligent network products and
services such as nationwide "follow me" numbers and Time-of-Day Routing, as well
as accelerate the Company's compliance with legally mandated services such as
local number portability ("LNP"). To support integrated provisioning and
customer care for all products and services, the Company is developing an open
scalable client/server Oracle-based platform that is expected to better
integrate its operations, both geographically and among departments. The Company
believes that these technologies will provide a long-term competitive advantage
by allowing a more rapid implementation of switched local services in its
markets, shortening the time between the receipt of a customer order and the
generation of revenue and enabling a higher level of focused customer care.
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4
<PAGE> 10
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TARGET UNDERSERVED MARKETS WITH A SUPER-REGIONAL FOCUS
Network Plus intends to continue targeting small and medium-sized
businesses in the Northeastern and Southeastern regions of the United States,
its primary service areas, while expanding into other markets in the
Mid-Atlantic region, Illinois and California. The Company will seek to be among
the first to market integrated communications services in many of its markets.
The Company believes that the Northeastern and Southeastern regions are
particularly attractive due to a number of factors, including (i) the population
density in the Northeast; (ii) a large number of rapidly growing metropolitan
clusters in the Southeast, such as Atlanta, Miami/Fort Lauderdale and Orlando;
and (iii) the relatively small number of significant competitors to the
incumbent local exchange carriers ("ILECs"). In addition, the Company believes
that small and medium-sized businesses have been underserved by large
competitors with respect to customer service and support, and that its emphasis
on customer service, support and satisfaction provides it with a distinct
competitive advantage. The Company also believes that ILECs, such as regional
Bell operating companies ("RBOCs"), and the largest national carriers primarily
concentrate their sales and marketing efforts on residential and large business
customers and that the market for small and medium-sized businesses is generally
less competitive.
INCREASE INTERNATIONAL WHOLESALE SALES
The Company intends to continue targeting the sale of both international
and domestic termination and transport services to wholesale customers such as
large IXCs and international telecommunications carriers. The Company believes
that the international market represents a growing opportunity as a result of
the rapidly increasing globalization of the world economy. The Company's
international department is focused on the development of offshore
telecommunications relationships that provide the Company with lower
international termination costs as well as greater price stability than can be
obtained from U.S.-based carriers. These relationships are being leveraged by
the Company to obtain revenue through the domestic termination of offshore-
originated traffic, in addition to their primary role of enabling the Company to
offer international termination to its customers. The Company has already made
significant investments in its international network capabilities, including a
Nortel international gateway switch in Quincy, Massachusetts and lease and
indefeasible right of use ("IRU") arrangements for international submarine cable
capacity in TAT 12/13 and Americas I in the Atlantic Ocean and TPC-5 in the
Pacific Ocean, as well as various subsidiary feeder cable systems. In addition
to increasing revenue, the Company expects that its strategy of selling
international wholesale services will lower the overall cost of carrying
international traffic and result in more attractive service offerings in its
core retail markets. As of June 1, 1998, the Company provided its international
wholesale services to 13 domestic and foreign telecommunications carriers, and
in May 1998 such services accounted for 22% of the Company's revenue.
EXPAND THROUGH STRATEGIC ACQUISITIONS AND ALLIANCES
As part of its expansion strategy, the Company plans to consider
acquisitions, joint ventures and strategic alliances in telecommunications,
Internet access and other related service areas. The Company believes that
acquisitions of, and joint ventures and other strategic alliances with, related
or complementary businesses may enable it to more rapidly expand by adding new
customers, new services, additional customer service and technical support
capabilities, and additional cash flow. The acquisitions could be funded by
cash, bank financing or the issuance of debt or equity securities. The Company
is evaluating and often engages in discussions regarding various acquisition
opportunities, but is not currently a party to any agreement for a material
acquisition.
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5
<PAGE> 11
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RECENT DEVELOPMENTS
FIBER ACQUISITIONS
The Company entered into two 20-year IRU agreements in July 1998 pursuant
to which it acquired 625 route miles of dark fiber (1,830 digital fiber miles).
When the fiber is fully deployed and activated, it will form a redundant fiber
ring connecting major markets throughout New England and the New York
metropolitan area, providing the Company with significant transmission capacity.
The Company anticipates activation of the New York-to-Boston segment in the
second half of 1998 and activation of the full fiber ring in 1999.
RECENT HIRES
The Company hired the following employees during the summer of 1998, who
provide the Company with significant expertise in the design, development and
provisioning of local telecommunications services and networks:
Michael F. Oyster has joined Network Plus as President of the Local
Services Division. Mr. Oyster has 22 years of experience in the
telecommunications industry, including local services, long distance services,
and voice and data equipment. Most recently, Mr. Oyster was the Regional Vice
President and General Manager of Teleport Communications Group ("TCG") in New
York.
Joseph Haines has joined Network Plus as Vice President of Local Operations
and will be responsible for the design, engineering and implementation of the
Company's local service offering. From 1992 to 1998, Mr. Haines held various
positions with TCG, most recently as Regional Vice President of Operations for
TCG's largest network. In that position, Mr. Haines was responsible for
constructing and deploying network transmission and switching facilities. Mr.
Haines developed and managed TCG's national network management center,
supervising TCG's network of switches and multiplexing equipment.
Lisa Korner has joined Network Plus as Director of New Market Development,
and will be responsible for market analysis, territory development planning and
regulatory/LEC implementation. From 1989 to 1998, Ms. Korner held various
positions with TCG, most recently as Sales Director responsible for all sales to
general business customers in New York and also as Manager of the independent
sales channel consisting of over 50 agents.
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6
<PAGE> 12
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THE EXCHANGE OFFER
The Exchange Offer............ The Company is offering, upon the terms and
subject to the conditions of the Exchange
Offer, to exchange one New Preferred Share for
each Original Preferred Share. The terms of the
New Preferred Shares are substantially
identical in all respects to the terms of the
Original Preferred Shares for which they may be
exchanged pursuant to the Exchange Offer,
except that (i) the offer of the New Preferred
Shares will have been registered under the
Securities Act and, therefore, the New
Preferred Shares will be freely transferable by
holders thereof (except as otherwise described
herein) and not bear a legend regarding
restrictions on transfer, (ii) holders of the
New Preferred Shares will not be entitled to
certain rights of the holders of the Original
Preferred Shares under the Registration
Agreement (as defined below), which rights with
respect to the Original Preferred Shares will
terminate on consummation of the Exchange
Offer, and (iii) the New Preferred Shares will
not contain any provisions regarding the
payment of Special Dividends.
New Preferred Shares issued pursuant to the
Exchange Offer in exchange for the Original
Preferred Shares may be offered for resale,
resold and otherwise transferred by holders
thereof (other than any holder which is (i) an
"affiliate" of the Company within the meaning
of Rule 405 under the Securities Act, (ii) a
broker-dealer who acquired Original Preferred
Shares directly from the Company or (iii)
broker-dealers who acquired Original Preferred
Shares as a result of market making or other
trading activities) without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that such New
Preferred Shares are acquired in the ordinary
course of such holders' business and such
holders are not engaged in, and do not intend
to engage in, and have no arrangement or
understanding with any person to participate
in, a distribution of such New Preferred
Shares. Each broker-dealer that receives New
Preferred Shares for its own account in
exchange for Original Preferred Shares, where
such Original Preferred Shares were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of such New
Preferred Shares. See "Plan of Distribution".
Minimum Condition............. The Exchange Offer is not conditioned upon any
minimum number of Original Preferred Shares
being tendered for exchange.
Expiration Date............... The Exchange Offer will expire on the
Expiration Date, which is at 5:00 p.m., New
York City time, on , 1998 unless
extended.
Exchange Date................. The first date of acceptance for exchange for
the Original Preferred Shares will be the first
business day following the
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7
<PAGE> 13
- --------------------------------------------------------------------------------
Expiration Date, upon surrender of the Original
Preferred Shares.
Conditions to the Exchange
Offer......................... The obligation of the Company to consummate the
Exchange Offer is subject to certain
conditions. See "The Exchange Offer--Conditions
to the Exchange Offer". The Company reserves
the right to terminate or amend the Exchange
Offer at any time prior to the Expiration Date
upon the occurrence of certain specified
events.
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
the Expiration Date. Any Original Preferred
Shares not accepted for any reason will be
returned without expense to the tendering
holders thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer.
Procedures for Tendering
Original Preferred Shares..... See "The Exchange Offer--How to Tender".
Federal Income Tax
Consequences.................. For federal income tax purposes, U.S. Holders
(as defined) should not recognize any taxable
gain or loss as a result of the exchange of
Original Preferred Shares for New Preferred
Shares.
Effect on Holders of Original
Preferred Shares............ As a result of the making of the Exchange
Offer, and upon acceptance for exchange of all
validly tendered Original Preferred Shares
pursuant to the terms of the Exchange Offer,
the Company will have fulfilled a covenant
contained in the terms of the Original
Preferred Shares and the Exchange and
Registration Rights Agreement, dated September
1, 1998 (the "Registration Agreement"), among
the Company and Goldman, Sachs & Co., Lehman
Brothers Inc., and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (collectively, the
"Purchasers"), and, accordingly, the holders of
the Original Preferred Shares will have no
further registration or other rights under the
Registration Agreement, except under certain
limited circumstances. See "Registration
Rights". Holders of the Original Preferred
Shares who do not tender their Original
Preferred Shares in the Exchange Offer will
continue to hold such Original Preferred Shares
and will be entitled to all the rights and
limitations applicable thereto under the
Certificate of Designation. All untendered, and
tendered but unaccepted, Original Preferred
Shares will continue to be subject to the
restrictions on transfer provided for in the
Original Preferred Shares and the Preferred
Shares. To the extent that Original Preferred
Shares are tendered and accepted in the
Exchange Offer, the trading market, if any, for
the Original Preferred Shares could be
adversely affected. See "Risk Factors--Failure
to Exchange".
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8
<PAGE> 14
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Use of Proceeds............... The Company will not receive any proceeds from
the issuance of New Preferred Shares in the
Exchange Offer.
Exchange Agent................ American Stock Transfer & Trust Company is
serving as exchange agent (the "Exchange
Agent") in connection with the Exchange Offer.
THE SERIES A PREFERRED STOCK
The Exchange Offer applies to 40,000 outstanding Original Preferred Shares.
The terms of the New Preferred Shares are substantially identical in all
respects to the terms of the Original Preferred Shares for which they may be
exchanged pursuant to the Exchange Offer, except that (i) the offer of the New
Preferred Shares will have been registered under the Securities Act and,
therefore, the New Preferred Shares will be freely transferable by holders
thereof (except as otherwise described herein) and not bear a legend regarding
restrictions on transfer, (ii) holders of the New Preferred Shares will not be
entitled to certain rights of the holders of the Original Preferred Shares under
the Registration Agreement, which rights with respect to the Original Preferred
Shares will terminate on consummation of the Exchange Offer and (iii) the New
Preferred Shares will not contain any provisions regarding the payment of
Special Dividends. See "Description of the Series A Preferred Stock".
Issuer........................ Network Plus Corp.
Securities Offered............ 40,000 shares of 13.5% Series A1 Cumulative
Preferred Stock Due 2009, par value $.01 per
share (the "New Preferred Shares" and, together
with the Original Preferred Shares, the "Series
A Preferred Stock").
Liquidation Preference........ $1,000 per share.
Dividends..................... Dividends on the Series A Preferred Stock will
accrue at a rate of 13.5% per annum of the
Specified Amount thereof and will be payable
quarterly in arrears on March 1, June 1,
September 1 and December 1 of each year,
commencing December 1, 1998. Dividends will be
payable in cash, except that on each dividend
payment date occurring on or prior to September
1, 2003, dividends may be paid, at the
Company's option, either in cash or by allowing
such dividends ("Accumulated Dividends") to be
added to the Specified Amount, which shall
initially be equal to the liquidation
preference. It is not anticipated that the
Company will pay any dividends in cash for any
period ending on or prior to September 1, 2003.
Ranking....................... The Series A Preferred Stock will rank senior
to all other classes of equity securities of
the Company outstanding upon consummation of
this Offering. The Company may not authorize
any new class of Parity Stock or Senior Stock
without the approval of the holders of at least
a majority of the shares of Series A Preferred
Stock then outstanding, voting or consenting,
as the case may be, as one class. See
"Description of the Series A Preferred
Stock--Ranking". The Series A Preferred Stock
will rank junior to all indebted-
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9
<PAGE> 15
ness and other liabilities of the Company and
any subsidiary of the Company. As of June 30,
1998, on a pro forma basis after giving effect
to the Initial Offering and this Exchange
Offer, (i) the total amount of outstanding
liabilities of the Company, including trade
payables, would have been approximately $26.3
million and (ii) the total amount of
outstanding liabilities of the Company's
subsidiary, including trade payables, would
have been approximately $26.3 million,
approximately $4.3 million of which would have
been secured indebtedness. On August 14, 1998,
the Company entered into a commitment letter in
respect of the New Revolving Credit Facility
(as defined) which will provide for additional
borrowings of up to $60 million. See
"Capitalization" and "Description of Certain
Indebtedness".
Optional Redemption........... The Series A Preferred Stock will be redeemable
at the option of the Company, in whole or in
part, at any time on or after September 1, 2003
at the redemption prices set forth herein plus
accumulated and unpaid dividends, if any, to
the date of redemption.
Mandatory Redemption.......... The Series A Preferred Stock is subject to
mandatory redemption at its Specified Amount,
plus, without duplication, accumulated and
unpaid dividends, if any, on September 1, 2009
out of any funds legally available therefor. If
the Company consummates a Senior Notes Offering
(as defined), the net proceeds of which
(excluding underwriting or other placement fees
and proceeds placed in escrow at the closing
thereof pursuant to the terms of such offering)
received by the Company exceed $100 million,
the Company must redeem the outstanding Series
A Preferred Stock with the net proceeds of such
offering at a redemption price of 108% of the
Specified Amount thereof, plus, without
duplication, accumulated and unpaid dividends
to the date of redemption. If the Company
consummates any Public Equity Offerings (as
defined) on or before September 1, 2001, the
Company must apply the first $25 million of net
proceeds from such Public Equity Offering or
Offerings and 50% of each dollar of net
proceeds in excess of $25 million (excluding
underwriting or other placement fees and
calculated on a cumulative basis beginning with
the first such Public Equity Offering) to
redeem the Series A Preferred Stock at the
prices set forth herein plus accumulated and
unpaid dividends, if any, to the date of
redemption.
Change of Control............. In the event of a Change of Control, holders of
the Series A Preferred Stock will have the
right to require the Company to purchase their
Series A Preferred Stock, in whole or in part,
at a price equal to 101% of the Specified
Amount thereof, plus, without duplication,
accumulated and unpaid dividends, if any, to
the date of purchase.
Voting Rights................. Except as described below, and other than as
otherwise required by Delaware law, holders of
the Series A Preferred Stock will have no
voting rights. The Certificate of Designa-
10
<PAGE> 16
tion will provide that, upon the failure of the
Company (1) to pay dividends for six or more
dividend periods (whether or not consecutive),
(2) to satisfy any mandatory redemption
obligation with respect to the Series A
Preferred Stock, (3) to comply with the
covenants set forth in the Certificate of
Designation or (4) to make certain payments on
certain indebtedness, the holders of the
outstanding shares of Series A Preferred Stock,
voting together as a class, will be entitled to
elect to serve on the Board of Directors the
lesser of (x) two additional members of the
Board and (y) that number of directors
constituting 25% of the members of the Board;
and the size of the Board will be immediately
and automatically increased by such number. See
"Description of the Series A Preferred
Stock--Voting Rights".
Certain Covenants............. The Certificate of Designation will contain
certain covenants that, among other things,
will limit the ability of the Company and its
subsidiaries to incur additional indebtedness,
issue stock in subsidiaries, pay dividends or
make other distributions in respect of Junior
Stock, repurchase Junior Stock, make certain
investments, enter into certain transactions
with affiliates, sell assets of the Company and
its subsidiaries, and enter into certain
mergers and consolidations.
Registration Covenant;
Exchange Offer................ Pursuant to the Registration Agreement, the
Company has agreed to use its best efforts to
commence the Exchange Offer or to use its best
efforts to cause the Original Preferred Shares
to be registered under the Securities Act so as
to permit resales. If the Company is not in
compliance with its obligations under the
Registration Agreement, Special Dividends will
accrue on the Series A Preferred Stock under
certain circumstances. If the Exchange Offer is
consummated on the terms and within the period
contemplated by this Prospectus, no Special
Dividends will accrue. No Special Dividends
will accrue on the New Preferred Shares. See
"Description of the Series A Preferred
Stock -- Registration Covenant; Exchange
Offer".
For additional information regarding the Series A Preferred Stock, see
"Notice to Investors", "The Exchange Offer", "Description of the Series A
Preferred Stock" and "Certain Federal Income Tax Considerations".
RISK FACTORS
An investment in the Series A Preferred Stock involves a high degree of
risk. Participants in the Exchange Offer should carefully consider the matters
set forth under "Risk Factors".
11
<PAGE> 17
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SUMMARY FINANCIAL DATA
(in thousands, except per share data)
The following table presents summary financial data for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the six month periods ended
June 30, 1997 and 1998. The financial and balance sheet data for the years
ending December 31, 1995, 1996 and 1997 have been derived from financial
statements (including those set forth elsewhere in this Prospectus) that have
been audited by PricewaterhouseCoopers LLP, independent accountants. The
financial statements as of December 31, 1996 and 1997 and for each of the years
in the three year period ended December 31, 1997 and the report of
PricewaterhouseCoopers LLP relating thereto are included elsewhere in this
Prospectus, and the summary financial data presented below are qualified in
their entirety by reference thereto. The financial data presented for the years
ended December 31, 1993 and 1994 and the six month periods ended June 30, 1997
and June 30, 1998 are derived from the unaudited financial statements of the
Company and in the opinion of management include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
Company's results of operations and financial condition for those periods. The
data for the six month period ended June 30, 1998 are not necessarily indicative
of results for the year ending December 31, 1998 or indicative of future
periods. The summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including the notes thereto, of the
Company appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue......................................... $14,427 $30,754 $49,024 $75,135 $98,209 $49,381 $52,305
Direct cost of revenue.......................... 7,120 16,061 35,065 57,208 78,106 38,440 38,828
------- ------- ------- ------- ------- ------- -------
Gross profit.................................... 7,307 14,693 13,959 17,927 20,103 10,941 13,477
Selling, general and administrative............. 7,233 11,631 17,698 19,224 25,704 10,567 11,935
Depreciation and amortization................... 67 180 276 539 994 324 951
------- ------- ------- ------- ------- ------- -------
Operating income (loss)......................... 7 2,882 (4,014) (1,836) (6,595) 50 591
Interest income................................. 13 37 202 95 86 60 12
Interest expense................................ (5) (2) (40) (312) (557) (177) (578)
Other income (expense), net..................... 27 (65) 7,547 3,468 3,875 12 (97)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $ 42 $ 2,852 $ 3,695 $ 1,415 $(3,191) $ (55) $ (72)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share-basic and diluted... $ -- $ .29 $ .37 $ .14 $ (.32) $ (.01) $ (.01)
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding............. 10,000 10,000 10,000 10,000 10,000 10,000 10,000
======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures............................ $ 815 $ 813 $ 860 $ 2,135 $ 3,363 $ 1,605 $ 2,364
EBITDA(1)....................................... 74 3,084 (3,738) (1,303) (5,601) 374 1,542
Net cash provided by (used for) operating
activities.................................... 1,689 1,904 2,463 1,051 (3,386) (1,120) 11,327
Net cash provided by (used for) investing
activities.................................... (1,949) 368 (184) (2,014) (3,357) (1,606) (2,348)
Net cash provided by (used for) financing
activities.................................... 19 (1,255) (1,903) 1,596 6,004 2,602 (2,287)
Ratio of earnings to fixed charges(2)........... 9.4x 1,511.0x 101.2x 5.7x -- 0.8x 1.1x
</TABLE>
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<TABLE>
<CAPTION>
JUNE 30, 1998
DECEMBER 31, ---------------------
----------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(3)
------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................................... $ 215 $ 1,232 $ 1,608 $ 2,241 $ 1,502 $ 8,194 $33,594
Current assets............................. 2,545 9,264 16,441 19,771 28,521 25,090 52,990
Property and equipment, net................ 819 1,435 1,507 3,075 6,957 8,361 8,361
Working capital............................ 1,592 4,388 2,369 1,621 (3,128) (5,188) 13,712
Total assets............................... 4,647 11,264 18,005 22,915 35,581 33,678 61,578
Other long-term obligations................ 14 24 11 664 3,623 3,167 5,067
Redeemable Series A Preferred Stock(4)..... -- -- -- -- -- -- 33,141
Total stockholders' equity (deficit)....... 539 2,117 3,922 4,101 309 233 (408)
</TABLE>
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(1) EBITDA consists of net income (loss) before interest and other income,
income taxes, depreciation and amortization. It is a financial performance
measure commonly used in the telecommunications industry and is presented to
assist in an understanding of the Company's operating results. However, it
is not intended to represent cash flows or results of operations in
accordance with generally accepted accounting principles ("GAAP").
(2) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent net income before income taxes plus fixed charges, and
"fixed charges" consist of interest expense. For the year ended 1997,
earnings were insufficient to cover fixed charges by $3.1 million.
(3) Gives effect to (i) the Initial Offering (after deducting discounts and
offering expenses payable by the Company, estimated to total $2.5 million)
and the application of the estimated net cash proceeds therefrom, including
the repayment of $9.0 million of borrowings under the Existing Bank Credit
Facility and (ii) the payment of a $5.0 million dividend to the Company's
stockholders and the reinvestment of $1.9 million by one of the Company's
stockholders (representing such stockholder's approximate net after-tax
proceeds of the dividend) in the form of a long-term loan to the Company.
See "Use of Proceeds" and "Description of Certain
Indebtedness -- Stockholder Loan".
(4) Series A Preferred Stock with an initial liquidation preference of $40.0
million was issued by the Company as part of the Units offered in the
Initial Offering. Each Unit consisted of one share of Series A Preferred
Stock, 7.75 Initial Warrants and 15 Contingent Warrants, each Warrant to
purchase one share of Common Stock. An assumed initial value of $4.65
million was allocated to additional paid-in capital, representing the
portion of the purchase price of the Units allocated to the Initial
Warrants, less $0.3 million of the costs associated with the Initial
Offering allocable to the Initial Warrants. No assurance can be given that
the value allocated to the Initial Warrants will be indicative of the price
at which the Initial Warrants may actually trade. Costs of $2.2 million
associated with the Initial Offering have been allocated to the Series A
Preferred Stock.
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13
<PAGE> 19
RISK FACTORS
In addition to the other information in this Prospectus, prospective
participants in the Exchange Offer should consider carefully the following risk
factors:
NEGATIVE CASH FLOW AND OPERATING LOSSES
The Company had operating losses in each of the years ending December 31,
1997, 1996 and 1995 and negative cash flow in the year ended December 31, 1997,
and there can be no assurance that the Company will achieve or sustain
profitability or generate positive cash flow in the future. The Company expects
to incur significant expenditures in the future in connection with the
acquisition, development and expansion of its network, information technology
systems, employee base, services and customer base.
To the extent the Company's cash needs exceed the Company's available cash
and existing borrowing availability, the funding of these expenditures will be
dependent upon the Company's ability to raise substantial financing. The Company
estimates that, for 1998 and 1999, capital required for expansion of its
infrastructure and services and to fund negative cash flow will be approximately
$140 million. At December 31, 1997, the Company had approximately $1.5 million
in cash and cash equivalents available for such purposes. In addition, the
Company continues to consider potential acquisitions or other arrangements that
may fit the Company's strategic plan. Any such acquisitions or arrangements are
likely to require additional equity or debt financing, which the Company will
seek to obtain as required and may also require that the Company obtain the
consent of its debt holders. The Company may be required to apply all or a
portion of any such financing to redeem all or a portion of the Series A
Preferred Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Business Strategy".
SUBSTANTIAL FUTURE CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING;
SUBSTANTIAL LEVERAGE
The Company's ability to meet its projected growth is dependent upon its
ability to secure substantial additional financing in the future. The Company
believes that its current cash resources and available cash from the New
Revolving Credit Facility (see "Description of Certain Indebtedness"), together
with the proceeds of the Initial Offering, will be sufficient to fund the
Company's operating losses and planned capital expenditures through at least
August 1999. The New Revolving Credit Facility has a term of 18 months, and the
Company does not expect to have sufficient free cash to repay such facility at
maturity. Accordingly, the Company expects that it will be required to refinance
such facility. To meet its future financing requirements, sources of funding may
include public offerings or private placements of equity or debt securities,
bank loans and additional capital contributions from new or existing
stockholders. The Company may be required to apply all or a portion of any such
financing to redeem all or a portion of the Series A Preferred Stock. There can
be no assurance that additional financing will be available to the Company or,
if available, that it can be obtained on a timely basis, on terms acceptable to
the Company, and within the limitations contained in the Company's commercial
lending agreements and the Certificate of Designation. Failure to obtain such
financing could result in the delay or abandonment of the Company's development
and expansion plans and could have a material adverse effect on the Company.
The Company's business plan for the next 12 months is to a large extent
dependent upon the availability of the New Revolving Credit Facility. There can
be no assurance that the Company will enter into the New Revolving Credit
Facility or that it will remain available to the Company through any given
period. In the event the Company does not enter into the New Revolving Credit
Facility, the Company believes that its cash resources will be sufficient to
fund the Company's operating losses and capital expenditures for only the next
three months. In such event, the Company would be unable to implement its growth
strategy in accordance with its projected schedule, if at all. See
"Business -- Growth Strategy". Accordingly, the failure of the Company to
maintain the availability
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of such facility for at least the next 12 months would have a material adverse
effect on the business and prospects of the Company.
After giving effect to proposed borrowings under the New Revolving Credit
Facility, the Company will have a significant amount of indebtedness
outstanding. In addition, as a result of its growth strategy, the Company
expects to incur additional indebtedness in the future. The Company's ability to
make cash payments with respect to its outstanding indebtedness and the Series A
Preferred Stock, and to repay its obligations on such indebtedness and preferred
stock at maturity, will depend on its future operating performance, which will
be affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. On or prior to
September 1, 2003, the Company may pay dividends on the Series A Preferred Stock
by allowing such dividends to be added to the Specified Amount of the Series A
Preferred Stock. It is not anticipated that the Company will pay any dividends
in cash for any period ending on or prior to September 1, 2003. Accordingly, the
Specified Amount of the Series A Preferred Stock and the cash dividend
obligation in respect thereof may increase significantly. If the Company is
unable to service its indebtedness or other obligations, it will be forced to
examine alternative strategies that may include actions such as reducing or
delaying capital expenditures, restructuring or refinancing its indebtedness or
preferred stock, or seeking additional debt or equity financing. There can be no
assurance that any of these strategies could be effected on satisfactory terms,
if at all.
The degree to which the Company is leveraged could have important
consequences to the holders of the Securities, including the following: (i) the
Company will have significant and increasing cash interest expense and
significant principal repayment obligations with respect to outstanding
indebtedness; (ii) the Company's degree of leverage and related debt service
obligations could limit its ability to plan for, and make it more vulnerable
than some of its competitors to the effects of, an economic downturn or other
adverse developments; (iii) any cash flow from the operations of the Company may
need to be dedicated to debt service payments and might not be available for
other purposes; and (iv) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, debt service requirements
or other purposes could be impaired. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Business
Strategy".
HOLDING COMPANY STRUCTURE
The Company is a holding company with no material sources of income or
assets other than the stock of its subsidiary, and the Securities will be
obligations exclusively of the Company. Since all of the Company's operations
are conducted through its subsidiary, the Company's cash flow and its ability to
meet its own obligations, including payment of dividends on the Series A
Preferred Stock, are dependent upon the earnings of its subsidiary and the
distributions of those earnings to the Company, or upon loans or other payments
of funds made by such subsidiary to the Company. The Company's subsidiary is a
separate and distinct legal entity and will have no obligation, contingent or
otherwise, to pay any dividends or make any other distributions to the Company
or to otherwise pay amounts due with respect to the Series A Preferred Stock or
to make funds available for such payments. The Existing Bank Credit Facility
prohibits the payment of dividends by the subsidiary to the Company. Future debt
instruments of the Company's subsidiary likely will impose significant
restrictions that affect, among other things, the ability of the Company's
subsidiary to pay dividends or make loans, advances or other distributions to
the Company. The Certificate of Designation permits the Company's subsidiaries
to enter into agreements containing such restrictions. See "Description of
Certain Indebtedness". The ability of the Company's subsidiary to pay dividends
and make other distributions also will be subject to, among other things,
applicable state laws and regulations.
The Series A Preferred Stock will be structurally subordinated to all
existing and future indebtedness, trade payables, preferred stock and other
obligations of the Company's subsidiary
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(including, without limitation, the Existing Bank Credit Facility). Therefore,
the Company's right and the rights of its creditors, including the holders of
the Series A Preferred Stock, to participate in the assets of the subsidiary
upon the subsidiary's liquidation or reorganization will be subject to the prior
claims of the subsidiary's creditors and holders of preferred stock, if any,
except to the extent that the Company may itself be a creditor with recognized
claims against the subsidiary, in which case the claims of the Company would
still be effectively subordinated to any security interests in or mortgages or
other liens on the assets of such subsidiary and would be subordinate to any
indebtedness of the subsidiary senior to that held by the Company. As of June
30, 1998, on a pro forma basis after giving effect to the Offering, the total
amount of outstanding consolidated liabilities of the Company, including trade
payables, would have been approximately $26.3 million, approximately $4.3
million of which would have been secured obligations, and (ii) the total amount
of outstanding liabilities of the Company's subsidiary, including trade
payables, would have been approximately $26.3 million, approximately $4.3
million of which would have been secured obligations. See "Description of
Certain Indebtedness". The Certificate of Designation limits, but does not
prohibit, the incurrence of additional indebtedness by the Company and its
subsidiary. Therefore, both the Company and its subsidiary will retain the
ability to incur substantial additional indebtedness, and the Company expects
that it and its subsidiary may incur substantial additional indebtedness in the
future.
ABILITY TO PAY DIVIDENDS ON THE SERIES A PREFERRED STOCK
The ability of the Company to pay any dividends is subject to applicable
provisions of state law, and its ability to pay cash dividends on the Series A
Preferred Stock will be subject to the terms of the Existing Bank Credit
Facility and any other indebtedness of the Company then outstanding. The ability
of the Company to pay cash dividends is dependent upon the receipt of cash from
its Subsidiary. The payment of cash dividends by the Subsidiary to the Company,
however, is prohibited under the current terms of the Existing Bank Credit
Facility, and there can be no assurance the Existing Bank Credit Facility will
be amended to permit the payment of such dividends. See "Risk Factors -- Holding
Company Structure". The ability of the Company to pay cash dividends is also in
part dependent upon the availability of the New Revolving Credit Facility, and
there can be no assurance that such facility will remain in effect. See "Risk
Factors -- Substantial Future Capital Requirements; Need for Additional
Financing; Substantial Leverage".
Under Delaware law the Company is permitted to pay dividends on its capital
stock, including the Series A Preferred Stock, only out of its surplus, or in
the event that it has no surplus, out of its net profits for the year in which a
dividend is declared or for the immediately preceding year. Surplus is defined
as the excess of a company's total assets over the sum of its total liabilities
plus the par value of its outstanding capital stock. In order to pay dividends
in cash, the Company must have surplus or net profits equal to the full amount
of the cash dividends at the time such dividend is declared. Delaware law
permits the Board of Directors of the Company to revalue the Company's assets
and liabilities from time to time to their fair market value in order to create
surplus. The Company cannot predict what the value of its assets or the amount
of its liabilities will be in the future, nor the amounts of its net profits,
and, accordingly, there can be no assurance that the Company will be able to pay
cash dividends on the Series A Preferred Stock.
TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE SERIES A PREFERRED STOCK
It is anticipated that the redemption price of the Series A Preferred Stock
will exceed its issue price (i.e., the portion of the purchase price of a Unit
sold in the Initial Offering that was initially allocated to the Series A
Preferred Stock). As a result, a holder will be required to treat such excess as
a series of constructive distributions on the Series A Preferred Stock occurring
over the term of such stock. The Company intends to treat the redemption price
as the amount that will be paid upon retirement of the Series A Preferred Stock
on September 1, 2009. As a result, the difference between the issue price of the
Series A Preferred Stock and its redemption price on September 1, 2009, will
constitute constructive distributions on the Series A Preferred Stock to U.S.
Holders over
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the period commencing on the issue date thereof and ending on September 1, 2009.
To the extent of the Company's current and accumulated earnings and profits (as
calculated for Federal income tax purposes), the amount of each consecutive
distribution will be includable in a holder's income as ordinary dividend income
at the time such distribution is deemed to occur, notwithstanding that the cash
attributable to such income will not be received by the holder until a
subsequent period.
RANKING OF THE SERIES A PREFERRED STOCK
The Company's obligations with respect to the Series A Preferred Stock are
subordinate and junior in right of payment to all present and future
indebtedness of the Company and its subsidiaries, but will rank senior to
existing equity securities of the Company. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations on the Series A Preferred Stock only after all
holders of indebtedness, and all other creditors, of the Company have been paid,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Series A Preferred Stock then outstanding. See "Description of the
Series A Preferred Stock--Ranking".
While any shares of Series A Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks senior to or pari passu with the Series A Preferred
Stock with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up without the consent of the holders of a majority of
the outstanding shares of Series A Preferred Stock. However, without the consent
of any holder of Series A Preferred Stock, the Company may create additional
classes of stock, increase the authorized number of shares of preferred stock or
issue a new series of stock that ranks junior to the Series A Preferred Stock
with respect to the payment of dividends and amounts upon liquidation,
dissolution or winding up.
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The Certificate of Designation, the Existing Bank Credit Facility and the
New Revolving Credit Facility impose operating and financial restrictions on the
Company and its subsidiaries. These restrictions affect, and in certain cases
significantly limit or prohibit, among other things, the ability of the Company
or any subsidiaries to incur additional indebtedness, issue stock of any
subsidiaries, create liens on its assets, pay dividends or make other
distributions, sell assets, engage in mergers or acquisitions or make
investments. Failure to comply with any of these restrictions could limit the
availability of borrowings or result in a default thereunder. In addition, the
terms of any debt or equity financings undertaken by the Company to meet its
future cash requirements could restrict the Company's operational flexibility
and thereby adversely affect the Company. See "Description of Certain
Indebtedness" and "Description of the Series A Preferred Stock".
MANAGEMENT OF RAPID GROWTH
Subject to the sufficiency of its cash resources, the Company intends to
continue to rapidly expand its business. The Company's future performance will
depend, in large part, upon its ability to implement and manage its growth
effectively. The Company's rapid growth has placed, and in the future will
continue to place, a significant strain on its administrative, operational and
financial resources. The Company anticipates that, if successful in expanding
its business, the Company will be required to recruit and hire a substantial
number of new sales and other personnel. Pursuant to the Company's growth
strategy, the Company currently intends to increase the size of its sales force
from 152 as of July 15, 1998 to approximately 400 by the end of 1999. Failure to
retain and attract additional qualified sales and other personnel, including
management personnel who can manage the Company's growth effectively, and
failure to successfully integrate such personnel, could have a material adverse
effect on the Company. To manage its growth successfully, the Company will also
have to continue to improve and upgrade operational, financial, accounting and
information systems, controls and infrastructure as well as expand, train and
manage its employee
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base. In the event the Company is unable to upgrade its financial controls and
systems adequately to support its anticipated growth, the Company could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Business
Strategy".
LACK OF EXPERIENCE OFFERING LOCAL AND OTHER TELECOMMUNICATIONS SERVICES
The Company's strategy includes offering additional telecommunications
services, including local service and Internet access. The Company has no
experience providing local service and Internet access. To be successful, the
Company must compete successfully with companies that have greater financial
resources and experience than the Company. To provide these additional services,
the Company expects that it will be necessary to make upgrades to its network in
advance of the receipt of any revenue. In addition, the provision of certain of
these services may involve technical requirements with respect to which the
Company has little experience. The provision of these services must also be
successfully integrated into the Company's business. There can be no assurance
that the Company's future services will receive market acceptance in a timely
manner, if at all, or that prices and demand for these services will be
sufficient to provide profitable operations. See "Business -- Business
Strategy", "Business -- Service Offerings -- Planned Services" and "Business --
Network -- Anticipated Network Expansion".
ABILITY TO SECURE AND MAINTAIN INTERCONNECTION AND PEERING ARRANGEMENTS
The Company's success will depend upon its ability to develop and expand
its network infrastructure and support services in order to offer local
telecommunication services, Internet access and other services. Executing the
Company's business strategy will require that the Company enter into agreements,
on acceptable terms and conditions, with various providers of infrastructure
capacity, in particular, interconnection agreements with ILECs and peering
agreements with internet service providers ("ISPs"). No assurance can be given
that all of the requisite agreements can be obtained on satisfactory terms and
conditions.
The Company must enter into agreements for the interconnection of the
Company's network with the networks of the ILECs covering each market in which
the Company intends to offer local service. As of September 15, 1998, the
Company had entered into an interconnection agreement with Bell
Atlantic -- Massachusetts, and the Company expects to execute several additional
interconnection agreements in 1998 and early 1999. There can be no assurance
that the Company will successfully negotiate such additional agreements; the
failure to secure and maintain such agreements could have a material adverse
effect on the Company's ability to become a single source provider of
telecommunications services.
Peering agreements between the Company and ISPs will be necessary in order
for the Company to exchange traffic with ISPs without having to pay transit
costs. The basis on which the large national ISPs make peering available or
impose settlement charges is evolving as the provisioning of Internet access and
related services has expanded. Recently, companies that have previously offered
peering have reduced or eliminated peering relationships and are establishing
new, more restrictive criteria for peering. Furthermore, if increasing costs and
other requirements associated with maintaining peering with the major national
ISPs develop, the Company may have to comply with those additional requirements
in order to continue to maintain any peering relationships it negotiates.
Failure to establish and maintain peering relationships would cause the Company
to incur additional operating expenses or abandon certain elements of its
strategy, which could have a material adverse effect on the Company. See
"Government Regulation".
DEPENDENCE UPON SUPPLIERS AND OTHER SERVICE PROVIDERS
The Company relies on other companies to supply certain key components of
its network infrastructure, including telecommunications services, network
capacity and switching and network-
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ing equipment, which, in the quantities and quality demanded by the Company, are
available only from sole or limited sources. The Company is also dependent upon
ILECs and other carriers to provide telecommunications services and facilities
to the Company and its customers. The Company has from time to time experienced
delays or other problems in receiving telecommunications services and facilities
which it requests, and there can be no assurance that the Company will be able
to obtain such services or facilities on the scale and within the time frames
required by the Company at an affordable cost, or at all. As the Company expands
its service offerings to include local services, it will compete increasingly
with ILECs, which will serve as a disincentive for such entities to cooperate
with the Company. Any failure to obtain such components, services or additional
capacity on a timely basis at an affordable cost, or at all, would have a
material adverse effect on the Company. See "Business -- Competition" and
"Government Regulation".
In May 1998, approximately 40% of the Company's revenue was attributable to
the resale of long distance service provided by Sprint Communications Company
L.P. ("Sprint"). The current agreement with Sprint, which became effective as of
February 1998, terminates in February 2000, and there can be no assurance that
this agreement will be extended on terms acceptable to the Company, if at all.
Early termination of the Company's relationship with Sprint could have a
material adverse effect on the Company. See "Business -- Network -- Sprint
Agreement".
The accurate and prompt billing of the Company's customers is dependent
upon the timeliness and accuracy of call detail records ("CDRs") provided by any
carrier whose service the Company resells. There can be no assurance that the
current carriers will continue to provide, or that new carriers, including
ILECs, will provide, accurate information on a timely basis, and any such
carrier's failure to do so could have a material adverse effect on the Company.
RELIANCE ON LEASED TRANSPORT FACILITIES AND IRUs
Because the Company leases a portion of its transport capacity, it is
dependent upon the availability of fiber optic transmission facilities owned by
ILECs, competitive local exchange carriers ("CLECs") and other fiber optic
transport providers who lease their fiber optic networks to service providers
such as the Company. Many of these entities are, or may become, competitors of
the Company. See "-- Competition". The Company recently entered into two 20-year
IRU agreements pursuant to which it acquired dark fiber mileage, and may enter
into additional IRU agreements in the future. Integration of fiber mileage
acquired pursuant to IRU agreements into the Company's network will subject the
Company to the risk that the owners of the underlying facilities, who may be
competitors of the Company, will not maintain, or will deny the Company access
to, such facilities. The risks inherent in this approach include, but are not
limited to, the possible inability to negotiate and renew favorable supply
agreements, and dependence on the timeliness of the ILECs, CLECs or other fiber
optic transport providers in processing the Company's orders for customers who
seek to utilize the Company's services. See "Business -- Network".
DEPENDENCE ON RIGHTS-OF-WAY AND OTHER THIRD PARTY AGREEMENTS
To further develop its network, the Company may need to obtain local
franchises and other permits, as well as rights to utilize underground conduit
and aerial pole space and other rights-of-way and fiber capacity from entities
such as ILECs and other utilities, railroads, long distance companies, state
highway authorities, local governments and transit authorities. There can be no
assurance that the Company will be able to obtain and maintain such franchises,
permits and rights needed to implement its business strategy on acceptable
terms. Although the Company does not believe that any such arrangements would be
canceled or would not be renewed as needed, cancellation or non-renewal of such
arrangements could materially adversely affect the Company's business in the
affected area. See "Business -- Network -- Anticipated Network Expansion" and
"Government Regulation".
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COMPETITION
The Company operates in a highly competitive environment and currently does
not have a significant market share in any of its markets. Most of its actual
and potential competitors have substantially greater financial, technical,
marketing and other resources (including brand or corporate name recognition)
than the Company. Also, the continuing trend toward business alliances in the
telecommunications industry and the absence of substantial barriers to entry in
the data and Internet services markets could give rise to significant new
competition.
The long distance telecommunications industry is highly competitive and
affected by the introduction of new services by, and the market activities of,
major industry participants. The Company competes against various national and
regional long distance carriers, including both facilities-based providers and
switchless resellers offering essentially the same services as the Company. In
addition, significant competition is expected to be provided by ILECs. The
Company's success will depend upon its ability to provide high-quality services
at prices competitive with those charged by its competitors. In addition, the
long distance industry is characterized by a high level of customer attrition or
"churn". Such attrition is attributable to a variety of factors, including
initiatives of competitors as they engage in advertising campaigns, marketing
programs and cash payments and other incentives. End users often are not
obligated to purchase any minimum usage amount and can discontinue service
without penalty at any time. The Company's revenue has been, and is expected to
continue to be, affected by churn.
AT&T Corp. ("AT&T"), MCI WorldCom, Inc. ("MCI"), Sprint and other carriers
have implemented new price plans aimed at residential customers with
significantly simplified rate structures, which may have the impact of lowering
overall long distance prices. There can be no assurance that long distance
carriers will not make similar offerings available to the small to medium-sized
businesses that the Company primarily serves. While the Company believes small
and medium-sized business customers are not aggressively targeted by large long
distance providers such as AT&T, MCI and Sprint, there can be no assurance the
Company's customers and potential customers will not be targeted by these or
other providers in the future. Additional pricing pressure may come from
Internet telephony, which is a developing technology that can transmit voice
communications at a cost that may be below that of traditional circuit-switched
long distance service. While Internet telephony is not yet available in all
areas, currently requires the dialing of additional digits and currently
produces sound quality inferior to that of traditional long distance service, it
could eventually become a substitute for traditional long distance service and
put pricing pressure on long distance rates. Any reduction in long distance
prices may have a material adverse effect on the Company's results of
operations.
In the local telecommunications market, the Company's primary competitor
initially is expected to be the ILEC serving each geographic area. ILECs are
established providers of dedicated and local telephone services to all or
virtually all telephone subscribers within their respective service areas. ILECs
also have long-standing relationships with regulatory authorities at the federal
and state levels. While recent Federal Communications Commission ("FCC")
administrative decisions and initiatives provide increased business
opportunities to voice, data and ISPs, they also provide the ILECs with
increased pricing flexibility for their private line, special access and
switched access services. In addition, with respect to competitive access
services, the FCC recently proposed a rule that would provide for increased ILEC
pricing flexibility and deregulation for such access services either
automatically or after certain competitive levels are reached. If the ILECs are
allowed additional flexibility by regulators to offer discounts to large
customers through contract tariffs, decide to engage in aggressive volume and
term discount pricing practices for their customers, or seek to charge
competitors excessive fees for interconnection to their networks, the revenue of
competitors to the ILECs, including the Company, could be materially adversely
affected. If future regulatory decisions afford the ILECs increased access
services pricing flexibility or other regulatory relief, such decisions could
also have a material adverse effect on competitors to the ILECs.
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The Company will also face competition or prospective competition in local
markets from other carriers, many of which have significantly greater financial
resources than the Company. For example, AT&T, MCI and Sprint have each begun to
offer local telecommunications services in major U.S. markets using their own
facilities or by resale of the ILECs' or other providers' services. In addition
to these long distance service providers, entities that currently offer or are
potentially capable of offering local switched services include companies that
have previously operated as competitive access providers, cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and large customers who build private networks. These entities, upon
entering into appropriate interconnection agreements or resale agreements with
ILECs, including RBOCs, could offer single-source local and long distance
services, similar to those offered or proposed to be offered by the Company.
In addition, a continuing trend towards business combinations and alliances
in the telecommunications industry may create significant new competitors to the
Company. The proposed acquisition of GTE Corp. by Bell Atlantic Corp., the
proposed merger of SBC Communications, Inc. ("SBC") and Ameritech Corp.
("Ameritech"), the merger of MCI and WorldCom, Inc. ("WorldCom"), AT&T's
proposed acquisition of Telecommunications Inc. and its acquisition of Teleport
Communications Group, Inc., TeleGlobe Inc.'s proposed acquisition of Excel
Communications, and SBC's proposed acquisition of Southern New England
Telephone, Inc. ("SNET"), are examples of some of the alliances that are being
formed. Many of these combined entities will have resources far greater than
those of the Company. These combined entities may provide a bundled package of
telecommunications products, including local and long distance telephony, that
is in direct competition with the products offered or proposed to be offered by
the Company, and may be capable of offering these products sooner and at more
competitive rates than the Company.
The Company will also face competition from fixed wireless services,
including Multichannel Multipoint Distribution Service ("MMDS"), Local
Multipoint Distribution Service ("LMDS"), 24 GHz and 38 GHz wireless
communications systems, FCC Part 15 unlicensed wireless radio devices, and other
services that use existing point-to-point wireless channels on other
frequencies. In addition, the FCC has allocated a number of spectrum blocks for
use by wireless devices that do not require site or network licensing. A number
of vendors have developed such devices that may provide competition to the
Company, particularly for certain low data-rate transmission services.
The FCC has authorized cellular, personal communications service ("PCS"),
and other commercial mobile radio service ("CMRS") providers to offer wireless
services to fixed locations, rather than just to mobile customers, without
limitation. Previously, cellular, PCS and CMRS providers could provide service
to fixed locations only on an ancillary or incidental basis. The authority to
provide fixed as well as mobile services will enable CMRS providers to offer
wireless local loop service and other services to fixed locations (e.g., office
and apartment buildings) in direct competition with the Company and existing
providers of traditional wireless telephone service.
Section 271 of the Telecommunications Act prohibits any RBOC from providing
long distance service that originates (or, in certain cases, terminates) in one
of its in-region states until the RBOC has satisfied certain statutory
conditions in that state and has received the approval of the FCC. The FCC has
denied the following applications for such approval: SBC's Texas application in
June 1998; SBC's Oklahoma application in June 1997; Ameritech's Michigan
application in August 1997; and BellSouth Corporation's applications for South
Carolina and Louisiana in December 1997 and February 1998, respectively. The
Company anticipates that a number of RBOCs will file additional applications for
in-region long distance authority in 1998. Bell Atlantic recently received
conditional approval from the New York Public Service Commission of its Section
271 application for New York State. Thus, it is expected that Bell Atlantic will
file its Section 271 application with the FCC in the near future. The FCC has 90
days from the date an application for in-region long distance authority is filed
to decide whether to grant or deny the application.
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Once the RBOCs are allowed to offer widespread in-region long distance
services, both they and the largest IXCs will be in a position to offer
single-source local and long distance. On December 31, 1997, a United States
District Court judge in Texas held unconstitutional certain sections of the
Telecommunications Act, including Section 271. Section 271 sets forth a
"competitive checklist" that an RBOC must satisfy prior to obtaining authority
to provide in-region interLATA services. This decision would permit the three
RBOCs involved in the suit immediately to begin offering widespread in-region
long distance services. The decision, however, was stayed on February 11, 1998
by the District Court pending the outcome of an appeal on the merits to the U.S.
Court of Appeals for the Fifth Circuit. On September 4, 1998, the Fifth Circuit
reversed the District Court's ruling. Among other things, the Fifth Circuit
found sec.sec.271-75 of the Telecommunication Act to be non-punitive in
character and, therefore, not a bill of attainder as that term has been defined
by the Supreme Court.
In addition, new FCC rules went into effect in February 1998 that make it
substantially easier for many non-U.S. telecommunications companies to enter the
U.S. market, thus potentially further increasing the number of competitors.
The market for data communications and Internet access services is also
extremely competitive. There are no substantial barriers to entry, and the
Company expects that competition will intensify in the future. See
"Business -- Competition", "Business -- Industry Overview" and "Government
Regulation".
THE TELECOMMUNICATIONS ACT AND OTHER REGULATION
Telecommunications services are subject to significant regulations at the
federal, state, local and international levels, affecting the Company and its
existing and potential competitors. Delays in receiving required regulatory
approvals or the enactment of new and adverse legislation, regulations or
regulatory requirements may have a material adverse effect on the Company's
financial condition, results of operations and cash flow. In addition, future
legislative, judicial and regulatory agency actions could alter competitive
conditions in the markets in which the Company is operating or intends to
operate, in ways that are materially adverse to the Company.
The Company is currently subject to federal and state government regulation
of its telecommunications services. The Company is regulated at the federal
level by the FCC. It is required to obtain and maintain an FCC 214 license in
connection with its international services, and to file and maintain both
domestic and international tariffs containing the currently effective rates,
terms and conditions of service for its long distance services. The FCC has
issued regulations eliminating the domestic tariffing requirement for all
interstate nondominant carriers, except for, under certain circumstances, RBOCs.
Those regulations have been stayed on appeal by third parties, and the Company
is currently required to file tariffs with the FCC. The FCC generally retains
the right to sanction a carrier or revoke its authorization if a carrier
violates applicable laws or regulations.
The Company's long distance telecommunications operations and proposed
local service operations are also subject to various state laws and regulations.
The Company must obtain and maintain certificates of public convenience and
necessity from regulatory authorities in most states in which it offers
intrastate service. In most states, the Company must also file and obtain prior
regulatory approval of tariffs for intrastate services. The Company must update
or amend its tariffs when rates are adjusted or new products are added to
services offered by the Company. Challenges by third parties to the Company's
federal or state tariffs and complaints about the Company's practices could
cause the Company to incur substantial legal and administrative expenses.
The FCC and numerous state agencies also impose prior approval requirements
on transfers of control, including pro forma transfers of control and corporate
reorganizations, and assignments of regulatory authorizations. The Company did
not obtain prior approval for its July 1998 corporate reorganization to create a
holding company structure whereby Network Plus Corp. became the holding company
of Network Plus, Inc. The Company is in the process of filing the necessary
papers
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<PAGE> 28
at the FCC and relevant state commissions seeking nunc pro tunc (retroactive)
approval of the transaction on the grounds that the transaction serves certain
important business needs of the Company and enhances the Company's ability to
market and provide services more efficiently. Although the Company believes that
its applications will be approved in due course, there can be no assurance that
the FCC or state commissions will grant the Company's requests for retroactive
approval and/or will not impose fines or license conditions, commence revocation
proceedings or otherwise exercise their authority to address violations of
applicable statutes and regulations.
The Telecommunications Act has already resulted in comprehensive changes in
the regulatory environment for the telecommunications industry as a whole, and
will have a material impact on the local exchange industry and the competitive
environment in which the Company operates. The concept of competitive
provisioning of local exchange services is a relatively new development in the
telecommunications industry, and the Company cannot predict how the relevant
provisions of the Telecommunications Act will be interpreted and implemented by
the FCC, state regulators, courts and the ILECs. See "Business -- Competition",
"Business-- Industry Overview" and "Government Regulation".
The Company's cost of providing long distance service, and its revenue from
providing local services, will both be affected by changes in "access charges"
and universal service. In 1997, the FCC released an order establishing a
significantly expanded federal universal service subsidy regime to be funded by
interstate carriers and certain other entities. The FCC established new
universal service funds to support telecommunications and information services
provided to qualifying schools, libraries and rural health care providers, and
expanded the federal subsidies for local telephone services provided to low
income consumers. If the federal and state regulations requiring the local
exchange carriers to provide equal access for the origination and termination of
calls by long distance subscribers change or if the regulations governing access
charge rates or universal service contribution change, such changes could have a
material adverse effect on the Company's financial condition, results of
operations and cash flow. On July 18, 1997, the United States Court of Appeals
for the Eighth Circuit overturned many of the rules the FCC had established
pursuant to the Telecommunications Act. The Eighth Circuit decision
substantially limits the FCC's jurisdiction and expands state regulators'
jurisdiction to set and enforce rules governing the development of local
competition. As a result, it is more likely that the rules governing local
competition will vary substantially from state to state. If a patchwork of state
regulations were to develop, it could increase the Company's cost of regulatory
compliance and could make entry into and conduct of business in some markets
more expensive than in others. The U.S. Supreme Court has decided to review the
Eighth Circuit's decision. There can be no assurance as to how or when the U.S.
Supreme Court will act on the appeal or that the outcome of the appeal will not
have a material adverse effect on the Company's financial condition, results of
operation and cash flow.
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
Integrated management information and processing systems are vital to the
Company's growth and its ability to monitor costs, bill customers, provision
customer orders and achieve operating efficiencies. As the Company continues its
transition to the provisioning of integrated communications services, the need
for sophisticated billing and information systems will increase significantly.
The cost of implementing such systems has been, and is expected to continue to
be, substantial. Also, the Company's plans for the development and
implementation of its internal systems rely on the delivery of products and
services by third party vendors. Failure of these vendors to deliver the
required information in a timely and effective manner and at acceptable costs,
failure of the Company to adequately identify and integrate all of its
information and processing needs, failure of the Company's related processing or
information systems, or the failure of the Company to upgrade systems as
necessary could have a material adverse effect on the Company.
The Company is dependent upon the prompt collection of payment of its
customers' bills and, in turn, upon the creditworthiness of its customers and
the continued implementation of adequate
23
<PAGE> 29
revenue assurance programs. The failure of its customers to pay their bills in a
timely manner or the Company's failure to accurately assess the creditworthiness
of its customers and implement adequate revenue assurance programs could have a
material adverse effect on the Company. In 1997, the Company's provision for
doubtful accounts increased by $3.0 million, principally relating to two
customers and an increase in the estimate of bad debt reserve consistent with
the growth in revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Management Information
Systems, Provisioning, Billing and Collections".
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the abilities and continued efforts of its management, particularly Robert
T. Hale, Jr., the Company's Chief Executive Officer and President, Robert T.
Hale, the Company's Chairman of the Board, and other members of its senior
management team. None of the Company's executive officers is subject to an
employment agreement with the Company providing for the officer's continuing
employment. The loss of the services of any of such individuals could have a
material adverse effect on the Company. The success of the Company will also
depend, in part, upon the Company's ability to hire and retain additional key
personnel, including senior management, technical and sales personnel, who are
also being sought by other businesses. Competition for qualified personnel in
the telecommunications industry is intense. Difficulty in hiring and retaining
such personnel could have a material adverse effect on the Company. See
"-- Management of Rapid Growth", "Business -- Employees" and "Management".
IMPACT OF TECHNOLOGICAL CHANGE
The telecommunications industry has been, and is likely to continue to be,
characterized by rapid technological change, frequent new service introductions
and evolving industry standards. Increases or changes in technological
capabilities or efficiencies could create an incentive for more competitors to
enter the facilities-based local exchange business in which the Company intends
to compete. Similarly, such changes could result in lower retail rates for
telecommunications services, which could have a material adverse effect on the
Company's ability to price its services competitively or profitably. Future
technological changes, including changes related to emerging wireline and
wireless transmission and switching technologies and Internet-related services
and technologies, also could have a material adverse effect on the Company.
The Company relies and will continue to rely in part on third parties
(including certain of its competitors and potential competitors) for the
development of and access to communications and networking technology. The
effect of technological changes on the business of the Company cannot be
predicted with any degree of certainty. The Company believes its future success
will depend, in part, on its ability to anticipate or adapt to such changes and
to offer, on a timely basis, services that meet customer demands and evolving
industry standards. There can be no assurance that the Company will obtain
access to new technology on a timely basis or on satisfactory terms, or that the
Company will be able to adapt to such technological changes, offer such services
on a timely basis or establish or maintain a competitive position. Any
technological change, obsolescence or failure to obtain access to important
technologies could have a material adverse effect on the Company. See
"Business -- Industry Overview".
YEAR 2000 COMPLIANCE
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. While the Company believes
that the majority of its software applications will be year 2000 compliant by
the end of 1998, there can be no assurance that all systems will function
adequately beginning in the year 2000. There can also be no assurance the
Company will not incur
24
<PAGE> 30
significant unanticipated costs in achieving year 2000 compliance. Furthermore,
if the hardware or software comprising the Company's network elements acquired
from third party vendors, the software applications of the long distance
carriers, LECs, or others on whose services the Company depends or with whom the
Company's systems interface, or the software applications of other suppliers,
are not year 2000 compliant, it could affect the Company's systems, which could
have a material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Impact of Year
2000".
STRATEGIC INVESTMENTS; BUSINESS COMBINATIONS
In furtherance of its growth strategy, the Company may pursue acquisitions
of, or joint ventures or strategic alliances with, companies engaged in
businesses similar or related to the business of the Company. As consideration
for such acquisitions, the Company may be required to assume liabilities, incur
additional indebtedness or issue equity securities. There can be no assurance
that the Company will be able to obtain such financing. Such acquisitions,
combinations or alliances, if consummated, could increase the Company's
indebtedness and could divert the resources and management of the Company and
would require integration with the Company's existing networks and services.
There can be no assurance that any acquisitions, combinations or alliances will
occur or, if consummated, would be on terms favorable to the Company or would be
successfully integrated into the Company's operations. See "Business -- Business
Strategy -- Expand Through Strategic Acquisitions and Alliances".
DEPENDENCE UPON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE; SECURITY RISKS
The Company's success in attracting and retaining customers requires that
the Company provide adequate reliability, capacity and security in its network
infrastructure. The Company's networks and the networks upon which it depends
are subject to physical damage, power loss, capacity limitations, software
defects, breaches of security (by computer virus, break-ins or otherwise) and
other factors, certain of which may cause interruptions in service or reduced
capacity for the Company's customers. Interruptions in service, capacity
limitations or security breaches could have a material adverse effect on the
Company. See "Business -- Network".
CONTROL BY EXISTING STOCKHOLDERS; DEADLOCK; ANTITAKEOVER PROVISIONS
All of the outstanding Common Stock is owned or voted by Robert T. Hale and
Robert T. Hale, Jr., each an Officer and Director of the Company. Consequently,
management will have complete control over all of the Company's affairs and will
have the ability to control the election of all members of the Company's Board
of Directors and the outcome of all corporate actions requiring stockholder
approval.
Because the outstanding Common Stock is owned equally by the Company's two
stockholders, the failure of such stockholders to agree on a matter that
requires the approval of the holders of a majority of the outstanding shares of
Common Stock would result in a deadlock, which could have the effect of
preventing or delaying the Company from taking any action on the matter. Such a
deadlock could have a material adverse effect on the Company. See "Management"
and "Stock Ownership".
Robert T. Hale and Robert T. Hale, Jr. will have the authority to amend the
Company's Certificate of Incorporation and By-Laws to include certain provisions
that may have the effect of discouraging, delaying or making more difficult a
change in control of the Company or preventing the removal of incumbent
directors even if holders of the Warrants or other securities of the Company
were to deem such action to be in the best interests of the Company. Among other
things, the Certificate of Incorporation may be amended to provide for a
classified Board of Directors. In addition, the Certificate of Incorporation
allows the Board of Directors to issue shares of preferred stock and fix the
rights, privileges and preferences of those shares without any further vote or
action
25
<PAGE> 31
by the stockholders. The rights of the holders of Common Stock will 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. Any such issuance of shares of preferred
stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In addition,
the Certificate of Incorporation and By-Laws could be amended to, among other
things, limit the manner in which directors may be nominated by the stockholders
and limit the manner in which proposals may be made at stockholder meetings. The
Company may also elect to be subject to Section 203 of the Delaware General
Corporation Law, which could have the effect of delaying or preventing a change
of control of the Company. To the extent that these provisions discourage
takeover attempts, they could deprive stockholders of opportunities to realize
takeover premiums for their shares or could depress the market price of the
Company's securities.
FUNDING OF REPURCHASE OBLIGATIONS; ABSENCE OF SINKING FUND; REDEMPTION OF SERIES
A PREFERRED STOCK UPON MATURITY
There is no sinking fund with respect to the Series A Preferred Stock, and
in September 2009 all outstanding shares thereof will become subject to
mandatory redemption by the Company. Also, upon the occurrence of certain
earlier events, including a change in control of the Company, the Company will
be required to offer to repurchase all or a portion of the outstanding Series A
Preferred Stock. The source of funds for any such payment at maturity or earlier
repurchase is expected to be the Company's available cash or cash generated from
operating or other sources, including, without limitation, borrowings or sales
of assets or equity securities of the Company. There can be no assurance that
sufficient funds will be available at the time of any such event to make such
purchase or to make any other required payment. See "Description of the Series A
Preferred Stock". In addition, limitations imposed by other debt obligations of
the Company may limit the Company's ability to repurchase the Series A Preferred
Stock.
ABSENCE OF PUBLIC MARKET
The New Preferred Shares are a new issue of securities for which there is
currently no established market. There can be no assurance as to (i) the
liquidity of any market that may develop, (ii) the ability of the holders of New
Preferred Shares to sell any of their New Preferred Shares, or (iii) the price
at which the holders of New Preferred Shares would be able to sell such shares.
The Company does not presently intend to apply for listing of the New Preferred
Shares on any national securities exchange or on The Nasdaq Stock Market. The
Purchasers have advised the Company that they presently intend to make a market
in the New Preferred Shares. The Purchasers are not obligated, however, to make
a market in such shares, and any such market-making may be discontinued at any
time at the sole discretion of the Purchasers and without notice. Accordingly,
no assurance can be given as to the development or liquidity of any market for
the New Preferred Shares. If a market for the New Preferred Shares were to
develop, such shares could trade at prices that may be higher or lower than
their initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and prospects for its
performance, the market for similar securities and general economic conditions.
Historically, the market for securities such as the New Preferred Shares has
been subject to disruptions that have caused substantial volatility in the
prices of similar securities. There can be no assurance that, if a market for
any of the New Preferred Shares were to develop, such a market would not be
subject to similar disruptions.
FAILURE TO EXCHANGE
Holders of Original Preferred Shares who do not exchange their Original
Preferred Shares for New Preferred Shares pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Original
Preferred Shares set forth in the legend thereon as a consequence of the
issuance of the Original Preferred Shares pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Original Preferred Shares
may not be offered or sold, unless registered under the
26
<PAGE> 32
Securities Act and applicable state securities laws, or pursuant to an exemption
therefrom. Except under certain limited circumstances, the Company does not
intend to register the Original Preferred Shares under the Securities Act. In
addition, any holder of Original Preferred Shares who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Preferred
Shares may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. To the extent
Original Preferred Shares are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Preferred Shares not tendered could be
adversely affected. See "The Exchange Offer".
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<PAGE> 33
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of New
Preferred Shares in the Exchange Offer. The net proceeds to the Company of the
Initial Offering were approximately $37.5 million. The Company has used $9.8
million of the net proceeds of the Initial Offering to pay down borrowings
outstanding under the Existing Bank Credit Facility; the Company intends to use
the remainder of the net proceeds to finance its anticipated expansion,
including the expansion of its local telecommunications infrastructure,
information technology systems and sales force.
Pending application of the net proceeds of the Initial Offering as
described herein, the Company intends to use a portion of such proceeds to
temporarily repay revolving indebtedness and to invest the remainder of such
proceeds in short-term, interest-bearing, U.S. government securities and other
short-term, investment grade securities.
Because of the number and variability of factors that may determine the
Company's use of the net proceeds of the Initial Offering, management will
retain a significant amount of discretion over the application of the net
proceeds. There can be no assurance that such applications will not vary
substantially from the Company's current plans. See "Risk Factors -- Control by
Existing Stockholders; Deadlock; Antitakeover Provisions", "Risk
Factors -- Negative Cash Flow and Operating Losses" and "Risk
Factors -- Substantial Future Capital Requirements; Need for Additional
Financing; Substantial Leverage".
DIVIDEND POLICY
On September 2, 1998, the Company paid a dividend to Robert T. Hale and
Robert T. Hale, Jr. in the aggregate amount of $5.0 million, of which $1.9
million was reinvested by one of the stockholders in the form of a long-term
loan to the Company. For the foreseeable future the Company intends to retain
its earnings for its operations and expansion of its business and it does not
expect to pay dividends on its Common Stock (other than in amounts necessary to
enable the Company's stockholders to pay taxes and related tax preparation
expenses in respect of income allocated to such stockholders through the date
the Company's status as an S corporation ceased). The payment of any future
dividends will be at the discretion of the Board of Directors, except as
required by the terms of the Series A Preferred Stock, and will depend upon,
among other factors, the Company's earnings, financial condition, capital
requirements and general business outlook at the time payment is considered. In
addition, the Company's ability to pay dividends will depend upon the amount of
distributions, if any, received from NPI or any future operating subsidiaries of
the Company. The Company intends to exercise its option to make dividend
payments on the Series A Preferred Stock prior to September 1, 2003 by allowing
such dividends to be added to the Specified Amount of the Series A Preferred
Stock. The Existing Bank Credit Facility will, and any future indebtedness
incurred by the Company, including the New Revolving Credit Facility, may,
restrict the ability of the Company to pay dividends. See "Description of
Certain Indebtedness", "Description of the Series A Preferred Stock" and
"Description of Capital Stock".
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<PAGE> 34
CAPITALIZATION
The following table sets forth the total cash and cash equivalents,
marketable securities and investments and capitalization of the Company as of
June 30, 1998, and June 30, 1998, as adjusted to give effect to (i) the Initial
Offering (after deducting discounts and estimated offering expenses payable by
the Company, estimated to total $2.5 million) and the application of the
estimated net cash proceeds therefrom, including the repayment of $9.0 million
of borrowings under the Existing Bank Credit Facility, (ii) this Exchange Offer,
and (iii) the payment of a $5.0 million dividend to the Company's stockholders
and the reinvestment of $1.9 million by one of the Company's stockholders
(representing such stockholder's approximate net after-tax proceeds of the
dividend) in the form of a long-term loan to the Company. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements,
including the notes thereto, of the Company appearing elsewhere in this
Prospectus. See "Use of Proceeds", "Description of Capital Stock" and
"Description of Certain Indebtedness -- Stockholder Loan".
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and cash equivalents, marketable securities and
investments............................................... $ 8,260 $33,660
======= =======
Debt:
Current Portion of Long-Term Debt and Capital Lease
Obligations and Existing Bank Credit Facility(1).......... $10,132 $ 1,132
======= =======
Long-Term Debt and Capital Lease Obligations, Net of Current
Portion................................................... $ 3,167 $ 5,067
Redeemable Preferred Stock
13.5% Series A1 Cumulative Redeemable Preferred Stock due
2009, $0.01 par value, 50,000 shares authorized, 40,000
shares issued and outstanding, as adjusted(2).......... -- 33,141
Stockholders' Equity:
Common Stock, $.01 par value, 20,000,000 shares
authorized; 10,000,000 shares outstanding.............. 100 100
Warrants(3)............................................... -- 4,359
Additional Paid-In Capital................................ 183 183
Accumulated Deficit....................................... (50) (5,050)
------- -------
Total Stockholders' Equity (Deficit)................... 233 (408)
------- -------
Total Capitalization.............................. $ 3,400 $37,800
======= =======
</TABLE>
- ---------------
(1) After repayment of $9.0 million of outstanding indebtedness, the Company has
approximately $15.0 million of availability under the Existing Bank Credit
Facility. If the New Revolving Credit Facility had been in place on June 30,
1998, $45 million of the $60 million in total borrowings contemplated by
such facility would have been available.
(2) Series A Preferred Stock with an initial liquidation preference of $40
million was issued by the Company as part of the Units sold in the Initial
Offering. Each Unit consisted of one share of Series A Preferred Stock, 7.75
Initial Warrants and 15 Contingent Warrants, each Warrant to purchase one
share of Common Stock. An assumed initial value of $4.65 million was
allocated to additional paid-in capital, representing the portion of the
purchase price of the Units allocated to the Initial Warrants, less $0.3
million of the costs associated with the Initial Offering, allocable to the
Initial Warrants. No assurance can be given that the value allocated to the
Initial Warrants will be indicative of the price at which the Initial
Warrants may actually trade. Costs of $2.2 million associated with the
Initial Offering have been allocated to the Series A Preferred Stock.
(3) Represents the portion of the purchase price of the Units allocated to the
Initial Warrants (as described in note 2 above), less $0.3 million of the
cost associated with the Initial Offering allocable to the Initial Warrants.
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<PAGE> 35
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Preferred Shares were issued and sold on September 3, 1998 in
a transaction exempt from registration under the Securities Act. Accordingly,
the Original Preferred Shares may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. The Company has agreed pursuant to the Registration Agreement to
(i) file, within 90 days after the closing of the Initial Offering (the
"Original Preferred Shares Closing Date"), a registration statement with the
Commission with respect to the Exchange Offer, (ii) use its best efforts to
cause such registration statement to be declared effective under the Securities
Act not later than 150 days after the Original Preferred Shares Closing Date and
(iii) upon effectiveness of such registration statement, offer New Preferred
Shares in exchange for surrender of Original Preferred Shares. The New Preferred
Shares are being offered hereunder to satisfy these obligations of the Company
under the Registration Agreement.
TERMS OF THE EXCHANGE
The Company is offering, upon the terms and subject to the conditions of
the Exchange Offer, to exchange one New Preferred Share for each outstanding
Original Preferred Share. The terms of the New Preferred Shares are
substantially identical in all respects to the terms of the Original Preferred
Shares for which they may be exchanged pursuant to the Exchange Offer, except
that (i) the offer of the New Preferred Shares will have been registered under
the Securities Act and, therefore, the New Preferred Shares will be freely
transferable by holders thereof (except as otherwise described herein) and not
bear a legend regarding restrictions on transfer, (ii) holders of the New
Preferred Shares will not be entitled to certain rights of the holders of the
Original Preferred Shares under the Registration Agreement, which rights with
respect to the Original Preferred Shares will terminate on consummation of the
Exchange Offer, and (iii) the New Preferred Shares will not contain any
provisions regarding the payment of Special Dividends. See "Description of the
Series A Preferred Stock".
The Exchange Offer is not conditioned upon any minimum number of Original
Preferred Shares being tendered for exchange.
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that New Preferred Shares issued pursuant
to the Exchange Offer in exchange for the Original Preferred Shares may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any holder which is (i) an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original
Preferred Shares directly from the Issuer or (iii) broker-dealers who acquired
Original Preferred Shares as a result of market making or other trading
activities) without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such New Preferred Shares are
acquired in the ordinary course of such holders' business, and such holders are
not engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such New
Preferred Shares. Each broker-dealer that receives New Preferred Shares for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Preferred Shares. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Preferred Shares received in exchange for
Original Preferred Shares where such New Preferred Shares were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that it will make this Prospectus
30
<PAGE> 36
available to any broker-dealer for use in connection with any such resale for 90
days after the completion of this Exchange Offer. See "Plan of Distribution".
Tendering holders of Original Preferred Shares will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Original
Preferred Shares pursuant to the Exchange Offer.
Dividends on each New Preferred Share will accrue from the last date on
which dividends were paid on the Original Preferred Share surrendered in
exchange therefor or, if no dividend has been paid on such Original Preferred
Share, from the date of original issuance of such Original Preferred Share.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1998, unless
the Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to the
Exchange Agent and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service. During any extension of the Exchange Offer, all Original Preferred
Shares previously tendered pursuant to the Exchange Offer will remain subject to
the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Preferred Shares for any
reason, including if any of the events set forth below under " --Conditions to
the Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Preferred Shares. If any such
termination or amendment occurs, the Company will notify the Exchange Agent in
writing and will either issue a press release or give written notice to the
holders of the Original Preferred Shares as promptly as practicable. Unless the
Company terminates the Exchange Offer prior to 5:00 p.m., New York City time, on
the Expiration Date, the Company will exchange the New Preferred Shares for the
Original Preferred Shares on the Exchange Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent or given to holders
of Original Preferred Shares in the manner specified above, the Exchange Offer
is scheduled to expire at any time earlier than the expiration of a period
ending on the fifth business day from, and including, the date that such notice
is first so published, sent or given, then the Exchange Offer will be extended
until the expiration of such period of five business days.
This Prospectus and the Letter of Transmittal and other relevant materials
will be mailed by the Company to record holders of Original Preferred Shares and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Original Preferred Shares.
HOW TO TENDER
The tender to the Company of Original Preferred Shares by a holder thereof
pursuant to one of the procedures set forth below will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
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<PAGE> 37
General Procedures. A holder of one or more Original Preferred Shares may
tender the same by (i) properly completing and signing the Letter of Transmittal
or a facsimile thereof (all references in this Prospectus to the Letter of
Transmittal shall be deemed to include a facsimile thereof) and delivering the
same, together with the certificate or certificates representing the Original
Preferred Share(s) being tendered and any required signature guarantees (or a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
pursuant to the procedure described below), to the Exchange Agent at its address
set forth below under "--Exchange Agent" on or prior to the Expiration Date or
(ii) complying with the guaranteed delivery procedures described below.
If tendered Original Preferred Shares are registered in the name of the
signer of the Letter of Transmittal and the New Preferred Shares to be issued in
exchange therefor are to be issued (and any untendered Original Preferred Shares
are to be reissued) in the name of the registered holder, the signature of such
signer need not be guaranteed. In any other case, the tendered Original
Preferred Shares must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the registered
holder and the signature on the endorsement or instrument of transfer must be
guaranteed by a firm (an "Eligible Institution") that is a member of a
recognized signature guarantee medallion program (an "Eligible Program") within
the meaning of Rule 17Ad-15 under the Exchange Act. If the New Preferred Shares
and/or Original Preferred Shares not exchanged are to be delivered to an address
other than that of the registered holder appearing on the stock register for the
Original Preferred Shares, the signature on the Letter of Transmittal must be
guaranteed by an Eligible Institution.
Any beneficial owner whose Original Preferred Shares are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender Original Preferred Shares should contact such holder
promptly and instruct such holder to tender Original Preferred Shares on such
beneficial owner's behalf. If such beneficial owner wishes to tender such
Original Preferred Shares himself or herself, such beneficial owner must, prior
to completing and executing the Letter of Transmittal and delivering such
Original Preferred Shares, either make appropriate arrangements to register
ownership of the Original Preferred Shares in such beneficial owner's name or
follow the procedures described in the immediately preceding paragraph. The
transfer of record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent has established an account with
respect to the Original Preferred Shares at The Depository Trust Company (the
"Book-Entry Transfer Facility") for purposes of the Exchange Offer, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Original Preferred Shares by
causing the Book-Entry Transfer Facility to transfer such Original Preferred
Shares into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Original Preferred Shares may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
THE METHOD OF DELIVERY OF CERTIFICATES REPRESENTING ORIGINAL PREFERRED
SHARES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF
SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED,
BE USED, PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR
BEFORE THE EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if
32
<PAGE> 38
the holder does not provide the holder's taxpayer identification number (social
security number or employer identification number) and certify that such number
is correct and, if required, that such holder is not subject to backup
withholding as a result of failing to report interest or dividend income. Each
tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the Company and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or certificates
representing Original Preferred Shares to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed under "--Exchange Agent" on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the
Original Preferred Shares are registered and, if possible, the certificate
numbers of the Original Preferred Shares to be tendered, and stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of such letter, telegram or
facsimile transmission by the Eligible Institution, the Original Preferred
Shares, in proper form for transfer, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Original Preferred Shares
being tendered by the above-described method (or a timely Book-Entry
Confirmation) are deposited with the Exchange Agent within the time period set
forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company may, at its option,
reject the tender. Copies of a Notice of Guaranteed Delivery which may be used
by Eligible Institutions for the purposes described in this paragraph are being
delivered with this Prospectus and the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal,
accompanied by the certificate representing the Original Preferred Shares (or a
timely Book-Entry Confirmation) is received by the Exchange Agent. Issuances of
New Preferred Shares in exchange for Original Preferred Shares tendered pursuant
to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission
to similar effect (as provided above) by an Eligible Institution will be made
only against deposit of the Letter of Transmittal (and any other required
documents) and the tendered Original Preferred Shares (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Preferred Shares
will be determined by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any or all tenders
not in proper form or the acceptances for exchange of which may, in the opinion
of counsel to the Company, be unlawful. The Company also reserves the absolute
right to waive any of the conditions of the Exchange Offer or any defects or
irregularities in tenders of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or shall incur any
liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal and the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:
The party tendering Original Preferred Shares for exchange (the
"Transferor") exchanges, assigns and transfers the Original Preferred Shares to
the Company and irrevocably constitutes and
33
<PAGE> 39
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Original Preferred Shares to be assigned, transferred and exchanged.
The Transferor represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Original Preferred Shares and to
acquire New Preferred Shares issuable upon the exchange of such tendered
Original Preferred Shares, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title to the tendered Original
Preferred Shares, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Original Preferred Shares. The Transferor further
agrees that acceptance of any tendered Original Preferred Shares by the Company
and the issuance of New Preferred Shares in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Agreement and that the Company shall have no further obligations or liabilities
thereunder (except in certain limited circumstances). All authority conferred by
the Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By tendering Original Preferred Shares, the Transferor certifies (a) that
it is not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, that it is not a broker-dealer that owns Original Preferred
Shares acquired directly from the Company or an affiliate of the Company, that
it is acquiring the New Preferred Shares offered hereby in the ordinary course
of such Transferor's business and that such Transferor has no arrangement with
any person to participate in the distribution of such New Preferred Shares; or
(b) that it is an "affiliate" (as so defined) of the Company or of the
Purchasers, and that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable to it. Each
broker-dealer that receives New Preferred Shares for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Preferred Shares. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
WITHDRAWAL RIGHTS
Original Preferred Shares tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth below under "--Exchange Agent". Any such notice of withdrawal
must specify the person named in the Letter of Transmittal as having tendered
Original Preferred Shares to be withdrawn, the certificate numbers of Original
Preferred Shares to be withdrawn, the number of Original Preferred Shares to be
withdrawn, a statement that such holder is withdrawing his or her election to
have such Original Preferred Shares exchanged, and the name of the registered
holder of such Original Preferred Shares; and must be signed by the holder in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Original Preferred Shares being withdrawn.
The Exchange Agent will return the properly withdrawn Original Preferred Shares
promptly following receipt of notice of withdrawal. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
34
<PAGE> 40
ACCEPTANCE OF ORIGINAL PREFERRED SHARES FOR EXCHANGE; DELIVERY OF NEW PREFERRED
SHARES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Preferred Shares validly tendered and not
withdrawn and the issuance of the New Preferred Shares will be made on the
Exchange Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Original Preferred Shares
when, as and if the Company has given written notice thereof to the Exchange
Agent.
The Exchange Agent will act as agent for the tendering holders of Original
Preferred Shares for the purposes of receiving New Preferred Shares from the
Company and causing the Original Preferred Shares to be assigned, transferred
and exchanged. Upon the terms and subject to the conditions of the Exchange
Offer, delivery of New Preferred Shares to be issued in exchange for accepted
Original Preferred Shares will be made by the Exchange Agent promptly after
acceptance of the tendered Original Preferred Shares. Original Preferred Shares
not accepted for exchange by the Company will be returned without expense to the
tendering holders (or in the case of Original Preferred Shares tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the procedures described above, such non-exchanged Original
Preferred Shares will be credited to an account maintained with such Book-Entry
Transfer Facility) promptly following the Expiration Date or, if the Company
terminates the Exchange Offer prior to the Expiration Date, promptly after the
Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue New Preferred
Shares in respect of any properly tendered Original Preferred Shares not
previously accepted and may terminate the Exchange Offer (by oral or written
notice to the Exchange Agent and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service) or, at its option, modify or otherwise amend the
Exchange Offer, if (a) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a
result thereof, or (iii) resulting in a material delay in the ability of the
Company to accept for exchange or to exchange some or all of the Original
Preferred Shares pursuant to the Exchange Offer; (b) any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the sole judgment of the Company might
directly or indirectly result in any of the consequences referred to in clauses
(a)(i) or (ii) above or, in the sole judgment of the Company, might result in
the holders of New Preferred Shares having obligations with respect to resales
and transfers of New Preferred Shares which are greater than those described in
the interpretations of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the Exchange
Offer; or (c) a material adverse change shall have occurred in the business,
condition (financial or otherwise), operations, or prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, and each right will be deemed an ongoing
right which may be asserted at any time or from time to time.
35
<PAGE> 41
In addition, the Company has reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
Exchange Offer.
Any determination by the Company concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Original
Preferred Shares tendered and no New Preferred Shares will be issued in exchange
for any such Original Preferred Shares, if at such time any stop order shall be
threatened or in effect with respect to the Registration Statement of which this
Prospectus constitutes a part.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth below.
Address:
40 Wall Street
46th Floor
New York, NY 10005
Attention: Exchange Department
By Facsimile:
718-234-5001
Confirm by Telephone:
800-937-5449
718-921-8200
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting and legal fees, will be paid by
the Company and are estimated at approximately $300,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Original Preferred Shares in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, the
Company may, at its discretion, take such action as it may deem necessary to
make the Exchange Offer in any such jurisdiction and extend the Exchange Offer
to holders of Original Preferred Shares in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the Exchange
36
<PAGE> 42
Offer to be made by a licensed broker or dealer, the Exchange Offer is being
made on behalf of the Company by one or more registered brokers or dealers which
are licensed under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF ORIGINAL PREFERRED SHARES WILL NOT HAVE DISSENTERS' RIGHTS OR
APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
U.S. holders (as defined) should not recognize any taxable gain or loss for
federal income tax purposes as a result of the exchange of Original Preferred
Shares for New Preferred Shares.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Preferred Shares
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Preferred Shares pursuant to the terms of this
Exchange Offer, the Company will have fulfilled a covenant contained in the
Certificate of Designation and the Registration Agreement. Holders of the
Original Preferred Shares who do not tender their certificates in the Exchange
Offer will continue to hold such certificates and will be entitled to all the
rights, and limitations applicable thereto, under the Certificate of
Designation, except for any such rights under the Registration Agreement which
by their terms terminate or cease to have further effect as a result of the
making of this Exchange Offer. See "Description of the Series A Preferred
Stock". All untendered Original Preferred Shares will continue to be subject to
the restrictions on transfer set forth in the Certificate of Designation. To the
extent that Original Preferred Shares are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Original Preferred Shares could be
adversely affected. See "Risk Factors--Consequences of Failure to Exchange".
The Company may in the future seek to acquire untendered Original Preferred
Shares in open-market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company has no present plan to acquire any
Original Preferred Shares which are not tendered in the Exchange Offer.
37
<PAGE> 43
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected financial data for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the six month periods ended
June 30, 1997 and 1998. The financial and balance sheet data for the years
ending December 31, 1995, 1996 and 1997 have been derived from financial
statements (including those set forth elsewhere in this Prospectus) that have
been audited by PricewaterhouseCoopers LLP, independent accountants. The
financial statements as of December 31, 1996 and 1997 and for each of the years
in the three year period ended December 31, 1997 and the report of
PricewaterhouseCoopers LLP relating thereto are included elsewhere in this
Prospectus, and the selected financial data represented below are qualified in
their entirety by reference thereto. The financial data presented for the years
ended December 31, 1993 and 1994 and the six month periods ended June 30, 1997
and June 30, 1998 are derived from the unaudited financial statements of the
Company and in the opinion of management include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
Company's results of operations and financial condition for those periods. The
data for the six month period ended June 30, 1998 are not necessarily indicative
of results for the year ending December 31, 1998 or indicative of future
periods. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including the notes thereto, of the
Company appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue......................................... $14,427 $30,754 $49,024 $75,135 $98,209 $49,381 $52,305
Direct cost of revenue.......................... 7,120 16,061 35,065 57,208 78,106 38,440 38,828
------- ------- ------- ------- ------- ------- -------
Gross profit.................................... 7,307 14,693 13,959 17,927 20,103 10,941 13,477
Selling, general and administrative............. 7,233 11,631 17,698 19,224 25,704 10,567 11,935
Depreciation and amortization................... 67 180 276 539 994 324 951
------- ------- ------- ------- ------- ------- -------
Operating income (loss)......................... 7 2,882 (4,014) (1,836) (6,595) 50 591
Interest income................................. 13 37 202 95 86 60 12
Interest expense................................ (5) (2) (40) (312) (557) (177) (578)
Other income (expense), net..................... 27 (65) 7,547 3,468 3,875 12 (97)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $ 42 $ 2,852 $ 3,695 $ 1,415 $(3,191) $ (55) $ (72)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share -- basic and
diluted....................................... $ -- $ .29 $ .37 $ .14 $ (.32) $ (.01) $ (.01)
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding............. 10,000 10,000 10,000 10,000 10,000 10,000 10,000
======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures............................ $ 815 $ 813 $ 860 $ 2,135 $ 3,363 $ 1,605 $ 2,364
EBITDA(1)....................................... 74 3,084 (3,738) (1,303) (5,601) 374 1,542
Net cash provided by (used for) operating
activities.................................... 1,689 1,904 2,463 1,051 (3,386) (1,120) 11,327
Net cash provided by (used for) investing
activities.................................... (1,949) 368 (184) (2,014) (3,357) (1,606) (2,348)
Net cash provided by (used for) financing
activities.................................... 19 (1,255) (1,903) 1,596 6,004 2,602 (2,287)
Ratio of earnings to fixed charges(2)........... 9.4x 1,511.0x 101.2x 5.7x -- 0.8x 1.1x
</TABLE>
38
<PAGE> 44
<TABLE>
<CAPTION>
JUNE 30, 1998
YEAR ENDED DECEMBER 31, ---------------------
----------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(3)
------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................................... $ 215 $ 1,232 $ 1,608 $ 2,241 $ 1,502 $ 8,194 $ 33,594
Current assets............................. 2,545 9,264 16,441 19,771 28,521 25,090 52,990
Property and equipment, net................ 819 1,435 1,507 3,075 6,957 8,361 8,361
Working capital............................ 1,592 4,388 2,369 1,621 (3,128) (5,188) 13,712
Total assets............................... 4,647 11,264 18,005 22,915 35,581 33,678 61,578
Other long-term obligations................ 14 24 11 664 3,623 3,167 5,067
Redeemable Series A Preferred Stock(4)..... -- -- -- -- -- -- 33,141
Total stockholders' equity (deficit)....... 539 2,117 3,922 4,101 309 233 (408)
</TABLE>
- ---------------
(1) EBITDA consists of net income (loss) before interest and other income,
income taxes, depreciation and amortization. It is a financial performance
measure commonly used in the telecommunications industry and is presented to
assist in an understanding of the Company's operating results. However, it
is not intended to represent cash flows or results of operations in
accordance with generally accepted accounting principles ("GAAP").
(2) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent net income before income taxes plus fixed charges, and
"fixed charges" consist of interest expense. For the year ended 1997,
earnings were insufficient to cover fixed charges by $3.1 million.
(3) Gives effect to (i) the Initial Offering (after deducting discounts and
offering expenses payable by the Company, estimated to total $2.5 million)
and the receipt of the estimated net cash proceeds therefrom, including the
repayment of $1.9 million of borrowings under the Existing Bank Credit
Facility and (ii) the payment of a $5.0 million dividend to the Company's
stockholders and the reinvestment of $1.9 million by one of the Company's
stockholders (representing such stockholder's approximate net after-tax
proceeds of the dividend) in the form of a long-term loan to the Company.
See "Use of Proceeds" and "Description of Certain
Indebtedness -- Stockholder Loan".
(4) Series A Preferred Stock with an initial liquidation preference of $40
million was issued by the Company as part of the Units offered in the
Initial Offering. Each Unit consisted of one share of Series A Preferred
Stock, 7.75 Initial Warrants and 15 Contingent Warrants, each Warrant to
purchase one share of Common Stock. An assumed initial value of $4.65
million was allocated to additional paid-in capital, representing the
portion of the purchase price of the Units allocated to the Initial
Warrants, less $0.3 million of the costs associated with the Initial
Offering, allocable to the Initial Warrants. No assurance can be given that
the value allocated to the Initial Warrants will be indicative of the price
at which the Initial Warrants may actually trade. Costs of $2.2 million
associated with the Initial Offering have been allocated to the Series A
Preferred Stock.
39
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes and other detailed information
regarding the Company included elsewhere in this Prospectus. The discussion and
analysis contains statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Actual events or
results may differ materially from such statements. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under the
caption "Risk Factors", which could cause actual results to differ materially
from those indicated in the forward-looking statements contained herein.
OVERVIEW
The Company was founded in 1990 as an aggregator of AT&T long distance
services, reselling AT&T branded products primarily to small and medium-sized
businesses. As an aggregator of AT&T services, customers were billed and
serviced by AT&T. The Company derived its profits through 1993 by obtaining
volume discounts on bulk purchases of long distance services from AT&T and
passing along a portion of these discounts to its customers.
In 1993, the Company entered into an agreement with Sprint and in 1994
began to resell Sprint telecommunications services. As a reseller of Sprint, the
Company began provisioning, servicing and billing customers under the Network
Plus name. Volume discounts offered by Sprint enabled the Company to offer
low-cost, high quality, long distance services at favorable rates to its
customers. In addition, by servicing its own customers, the Company was better
able to meet customer needs and control costs.
In mid-1996, in addition to provisioning customer traffic onto Sprint's
network ("off-net" traffic) as a switchless reseller of Sprint long distance
services, the Company initiated the deployment of its own long distance network
and began operating as a switch-based provider in certain states, switching
customer traffic on its own facilities ("on-net" traffic). The Company's
decision to deploy switches was based on economic efficiencies resulting from
customer concentrations and traffic patterns. Installation of telephony switches
was completed in Quincy, Massachusetts in June 1996, servicing the Northeastern
region of the United States, and Orlando, Florida in November 1997, servicing
the Southeastern region of the United States. As a switch-based provider, the
Company is able to lower its direct transmission costs. Expansion of the
Company's existing network is planned in those areas of the United States in
which the Company already has significant volumes of originating or terminating
traffic. Additional interexchange, international and local switches are planned
for installation throughout the second half of 1998 and continuing through 1999.
The Company has also sold international wholesale services since 1997. The
Company recently entered into two 20-year indefeasible right-of-use ("IRU")
agreements pursuant to which it acquired 625 route miles of dark fiber (1,830
digital fiber miles). When the fiber is fully deployed and activated, it will
form a redundant fiber ring connecting major markets throughout New England and
the New York metropolitan area, providing the Company with significant
transmission capacity. See "Business -- Network -- Current Network -- Fiber and
Transport".
The Company intends to continue to add services to maintain and enhance its
position as an integrated communications provider ("ICP"). The Company's
strategic initiatives in 1998 include expanding its service offerings to include
local exchange and Internet services. By providing local exchange and Internet
services, the Company will offer a single source solution for all of the
telecommunication needs of its customers. By expanding its service offerings,
the Company believes it can improve customer retention and market share, while
simultaneously reducing overall transmission costs.
The Company sells its services through a direct retail sales force, an
international wholesale sales force and a reseller and independent agent sales
force. In 1998 and 1999, as the Company
40
<PAGE> 46
expands its network facilities, the Company intends to increase its sales force
to approximately 400 members. The investment in the sales force, expansion of
the existing network and addition of local exchange, Internet and other services
will require significant expenditures, a substantial portion of which will be
incurred before related revenue is realized. As these expansion plans are
undertaken and the revenue base grows, periods of operating losses and negative
cash flows from operations are anticipated through at least the first three
quarters of 1999. See "Risk Factors -- Negative Cash Flow and Operating Losses"
and "-- Substantial Future Capital Requirements; Need for Additional Financing;
Substantial Leverage".
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
-------------- -------------- -----------------------
1998 1997 1998 1997 1997 1996 1995
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct cost of revenue........ 73.8 78.4 74.2 77.8 79.5 76.1 71.5
Gross margin.................. 26.2 21.6 25.8 22.2 20.5 23.9 28.5
Selling, general and
administrative.............. 23.6 22.1 22.8 21.4 26.2 25.7 36.1
Depreciation and
amortization................ 1.8 0.7 1.8 0.7 1.0 0.7 0.6
Operating income (loss)....... 0.9 (1.2) 1.1 0.1 (6.7) (2.5) (8.2)
Other income (expense)........ (1.0) (0.1) (1.0) (0.2) 3.5 4.4 16.4
Income (loss) before income
taxes....................... (0.1)% (1.3)% 0.1% (0.1)% (3.2)% 1.9% 8.2%
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenue. Revenue increased 10.1% to $27.1 million for the three months
ended June 30, 1998 from $24.6 million for the three months ended June 30, 1997.
Revenue for the three months ended June 30, 1997 included approximately $3.8
million from two customers with whom the Company did not do business in 1998.
One was a high volume, low margin customer until termination in December 1997,
and the other was a specialized international customer with whom the Company
terminated its service agreement in October 1997 due to collection problems.
Exclusive of the revenue from these two former customers, revenue increased by
30.3% from period to period. The Company's customers totaled approximately
34,000 at June 30, 1998 and 26,000 at June 30, 1997. The components of revenue
in each year reflect the Company's initiative to become a facilities-based
services provider. In the three months ended June 30, 1998, on-net revenue and
on-net billed customer minutes were 57.7% and 47.1%, respectively, of total
revenue and minutes. In the three months ended June 30, 1997, the corresponding
on-net revenue and minutes represented 17.4% and 17.5%, respectively, of total
revenue and minutes. It is expected that long distance minutes and revenue
attributable to on-net customer traffic will exceed 75% of the totals by the
first quarter of 1999. The Company also anticipates that revenue growth will
progressively increase in each remaining quarter of 1998 as a result of a
significant increase in the size of the Company's direct sales force.
Gross Profit. Gross profit for the three months ended June 30, 1998
totaled $7.1 million, an increase of 33.9% from the $5.3 million earned in the
corresponding period in 1997. Gross margin increased to 26.2% in 1998 from 21.6%
in 1997, reflecting the increase in on-net traffic, the reduced costs of
carrying off-net traffic and a reduction in costs of originating and terminating
traffic.
41
<PAGE> 47
On-net revenue, as described above, increased significantly as a percentage
of total revenue. Gross margin earned on domestic on-net revenue greatly exceeds
that of off-net revenue. On-net gross margin, however, combines margins earned
on domestic traffic and lower-margin international wholesale traffic.
International wholesale traffic is expected to grow at rates in excess of
domestic traffic, which will lower the overall future gross margin on on-net
traffic. Costs of originating and terminating traffic have declined as a result
of provisions mandated by the Telecommunications Act of 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 17.5% to $6.4 million for the three months ended June 30,
1998 from $5.4 million for the three months ended June 30, 1997, and increased
as a percentage of revenue to 23.6% from 22.1% for the corresponding periods.
Within selling, general and administrative expenses, the largest component is
personnel and related expenses, which combines all wages and salaries, along
with commissions earned by the Company's sales force. These expenses increased
by 19.1% from 1997 to 1998, reflecting an increase in the number of employees.
Other expenses within selling, general and administrative expenses increased as
a result of the Company's ongoing growth.
In April 1998, the Company commenced its initiative to expand its 96-member
sales force and, as of June 30, 1998, the sales force had increased to 152
members. The Company expects to further expand its sales force to approximately
230 by year end 1998 and to approximately 400 by year end 1999. Variable
expenses, including commissions paid to independent marketing representatives
and the provision for doubtful accounts, are expected to increase with future
sales growth. In addition, the Company expects to expend a significant amount of
funds in 1998 towards the recruitment of personnel, marketing, advertising and
promotion, and professional services in conjunction with its growth plans and
initiatives to expand its service offerings. It is expected that there will be a
time lag between the incurring of these expenses and any resulting increase in
revenue. See "Risk Factors -- Management of Growth".
Depreciation and Amortization. Depreciation and amortization increased to
$483,000 for the three months ended June 30, 1998 from $168,000 for the three
months ended June 30, 1997, reflecting the Company's network build out and
capital additions to the Company's internal computer systems. Future
depreciation expense will increase as assets related to the Company's network
expansion plans are placed into service.
Interest. Interest expense, net of interest income, increased to $284,000
for the three months ended June 30, 1998 from $55,000 for the three months ended
June 30, 1997. This increase resulted from interest on capital leases entered
into in the latter half of 1997 to finance network additions and internal
computer systems, interest incurred related to notes payable entered into in
December 1997, and additional interest related to higher levels of revolving
credit borrowings in 1998.
Income Taxes. In the three months ended June 30, 1998, income taxes of
$125,000 were provided, principally for state franchise tax assessments. No
provision was required in the corresponding 1997 period.
Net Loss. As a result of the aforementioned increases in revenue,
operating expenses, depreciation and amortization, interest income and expense,
the Company incurred a net loss of $156,000 for the three months ended June 30,
1998, compared to net loss of $332,000 for the three months ended June 30, 1997.
EBITDA. Earnings before other income and expense, interest, taxes,
depreciation and amortization ("EBITDA") increased $849,000 to $720,000 for the
three months ended June 30, 1998 from negative EBITDA of $129,000 for the three
months ended June 30, 1997. This increase was due to the changes in revenues,
network development, operations and selling, general and administrative expenses
discussed above.
42
<PAGE> 48
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenue. Revenue increased 5.9% to $52.3 million for the six months ended
June 30, 1997 from $49.4 million for the six months ended June 30, 1997. Revenue
for the six months ended June 30, 1997 included approximately $6.7 million from
two customers, described above, with whom the Company did not do business in
1998. Exclusive of the revenue from these two former customers, revenue
increased by 22.5% from period to period. The components of revenue in each year
reflect the Company's initiative to become a facilities-based services provider.
In the six months ended June 30, 1998, on-net revenue and on-net billed customer
minutes were 54.0% and 43.8%, respectively, of total revenue and minutes. In the
six months ended June 30, 1997, the corresponding on-net revenue and minutes
represented 13.5% and 14.7%, respectively, of total revenue and minutes.
Gross Profit. Gross profit for the six months ended June 30, 1998 totaled
$13.5 million, an increase of 23.2% from the $10.9 million earned in the
corresponding period in 1997. Gross margin improved to 25.8% in 1998 from 22.2%
in 1997, reflecting the increase in on-net traffic, the reduced costs of
carrying off-net traffic and a reduction in costs of originating and terminating
traffic. Costs of originating and terminating traffic have declined as a result
of provisions mandated by the Telecommunications Act of 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 12.9% to $11.9 million for the six months ended June 30,
1998 from $10.6 million for the six months ended June 30, 1997, and increased as
a percentage of revenue to 22.8% from 21.4% for the corresponding periods.
Within selling, general and administrative expenses, the largest component is
personnel and related expenses, which combines all wages and salaries, along
with commissions earned by the Company's sales force. These expenses increased
by 11.4% from 1997 to 1998, reflecting an increase in the number of employees.
In April 1998, the Company commenced its initiative to expand its 96 member
sales force, and as of June 30, 1998, the sales force had increased to 152
members. Other expenses within selling, general and administrative expenses
increased as a result of the Company's ongoing growth.
Depreciation and Amortization. Depreciation and amortization increased to
$951,000 for the six months ended June 30, 1998 from $324,000 for the six months
ended June 30, 1997, reflecting the Company's network build out and capital
additions to the Company's internal computer systems.
Interest. Interest expense, net of interest income, increased to $566,000
for the six months ended June 30, 1998 from $116,000 for the six months ended
June 30, 1997. This increase resulted from interest on capital leases entered
into in the latter half of 1997 to finance network additions and internal
computer systems, interest incurred related to notes payable entered into in
December 1997, and additional interest related to higher levels of revolving
credit borrowings in 1998.
Income Taxes. In the six months ended June 30, 1998, income taxes of
$134,000 were provided, principally for state franchise tax assessments. Income
taxes in the comparable period of 1997 totaled $25,000.
Net Loss. As a result of the aforementioned increases in revenue,
operating expenses, depreciation and amortization, interest income and expense,
the Company incurred a net loss of $72,000 for the six months ended June 30,
1998, compared to net loss of $55,000 for the six months ended June 30, 1997.
EBITDA. EBITDA increased $1,168,000 to $1,542,000 for the six months ended
June 30, 1998 from $374,000 for the six months ended June 30, 1997. This
increase was due to the changes in revenues, network development, operations and
selling, general and administrative expenses discussed above.
43
<PAGE> 49
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue increased by 30.7% to $98.2 million in 1997 from $75.1
million in 1996, primarily related to an increase in the Company's customer
base. The Company's customers totaled approximately 30,000 at the end of 1997
and 19,000 at the end of 1996. Revenue in 1996 also included approximately $1.8
million related to the amortization of credits received through AT&T sales
promotions on three-year contracts that were fully amortized by year end 1996.
Gross Profit. Gross profit increased to $20.1 million in 1997 from $17.9
million in 1996, a 12.1% increase, but gross margin declined to 20.5% in 1997
from 23.9% in 1996. The decline in gross margin resulted from several factors.
Gross profit in 1996 included $1.8 million of nonrecurring revenue derived from
the amortization of the AT&T credits described above. In mid-1996, the Company
began to operate its own network, incurring start up costs related to investment
in these facilities. The first network switch, deployed in Quincy, Massachusetts
in June 1996, did not begin to carry any significant traffic until late 1996. A
second switch, deployed in Orlando, Florida in November 1997, did not carry any
significant traffic in 1997. In 1997, the Company began to transmit
international traffic through the Quincy switch, which generates margins
significantly below domestic on-net traffic. In addition, initiatives undertaken
to provision existing customer traffic from off-net to on-net generally did not
commence until the latter part of 1997 and, consequently, the improved margins
generated by on-net traffic did not significantly impact the results for the
year. Finally, increased competition in the long distance telecommunications
industry resulted in slightly lower pricing in 1997, as compared to 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 33.7% to $25.7 million in 1997 from $19.2 million in 1996,
and increased as a percentage of revenue to 26.2% in 1997 from 25.6% in 1996.
Personnel and related expenses, the largest component of selling, general and
administrative expenses, decreased by 1.5% from 1996 to 1997. A decrease in the
direct sales force was principally offset by an expansion of administrative
services, including customer service and provisioning personnel, to support the
revenue growth. Sales offices were added in 1997 in conjunction with the
November 1997 deployment of the Company's switch in Orlando, Florida. Other
selling, general and administrative expenses also increased as a result of the
revenue and personnel growth, including rent and utilities for additional
offices and commissions paid to independent marketing representatives. The
provision for doubtful accounts increased by $3.0 million in 1997 from 1996,
principally relating to two customers and an increase in the estimate of the bad
debt reserve proportionate to the increase in revenue.
Depreciation and Amortization. Depreciation and amortization expense
increased to $994,000 in 1997 from $533,000 in 1996 as a result of capital
additions for the Company's network build-out and internal computer systems. The
Company's internal computer hardware was significantly upgraded in November
1997. Future depreciation expense will increase as assets related to the
Company's network expansion plans are placed into service.
Interest. Interest expense, net of interest income, increased from
$217,000 in 1996 to $471,000 in 1997. This interest relates to a higher level of
revolving credit borrowings in 1997, interest on capital leases entered into in
the latter half of 1997 and interest incurred related to notes payable entered
into in December 1997.
Other Income (Expense). Other income totaled $3.9 million in 1997 and $3.5
million in 1996, both principally related to warrants, as follows. In 1995,
warrants to purchase shares of Tel-Save Holdings, Inc. ("Tel-Save") common stock
were received as partial consideration from a sale of customer billing bases.
During 1996, the Company met the sales volume obligations to exercise a portion
of the outstanding warrants. Certain of these warrants were exercised and common
stock related to those warrants was sold by the Company, resulting in net
proceeds and other income of $1.4 million. The remainder of the warrants that
became exercisable in 1996 were subsequently exercised in 1997. These warrants
were classified as investments and were valued at approximately $2.1 million at
December 31, 1996 using an established valuation model, for a total of $3.5
million recorded as other income in 1996.
44
<PAGE> 50
The agreements between Tel-Save and the Company required the transfer of
ownership of the common stock certificates from Tel-Save to the Company upon the
Company meeting certain requirements, which the Company, based upon available
information, believed it had met in 1996 and 1997. Accordingly, in 1997, cash
payments totaling $3.6 million were made to exercise all outstanding warrants.
In total, payments for warrants in 1997 were believed to entitle the Company to
765,000 shares of Tel-Save common stock, subject to the registration of the
shares by Tel-Save. The shares were registered with the Securities and Exchange
Commission in November 1997, but common stock certificates were not physically
transferred to the Company.
In order to take physical possession of the Tel-Save common stock
certificates, the Company filed suit against Tel-Save in January 1998. On June
24, 1998 a settlement agreement was signed between the parties pursuant to which
Tel-Save returned $1.5 million paid by the Company during 1997 in its attempt to
exercise the final warrant for 315,000 shares, and canceled that warrant. In
addition, Tel-Save issued the remaining 450,000 shares to the Company and
simultaneously repurchased such shares for $8.0 million. There will be no
continuing obligations between the parties. Accordingly, the Company's
investment in Tel-Save at December 31, 1997 was valued at the $9.5 million
received pursuant to the settlement, and other income of $3.8 million was
recorded in 1997 to reflect this valuation.
Net Loss. As a result of the aforementioned increases in revenue,
operating expenses, depreciation and amortization, interest income and expense,
the Company incurred a net loss of $3.2 million for the year ended December 31,
1997, compared to net income of $1.4 million for the year ended December 31,
1996.
EBITDA. EBITDA was $(5.6) million for the year ended December 31, 1997
compared to $(1.3) million for the year ended December 31, 1996. This decline
was due to the changes in revenue, network development, operations and selling,
general and administrative expenses discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Revenue increased by 53.2% to $75.1 million in 1996 from $49.0
million in 1995, primarily related to an increase in the customer base. The
Company's customers totaled approximately 19,000 at the end of 1996 and 9,000 at
the end of 1995. In 1995, the Company's revenue was entirely generated from
off-net traffic. In 1996, the Company installed its first network switch, but
less than 1% of 1996 revenue was generated on-net. Revenue in 1996 and 1995 also
included approximately $1.8 million and $3.3 million, respectively, related to
the amortization of credits received through AT&T sales promotions.
Gross Profit. Gross profit increased to $17.9 million in 1996 from $14.0
million in 1995, a 28.4% increase, but gross margin declined to 23.9% in 1996
from 28.5% in 1995. The decline in gross margin resulted from the inclusion of
non-recurring AT&T credits of $3.3 million in 1995 as compared to $1.8 million
in 1996. Also contributing to the margin decline were start up costs in 1996
related to the installation of the Company's first network switch, which was
deployed in June 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 8.6% to $19.2 million in 1996 from $17.7 million in 1995,
but decreased as a percentage of revenue to 25.6% in 1996 from 36.1% in 1995.
Personnel and related expenses, the largest component of selling, general and
administrative expenses, decreased by 6.7% from 1995 to 1996, reflecting a
decrease in the direct retail sales force. Other selling, general and
administrative expenses increased as a result of revenue growth.
Depreciation and Amortization. Depreciation and amortization increased to
$539,000 in 1996 from $276,000 in 1995, related to $2.1 million of capital
expenditures in 1996, including $1.5 million for switching equipment.
Interest Expense. In 1996, when the Company entered into and first began
to borrow under its Existing Bank Credit Facility, net interest expense
resulted, totaling $217,000. In 1995, the Company
45
<PAGE> 51
did not have any revolving credit borrowings and generated interest income, net
of interest expense on long-term debt, of $162,000.
Other Income. Other income totaled $3.5 million in 1996 and $7.9 million
in 1995. In 1995, the Company sold three separate billing bases of customer
accounts to other telecommunications companies for cash totaling approximately
$8.4 million, recorded as other income, and warrants to purchase shares of
Tel-Save common stock. No value was ascribed to the warrants in 1995. In 1996,
$1.4 million of other income was related to the exercise of warrants and
subsequent sale of Tel-Save common stock. An additional $2.1 million was
recorded as other income primarily related to the value ascribed to additional
warrants that became exercisable in 1996.
Net Income. As a result of the aforementioned increases in revenue,
operating expenses, depreciation and amortization, and interest income and
expense, net income decreased $2.3 million, or 62%, to $1.4 million for the year
ended December 31, 1996, from $3.7 million for the year ended December 31, 1995.
EBITDA. EBITDA was $(1.3) million for the year ended December 31, 1996
compared to $(3.7) million for the year ended December 31, 1995. This decrease
was due to the changes in revenue, network development, operations and selling,
general and administrative expenses discussed above.
QUARTERLY RESULTS
The following table sets forth certain unaudited financial data of the
Company for each of the quarters in 1996 and 1997 and for the first two quarters
of 1998. This information has been derived from unaudited financial statements
that, in the opinion of management, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of such
quarterly information. The operating results for any quarter are not necessarily
indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue......................................... $17,128 $17,782 $18,687 $21,538
Direct cost of revenue.......................... 13,865 12,901 13,909 16,533
Selling, general and administrative............. 5,137 4,468 4,346 5,273
Depreciation and amortization................... 105 130 136 168
------- ------- ------- -------
Operating income (loss)......................... (1,979) 283 296 (436)
Interest income................................. 21 16 20 37
Interest expense................................ (62) (83) (85) (84)
Other income, net............................... 7 23 1,400 2,100
------- ------- ------- -------
Net income (loss)............................... $(2,013) $ 239 $ 1,631 $ 1,617
======= ======= ======= =======
</TABLE>
46
<PAGE> 52
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue......................................... $24,740 $24,641 $24,540 $24,288
Direct cost of revenue.......................... 19,110 19,330 19,753 19,913
Selling, general and administrative............. 5,127 5,440 5,803 9,334
Depreciation and amortization................... 156 168 257 413
------- ------- ------- -------
Operating income (loss)......................... 347 (297) (1,273) (5,372)
Interest income................................. 22 38 17 9
Interest expense................................ (83) (93) (154) (227)
Other income (expense), net..................... (9) 20 19 3,845
------- ------- ------- -------
Net income (loss)............................... $ 277 $ (332) $(1,391) $(1,745)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------
MARCH 31, JUNE 30,
1998 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $25,202 $27,103
Direct cost of revenue...................................... 18,836 19,992
Selling, general and administrative......................... 5,544 6,391
Depreciation and amortization............................... 468 483
------- -------
Operating income............................................ 354 237
Interest income............................................. 3 9
Interest expense............................................ (285) (293)
Other income (expense), net................................. 12 (109)
------- -------
Net income (loss)........................................... $ 84 $ (156)
======= =======
</TABLE>
The Company could experience quarterly variations in revenue and operating
income as a result of many factors, including the introduction of new services
by the Company, actions taken by competitors, the timing of the acquisition or
loss of customers, the timing of additional selling, general and administrative
expenses incurred to acquire and support new or additional business and changes
in the Company's revenue mix among its various service offerings. Many of the
factors that could cause such variations are outside of the Company's control.
The Company plans its operating expenditures based on revenue forecasts, and a
revenue shortfall below such forecasts in any quarter could adversely affect the
Company's operating results for that quarter.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW OF HISTORICAL CASH REQUIREMENTS
Since commencing operations in 1990, the Company has experienced
significant growth. Prior to 1994, the Company operated solely as an aggregator
of AT&T services and funded its growth principally with cash provided from
operating activities. In 1994, the Company became a reseller of Sprint services,
requiring additional funding to support the development of an infrastructure to
support provisioning, billing and servicing of customers billed under the
Network Plus name. Cash requirements in 1994 and 1995 were financed primarily by
cash credits received in 1993 and 1994 under AT&T promotions and by the sales of
portions of the Company's customer accounts to other telecommunications
companies in 1995. These sales resulted in the receipt by the Company of a cash
payment of $8.4 million and warrants to purchase common stock of Tel-Save. In
1996, the Company further expanded its infrastructure and began to deploy its
own network. To support 1996 cash requirements, NPI entered into a $7.0 million
revolving credit agreement with Fleet National Bank ("Fleet") and a term loan
for $1.0 million with Fleet to allow for its initial purchase of network
47
<PAGE> 53
facilities, and entered into a financing transaction involving the sale and
lease back of the Quincy switch. Cash flows in 1996 were supplemented by the
exercise of Tel-Save warrants and the subsequent sale of the underlying common
stock, resulting in total net proceeds of $1.4 million.
In 1997, the Company continued to expand its network and infrastructure. In
addition, $3.6 million was expended to exercise additional warrants for common
stock of Tel-Save. Cash needs in 1997 were met through the addition of capital
leases, including a financing transaction involving the sale and lease back of
the Orlando switch, utilization of the existing revolving credit facility,
refinancing of a portion of accounts payable to Sprint into a short-term
promissory note (the "Sprint Note") and receipt of loans totaling $1.8 million
from the Company's stockholders (the "Stockholder Loans").
On April 30, 1998, NPI entered into the Existing Bank Credit Facility, a
$23.0 million revolving credit agreement with Fleet. Borrowings under this line
were used to repay the Sprint Note and the Stockholder Loans.
On August 14, 1998, the Company entered into a commitment letter with
Goldman Sachs Credit Partners L.P. for the New Revolving Credit Facility. The
New Revolving Credit Facility is a $60 million facility, concurrent with the
closing of which the Company expects to terminate the Existing Bank Credit
Facility. The New Revolving Credit Facility will have a term of 18 months. Under
the New Revolving Credit Facility, up to $60 million will be available, $30
million of which will be available based upon a percentage of accounts
receivable. Interest will be payable at one percent above the prime rate. The
New Revolving Credit Facility will require the Company to meet, among other
things, minimum levels of revenues, access lines in service and EBITDA. See
"Description of Certain Indebtedness -- New Revolving Credit Facility".
The Company consummated the offering of Units including the Original
Preferred Shares (the "Initial Offering") on September 3, 1998. The net proceeds
to the Company of the Initial Offering, after deducting commissions and
estimated offering expenses, were approximately $37.5 million. The Company
expects to use these proceeds to finance the Company's anticipated expansion,
including the expansion of its local telecommunications infrastructure,
information technology systems and sales force; for working capital; and to
repay outstanding borrowings under the Existing Bank Credit Facility.
Prior to the Initial Offering, the Company was an S Corporation and, as a
result, did not pay corporate federal income taxes. Instead, the Company's
stockholders were liable for their share of taxes in respect of the Company's
taxable income. The Company had similar tax status in certain states that
recognize S corporation status. Accordingly, each year prior to 1998 the Company
distributed and for the period prior to August 1998, the Company will
distribute, to its stockholders cash in amounts sufficient to enable the
Company's stockholders to pay federal and state taxes on income of the Company
attributable to the stockholders and related tax preparation expenses. During
the years ended December 31, 1997, 1996 and 1995, the Company distributed an
aggregate of $601,000, $1.2 million and $1.9 million, respectively, to its
stockholders.
FINANCIAL CONDITION
Total assets were $33.7 million at June 30, 1998 compared to $35.6 million
at December 31, 1997 and $22.9 million at December 31, 1996. Accounts receivable
increased by $2.0 million from 1996 to 1997, related to revenue growth, and
declined by $1.5 million in the first six months of 1998 due to improved
collections. Prepaid expenses, other current assets, accounts payable and
accrued liabilities all increased in relation to revenue growth.
Investments represent the value ascribed to the exercised Tel-Save
warrants. The investment was liquidated for cash in the amount of $9.5 million
in June 1998 and was valued at December 31, 1997 at the amount of cash received.
At December 31, 1996, the investment was valued at $2.1 million using an
established valuation method.
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Property and equipment totaled $8.4 million at June 30, 1998, $7.0 million
at December 31, 1997, and $3.1 million at December 31, 1996. Capital
expenditures in the first six months of 1998 totalled $2.4 million, principally
related to the initial payments on switches to be deployed in the future. The
increase in property and equipment in 1997 relates primarily to approximately
$2.5 million in network additions and $1.9 million in computer equipment
additions, net of depreciation, both of which were financed through capital
leases entered into in 1997. Upon entering into the capital lease for the
network equipment, the Company repaid a term loan entered into in 1996. Property
and equipment is expected to grow significantly in 1998 and beyond, as the
Company adds additional switches and other equipment to its existing network.
The Company owns its switches, located in Quincy, Massachusetts and Orlando
pursuant to a sale-leaseback arrangement with Chase Equipment Leasing, Inc. The
Company initially purchased the switches for an aggregate purchase price of $3.5
million and subsequently transferred title to the switches to its lender and
leased back the switches for five years. At the end of the lease term, the
Company has the option to purchase the switches for nominal consideration.
Payments under this lease arrangement totalled approximately $68,000 in 1997 and
require ongoing payments of approximately $68,000 per month.
During 1997, additional capital was required to continue to expand the
Company's business. Additional liquidity was achieved by the issuance of notes
payable. In December, the Company issued a promissory note to Sprint for the
repayment of $4.6 million previously classified as accounts payable. The note's
maturity was September 1998. The note's remaining balance of $3.7 million was
repaid on May 1, 1998 from borrowings under the Existing Bank Credit Facility,
as described below. In December 1997, the Company borrowed $1.8 million pursuant
to the Stockholder Loans. Interest was paid monthly at the prevailing prime
rate. The Stockholder Loans, including accrued interest, were also repaid on May
1, 1998.
In January 1996, NPI entered into a revolving credit agreement with Fleet,
which provided for borrowings of up to $7.0 million, including letters of
credit. This agreement was due to expire on May 31, 1998 and was refinanced in
May 1998, as described below. Borrowings under this line in excess of $5.0
million were subject to a formula-based arrangement based upon a percentage of
accounts receivable. Interest was payable monthly at Fleet's prime rate or
available LIBOR options. The maximum borrowings under the agreement in 1997 and
1996 were $5.0 million and $3.0 million, respectively. At December 31, 1996 the
loan balance was $2.0 million, with no outstanding letters of credit. At
December 31, 1997, the loan balance was $4.5 million, with letters of credit of
$120,000 outstanding.
Cash provided by operating activities in the first six months of 1998
totaled $11.3 million, principally due to the $9.5 million received in late June
related to the Tel-Save warrant settlement. As a result, cash and cash
equivalents totaled $8.2 million at June 30, 1998. At June 30, 1998, the Company
had an outstanding LIBOR loan of $9.0 million in conjunction with the Existing
Bank Credit Facility, which was repaid in early July. At June 30, 1998,
outstanding letters of credit totaled $1.0 million.
On May 1, 1998, NPI entered into the Existing Bank Credit Facility with
Fleet and terminated the previously existing agreement. The Existing Bank Credit
Facility has a term of three years and provides for borrowings of up to $23.0
million, subject to a formula-based arrangement based upon a percentage of
accounts receivable. Interest is payable monthly at Fleet's prime rate or, at
the Company's option, 1.75% above prevailing LIBOR rates. The Existing Bank
Credit Facility requires NPI to be in compliance with certain gross profit,
operating income, tangible net worth and other covenants. The Existing Bank
Credit Facility prohibits the payment by NPI of dividends to its stockholders
other than dividends in amounts necessary to pay income taxes and related tax
preparation costs of the Company's stockholders as a result of the Company's
status as an "S" corporation. Proceeds from this financing were used to repay
the Sprint Note and the Stockholder Loans. Availability under this line was
approximately $12.5 million on May 1, 1998. Proceeds from
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borrowings under the New Revolving Credit Facility will be used to repay and
retire the Existing Bank Credit Facility. See "Description of Certain
Indebtedness".
On August 14, 1998, the Company entered into a commitment letter with
Goldman Sachs Credit Partners L.P. for the New Revolving Credit Facility. The
New Revolving Credit Facility is a $60 million facility, concurrent with the
closing of which the Company expects to terminate the Existing Bank Credit
Facility. The New Revolving Credit Facility will have a term of 18 months. Under
the New Revolving Credit Facility, up to $60 million will be available, $30
million of which will be available based upon a percentage of accounts
receivable. Interest will be payable at one percent above the prime rate. The
New Revolving Credit Facility will require the Company to meet, among other
things, minimum levels of revenues, access lines in service and EBITDA. See
"Description of Certain Indebtedness -- New Revolving Credit Facility".
On September 2, 1998, the Company paid a dividend in the aggregate amount
of $5.0 million. As a result, $2.5 million was distributed to each of Robert T.
Hale and Robert T. Hale, Jr. Following receipt of the dividend, Robert T. Hale,
Jr. reinvested $1.9 million in the Company (representing approximately the
distribution to Robert T. Hale, Jr., net of his estimated tax liability
resulting from such distribution), in the form of a long-term loan to the
Company; such loan, including interest, will be payable 10 days after the
redemption of the Series A Preferred Stock. The dividend distribution was funded
out of existing cash resources and the Existing Bank Credit Facility. See
"Description of Certain Indebtedness" and "Certain Transactions".
EXPANSION OF SERVICES AND FUTURE CASH REQUIREMENTS
The Company's strategic initiatives in 1998 include expanding both its
service offerings to include local exchange and Internet services and its
facilities-based infrastructure. These initiatives will require a substantial
amount of capital for, but not limited to, the installation of network switches
and related equipment, fiber, personnel additions and funding of operating
losses and working capital. The Company's strategic initiatives include the
deployment of additional long distance and international switches, the
deployment of local switches, the offering of new services such as local
exchange and Internet access services, the expansion of its sales force and
other personnel and significant investment in its information technology
systems.
The Company believes that net proceeds from the Initial Offering, together
with cash flow generated from operations and borrowings available under the New
Revolving Credit Facility, will be sufficient to fund the Company's working
capital needs, planned capital expenditures and interest expense through at
least August 1999. The actual amount of capital expenditures and the timing of
such expenditures will depend on several factors, including equipment and fiber
availability, economic conditions, competition and regulatory developments. The
Company may also require additional financing, which may include public or
private debt and equity financings, to enter into strategic alliances, acquire
assets or businesses or make investments toward achieving its strategic
objectives. There can be no assurance, however, that the Company will be able to
raise sufficient funds or do so on acceptable terms. Failure to obtain such
financings could result in the delay or abandonment or the Company's development
and expansion plans. Furthermore, there can be no assurance that actual capital
needs and expenditures will not be significantly higher than the Company's
current estimates. See "Risk Factors -- Negative Cash Flow and Operating Losses"
and "-- Substantial Future Capital Requirements; Need for Additional Financing;
Substantial Leverage".
IMPACT OF YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is completing
its preliminary assessment of both the internal readiness of its computer
systems and the compliance of its network and services sold to customers. The
Company expects to implement during 1998 the systems and programming changes
necessary to address year 2000 issues, and based on its evaluation, does not
believe that
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the cost of such actions will have a material adverse effect on the Company's
results of operations or financial condition. There can be no assurance,
however, that there will not be a delay in, or increased costs associated with,
the implementation of such changes, and the Company's inability to implement
such changes could have a material adverse effect on future results of
operations. Furthermore, if the hardware or software comprising the Company's
network elements acquired from third party vendors or others on whose services
the Company depends or with whom the Company's systems interface, or the
software applications of other suppliers, are not year 2000 compliant, it could
affect the Company's systems, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Year 2000 Compliance".
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BUSINESS
THE COMPANY
OVERVIEW
Network Plus, founded in 1990, is a leading facilities-based integrated
communications provider ("ICP") offering switched long distance, data and
enhanced telecommunications services. The Company's customers consist primarily
of small and medium-sized businesses located in major markets in the
Northeastern and Southeastern regions of the United States. The Company also
provides international wholesale transport and termination services to major
domestic and international telecommunication carriers. In addition, the Company
intends to offer local services on a commercial basis in certain states
beginning in the third quarter of 1998. As of July 15, 1998, the Company served
over 34,000 customers representing in excess of 150,000 access lines and 30,000
toll-free numbers. All customers are directly invoiced by the Company on a
Network Plus bill. As of July 15, 1998, the Company had a 152-person sales force
located in eight regional offices, and in 1997 had total revenue of $98 million.
The Company owns network components where economically advantageous and
leases components where more capital-efficient. The Company has switches in
Quincy, Massachusetts and Orlando, and intends to add switches throughout the
second half of 1998 and continuing through 1999 in Atlanta, Chicago, Los Angeles
and New York City as well as multiple local traffic switches in the Northeastern
and Southeastern regions of United States. In May 1998, over 60% of the
Company's revenue was generated by customer traffic carried on its network, and
the Company expects this percentage to increase as the Company further expands
its facilities-based infrastructure. The Company recently entered into two
20-year indefeasible right-of-use ("IRU") agreements pursuant to which it
acquired 625 route miles of dark fiber (1,830 digital fiber miles), that, when
fully deployed and activated, will form a redundant fiber ring connecting major
markets throughout New England and the New York metropolitan area and provide
the Company with significant transmission capacity.
The Company believes that, because of its large and highly focused sales
force and superior customer support, the Company will be successful in rapidly
acquiring new customers, continuing to migrate "off-net" long distance customers
to its network, cross-selling local services to its existing long distance
customers and maintaining a high rate of customer retention. The compounded
annual growth rate for the number of customers from year end 1994 to year end
1997 was 68%.
The Company's business strategy is to leverage its eight-year operating
history, existing customer base and substantial in-region experience to (i) be a
one-stop ICP offering a comprehensive array of bundled voice and data solutions,
(ii) acquire and retain market share through its direct sales force and focused
customer service, (iii) enhance its facilities-based infrastructure where
economically advantageous and continue the migration of traffic to its network,
(iv) build and retain market share through advanced technologies and an advanced
operational support system, (v) target the underserved market of small and
medium-sized businesses, with a focus on the Northeastern and Southeastern
regions of the United States, (vi) increase international wholesale sales and
(vii) expand through strategic acquisitions and alliances.
NETWORK INFRASTRUCTURE
The Company pursues a capital-efficient network deployment strategy that
involves owning switches and acquiring or leasing fiber optic transmission
facilities on an incremental basis to satisfy customer demand. The Company
believes that its switch-based, lease-or-acquire transport strategy provides
significant competitive advantages. By owning network components, the Company is
able to generate higher operating margins and maintain greater control over its
network operations. The Company structures its network expansion decisions in a
manner designed to (i) reduce up-front capital expenditures required to enter
new markets, (ii) avoid the risk of stranded investment in under-utilized fiber
networks and (iii) enter markets and generate revenue and positive cash flow
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more rapidly than if the Company first constructed its own facilities. Where
market penetration does not economically justify the deployment of its own
network, the Company utilizes the networks of alternative carriers.
In addition to its 625 route miles of dark fiber, Network Plus currently
owns and maintains (i) a Northern Telecom, Inc. ("Nortel") international gateway
and interexchange switch in Quincy, Massachusetts, and (ii) a Nortel
interexchange switch in Orlando. The Company is currently deploying both a
Nortel international gateway and interchange switch in Los Angeles and a Nortel
interexchange switch in Chicago. The Company has a Network Operations Center in
Quincy, Massachusetts, which monitors the Company's entire network from a
central location, increasing the security, reliability and efficiency of the
Company's operations. The Company is also planning the deployment of local
switching facilities throughout the Northeastern and Southeastern regions of the
United States. The Company intends to further expand its network in geographic
areas where customer concentrations or traffic patterns make expansion
economically advantageous.
SERVICES
Network Plus offers retail telecommunications services primarily to small
and medium-sized businesses. Retail offerings currently include long distance
and toll-free services (both with and without Advanced Intelligent Network
("AIN") features), multiple access options, calling and debit card, paging,
data, and custom management control features. The Company plans to add local
exchange services, Internet services and additional AIN features in the latter
part of 1998 and into 1999. The Company also offers international wholesale
services primarily to interexchange carriers ("IXCs") and international
telecommunications carriers. In May 1998, retail and wholesale offerings
accounted for approximately 78% and 22%, respectively, of the Company's total
revenue.
LARGE AND GROWING SALES FORCE
As of July 15, 1998, Network Plus had a 152-member, highly focused sales
force consisting of a 140-person direct retail sales force, a six-person
international wholesale sales force and a six-person agent and reseller sales
force. The Company's sales approach is to build long-term relationships with its
customers, with the intent of becoming the single-source provider of their
telecommunications services. The Company trains its sales force in-house with a
customer-focused program that promotes increased sales through both customer
attraction and customer retention. All members of the sales force are given
incentives through a commission structure under which commissions are paid on an
ongoing basis for as long as the customer continues to purchase services from
the Company. This "lifetime residual" is intended to motivate the sales force to
remain actively involved with customers and participate in the customer
retention and support process. The Company believes that this customer
support-focused commission structure and in-house training are unique in the
industry and provide the Company with a competitive advantage in attracting and
retaining customers. The sales force currently is located in eight offices and,
by year end 1999, the Company intends to open additional sales offices and
expand its sales force to approximately 400 members. The Company expects that it
will continue to utilize a modular sales force structure and that existing
employees with substantial sales experience will manage new sales offices,
ensuring a continuation of the Company's customer-focused culture. The Company's
sales force director, regional sales directors, branch managers and team leaders
have an average employment tenure of over five years with the Company.
MANAGEMENT
Robert T. Hale, Jr., the Company's President, Chief Executive Officer,
Director and co-founder, has more than 10 years of experience in the
telecommunications industry. Robert T. Hale, the Company's Chairman and
co-founder, has more than eight years of experience in the telecommunications
industry, is a Director and former Chairman of the 600-member Telecommunications
Reseller Association ("TRA") and has been Chairman of the TRA's Underlying
Carrier Committee since 1992. Network Plus's eight-member Executive Officer
group has an average employment
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tenure of more than three years with the Company and an average of over 11 years
of experience in the telecommunications industry. The Company believes that the
quality, tenure and teamwork of its management team will be critical factors in
the implementation of its expansion strategy.
MARKET OPPORTUNITY
As a result of the Telecommunications Act of 1996 (the "Telecommunications
Act") and other federal, state and international initiatives, numerous
telecommunications markets have been opened to competition. In addition, the
increasing globalization of the world economy, along with an increased reliance
on data transmission and Internet access, has expanded the traditional
telecommunications markets. After completing its planned expansion, the Company
expects to have 18 sales offices in 12 states in the Northeastern and
Southeastern regions of the United States. According to industry data, in 1997
there were approximately 8.7 million business lines in the Company's markets in
the Northeastern region (the New England states, New York and New Jersey) and
4.8 million business lines in the Company's markets in the Southeastern region
(Florida, Georgia, North Carolina, South Carolina and Tennessee). The Company
anticipates significant demand for its services, based on its belief that small
and medium-sized businesses are not aggressively targeted by large providers and
are underserved with respect to customer service and support.
BUSINESS STRATEGY
Network Plus intends to undertake an aggressive growth strategy to meet its
goal of becoming the ICP of choice providing one-stop telecommunications
solutions to customers in its markets. The Company's future success will depend
upon its ability to implement this strategy. Unlike many emerging
telecommunications companies, the Company has a proven eight-year operating
history. The Company believes that the collective talent and telephony
experience of its management and employee base provide a competitive advantage
and position the Company to effectively implement its growth strategy, which
includes the following:
PROVIDE INTEGRATED TELECOMMUNICATIONS SERVICES
A key element in the Company's growth will be the implementation of a
marketing and operating plan that emphasizes an integrated voice and data
telecommunications solution. To a large extent, customers the Company expects to
target have not previously had the opportunity to purchase bundled services from
a single provider. The Company believes that these customers will prefer one
source for all of their telecommunications requirements, including products,
billing and service. The Company intends to be the single source of, and provide
a consolidated bill for, integrated local, long distance and other
telecommunications services, in addition to providing a single point of contact
for customer service, product inquiries, repairs and billing questions. The
Company believes that one-stop integrated communications services will enable it
to further penetrate its existing markets, expand its customer base, capture a
larger portion of its customers' total expenditures on telecommunication
services and increase customer retention.
EXPAND SALES FORCE AND FOCUS ON CUSTOMER SERVICE
The Company intends to significantly expand its sales force to both acquire
and support a growing customer base. The Company's sales force consisted, as of
July 15, 1998, of 152 members and is expected to grow to approximately 400 by
year end 1999. To support its customer base, the Company provides customer
service 24 hours per day, 365 days per year, and estimates that its customer
service representatives currently have an average response time for answering
incoming calls of under 15 seconds. In addition, the commission structure of the
Company's direct retail sales force is designed to promote a high level of
ongoing customer care and to assure that the sales staff remains actively
involved in the customer service process. Similarly, the compensation of
customer support personnel is designed to promote a high level of ongoing
customer care and retention. The
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Company believes that its sales and customer service processes have resulted in
a customer retention rate that is higher than that of many competitors and
differentiate the Company as a customer-focused ICP, giving it a competitive
advantage.
ENHANCE FACILITIES-BASED INFRASTRUCTURE
The Company intends to continue migration of customer traffic to its own
network and to cross-sell new services, such as local service, to its customers.
Expansion of the Company's facilities-based infrastructure with fiber and
switches will increase the proportion of telecommunications traffic that is
originated or terminated on its network, which the Company believes will result
in higher long-term operating margins and greater control over its network
operations. The Company's approach to network design is structured to minimize
the capital investment necessary to provide service, avoid spending capital
where not economically justifiable, better match the commitment of capital to
the onset of revenue-generating activities and generate cash flow more quickly.
Throughout the second half of 1998 and continuing through 1999, the Company
intends to enhance its facilities by purchasing and installing (i) Nortel
interexchange switches in Chicago and New York, (ii) a Nortel interexchange and
local switch in Atlanta, (iii) a Nortel interexchange and international gateway
switch in Los Angeles and (iv) multiple Nortel local traffic switches throughout
the Northeastern and Southeastern regions of United States. In addition, the
Company intends to begin offering high-quality dedicated and dial-up Internet
services.
CONTINUE INVESTING IN ADVANCED TECHNOLOGIES AND AN ADVANCED OPERATIONAL
SUPPORT SYSTEM
Network Plus expects to continue to invest in advanced technologies that
provide strategic advantages by integrating the Company's network facilities
with its operational support system ("OSS") to enhance service response time.
The Company intends to deploy Nortel's Service Builder throughout its network
infrastructure, which will elevate the Company's network from a state-of-the-art
SS7 network to a next-generation intelligent network. Service Builder will also
permit the rapid deployment of "designer" intelligent network products and
services such as nationwide "follow me" numbers and Time-of-Day Routing, as well
as accelerate the Company's compliance with legally mandated services such as
local number portability ("LNP"). To support integrated provisioning and
customer care for all products and services, the Company is developing an open
scalable client/server Oracle-based platform that is expected to better
integrate its operations, both geographically and among departments. The Company
believes that these technologies will provide a long-term competitive advantage
by allowing a more rapid implementation of switched local services in its
markets, shortening the time between the receipt of a customer order and the
generation of revenue and enabling a higher level of focused customer care.
TARGET UNDERSERVED MARKETS WITH A SUPER-REGIONAL FOCUS
Network Plus intends to continue targeting small and medium-sized
businesses in the Northeastern and Southeastern regions of the United States,
its primary service areas, while expanding into other markets in the
Mid-Atlantic region, Illinois and California. The Company will seek to be among
the first to market integrated communications services in many of its markets.
The Company believes that the Northeastern and Southeastern regions are
particularly attractive due to a number of factors, including (i) the population
density in the Northeast; (ii) a large number of rapidly growing metropolitan
clusters in the Southeast, such as Atlanta, Miami/Fort Lauderdale and Orlando;
and (iii) the relatively small number of significant competitors to the
incumbent local exchange carriers ("ILECs"). In addition, the Company believes
that small and medium-sized businesses have been underserved by large
competitors with respect to customer service and support, and that its emphasis
on customer service, support and satisfaction provides it with a distinct
competitive advantage. The Company also believes that ILECs, such as regional
Bell operating companies ("RBOCs"), and the largest national carriers primarily
concentrate their sales
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and marketing efforts on residential and large business customers and that the
market for small and medium-sized businesses is generally less competitive.
INCREASE INTERNATIONAL WHOLESALE SALES
The Company intends to continue targeting the sale of both international
and domestic termination and transport services to wholesale customers such as
large IXCs and international telecommunications carriers. The Company believes
that the international market represents a growing opportunity as a result of
the rapidly increasing globalization of the world economy. The Company's
international department is focused on the development of offshore
telecommunications relationships that provide the Company with lower
international termination costs as well as greater price stability than can be
obtained from U.S.-based carriers. These relationships are being leveraged by
the Company to obtain revenue through the domestic termination of offshore-
originated traffic, in addition to their primary role of enabling the Company to
offer international termination to its customers. The Company has already made
significant investments in its international network capabilities, including a
Nortel international gateway switch in Quincy, Massachusetts and lease and
indefeasible right of use ("IRU") arrangements for international submarine cable
capacity in TAT 12/13 and Americas I in the Atlantic Ocean and TPC-5 in the
Pacific Ocean, as well as various subsidiary feeder cable systems. In addition
to increasing revenue, the Company expects that its strategy of selling
international wholesale services will lower the cost of carrying all its
international traffic and result in more attractive service offerings in its
core retail markets. As of June 1, 1998, the Company provided its international
wholesale services to 13 domestic and foreign telecommunications carriers, and
in May 1998 such services accounted for 22% of the Company's revenue.
EXPAND THROUGH STRATEGIC ACQUISITIONS AND ALLIANCES
As part of its expansion strategy, the Company plans to consider
acquisitions, joint ventures and strategic alliances in telecommunications,
Internet access and other related service areas. The Company believes that
acquisitions of, and joint ventures and other strategic alliances with, related
or complementary businesses may enable it to more rapidly expand by adding new
customers, new services, additional customer service and technical support
capabilities, and additional cash flow. The acquisitions could be funded by
cash, bank financing or the issuance of debt or equity securities. The Company
is evaluating and often engages in discussions regarding various acquisition
opportunities but is not currently a party to any agreement for a material
acquisition.
SERVICE OFFERINGS
The Company offers retail telecommunications services primarily to small
and medium-sized businesses. The Company's retail service offerings currently
include long distance and toll-free services (both with and without AIN),
multiple access options, calling and debit card, paging, data, and custom
management control features. The Company plans to add local exchange service,
Internet services and additional AIN features in the latter part of 1998 and
into 1999. The Company also offers wholesale international and domestic
termination and transport services primarily to major domestic and international
telecommunications carriers.
CURRENT SERVICES
Retail Services. As of July 15, 1998, the Company provided retail
telecommunications services to over 34,000 customers, primarily small and
medium-sized businesses located in the Northeastern and Southeastern regions of
the United States. Retail services are sold through the Company's direct retail
sales force and, to a lesser extent, through resellers and independent marketing
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representatives. In May 1998, retail telecommunications services accounted for
78% of the Company's revenue. The Company's retail services include the
following:
- LONG DISTANCE: The Company offers a full range of switched and dedicated
domestic (interstate) and international long distance services, including
"1+" outbound origination and termination in all 50 states along with
global termination to over 225 countries. Long distance services include
interLATA services, and, where authorized, intraLATA toll services.
Additional long distance features include both verified and non-verified
accounting codes, collect calling, station-to-station calling,
third-party calling and operator-assisted calling.
- TOLL-FREE SERVICES: The Company offers a full range of switched and
dedicated domestic (interstate) toll-free services, including toll-free
origination and termination in all 50 states, international toll-free
origination from 61 countries including Canada, and toll-free directory
assistance. AIN enhanced toll-free services include the following
features: Command Routing, Dialed Number Identification Service
("DNIS"), Area Code/Exchange Routing, Real Time Automatic Number
Identification Delivery, Day-of-Year Routing, Day-of-Week Routing,
Time-of-Day Routing and Percentage Allocation Routing.
- ACCESS OPTIONS: The Company offers its long distance and toll-free
customers multiple access options including dedicated access at DS0, DS1,
DS3 and E1 speed(s) and switched access. Dedicated access service
customers have the option of incorporating ISDN Primary Rate Interface
Protocol and switched access service customers have the option of
incorporating the ISDN Basic Rate Interface Protocol.
- CALLING CARD AND DEBIT CARD SERVICES: The Company offers nationwide
switched access customized calling card services and debit card services.
Customers have the option of calling cards that are personalized, branded
or generic.
- PAGING SERVICES: The Company offers advanced wireless paging services,
including digital and alphanumeric paging, personal identification number
("PIN") services, voice mail, news and sports feeds, and local geographic
coverage through and including national geographic coverage. Paging
services offered by the Company are provided through PageMart, Inc.
- DATA SERVICES: The Company offers advanced data transmission services,
including private line, point-to-point and Frame Relay Services. Data
services have multiple access options including dedicated access at DS0,
DS1, DS3 and E1 speed(s) and switched access. Frame relay services are
designed for bandwidth needs that vary over time and for inter-networking
geographically dispersed networks and equipment. Frame relay services
offered by the Company are provided through Sprint.
- CUSTOM MANAGEMENT CONTROL FEATURES: All of the Company's customers have
the option of customized management reporting features including
interstate/intrastate area code summaries, international destination
matrix, daily usage summaries, state summaries, time of day summaries,
duration distribution matrix, exception reporting of long duration calls,
and incomplete and blocked call reporting.
- LOCAL SERVICES: The Company is currently providing local services on a
test basis in Massachusetts, and the Company intends to begin offering
such services in certain of its service areas on a commercial basis by
the end of 1998. See "Planned Services" below.
International Wholesale Services. The Company offers international
wholesale termination and transport services primarily to major domestic and
international telecommunications carriers. The Company believes its
international wholesale service offering is a strategic element in its overall
plan to expand its network and to generate and retain customer traffic. The
Company intends to build on its relationships with large domestic and
international carriers to purchase increased capacity and to otherwise support
its international service offerings. In addition, the Company expects that its
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provision of comprehensive international services will lower the cost of
carrying international traffic and result in more attractive service offerings
in its core markets.
PLANNED SERVICES
Local Services. The Company intends to begin offering local service on a
commercial basis by the end of 1998 in Massachusetts, New Hampshire, Rhode
Island and Vermont and in 1999 in Connecticut, New York, New Jersey, Georgia,
Tennessee and Florida. The Company intends to deploy local switches, enter into
resale agreements and enter into interconnection agreements in target market
areas as market conditions warrant. As part of its plan to offer local exchange
services, the Company (i) has obtained authority to provide local service in
Massachusetts, New Hampshire and Rhode Island and is currently in the process of
obtaining CLEC status in additional New England States, New York, New Jersey,
Georgia, Florida, Pennsylvania and Tennessee, and (ii) has entered into an
interconnection agreement with Bell Atlantic for Massachusetts and has commenced
the negotiation of interconnection agreements with Bell Atlantic, Bell South,
GTE, Sprint and SNET for the purpose of gaining access to the unbundled network
elements necessary to offer facilities-based local exchange services in other
states. See "Risk Factors -- Lack of Experience Offering Local and Other
Telecommunications Services", "Risk Factors -- Reliance on Leased Transport
Facilities and IRUs", "Risk Factors -- Lack of Interconnection and Peering
Agreements", "Risk Factors -- The Telecommunications Act and Other Regulation"
and "Government Regulation".
Internet Services. In 1999, the Company intends to begin offering
customers Internet access, including high quality dedicated and dial-up Internet
connection and IP transport.
Advanced Local Services. In connection with its local exchange service
offering, the Company intends to offer value added local exchange services on
both a resale basis (where such services are made available for resale) and on a
switched-facilities basis, including the following: ISDN, Centrex, Trunk Line
Service, Voice Mail (unbundled network element only), Hunt Sequencing, Three Way
Calling, Call Forwarding, Call Waiting, Speed Dial, Voice Dialing, All Call
Blocking, Selective Blocking, Foreign Exchange, Call Trace and Caller ID.
SALES AND MARKETING
OVERVIEW
The Company's sales force seeks to provide its existing and potential
customers with a comprehensive array of telecommunications services customized
for the increasingly convergent voice and data marketplace. The Company's
customers consist primarily of small and medium-sized businesses that have
telecommunications expenditures of less than $10,000 per month. The Company
believes that RBOCs and large long distance carriers historically have not
concentrated their sales and marketing efforts on this business segment, which
the Company believes represents a significant portion of the telecommunications
market. Through its sales force and its eight-year operating history, the
Company believes it has established itself as a recognized provider of high-
quality, competitively priced long distance services, with a reputation for
responsive customer care.
The Company's sales and marketing approach is to build long-term business
relationships with its customers, with the intent of becoming the single source
provider of all their telecommunications services. The Company trains its sales
force in house with a customer-focused program that promotes increased sales
through both customer attraction and customer retention. In addition, all
members of the sales force are given incentives through a commission structure
under which commissions are paid on an ongoing basis for as long as a customer
continues to purchase services from the Company. This "lifetime residual" is
intended to motivate the sales force to remain actively involved with customers
and participate in the customer retention and support process. The Company
believes that its customer support-focused commission structure and in-house
training
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are unique in the industry and provide the Company with a competitive advantage
in attracting and retaining customers.
Members of the Company's sales force are assigned to one of the following
sales groups: (i) the direct retail sales force, which markets the Company's
retail telecommunications services directly to end users; (ii) the reseller and
independent agent sales force, which markets the Company's telecommunications
services to resellers, independent marketing representatives, associations and
affinity groups; and (iii) the international wholesale sales force, which sells
the Company's international telecommunications services on a wholesale basis to
major domestic and international telecommunications carriers.
SALES CHANNELS
DIRECT RETAIL SALES. The Company's direct retail sales force markets the
Company's retail telecommunications services directly to end users. As of July
15, 1998 the Company employed 140 direct sales representatives working in eight
regional offices. By year end 1999, the Company intends to open additional sales
offices. This anticipated expansion will result in a sales force with
approximately 400 direct retail sales personnel located in 18 offices throughout
the Northeastern and Southeastern regions of the United States. See "Risk
Factors -- Management of Rapid Growth".
The sales force is led by Robert T. Hale, Jr., who has over 10 years of
telecommunications sales experience. The direct sales force is divided into two
regions: (i) a Northeastern region, headed by a regional sales director with
seven years of telecommunications sales experience with the Company; and (ii) a
Southeastern region, headed by a regional sales director with seven years of
telecommunications sales experience with the Company. Each of the Company's
existing eight sales offices is headed by a branch manager with from four to
seven years of direct telecommunications sales experience with the Company. Each
sales office is further sub-divided into smaller sales teams, each of which is
headed by a team leader who directly oversees the day-to-day sales activities of
his or her team and acts as a mentor to its members. Teams generally consist of
eight to 10 sales representatives.
The Company's direct retail sales force has a proven management structure
based on a "growth from within" philosophy. As the Company opens a sales office
in a new geographic area, it identifies a branch manager and team leader to head
the new office. New branch managers are typically chosen from among the
Company's experienced team leaders, and team leaders are typically chosen from
among the Company's experienced sales representatives. Because these new
positions represent promotion opportunities, the Company has been successful in
opening new offices with management teams having significant Network Plus work
experience. As branch managers and team leaders relocate to offices in new
geographic areas, they immediately hire new sales representatives from the area.
All new sales representatives are required to receive formal in-house training,
where they are expected to gain a thorough knowledge of the Company's services
and the telecommunications industry. After formal training, sales
representatives are permitted to pursue customers but are required to
participate in a continuing mentoring program. The Company believes this
philosophy is a competitive advantage in the attraction and long-term retention
of sales personnel.
The Company also telemarkets its long distance services, primarily to small
businesses and residential users. Telemarketing activities are conducted by 16
employees located at the Company's telemarketing center in Largo, Florida, which
was established in the fourth quarter of 1997.
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The following chart sets forth each existing and targeted new Company
office location, the planned opening date for each targeted new office, the
number of direct sales representatives currently located in each office and the
number of direct retail sales representatives intended to be located in each
office at year end 1998 and 1999.
<TABLE>
<CAPTION>
DIRECT RETAIL SALES STAFF
------------------------------------------
TOTAL AT PLANNED PLANNED
TARGET OFFICE JULY 15, TOTAL AT YEAR TOTAL AT YEAR
OFFICE LOCATION OPENING DATE 1998 END 1998 END 1999
- ---------------------------------------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Atlanta, GA............................. Existing 18 32 40
Fort Lauderdale, FL..................... Existing 16 30 35
Nashua, NH.............................. Existing 9 14 15
Norwalk, CT............................. Existing 11 20 25
Orlando, FL............................. Existing 17 20 30
Providence, RI.......................... Existing 13 20 22
Quincy, MA.............................. Existing 40 70 80
Largo, FL............................... Existing 16 18 20
Worcester, MA........................... Existing 0 20 20
Jacksonville, FL........................ Existing 0 20 20
New York, NY............................ Existing 0 20 48
Springfield, MA......................... Existing 0 12 15
Undetermined............................ Q2 1999 0 0 15
Undetermined............................ Q2 1999 0 0 15
------- ------- -------
Totals.................................. 140 296 400
======= ======= =======
</TABLE>
RESELLER AND INDEPENDENT AGENT SALES. The Company's reseller and
independent agent sales force markets the Company's telecommunications services
to various resellers, independent marketing representatives, associations and
affinity groups. The focus of the reseller and independent agent sales force is
to locate established, high-quality organizations with extensive distribution
channels in order to market the Company's telecommunications services to both a
broader geographic range of potential customers and a greater number of
potential customers than could be reached by the direct retail sales force.
The Company sells its services on a wholesale basis to resellers, which in
turn sell such services at retail to their customers. The Company generally
sells its services to independent marketing representatives, associations and
affinity groups on a retail basis. Use of independent marketing representatives
allows the Company to reduce its marketing and other overhead costs. As
compensation for their services, independent marketing representatives generally
receive a commission on their sales. The Company employs stringent selection
criteria and attempts to carefully monitor and control the activities of its
resellers and independent marketing representatives to ensure compliance with
laws, industry standards, and corporate policies. The Company believes that the
number of complaints it has received regarding the methods and practices of its
agents is negligible in comparison with that of many other telecommunications
companies.
The Company's reseller and independent agent sales force is split into
three regions: (i) a Northeastern region, headed by a regional sales director
with seven years of telecommunications sales experience with the Company; (ii) a
Southeastern region, headed by a regional sales director with three years of
telecommunications sales experience with the Company; and (iii) a West Coast
region, headed by a regional sales director with eight years of
telecommunications sales experience with the Company. The Company commenced
sales through resellers and independent marketing representatives in 1996, and
the Company currently has six salespeople dedicated to this market segment. In
May 1998, sales through the Company's reseller and independent agent sales force
accounted for 13% of the Company's revenue.
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INTERNATIONAL WHOLESALE SALES. The Company's international wholesale sales
force markets the Company's international telecommunications services to both
international and domestic telecommunications providers. The international
wholesale sales force is focused on developing customer and vendor relationships
with the top tier IXCs as well as RBOCs and selected financially stable second
tier IXCs. In May 1998, international wholesale sales accounted for
approximately 22% of the Company's revenue.
The Company's international wholesale sales force is headed by the Vice
President and General Manager of International Services, who has over 16 years
of experience in international telecommunications sales, service and networks.
In addition, this sales group includes three specialized international wholesale
sales representatives, each of whom has over four years of telecommunications
sales experience with the Company. As of July 15, 1998, the Company had six
sales people in its international wholesale sales force, and expects that number
to increase to 15 by year end 1998 and to 21 by year end 1999.
SALES FORCE COMPENSATION
All sales persons, regardless of sales group, are compensated with both a
salary and a residual commission structure based on each customer's continued
use of the Company's services. The compensation of members of the Company's
sales force is therefore increasingly reliant over time on the retention of
existing customers. It is the Company's belief that this "lifetime residual"
motivates each sales person to remain actively involved with customers and
participate in the customer support process. The Company believes this approach
to commissions is unique in the industry and provides the Company with
competitive advantages including (i) enhanced relationships, which increase
cross-selling opportunities; (ii) reduced customer service and support costs;
and (iii) increased customer retention.
SIMPLICITY PRICING
The Company utilizes a flat-rate per-minute pricing structure for long
distance and certain other services, which the Company refers to as Simplicity
Pricing. The Company believes this simplified pricing structure assists in the
sales process and gives the Company a competitive advantage over larger long
distance competitors which historically have used complex pricing structures
featuring either distance-sensitive calling charges or myriad base rates and
discounting schemes. The Company strives to deliver this Simplicity Pricing on a
timely invoice in a format that is user-friendly.
MARKETING AND ADVERTISING
Historically, because the Company has been successful in relying upon its
sales force to obtain additional customers and increased name recognition, the
Company has refrained from undertaking significant advertising efforts. The
Company is actively involved in numerous charitable and community events, which
the Company believes increase recognition of the Company in particular
geographic regions. The Company has no immediate plans to allocate significant
resources to direct advertising efforts.
CUSTOMER BASE
RETAIL CUSTOMERS
As of July 15, 1998, the Company had over 34,000 retail customers, which
the Company internally segments by monthly revenue into (i) a National Account
segment (over $1,000 of usage per month), (ii) a Major Account segment (between
$250 and $1,000 of usage per month) and
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(iii) a Small Business/Residential Customer Account segment (under $250 of usage
per month). This segmentation is designed to ensure that those customers
generating higher monthly revenues experience a higher level of proactive
customer care. As of July 15, 1998 the National Segment included over 1,900
customers generating approximately 56% of the Company's revenue for June 1998,
the Major Account Segment included over 4,600 customers generating approximately
25% of the Company's revenue, and the Small Business/Residential Account Segment
included over 26,000 customers generating approximately 19% of the Company's
revenue.
INTERNATIONAL WHOLESALE CUSTOMERS
As of June 1, 1998, the Company provided wholesale international
telecommunications services to 13 national and international telecommunications
carriers. International wholesale telecommunications services include
international transport and termination services for domestic carriers and
domestic transport and termination services for international carriers. During
May 1998, wholesale telecommunications services accounted for 22% of the
Company's revenue.
The Company strives to establish close working relationships with its
wholesale international customers. Once the Company interconnects with a carrier
customer, the carrier may utilize the Company on an as-needed basis, depending
upon the pricing offered by the Company and its competitors, as well as
capacity. The Company has been tested and approved as an authorized carrier for,
and included in the routing tables of, all of its long distance and
international carrier customers.
During the years ended December 31, 1997, 1996 and 1995, the Company had
one retail customer that accounted for approximately 10% of the Company's
revenue. In the first six months of 1998, the Company had one wholesale customer
that accounted for approximately 11% of the Company's revenue. The Company does
not expect that any one customer will account for more than 10% of its revenue
during the full year 1998.
CUSTOMER SUPPORT
The Company maintains an emphasis on customer care to differentiate itself
from its competitors, especially larger providers, and to increase customer
retention. The Company provides 24-hours-per-day, 365-days-per-year customer
support primarily through its customer service department in Quincy,
Massachusetts. At the Company's customer support center, customers' calls are
answered by experienced customer care representatives, many of whom are
cross-trained in the provisioning process. Support staff are trained to work
with the Company's sales force and be proactive in the customer support process.
In addition to calls made by the Company's sales department, members of the
customer support staff proactively seek to contact national customers monthly
and major customers quarterly to help ensure a high level of satisfaction with
the Company. The Company's customer support team is organized to help ensure
that the most knowledgeable personnel handle support requests from the largest
customers.
The customer support staff utilizes a sophisticated management information
system to access all customer information including contact information,
customer rates, trouble ticket systems, accounts receivable and billing history.
In addition, the Company utilizes a provisioning system that maintains a
complete history of a customer's provisioning and allows real-time access to
information concerning each transaction with the LEC or underlying carrier. The
Company believes that its customer support and provisioning systems enhance the
Company's customer retention rate.
The Company monitors and measures the quality and timeliness of customer
interaction through quality assurance procedures. Pick-up times for incoming
calls, lengths of calls and other support information is automatically monitored
by the Company's automated call distribution system ("ACD"). The Company's ACD
also prioritizes incoming support requests, assuring that the Company's largest
customers receive support in the most expedient manner.
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The Company's customer support department consists of five discrete areas:
National Accounts Management, Major Accounts Management, Small Business and
Residential Accounts Management, Repair Desk, and Save and Win-Back Team. The
Company's Customer Service Department is managed by the Director of Customer
Service, who has six years of sales and customer service experience with the
Company. Additional members of the Customer Service Management team include (i)
the National Accounts Manager, who has five years of sales and customer service
experience with the Company; (ii) the Major Accounts Manager, who has four years
of sales and customer service experience with the Company; (iii) the Small
Business and Residential Accounts Manager, who has two years of sales and
customer service experience with the Company; (iv) the Repair Desk team members,
each of whom has a minimum of two years of customer service experience with the
Company; and (v) the Save and Win-Back team members, each of whom has a minimum
of four years of sales and customer service experience with the Company.
Customer support agents are required to complete an intensive formal
in-house training program before interacting with customers and are required to
participate in a continuing mentor program. Customer support personnel are
expected to have a thorough knowledge of the Company's services and to emphasize
customer satisfaction. The compensation of support personnel is in part
dependent upon the retention rate of their respective accounts. The Company has
an established career path for its agents, who over time gain responsibility for
larger customers, as well as management responsibilities.
The Company's customer support department currently receives approximately
800 support calls per day. The Company estimates that the average incoming call
is answered by a support specialist in under 15 seconds, which the Company
believes compares favorably to many competitors. The Company also utilizes four
billing cycles per month, which helps ensure that customer service calls will be
staggered throughout each month. If the Company is successful in entering the
local service market, the Company believes that its level of customer service
will provide it with a competitive advantage over existing local service
providers. As of July 15, 1998, the Company employed 32 people in customer
support. The Company anticipates that it will continue to hire additional
customer support personnel as the size of its customer base increases. See "Risk
Factors -- Dependence on Billing, Customer Service and Information Systems".
NETWORK
The Company pursues a capital-efficient network deployment strategy that
involves owning switches while acquiring or leasing fiber optic transmission
facilities on an incremental basis to satisfy customer demand. The Company's
strategy has been to build a geographic concentration of revenue-producing
customers through the resale of telecommunications services before building,
acquiring or extending its own network to serve that concentration of customers.
As network economics justify the deployment of switching or transport capacity,
the Company expands its network and migrates customers to its network. The
Company believes that this strategy allows the Company to penetrate new markets
through its resale solution without incurring the risks associated with
speculative deployment of network elements and to focus its capital expenditures
in those geographic areas and markets where network expansion will result in
higher long-term operating margins.
CURRENT NETWORK
SWITCHES. Currently, the Company operates an advanced telecommunications
network that includes two Nortel switches. Network Plus believes that the Nortel
DMS family of switches is the most reliable and advanced in the
telecommunications marketplace. The switch located in Quincy, Massachusetts is a
DMS 250/300 digital switch that combines on a single platform the DMS 250's
interexchange switching capabilities and the DMS 300's international gateway
capabilities. The
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switch located in Orlando, Florida is a Nortel DMS 250. The Company's switches
are owned pursuant to capital lease arrangements.
During May 1998, the Company carried approximately 24.9 million minutes, or
approximately 47% of its total minutes, on its own network. The Company
anticipates that this percentage will increase as it further expands its
facilities-based infrastructure. The Company believes that increasing the
traffic carried on its own network will increase long-term operating margins and
give the Company greater control over its network operations.
FIBER AND TRANSPORT. The Company recently entered into two 20-year
indefeasible right-of-use ("IRU") agreements with two separate carriers pursuant
to which it acquired 625 route miles of dark fiber (1,830 digital fiber miles).
When the fiber is fully deployed and activated, it will form a redundant fiber
ring connecting major markets throughout New England and the New York
metropolitan area, providing the Company with significant transmission capacity.
The first IRU agreement is for 293 fiber route miles containing four dark Lucent
TrueWave optical fibers. Markets connected by this segment include New York
City, White Plains, Stamford, New Haven, New London, Providence and Boston. The
second IRU agreement is for 332 fiber route miles containing two dark Lucent
TrueWave optical fibers. Markets connected by this segment include Boston,
Nashua, Springfield, Hartford, White Plains and New York City. The Company will
install and control all electronics and optronics, including wave division
multiplexing technologies.
Where the Company has not acquired fiber, it leases long-haul network
transport capacity from major facilities-based carriers and local access from
the ILECs in their respective territories. The Company also uses competitive
access provider ("CAP") or CLEC facilities where available and economically
justified. To ensure seamless off-net termination and origination, the Company
also utilizes interconnection agreements with major carriers. See "Risk
Factors -- Reliance on Leased Transport Facilities and IRUs".
INTERNATIONAL. The Company is interconnected with a number of U.S. and
foreign wholesale international carriers through the Quincy, Massachusetts DMS
250/300 switch. The purpose of connecting to a variety of carriers is to provide
state-of-the-art least-cost routing and network reliability. These
interconnected international carriers are also a source of wholesale
international traffic and revenue. To further support its international
interconnections the Company has entered into leases for international submarine
cable facilities in TAT-12/13, RIOJA in the Atlantic Ocean and TPC-5 in the
Pacific Ocean. In addition, in December 1997 the Company purchased indefeasible
rights of use capacity in the Americas I cable system. These arrangements
support existing and planned interconnections with telephone operating companies
in foreign countries.
OTHER FEATURES. The Company is also interconnected with two Signaling
Transfer Points in Waterbury, Connecticut and New Haven, Connecticut to provide
SS7 common-channel signaling throughout its network. The SS7 signaling system
reduces connect time delays, thereby enhancing overall network efficiencies.
Additionally, SS7 will permit the anticipated expansion of AIN capabilities
throughout the Company's network. The Company's uniform and advanced switching
platform will enable it to (i) deploy features and functions quickly throughout
its entire network, (ii) expand switch capacity in a cost-effective manner,
(iii) lower maintenance costs through reduced training and spare parts
requirements and (iv) achieve direct connectivity to cellular and personal
communication system applications in the future.
SECURITY AND RELIABILITY. The Company has a Network Operations Center in
Quincy, Massachusetts, which monitors the Company's entire network from a
central location, increasing the security, reliability and efficiency of the
Company's operations. Centralized electronic monitoring and control of the
Company's network allows the Company to avoid duplication of this function in
each region. This consolidated operations center also helps reduce the Company's
per-customer monitoring and customer service costs. In addition, the Company's
network employs an "authorized access" architecture. Unlike many
telecommunications companies, which allow universal access to
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their network, the Company utilizes an automatic number identification ("ANI")
security screening architecture that ensures only the ANIs of those users who
have subscribed to the Company's services and have satisfied the Company's
credit and provisioning criteria are allowed access to the network. The Company
believes that this architecture provides the Company a competitive advantage
through its ability to better control bad debt and fraud in a manner that is
invisible and nonintrusive to the customer. Additionally, this architecture
allows the Company to better manage network capacity, as unauthorized and
unplanned users cannot access the network. See "Risk Factors -- Dependence Upon
Network Infrastructure; Risk of System Failure; Security Risks".
ANTICIPATED NETWORK EXPANSION
As part of its growth strategy, the Company plans to undertake a
significant network expansion through the deployment of additional switching and
transport infrastructure to support its goal of continuing migration of its
customers' traffic to its own network. Expansion of the Company's
facilities-based infrastructure with international gateway, long distance and
local switches will increase the proportion of communications traffic that is
originated or terminated on its network, which the Company believes will result
in higher long-term operating margins and greater control over its network
operations. The Company structures its network expansion decisions in a manner
designed to (i) reduce up-front capital expenditures required to enter new
markets, (ii) avoid the risk of "stranded" investment in under-utilized fiber
networks and (iii) enter markets and generate revenue and positive cash flow
more rapidly than if the Company first constructed its own facilities. The
Company intends to further expand its network in geographic areas where customer
concentrations and traffic patterns make expansion economically justifiable. See
"Risk Factors -- Substantial Future Capital Requirements; Need for Additional
Financing; Substantial Leverage".
The Company also plans to expand its business by offering a full range of
local services in the geographic regions where the Company already has an
established customer base. The Company intends to offer local services by (i)
entering into interconnection agreements with ILECs; (ii) deploying its
facilities-based infrastructure in conjunction with ILEC unbundled network
elements ("UNE"); (iii) in those areas where the Company has not yet deployed
local facilities infrastructure, or in those areas where the Company has not yet
achieved significant market penetration, reselling the ILECs' local services
pursuant to state commission-mandated wholesale discounts; and (iv) entering
into agreements with various ILECs and IXCs for termination and origination of
traffic for the Company's on-net local customers. The Company believes this
network deployment strategy, along with its ability to leverage its existing
customer base and demonstrated sales and provisioning expertise, will help to
produce rapid penetration into local markets. Additionally, the Company believes
that the bundling of local service with its long distance or data services will
enhance customer retention and further enhance operating margins.
Four phases of the Company's network expansion are anticipated to take
place by the end of 1999. These phases are as follows:
IXC PLATFORM. The Company intends to deploy and have operational the
following switching platforms by mid-1999: (i) in Los Angeles, a DMS 250/300
digital switch, which combines on a single platform the DMS 250's interexchange
switching capabilities and the DMS 300's international gateway capabilities;
(ii) in Chicago, a DMS 250 interexchange switch; (iii) in New York City, a
Lucent 5ESS equipped with interexchange capabilities; and (iv) in Atlanta, a
Lucent 5ESS switch, which combines the interexchange switching platform with a
local switching platform. Based upon current traffic patterns and volumes the
Company believes that the deployment of this interexchange switching capacity
will enable the Company to increase the on-net traffic generated by its current
customer base.
LOCAL NORTHEAST PLATFORM. The Company intends to deploy local switching
infrastructure in the Northeastern United States as the necessary
interconnection agreements with Bell Atlantic and SNET are completed, which will
allow the Company to take advantage of its customer concentration
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in this region. While the Company is still evaluating various network
configurations, it is the Company's current intention to deploy a Lucent 5ESS
switch in both Boston and New York, along with numerous circuit and fast packet
access nodes located in central offices and targeted buildings throughout its
Northeastern region.
LOCAL SOUTHEAST PLATFORM. The Company intends to deploy local switching
infrastructure in the Southeastern United States as the necessary
interconnection agreements with Bell South and GTE are completed, which will
allow the Company to take advantage of its customer concentration in this
region. While the Company is still evaluating various network configurations, it
is the Company's current intention by mid-1999 to install a Lucent 5ESS switch
in both Orlando and Atlanta, along with numerous circuit and fast packet access
nodes located in central offices and targeted buildings throughout its
Southeastern region.
SERVICE BUILDER. Concurrently with the build-out of its IXC and local
network infrastructure, it is the Company's intention to deploy Service Builder,
Nortel's next generation AIN platform as an extension of the SS7 technology
embedded in the Company's network protocol. Specific value-added features
currently supported by Service Builder include: (i) "500 number" technology;
(ii) "follow me" services; (iii) local number portability (mandated by the
Telecommunications Act); (iv) mass customization of number translation services;
and (v) deployment of virtual private networks. The Company expects to begin
offering some of these services by the first quarter of 1999.
INTERNATIONAL PLATFORM
The Company's switch in Quincy, Massachusetts has international gateway
capabilities. To increase its opportunities in the Pacific Rim, the Company also
plans to deploy a Nortel international gateway switch in its Los Angeles
switching facility by year end 1998.
SPRINT AGREEMENT
In those geographic areas in which the Company has not deployed network
elements, it contracts for and resells long distance domestic and International
services from Sprint. See "Risk Factors -- Dependence Upon Suppliers and Other
Service Providers".
MANAGEMENT INFORMATION SYSTEMS, PROVISIONING, BILLING AND COLLECTIONS
OVERVIEW
The Company is committed to the continued development and successful
implementation of an integrated provisioning, billing, collection and customer
service system that provides accurate and timely information to both the Company
and its customers. The Company's billing system is designed to provide access to
a broad range of information on individual customers, including their call
volume, patterns of usage and billing history. This same information is used by
the Company to identify customer trends and to proactively support the Company's
sales and marketing efforts.
In connection with its anticipated growth, the Company has incurred and
expects to incur significant costs to upgrade its information technology
systems. The new system being developed by the Company is built on an open
scalable client/server Oracle platform and is expected to better integrate the
Company's operations, both geographically and among departments. There can be no
assurance that the Company will realize the intended benefits from this new
system or that the Company will not incur significant unanticipated costs in
deploying this system. See "Risk Factors -- Dependence on Billing, Customer
Service and Information Systems".
PROVISIONING
The Company believes that a significant ongoing challenge for ICPs will be
to continuously improve provisioning systems, which includes the complex process
of transitioning customers to
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their proprietary networks. Accordingly, the Company will continue to identify
and focus on implementing the best provisioning practices in each of its markets
to provide for rapid, seamless transition of customers from the ILEC to the
Company. To support the provisioning of its services, the information platform
being developed by the Company is designed to deliver information and automated
ordering and provisioning capability directly to the end user as well as to the
Company's internal staff. The Company believes that these practices and its
comprehensive information technology platform, as developed, will provide the
Company with a long-term competitive advantage and allow it to more rapidly
implement switched local services in its markets and to shorten the time between
the receipt of a customer order and the generation of revenue.
The Company's Provisioning Department consists of four discrete areas:
General Provisioning, Dedicated Access Services, Toll-Free Services and Reseller
and Agent Provisioning and Support. The Director of Provisioning has over six
years of telecommunications provisioning experience with the Company. Additional
members of the Provisioning Department management team include (i) the Dedicated
Access Services Manager with over seven years of telecommunications provisioning
experience with the Company; (ii) the Toll-Free Services Manager with four years
of telecommunications provisioning experience with the Company; and (iii) two
Assistant Managers of Provisioning, each with over four years of
telecommunications provisioning experience with the Company.
BILLING
The Company maintains within its internal OSS all customer information,
operational data, accounts receivable information, rating rules and tables, and
tax tables necessary for billing its customers. The Company collects and
processes on a daily basis all usage information from its own network and from
the networks of third-party providers. The actual process of applying rating and
taxing information to the millions of individual message units generated each
month, and of generating invoice print files, is out-sourced to a third party
utilizing both a redundant high-speed IBM MVS mainframe and the proven PL/1
language. Printing of invoices is outsourced to a high-speed print shop, and the
mailing of all invoices is currently handled directly by the Company. To
optimize both cash flow and internal work flow metrics, the Company currently
utilizes four billing cycles per month. Additional billing cycles will be added
as dictated by customer growth. To ensure the quality of the billing process,
the Company utilizes strict quality control checks including boundary and
statistical variation testing, sample pricing matrices and direct sampling.
EMPLOYEES
The Company's departments have a proven structure including a "growth from
within" philosophy providing opportunities first, to the extent possible, to
existing employees. The Company believes that this philosophy has increased
employee retention and resulted in the Company's operations being managed by
individuals with significant telecommunications experience with the Company. In
addition, the Company believes that the long tenure, extensive experience and
proven teamwork of its Sales, Customer Service, Provisioning, Billing and
Collections management teams is a competitive advantage when compared to
emerging ICPs lacking the extensive cooperative management experience enjoyed by
the Company.
As of July 15, 1998, the Company employed 276 people, consisting of 152 in
sales and marketing, 32 in customer service, 22 in provisioning, 18 in
production/billing, 13 in finance, 10 in networks, eight in information
technology/MIS, nine in collections and 12 in other departments. The Company has
also recently hired a Director of Human Resources to help manage the Company's
growing employee base. In connection with its growth strategy, the Company
currently anticipates hiring a significant number of additional personnel in
sales and other areas of the Company's operations by year end 1999. As a result
of the intense competition for qualified information technology personnel, the
Company also uses third-party information technology consultants. The Company's
employees are not unionized, and the Company believes its relations with its
employees
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are good. The Company's success will continue to depend in part on its ability
to attract and retain highly qualified employees. See "Risk Factors --
Management of Rapid Growth" and " -- Dependence on Key Personnel".
PROPERTIES
The Company's corporate headquarters are located in a 39,500-square foot
facility in Quincy, Massachusetts. The Quincy facility also serves as a sales
office and includes the Company's customer service operations, certain network
facilities and its Network Operations Center. The Quincy facility is leased from
an affiliate of the Company. See "Certain Transactions". The Company currently
leases nine additional facilities for current or planned sales offices. The
Company also leases real estate to house its telemarketing center in Largo,
Florida and switching facilities in Los Angeles, Chicago and Orlando. The
aggregate amount paid by the Company under its leases in 1997 was approximately
$733,000. Although the Company's facilities are adequate at this time, the
Company believes that it will be required to lease additional facilities,
including additional sales offices and switching facilities, as a result of its
anticipated growth.
LEGAL MATTERS
From time to time the Company is party to routine litigation and
proceedings in the ordinary course of its business. The Company is not aware of
any current or pending litigation to which the Company is or may be a party that
the Company believes could have a material adverse effect on the Company's
results of operations or financial condition.
INDUSTRY OVERVIEW
HISTORY AND INDUSTRY DEVELOPMENT
Prior to 1984, AT&T dominated both the local exchange and long distance
marketplaces by owning the operating entities that provided both local exchange
and long distance services to most of the U.S. population. Although long
distance competition began to emerge in the late 1970s, the critical event
triggering the growth of long distance competition was the breakup of AT&T and
the separation of its local and long distance businesses as mandated by the
Modified Final Judgment relating to the breakup of AT&T (the "MFJ"). To foster
competition in the long distance market, the MFJ prohibited AT&T's divested
local exchange businesses, the RBOCs, from acting as single-source providers of
telecommunications services.
Although the MFJ established the preconditions for competition in the
market for long distance services in 1984, the market for local exchange
services has until recently been virtually closed to competition and has largely
been dominated by regulated monopolies. Efforts to open the local exchange
market began in the late 1980s on a state-by-state basis when CLECs began
offering dedicated private line transmission and access services. These types of
services together currently account for approximately 12% of total local
exchange revenue. CLECs were restricted, often by state laws, from providing
other, more frequently used services such as basic and switched services, which
today account for approximately 88% of local exchange revenue.
The Telecommunications Act, which was enacted in February 1996, is
considered to be the most comprehensive reform of the nation's
telecommunications laws and affects the development of competition for local
telecommunications services. Specifically, certain provisions of the
Telecommunications Act provide for (i) the removal of legal barriers to entry to
the local telecommunications services market; (ii) the interconnection of ILEC
networks with competitors' networks; (iii) the establishment of procedures and
requirements to be followed by the RBOCs, including the requirement that RBOCs
offer local services for resale as a precondition to entering into the long
distance and telecommunications equipment manufacturing markets; and (iv) the
relaxation of the regulation of certain telecommunications services provided by
LECs and others. The Company
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believes the Telecommunications Act will promote significant growth in the local
telecommunications market as new market entrants provide expanded service
offerings.
The Telecommunications Act further increases the opportunities available to
CLECs by requiring the RBOCs and other ILECs to offer various network elements
such as switching, transport and loops (i.e., the facilities connecting a
customer's premises to a LEC central office) on an unbundled and
non-discriminatory basis. RBOCs also are required to offer their retail services
at wholesale rates for resale by other companies. By offering such services,
RBOCs also meet certain of the requirements contained in the Telecommunications
Act in order to gain FCC approval to provide in-region long distance services.
Although certain provisions of the Telecommunications Act restricting the RBOCs'
ability to provide in-region long distance services have been held
unconstitutional by a Federal district court, the Company believes that
significant parts of such decision may be reversed and vacated on appeal, but no
assurance can be made as to the outcome.
The continuing deregulation of the telecommunications industry and
technological change have resulted in an increasingly information-intensive
business environment. Regulatory, technological, marketing and competitive
trends have expanded substantially the Company's opportunities in the converging
voice and data communications services markets. For example, technological
advances, including rapid growth of the Internet, the increased use of packet
switching technology for voice communications and the growth of multimedia
applications, are expected to result in substantial growth in the high-speed
data services market.
This new market opportunity will permit competitive providers who can
manage the operational and marketing implementation to offer a full range of
telecommunications services, including local and long distance calling,
toll-free calling, custom calling features, data services, Internet access and
cellular services. The Company believes that customers will prefer a single
source for all of their voice and data telecommunications requirements,
including products, billing and service. Telecommunications companies with an
established base of long distance customers will have the opportunity to sell
additional services to such customers. The Company believes that a one-stop
provider of integrated communications services will have the opportunity to
penetrate its existing markets, expand its customer base, capture a larger
portion of its customers' total expenditures on communication services and
reduce customer turnover. Furthermore, companies that develop their own networks
will have the opportunity to migrate customers from off-net to on-net, thereby
increasing long-term operating margins and giving such companies greater control
over their network operations. See "Risk Factors -- Competition", "-- The
Telecommunications Act and Other Regulation" and "-- Impact of Technological
Change".
The Company also believes that small and medium-sized businesses have
historically been underserved with respect to customer service and support.
Because, the Company believes, RBOCs and the largest national carriers primarily
concentrate their sales and marketing efforts on residential and large business
customers, there is a significant market opportunity with respect to small and
medium-sized businesses. Geographically, the Company believes that the
Northeastern and Southeastern regions of the United States are attractive
markets due to a number of factors, including (i) the population density in the
Northeast; (ii) a large number of rapidly growing metropolitan clusters in the
Southeast, such as Atlanta, Miami/Fort Lauderdale and Orlando; and (iii) the
relatively small number of significant competitors to the ILECs.
TELECOMMUNICATIONS SERVICES MARKET
Overview of U.S. Market. The U.S. market for telecommunications services
can be divided into three basic sectors: long distance services, local exchange
services and Internet access services. In 1997, it is estimated that, in the
United States, long distance services generated revenue of $104.6 billion, local
exchange services accounted for revenue of $92.4 billion, and Internet services
revenue totaled $6.3 billion. Revenue for both local exchange and long distance
services include amounts
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charged by long distance carriers and subsequently paid to ILECs (or, where
applicable, CLECs) for long distance access.
Long Distance Services. A long distance telephone call can be envisioned
as consisting of three segments. Starting with the originating customer, the
call travels along a local exchange network to a long distance carrier's point
of presence ("POP"). At the POP, the call is combined with other calls and sent
along a long distance network to a POP on the long distance carrier's network
near where the call will terminate. The call is then sent from this POP along a
local network to the terminating customer. Long distance carriers provide only
the connection between the two local networks, and, unless the long distance
carrier is a local service provider, pay access charges to LECs for originating
and terminating calls.
The following diagram is a simplified illustration of a typical long
distance network call carried by the Company:
[DIAGRAM]
Local Exchange Services. A local call is one that does not require the
services of a long distance carrier. In general, the local exchange carrier
connects end user customers within a LATA and also provides the local portion of
most long distance calls.
The following diagram is a simplified illustration of a typical local
network call:
[DIAGRAM]
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Internet Service. Internet services are generally provided in at least two
distinct segments. A local network connection is required from the ISP customer
to the ISP's local facilities. For large, communication-intensive users and for
content providers, the connections are typically unswitched, dedicated
connections provided by ILECs, CLECs or ICPs, either as independent service
providers or, in some cases, by a company that is both a CLEC and an ISP. For
residential and small and medium-sized business users, these connections are
generally public switched telephone network ("PSTN") connections obtained on a
dial-up access basis as a local exchange telephone call. Once a local connection
is made to the ISP's local facilities, information can be transmitted and
obtained over a packet-switched IP data network, which may consist of segments
provided by many interconnected networks operated by a number of ISPs. The
collection of interconnected networks makes up the Internet. A key feature of
Internet architecture and packet-switching is that a single dedicated channel
between communication points is never established, which distinguishes
Internet-based services from the PSTN.
COMPETITION
OVERVIEW
The Company operates in a highly competitive industry and believes that it
does not have significant market share in any market in which it operates. The
Company expects that competition will continue to intensify in the future due to
regulatory changes, including the continued implementation of the
Telecommunications Act, and the increase in the size, resources and number of
market participants. In each of its markets, the Company will face competition
for local service from larger, better capitalized ILECs and CLECs. Additionally,
the long distance market is already significantly more competitive than the
local exchange market because the ILECs, prior to enactment of the
Telecommunications Act, generally had a monopoly position within the local
exchange market. While new business opportunities will be made available to the
Company through the Telecommunications Act and other federal and state
regulatory initiatives, regulators are likely to provide the ILECs with an
increased degree of flexibility with regard to pricing of their services as
competition increases.
Competition for the Company's products and services is based on price,
quality, reputation, name recognition, network reliability, service features,
billing services, perceived quality and responsiveness to customers' needs.
While the Company believes that it currently has certain advantages relating to
price, quality, customer service, and responsiveness to customer needs, there is
no assurance that the Company will be able to maintain these advantages or
obtain additional advantages. A continuing trend toward business combinations
and alliances in the telecommunications industry may create significant new
competitors to the Company. Many of the Company's existing and potential
competitors have financial, technical and other resources significantly greater
than those of the Company. In addition, in December 1997 the FCC issued rules to
implement the provisions of the World Trade Organization Agreement on Basic
Telecommunications, which was drafted to liberalize restrictions on foreign
ownership of domestic telecommunications companies and to allow foreign
telecommunications companies to enter domestic markets. The new FCC rules went
into effect in February 1998 and are expected to make it substantially easier
for many non-U.S. telecommunications companies to enter the U.S. market, thus
further increasing the number of competitors. The new rules will also give
non-U.S. individuals and corporations greater ability to invest in U.S.
telecommunications companies, thus increasing the financial and technical
resources potentially available to the Company and its existing and potential
competitors. See "Risk Factors -- Competition", "-- The Telecommunications Act
and Other Regulation" and "Government Regulation".
LONG DISTANCE MARKET
The long distance telecommunications industry is highly competitive and
affected by the introduction of new services by, and the market activities of,
major industry participants. The Company competes against various national and
regional long distance carriers, including both
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facilities-based providers and switchless resellers offering essentially the
same services as the Company. In addition, significant competition is expected
to be provided by ILECs including, when authorized, RBOCs. The Company's success
will depend upon its ability to provide high-quality services at prices
generally competitive with, or lower than, those charged by its competitors. In
addition, the long distance industry is characterized by a high level of
customer attrition or "churn". Such attrition is attributable to a variety of
factors, including initiatives of competitors as they engage in advertising
campaigns, marketing programs and cash payments and other incentives. End users
are often not obligated to purchase any minimum usage amount and can discontinue
service without penalty at any time. While the Company believes its customer
turnover rate is lower than that of many of its competitors, the Company's
revenue has been, and is expected to continue to be, affected by churn.
AT&T, MCI, Sprint and other carriers have implemented new price plans aimed
at residential customers with significantly simplified rate structures, which
may have the impact of lowering overall long distance prices. There can also be
no assurance that long distance carriers will not make similar offerings
available to the small to medium-sized businesses that the Company primarily
serves. While the Company believes small and medium-sized business customers are
not aggressively targeted by large long distance providers such as AT&T, MCI and
Sprint, there can be no assurance the Company's customers and potential
customers will not be targeted by these or other providers in the future.
Additional pricing pressure may come from IP transport, which is a developing
use of packet-switched technology that can transmit voice communications at a
cost that may be below that of traditional circuit-switched long distance
service. While IP transport is not yet available in all areas, requires the
dialing of additional digits, and generally produces sound quality inferior to
traditional long distance service, it could eventually be perceived as a
substitute for traditional long distance service and put pricing pressure on
long distance rates. Any reduction in long distance prices may have a material
adverse effect on the Company's results of operations.
One of the Company's principal competitors, Sprint, is also a major
supplier of services to the Company. The Company both links its switching
equipment with transmission facilities and services purchased or leased from
Sprint, and resells services obtained from Sprint. See "Business --
Network -- Sprint Agreement". There can be no assurance that Sprint will
continue to offer services to the Company at competitive rates or on attractive
terms, if at all, and any failure to do so could have a material adverse effect
on the Company. See "Risk Factors -- Dependence Upon Suppliers and Other Service
Providers".
LOCAL EXCHANGE MARKET
Under the Telecommunications Act and related federal and state regulatory
initiatives, barriers to local exchange competition are being removed. In local
telecommunication markets, the Company's primary competitor will be the ILEC
serving each geographic area. ILECs are established providers of dedicated and
local telephone services to all or virtually all telephone subscribers within
their respective service areas. ILECs also have long-standing relationships with
regulatory authorities at the federal and state levels. While recent FCC
administrative decisions and initiatives provide increased business
opportunities to voice, data and Internet-service providers, they also provide
the ILECs with increased pricing flexibility for their private line, special
access and switched access services. In addition, with respect to competitive
access services, the FCC recently proposed a rule that would provide for
increased ILEC pricing flexibility and deregulation for such access services
either automatically or after certain competitive levels are reached. If the
ILECs are allowed additional flexibility by regulators to offer discounts to
large customers through contract tariffs, decide to engage in aggressive volume
and term discount pricing practices for their customers, or seek to charge
competitors excessive fees for interconnection to their networks, the revenue of
competitors to the ILECs could be materially adversely affected. If future
regulatory decisions afford the ILECs increased access services, pricing
flexibility or other regulatory relief, such decisions could also have a
material adverse effect on competitors to the ILECs.
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The Company also will face competition or prospective competition in local
markets from other carriers, many of which have significantly greater financial
resources than the Company. For example, AT&T, MCI and Sprint have each begun to
offer local telecommunications services in major U.S. markets using their own
facilities or by resale of the ILECs' or other providers' services. In addition
to these long distance service providers, entities that currently offer or are
potentially capable of offering local switched services include companies that
have previously operated as competitive access providers, cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and large customers who build private networks. These entities, upon
entering into appropriate interconnection agreements or resale agreements with
ILECs, including RBOCs, could offer single-source local and long distance
services, similar to those offered or proposed to be offered by the Company.
In addition, a continuing trend towards business combinations and alliances
in the telecommunications industry may create significant new competitors to the
Company. The proposed acquisition of GTE Corp. by Bell Atlantic Corp., the
proposed merger of SBC and Ameritech, the merger of WorldCom and MCI, AT&T's
proposed acquisition of Telecommunications Inc. and its acquisition of Teleport
Communications Group, Inc., Teleglobe Inc.'s proposed acquisition of Excel
Communications, and SBC's proposed acquisition of SNET are examples of some of
the alliances that are being formed. Many of these combined entities will have
resources far greater than those of the Company. These combined entities may
provide a bundled package of telecommunications products, including local and
long distance telephony, that is in direct competition with the products offered
or proposed to be offered by the Company, and may be capable of offering these
products sooner and at more competitive rates than the Company.
WIRELESS MARKET
The Company will also face competition from fixed wireless services,
including MMDS, LMDS, 24 GHz and 38 GHz wireless communications systems, FCC
Part 15 unlicensed wireless radio devices, and other services that use existing
point-to-point wireless channels on other frequencies. In addition, the FCC has
allocated a number of spectrum blocks for use by wireless devices that do not
require site or network licensing. A number of vendors have developed such
devices that may provide competition to the Company, in particular for certain
low data-rate transmission services.
With respect to mobile wireless telephone system operators, the FCC has
authorized cellular, PCS, and other CMRS providers to offer wireless services to
fixed locations, rather than just to mobile customers, in whatever capacity such
CMRS providers choose. Previously, cellular providers could provide service to
fixed locations only on an ancillary or incidental basis. The authority to
provide fixed as well as mobile services will enable CMRS providers to offer
wireless local loop service and other services to fixed locations (e.g., office
and apartment buildings) in direct competition with the Company and existing
providers of traditional wireless telephone service.
OTHER
Section 271 of the Telecommunications Act prohibits an RBOC from providing
long distance service that originates (or in certain cases terminates) in one of
its in-region states, with several limited exceptions, until the RBOC has
satisfied certain statutory conditions in that state and has received the
approval of the FCC. The FCC has denied the following applications for such
approval: SBC's Texas application in June 1998; SBC's Oklahoma application in
June 1997; Ameritech's Michigan application in August 1997; and BellSouth
Corporation's applications for South Carolina and Louisiana in December 1997 and
February 1998, respectively. The Company anticipates that a number of RBOCs will
file additional applications for in-region long distance authority in 1998. Bell
Atlantic recently received conditional approval from the New York Public Service
Commission of its Section 271 application for New York State. Thus, it is
expected that Bell Atlantic will file its Section 271 application with the FCC
in the near future. The FCC has 90 days from the date an
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application for in-region long distance authority is filed to decide whether to
grant or deny the application.
Once the RBOCs are allowed to offer widespread in-region long distance
services, both they and the largest IXCs will be in a position to offer
single-source local and long distance service. On December 31, 1997, a United
States District Court judge in Texas held unconstitutional certain sections of
the Telecommunications Act, including Section 271. Section 271 includes a
"competitive checklist" that RBOCs must satisfy prior to obtaining authority to
provide in-region, interLATA long-distance service. This decision would permit
the three RBOCs involved in the suit immediately to begin offering widespread
in-region long distance services. The decision, however, was stayed on February
11, 1998 by the District Court pending the outcome of an appeal on the merits to
the U.S. Court of Appeals for the Fifth Circuit. On September 4, 1998, the Fifth
Circuit reversed the District Court's ruling. Among other things, the Fifth
Circuit found sec.sec.271-275 of the Telecommunications Act to be non-punitive
in character and, therefore, not a bill of attainder as that term has been
defined by the Superior Court.
In addition, new FCC rules went into effect in February 1998 that will make
it substantially easier for many non-U.S. telecommunications companies to enter
the U.S. market, thus potentially further increasing the number of competitors.
The market for data communications and Internet access services is also
extremely competitive. There are no substantial barriers to entry, and the
Company expects that competition will intensify in the future. The Company's
success selling these services will depend heavily upon its ability to provide
high quality Internet connections at competitive prices. See "Risk Factors --
Competition".
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GOVERNMENT REGULATION
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Other
existing federal, state and local legislation and regulations are currently the
subject of judicial proceedings, legislative hearings, and administrative
proposals that could change, in varying degrees, the manner in which the
telecommunications industry operates. Neither the outcome of these proceedings,
nor their impact upon the telecommunications industry or the Company, can be
predicted at this time. This section also summarizes regulatory and tariff
issues pertaining to the operation of the Company.
OVERVIEW
The Company's services are subject to regulation by federal, state and
local government agencies. The FCC exercises jurisdiction over all facilities
and services of telecommunications common carriers to the extent those
facilities are used to provide, originate or terminate domestic (interstate) or
international communications. State regulatory commissions retain jurisdiction
over carriers' facilities and services to the extent they are used to originate
or terminate intrastate communications. Municipalities and other local
government agencies may require carriers to obtain licenses or franchises
regulating use of public rights-of-way necessary to install and operate their
networks. The networks are also subject to numerous local regulations such as
building codes, franchises, and rights of way licensing requirements. Many of
the regulations issued by these regulatory bodies may change, the results of
which the Company is unable to predict. See "Risk Factors -- The
Telecommunications Act and Other Regulation".
THE FEDERAL TELECOMMUNICATIONS ACT OF 1996
STATUTORY REQUIREMENTS. On February 1, 1996, the U.S. Congress enacted
comprehensive telecommunications legislation, which the President signed into
law on February 8, 1996. The Company believes that this legislation is likely to
enhance competition in the local telecommunications marketplace because it (i)
gives the FCC authority to preempt state and local entry barriers, (ii) requires
ILECs to provide interconnection to their facilities, (iii) facilitates
end-users' choice to switch service providers from ILECs to CLECs and (iv)
proscribes the imposition of discriminatory or anticompetitive requirements by
state or local governments for use of public rights of way.
The Telecommunications Act requires all LECs (including ILECs and CLECs)
(i) not to prohibit or unduly restrict resale of their services; (ii) to provide
local number portability; (iii) to provide dialing parity and nondiscriminatory
access to telephone numbers, operator services, directory assistance and
directory listings; (iv) to afford access to poles, ducts, conduits and
rights-of-way; and (v) to establish reciprocal compensation arrangements for the
transport and termination of local telecommunications traffic. It also requires
ILECs to negotiate local interconnection agreements in good faith and to provide
interconnection (a) for the transmission and routing of telephone exchange
service and exchange access, (b) at any technically feasible point within the
ILEC's network, (c) that is at least equal in quality to that provided by the
ILEC to itself, its affiliates or any other party to which the ILEC provides
interconnection, and (d) at rates, terms and conditions that are just,
reasonable and nondiscriminatory. ILECs also are required under the
Telecommunications Act to provide nondiscriminatory access to network elements
on an unbundled basis at any technically feasible point, to offer their local
retail telephone services for resale at wholesale rates, and to facilitate
collocation of equipment necessary for competitors to interconnect with or
access unbundled network elements ("UNEs").
In addition, the Telecommunications Act requires RBOCs to comply with
certain safeguards and offer interconnection that satisfies a prescribed
14-point competitive checklist before the RBOCs are permitted to provide
in-region interLATA (i.e., interexchange long distance) services. These
safeguards are designed to ensure that the RBOCs' competitors have access to
local exchange and
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exchange access services on nondiscriminatory terms and that subscribers of
regulated non-competitive RBOC services do not subsidize their provision of
competitive services. The safeguards also are intended to promote competition by
preventing RBOCs from using their market power in local exchange services to
obtain an anti-competitive advantage in the provision of other services.
Three RBOCs, Ameritech Corp., SBC Communications Inc. (formerly
Southwestern Bell Corp.) and BellSouth Corp., have filed applications with the
FCC for authority to provide in-region interLATA service in selected states. The
FCC has denied all such RBOC applications for in-region long distance authority
filed to date. The denials of certain of these RBOC applications by the FCC are
the subjects of judicial appeals and petitions for rehearing at the FCC. Other
RBOCs have begun the process of applying to provide in-region interLATA service
by filing with state commissions notice of their intent to file at the FCC.
In addition, several RBOCs have challenged the constitutionality of certain
provisions of the Telecommunications Act that bar the RBOCs from providing
in-region interexchange and other services by filing a lawsuit in the U.S.
District Court for the Northern District of Texas (captioned SBC Communications,
Inc. v. FCC, Civil Action No. 7:97-CV-163-X (Kendall, J.)). Judge Kendall issued
an order in that case that invalidated Sections 271-273 of the
Telecommunications Act as they pertain to SBC, US West and Bell Atlantic, after
finding that these provisions violated the constitutional prohibition against
"bills of attainder". Judge Kendall's decision was appealed to the U.S. Court of
Appeals for the Fifth Circuit; on September 4, 1998, the Fifth Circuit reversed
the District Court's ruling.
The Telecommunications Act also granted important regulatory relief to
industry segments that compete with CLECs. ILECs were given substantial new
pricing flexibility. RBOCs have the ability to provide out-of-region
long-distance services and, if they obtain authorization and under prescribed
circumstances, may provide additional in-region long-distance services. RBOCs
also were granted new rights to provide certain cable TV services. IXCs were
permitted to construct their own local facilities and/or resell local services.
State laws no longer may require cable television service providers ("CATVs") to
obtain a franchise before offering telecommunications services nor permit CATVs'
franchise fees to be based on their telecommunications revenue. In addition,
under the Telecommunications Act all utility holding companies are permitted to
diversify into telecommunications services through separate subsidiaries. See
"Risk Factors -- Competition".
FCC RULES IMPLEMENTING THE LOCAL COMPETITION PROVISIONS OF THE
TELECOMMUNICATIONS ACT. On August 8, 1996, the FCC released a First Report and
Order, a Second Report and Order and a Memorandum Opinion and Order in its CC
Docket 96-98 (combined, the "Interconnection Orders") that established a
framework of minimum, national rules enabling state Public Service Commissions
("PSCs") and the FCC to begin implementing many of the local competition
provisions of the Telecommunications Act. In its Interconnection Orders, the FCC
prescribed certain minimum points of interconnection necessary to permit
competing carriers to choose the most efficient points at which to interconnect
with the ILECs' networks. The FCC also adopted a minimum list of unbundled
network elements that ILECs must make available to competitors upon request and
a methodology for states to use in establishing rates for interconnection and
the purchase of unbundled network elements. The FCC also adopted a methodology
for states to use when applying the Telecommunications Act's "avoided cost
standard" for setting wholesale prices with respect to retail services.
The following summarizes the key issues addressed in the Interconnection
Orders:
- INTERCONNECTION. ILECs are required to provide interconnection for
telephone exchange or exchange access service, or both, to any requesting
telecommunications carrier at any technically feasible point. The
interconnection must be at least equal in quality to that provided by the
ILEC to itself or its affiliates and must be provided on rates, terms and
conditions that are just, reasonable and nondiscriminatory.
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- ACCESS TO UNBUNDLED ELEMENTS. ILECs are required to provide requesting
telecommunications carriers with nondiscriminatory access to network
elements on an unbundled basis at any technically feasible point on
rates, terms, and conditions that are just, reasonable and
nondiscriminatory. At a minimum, ILECs must unbundle and provide access
to network interface devices, local loops, local and tandem switches
(including all software features provided by such switches), interoffice
transmission facilities, signaling and call-related database facilities,
operations support systems, and information and operator and directory
assistance facilities. Further, ILECs may not impose restrictions,
limitations or requirements upon the use of any unbundled network
elements by other carriers.
- METHODS OF OBTAINING INTERCONNECTION AND ACCESS TO UNBUNDLED
ELEMENTS. ILECs are required to provide physical collocation of
equipment necessary for interconnection or access to unbundled network
elements at the ILEC's premises, except that the ILEC may provide virtual
collocation if it demonstrates to the PSC that physical collocation is
not practical for technical reasons or because of space limitations.
- TRANSPORT AND TERMINATION CHARGES. The FCC rules require that LEC
charges for transport and termination of local traffic delivered to them
by competing LECs must be cost-based and should be based on the LECs'
Total Element Long-Run Incremental Cost ("TELRIC") of providing that
service. However, as discussed below, the FCC's pricing and costing rules
have been vacated by the U.S. Court of Appeals for the Eighth Circuit.
- PRICING METHODOLOGIES. New entrants were required to pay for
interconnection and unbundled elements at rates based on the ILEC's
TELRIC of providing a particular network element plus a reasonable share
of forward-looking joint and common costs, and may include a reasonable
profit. However, as discussed below, these rules have been vacated by the
Eighth Circuit.
- RESALE. ILECs were required to offer for resale any telecommunications
service that they provide at retail to subscribers who are not
telecommunications carriers. PSCs were required to identify which
marketing, billing, collection and other costs will be avoided or that
are avoidable by ILECs when they provide services on a wholesale basis
and to calculate the portion of the retail rates for those services that
is attributable to the avoided and avoidable costs. However, as discussed
below, the specific federal pricing requirements have been vacated by the
Eighth Circuit.
- ACCESS TO RIGHTS-OF-WAY. The FCC established procedures and guidelines
designed to facilitate the negotiation and mutual provision of
nondiscriminatory access by telecommunications carriers and utilities to
their poles, ducts, conduits, and rights-of-way.
- UNIVERSAL SERVICE REFORM. All telecommunications carriers, including the
Company, are required to contribute funding for universal service
support, on an equitable and nondiscriminatory basis, in an amount
sufficient to preserve and advance universal service pursuant to a
specific or predictable universal service funding mechanism. On May 8,
1997, the FCC released an order implementing these requirements by
reforming its existing access charge and universal service rules. See
"-- Universal Service Reform" below.
Most provisions of the Interconnection Orders were appealed. Numerous
appeals were consolidated for consideration by the Eighth Circuit Court of
Appeals (captioned Iowa Utilities Board v. FCC). On July 18, 1997, the Court of
Appeals released its decision regarding issues raised in the consolidated
appeals. The Interconnection Orders were upheld in part and reversed in part. A
non-exclusive list of decisions rendered include:
- The FCC exceeded its jurisdiction in establishing rules governing the
prices that ILECs may charge competitors for interconnection, unbundled
access and resale. The Court ruled that the authority to establish prices
for local communications facilities and services is reserved to
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the states and, thus, vacated the FCC's pricing rules (except as they
apply to CMRS providers).
- The FCC's "pick and choose" rule, which allows competitors to select
individual terms of previously approved interconnection agreements for
their own use, conflicts with the purposes of the Telecommunications Act,
and also was vacated.
- The FCC lacks authority to hear formal complaints that involve the review
and/or enforcement of certain terms of local interconnection agreements
approved by state commissions.
- The FCC lacks authority to require interconnection agreements that were
negotiated before the enactment of the Telecommunications Act to be
submitted for state commission approval.
- The FCC may not adopt a blanket requirement that state interconnection
rules must be consistent with the FCC's regulations.
- The FCC correctly concluded that ILEC operations support systems,
operator services and vertical switching features qualify as network
elements that are subject to the unbundling requirements of the
Telecommunications Act.
- The FCC's definition of "technically feasible" was upheld for purposes of
deciding where ILECs must permit interconnection by competitors, but the
FCC's use of this term to determine the elements that must be unbundled
was rejected.
- The FCC erred in deciding that ILECs could be required by competitors to
provide interconnection and unbundled network elements at levels of
quality that exceed those levels at which ILECs provide such services to
themselves.
- The FCC cannot require ILECs to recombine network elements for
competitors, but competitors may recombine such network elements
themselves as necessary to provide telecommunications services.
- Claims that the unbundling rules constitute an unconstitutional taking
were not decided because they were either raised by parties that lacked
standing or were not ripe for review.
- The FCC rules and policies regarding the ILECs' duty to provide for
physical collocation of equipment were upheld.
- The FCC rules requiring ILECs to allow the resale of promotional prices
lasting more than 90 days were upheld.
The Interconnection Orders, and resulting local interconnection rules, were
vacated in part consistent with these decisions. The U.S. Supreme Court has
granted certiorari to review most aspects of the Eighth Circuit decision
regarding the Interconnection Orders. The Company cannot predict the outcome of
this litigation or the requests for reconsideration that remain pending at the
FCC. Notably, the FCC recently made the use of forward looking, economic costs
for the pricing of local interconnection, transport and termination and
unbundled network elements a temporary condition of its approval of the merger
of Bell Atlantic and NYNEX. However, after the FCC indicated in its denial of
Ameritech's application for in-region long distance authority that an RBOC's use
of such forward looking, economic costs is relevant to the issue of whether it
has satisfied the conditions necessary for approval of such an application, the
Eighth Circuit issued a mandamus order instructing the FCC not to enforce such a
requirement.
SECTION 706 FORBEARANCE. Section 706 of the Telecommunications Act gives
the FCC the right to forebear from regulating a market if the FCC concludes that
such forbearance is necessary to encourage the rapid deployment of advanced
telecommunications capability. Section 706 has not been used to date, but in
January 1998 Bell Atlantic filed a petition under Section 706 seeking to have
the FCC deregulate entirely the provision of packet-switched telecommunications
services.
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Similar petitions were later filed by the Alliance for Public Technology and US
West Inc. (currently Media One Group Inc.), and other ILECs are expected to file
similar petitions in the near future.
On August 7, 1998, the FCC released an Order denying requests by the
Regional Bell Operating Companies (RBOCs) that it use Section 706 of the
Telecommunications Act to forbear from regulating advanced telecommunications
services. Instead, the FCC determined that advanced services are
telecommunications services and that ILECs providing advanced services are still
subject to the unbundling and resale obligations of Section 251(c) and the
in-region interLATA restrictions of Section 271.
On the same day, the FCC released a Notice of Proposed Rulemaking ("NPRM")
proposing that ILECs be permitted to offer advanced services through separate
affiliates. Subject to certain restrictions on transfers from the ILEC to the
affiliate, structural separation rules and nondiscrimination safeguards, these
separate affiliates would not be subject to the obligations imposed on ILECs
under Section 251(c), but would remain subject to the in-region interLATA
restrictions imposed on RBOCs and RBOC affiliates by Section 271. In the Order,
the FCC did not specifically authorize ILECs to provide advanced services
through a separate affiliate immediately. ILECs may, of course, immediately
provide advanced services, but until the separate affiliate is properly
established pursuant to rules to be promulgated following comment on the NPRM,
such provision of advanced services will be subject to Section 251. The outcome
of this proceeding could have a material adverse effect on the Company.
In order to assist competing carriers to gain access to ILEC facilities
necessary to provide advanced services, the FCC also proposes to strengthen
collocation and loop unbundling requirements. Finally, the FCC issued a Notice
of Inquiry (NOI) to explore the availability of advanced, high speed
telecommunications services.
OTHER FEDERAL REGULATION. In general, the FCC has a policy of encouraging
the entry of new competitors in the telecommunications industry and preventing
anti-competitive practices. Therefore, the FCC has established different levels
of regulation for dominant carriers and nondominant carriers. For purposes of
domestic common carrier telecommunications regulation, large ILECs such as GTE
and the RBOCs are currently considered dominant carriers, while CLECs are
considered nondominant carriers.
- TARIFFS. As a nondominant carrier, the Company may install and operate
facilities for the transmission of domestic interstate communications
without prior FCC authorization. Services of nondominant carriers have
been subject to relatively limited regulation by the FCC, primarily
consisting of the filing of tariffs and periodic reports. However,
nondominant carriers like the Company must offer interstate services on a
nondiscriminatory basis, at just and reasonable rates, and remain subject
to FCC complaint procedures. With the exception of informational tariffs
for operator-assisted services and tariffs for interexchange casual
calling services, the FCC has ruled that IXCs must cancel their tariffs
for domestic, interstate interexchange services. Tariffs remain required
for international services. The effectiveness of those orders currently
is subject to a stay issued by the U.S. Court of Appeals for the District
of Columbia Circuit. On June 19, 1997, the FCC issued an order granting
petitions filed by Hyperion Telecommunications Inc. and Time Warner Inc.
to provide CLECs the option to cease filing tariffs for interstate
interexchange access services and has proposed to make the withdrawal of
CLEC access service tariffs mandatory. Pursuant to these FCC
requirements, the Company has filed and maintains tariffs for its
interstate services with the FCC. All of the interstate access and retail
"basic" services (as defined by the FCC) provided by the Company are
described therein. "Enhanced" services (as defined by the FCC) need not
be tariffed. The Company believes that its proposed enhanced voice and
Internet services are "enhanced" services that need not be tariffed.
However, the FCC is reexamining the "enhanced" definition as it relates
to IP transport and the Company cannot predict whether the FCC will
change the classification of such services.
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- INTERNATIONAL SERVICES. Nondominant carriers such as the Company also
are required to obtain FCC authorization pursuant to Section 214 of the
Communications Act and file tariffs before providing international
communications services. The Company has obtained authority from the FCC
to provide voice and data communications services between the United
States and all foreign authorized points.
- ILEC PRICE CAP REGULATION REFORM. In 1991, the FCC replaced traditional
rate of return regulation for large ILECs with price cap regulation.
Under price caps, ILECs can raise prices for certain services by only a
small percentage each year. In addition, there are constraints on the
pricing of ILEC services that are competitive with those of CLECs. On
September 14, 1995, the FCC proposed a three-stage plan that would
substantially reduce ILEC price cap regulation as local markets become
increasingly competitive and ultimately would result in granting ILECs
nondominant status. Adoption of the FCC's proposal to reduce
significantly its regulation of ILEC pricing would significantly enhance
the ability of ILECs to compete against the Company and could have a
material adverse effect on the Company. The FCC released an order on
December 24, 1996 that adopted certain of these proposals, including the
elimination of the lower service band index limits on price reductions
within the access service category. The FCC's December 1996 order also
eased the requirements necessary for the introduction of new services by
ILECs. On May 7, 1997, the FCC took further action in its CC Docket No.
94-1 updating and reforming its price cap plan for the ILECs. Among other
things, the changes require price cap LECs to reduce their price cap
indices by 6.5 percent annually, less an adjustment for inflation. The
FCC also eliminated rules that require ILECs earning more than certain
specified rates of return to "share" portions of the excess with their
access customers during the next year in the form of lower access rates.
These actions could have a significant impact on the interstate access
prices charged by the ILECs with whom the Company expects to compete.
- ACCESS CHARGES. Over the past few years, the FCC has granted ILECs
significant flexibility in pricing their interstate special and switched
access services. Under this pricing scheme, ILECs may establish pricing
zones based on access traffic density and charge different prices for
each zone. The Company anticipates that this pricing flexibility will
result in ILECs lowering their prices in high traffic density areas, the
probable area of competition with the Company. The Company also
anticipates that the FCC will grant ILECs increasing pricing flexibility
as the number of interconnections and competitors increases. On May 7,
1997, the FCC took action in its CC Docket No. 96-262 to reform the
current interstate access charge system. The FCC adopted an order that
makes various reforms to the existing rate structure for interstate
access that are designed to move access charges, over time, to more
economically efficient rate levels and structures. The following is a
nonexclusive list of actions announced by the FCC:
- SUBSCRIBER LINE CHARGE ("SLC"). The maximum permitted amount that an
ILEC may charge for SLCs on certain lines was increased. Specifically,
the ceiling was increased significantly for second and additional
residential lines, and for multi-line business customers. SLC ceiling
increases began in July 1997 and will be phased in over a two-year
period.
- PRESUBSCRIBED INTEREXCHANGE CARRIER CHARGE ("PICC"). The FCC created
a new PICC access charge rate element. The PICC is a flat-rate, per-line
charge that is recovered by LECs from IXCs. The charge is designed to
recover common line revenue not recovered through SLCs. Effective
January 1, 1998, the maximum permitted interstate PICC charge is $0.53
per month for primary residential lines and $1.50 per month for second
and additional residential lines. The initial maximum interstate PICC
for multi-line businesses are $2.75. The ceilings will be permitted to
increase over time.
- CARRIER COMMON LINE CHARGE ("CCL"). As the ceilings on the SLCs and
PICCs increase, the per-minute CCL charge will be eliminated. Until
then, the CCL will be
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assessed on originating minutes of use. Thus, ILECs will charge lower
rates for terminating than originating access. In addition, Long-term
Support ("LTS") payments for universal service will be eliminated from
the CCL charge.
- LOCAL SWITCHING. Effective January 1, 1998, ILECs subject to
price-cap regulation were required to move non-traffic-sensitive ("NTS")
costs of local switching associated with line ports to common line rate
elements and recover them through the common line charge discussed
above. Local switching costs attributable to dedicated trunk ports must
be moved to the trunking basket and recovered through flat-rate monthly
charges.
- TRANSPORT. The "unitary" rate structure option for tandem-switched
transport will be eliminated effective July 1, 1998. For price cap LECs,
additional rate structure changes became effective on January 1, 1998,
which altered the recovery of certain NTS costs of tandem- switching and
multiplexing and the minutes-of-use assumption employed to determine
tandem-switched transport prices. Also effective January 1, 1998,
certain costs currently recovered through the Transport Interconnection
Charge ("TIC") were reassigned to specified facilities charges. The
reassignment of tandem costs currently recovered through the TIC to the
tandem switching charge will be phased in evenly over a three-year
period. Residual TIC charges will be covered in part through the PICC,
and price cap reductions will be targeted at the per-minute residual TIC
until it is eliminated.
In other actions, the FCC clarified that ILECs may not assess
interstate access charges on the purchasers of unbundled network
elements or information services providers (including ISPs). Further
regulatory actions affecting ISPs are being considered in a FCC notice
of inquiry released on December 24, 1996. The FCC also decided not to
adopt any regulations governing the provision of terminating access by
CLECs. ILECs also were ordered to adjust their access charge rate levels
to reflect contributions to and receipts from the new universal service
funding mechanisms.
The FCC also announced that it will, in a subsequent Report and Order,
provide detailed rules for implementing a market-based approach to
further access charge reform. That process will give ILECs progressively
greater flexibility in setting rates as competition develops, gradually
replacing regulation with competition as the primary means of setting
prices. The FCC also adopted a "prescriptive safeguard" to bring access
rates to competitive levels in the absence of competition. For all
services then still subject to price caps and not deregulated in
response to competition, the FCC required ILECs subject to price caps to
file Total Service Long Run Incremental Cost ("TSLRIC") cost studies no
later than February 8, 2001.
This series of decisions is likely to have a significant impact on the
operations, expenses, pricing and revenue of the Company and costs
vis-a-vis larger, more efficient carriers such as AT&T, MCI and Sprint.
Various parties have sought reconsideration or appeal of the FCC's access
charge rulings and all or part of the order ultimately could be set aside
or revised. The Company cannot predict the outcome of these proceedings.
UNIVERSAL SERVICE REFORM. On May 8, 1997, the FCC released an order in its
CC Docket No. 96-45, which reforms the current system of interstate universal
service support and implements the universal service provisions of the
Telecommunications Act. The FCC established a set of policies and rules that
ensure that low-income consumers and consumers that live in rural, insular and
high-cost areas receive a defined set of local telecommunications services at
affordable rates. This is accomplished in part through expansion of direct
consumer subsidy programs and in part by ensuring that rural, small and
high-cost LECs continue to receive universal service subsidy support. The FCC
also created new programs to subsidize connection of eligible schools, libraries
and rural health care providers to telecommunications networks. These programs
will be funded by assessment of eligible revenue of nearly all providers of
interstate telecommunications carriers, including the Company.
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The Company, like other telecommunications carriers that provide interstate
telecommunications services, will be required to contribute a portion of its
end-user telecommunications revenue to fund universal service programs. These
contributions became due beginning in 1998 for all providers of interstate
telecommunications services. Such contributions are assessed based on
intrastate, interstate and international end user telecommunications revenue.
Contribution factors vary quarterly, and carriers, including the Company, are
billed each month. Contribution factors for the first three quarters of 1998
have been determined by the FCC as follows: first quarter, second quarter and
third quarter factors are 3.19%, 3.14% and 3.14%, respectively, for the high
cost and low income funds (interstate and international end user
telecommunications revenue) and 0.72%, 0.76% and 0.75%, respectively, for the
schools, libraries and rural health funds (intrastate, interstate and
international end user communications revenue). In addition, many state
regulatory agencies have instituted proceedings to revise state universal
support mechanisms to make them consistent with the requirements of the
Telecommunications Act. As a result, the Company will be subject to state, as
well as federal, universal service fund contribution requirements, which will
vary from state to state. Several parties have appealed the FCC's May 8th order,
and these appeals have been consolidated in the U.S. Court of Appeals for the
Fifth Circuit. In addition, a number of telecommunications companies have filed
a petition for a stay with the FCC, which is currently pending.
Pursuant to the Universal Service Order, all carriers were required to
submit a Universal Service Fund worksheet in September 1997. The Company has
filed its Universal Service Fund worksheet. The amounts remitted to the
Universal Service Fund may be billed to the Company's customers. If the Company
does not bill these amounts to its customers, its profit margins may be less
than if it had elected to do so. However, if the Company elects to bill these
amounts to its customers, customers may reduce their use of the Company's
services, or elect to use the services provided by the Company's competitors,
which may have a material adverse effect upon the Company's business, financial
condition, or results of operation. The Company is eligible to qualify as a
recipient of universal service support if it elects to provide facilities-based
service to areas designated for universal service support and if it complies
with federal and state regulatory requirements to be an eligible
telecommunications carrier. The FCC's decisions in CC Docket No. 96-45 could
have a significant impact on future operations of the Company. Significant
portions of the FCC's order have been appealed and are under review by the U.S.
Court of Appeals for the Fifth Circuit. The Company cannot predict the outcome
of these proceedings.
CURRENT COMPANY CERTIFICATIONS. The Company has received Section 214
authorization from the FCC allowing it to engage in business as a resale and
facilities-based international carrier.
STATE REGULATION
Most states require a certification or other authorization to offer local
exchange and long distance intrastate services. These certifications generally
require a showing that the carrier has adequate financial, managerial and
technical resources to offer the proposed services in a manner consistent with
the public interest. In addition to tariff requirements, most states require
that common carriers charge just and reasonable rates and not discriminate among
similarly situated customers. Some states also require the filing of periodic
reports, the payment of various regulatory fees and surcharges, and compliance
with service standards and consumer protection rules. States generally retain
the right to sanction a carrier or to revoke certification if a carrier violates
relevant laws and/or regulations. If any state regulatory agency were to
conclude that the Company is or was providing intrastate services without the
appropriate authority, the agency could initiate enforcement actions, which
could include the imposition of fines, a requirement to disgorge revenues, or
the refusal to grant the regulatory authority necessary for the future provision
of intrastate telecommunications services. The Company holds authority to
provide intrastate interLATA and, where authorized, intraLATA toll service in 49
states. The authority in some states may be limited to resale of long distance
service. The Company is in the process of obtaining intrastate toll authority in
Alaska. The Company has authority to provide competitive local exchange service
in
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Massachusetts, New Hampshire and Rhode Island. The Company has applications
pending to provide resold and facilities-based competitive local exchange
services in several other Northeastern and Southeastern states. There is no
industry consensus on what constitutes a "facilities-based" carrier and the FCC
and state regulatory agency definitions vary accordingly. There can be no
assurance that the Company will receive the authorizations it seeks currently or
in the future.
The FCC imposes on entities authorized to provide international
telecommunications service prior approval requirements for "transfers of
control", including pro forma transfers. The Company is also subject to
requirements in certain states to obtain prior approval for, or notify the state
commission of, any transfers of control, sales of assets, corporate
reorganizations, issuances of stock or debt instruments and related
transactions. The Company did not obtain prior approval for its July 1998
corporate reorganization to create a holding company structure whereby Network
Plus Corp. became the holding company of Network Plus, Inc. The Company is in
the process of filing the necessary papers at the FCC and relevant state
commissions seeking nunc pro tunc (retroactive) approval of the transaction on
the grounds that the transaction serves certain important business needs of the
Company and enhances the Company's ability to market and provide services more
efficiently. Although the Company believes that its applications will be
approved in due course, there can be no assurance that the FCC or state
commissions will grant the Company's requests for retroactive approval and/or
will not impose fines or license conditions, commence revocation proceedings or
otherwise exercise their authority to address violations of applicable statutes
and regulations.
The Company believes that most, if not all, states in which it proposes to
operate as a local telecommunications provider will require certification or
other authorization to offer local intrastate services. Many of the states in
which the Company intends to operate are in the process of addressing issues
relating to the regulation of CLECs.
In some states, existing state statutes, regulations or regulatory policy
may preclude some or all forms of local service competition. However, Section
253 of the Telecommunications Act prohibits states and localities from adopting
or imposing any legal requirement that may prohibit, or have the effect of
prohibiting, the ability of any entity to provide any interstate or intrastate
telecommunications service. The FCC has the authority to preempt any such state
or local requirements to the extent necessary to enforce the Telecommunications
Act's open market entry requirements. States and localities may, however,
continue to regulate the provision of intrastate telecommunications services and
require carriers to obtain certificates or licenses before providing service if
such requirements do not constitute prohibited barriers to market entry.
Some states in which the Company operates are considering legislation that
could impede efforts by new entrants in the local services market to compete
effectively with ILECs. For example, some state public utility commissions
("PUCs") are currently considering actions to preserve universal service and
promote the public interest. The actions may impose conditions on the
certificate issued to an operating company that would require it to offer
service on a geographically widespread basis through (i) the construction of
facilities to serve all residents and business customers in such areas, (ii) the
acquisition from other carriers of network facilities required to provide such
service, or (iii) the resale of other carriers' services. The Company believes
that state PUCs have limited authority to impose such requirements under the
Telecommunications Act. The imposition of such conditions by state PUCs,
however, could increase the cost to operating companies of providing local
exchange services, or could otherwise affect the operating companies'
flexibility to offer services. Another state action that impedes efforts by new
entrants to compete in the local exchange services market is the enactment of
state laws that prohibit competition in certain areas of a state. For example,
Section 65-4-201(d) of the Tennessee Code prohibits local exchange
telecommunications competition in areas of Tennessee served by carriers with
fewer than 100,000 access lines within the state. Other states have or may enact
similar provisions; however, to date the FCC has considered Texas and Wyoming
statutory provisions that are virtually identical to the
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Tennessee statute, and has preempted both statutes as violative of sec.253(a) of
the Telecommunications Act. A petition for preemption of the Tennessee statute
has been filed at the FCC.
The Company believes that, as the degree of intrastate competition
increases, the states will offer the ILECs increasing pricing flexibility. This
flexibility may present the ILECs with an opportunity to subsidize services that
compete with the Company's services with revenue generated from non-competitive
services, thereby allowing ILECs to offer competitive services at prices below
the cost of providing the service. The Company cannot predict the extent to
which this may occur or its impact on the Company's business.
LOCAL INTERCONNECTION. The Telecommunications Act imposes a duty upon all
ILECs to negotiate in good faith with potential interconnectors to provide
interconnection to the ILEC networks, exchange local traffic, make unbundled
network elements available and permit resale of most local services. In the
event that negotiations do not succeed, the Company has a right to seek state
PUC arbitration of any unresolved issues. The Company entered into an
interconnection agreement with Bell Atlantic for Massachusetts and is
negotiating interconnection arrangements in a number of states in its targeted
regions. Arbitration decisions involving interconnection arrangements in several
states have been challenged in lawsuits filed in U.S. District Court by the
affected ILECs.
The Company is currently negotiating interconnection agreements with (i)
Bell Atlantic or its affiliates in New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island, Vermont and Maine; (ii) Southern New England
Telephone or its affiliates in Connecticut; (iii) Bell South or its affiliates
in Georgia, Florida and Tennessee; (iv) GTE or its affiliates in Florida; and
(v) Sprint or its local affiliates in Florida. It is the Company's intention
that by December 31, 1998 it will have successfully negotiated, and have in
effect, interconnection agreements in each of the aforementioned jurisdictions
specifically covering the following elements: (a) reciprocal transport and
termination of local traffic (and related compensation issues); (b) access to
unbundled network elements, including local loops and operations support
systems; (c) resale of local exchange services at wholesale rates (where it does
not currently have such an agreement in place); and (d) local number
portability. The Company may experience difficulty in obtaining timely ILEC
implementation of local interconnection agreements, and there can be no
assurance the Company will offer local services in these areas in accordance
with its projected schedule, if at all. See "Risk Factors -- Lack of
Interconnection and Peering Agreements".
LOCAL GOVERNMENT AUTHORIZATIONS. If the Company constructs local networks,
it will be required to obtain street use and construction permits and licenses
and/or franchises to install and expand its fiber optic networks using municipal
rights-of-way. In some municipalities the Company may be required to pay license
or franchise fees based on a percentage of gross revenue or on a per linear foot
basis, as well as post performance bonds or letters of credit. There can be no
assurance that the Company will not be required to post bonds in the future. In
many markets, the ILECs do not pay such franchise fees or pay fees that are
substantially less than those that will be required to be paid by the Company.
To the extent that competitors do not pay the same level of fees as the Company,
the Company could be at a competitive disadvantage. However, the
Telecommunications Act provides that any compensation extracted by states and
localities for use of public rights-of-way must be "fair and reasonable",
applied on a "competitively neutral and nondiscriminatory basis" and be
"publicly disclosed" by such government entity. See "Risk Factors -- The
Telecommunications Act and Other Regulation".
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides certain information regarding the executive
officers and directors of the Company, including their ages as of August 15,
1998.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Robert T. Hale............................. 60 Chairman of the Board of Directors
Robert T. Hale, Jr......................... 32 Chief Executive Officer, President and
Director
James J. Crowley........................... 34 Executive Vice President, Chief Operating
Officer, Secretary and Director
David Martin............................... 59 Director
Joseph C. McNay............................ 64 Director
Michael F. Oyster.......................... 42 President of the Local Services Division
Joseph Haines.............................. 36 Vice President of Local Operations
Steven L. Shapiro.......................... 40 Vice President of Finance, Chief Financial
Officer and Treasurer
Steven J. Stanfill......................... 45 Vice President of Network Services
Kevin B. McConnaughey...................... 40 Vice President and General Manager of
International Services
</TABLE>
- ---------------
ROBERT T. HALE is a co-founder of the Company and has served as Chairman of
the Board since its inception in 1990. Mr. Hale is a founding member of the
Telecommunications Resellers Association and has served as chairman of its
Carrier Committee since 1993 and served as chairman of its board from May 1995
to May 1997. Mr. Hale was president of Hampshire Imports, the original importer
of Laura Ashley Womenswear to the U.S. and a manufacturer of exclusive women's
apparel, from 1968 to 1992.
ROBERT T. HALE, JR., is a co-founder of the Company and has served as Chief
Executive Officer, President and Director since its inception in 1990. He was
employed by U.S. Telecenters, a sales agent for NYNEX Corporation, from 1989 to
1990, and as a sales representative at MCI from 1988 to 1989.
JAMES J. CROWLEY has served as Executive Vice President since 1994 and
became Chief Operating Officer and a Director in 1998. He was an attorney at
Hale and Dorr LLP, a Boston law firm, from 1992 to 1994.
DAVID MARTIN has served as a Director of the Company since September 1998.
Mr. Martin was employed by Texas Instruments Inc. from 1960 until June 1998,
most recently as Executive Vice President. Mr. Martin is a member of the Board
of Directors of Mathsoft Inc.
JOSEPH C. MCNAY has served as a Director of the Company since September
1998. Mr. McNay serves as Chairman and Chief Investment Officer of Essex
Investment Management Company, LLC, a private investment management company
founded by Mr. McNay in 1976. Previously he served as Executive Vice President
and Director of Endowment Management & Research Corp. Mr. McNay serves as
Trustee of University Hospital, Boston, Trustee of Simmons College, Trustee of
the Dana Farber Cancer Institute, and Chairman and Trustee of Children's
Hospital, Boston.
MICHAEL F. OYSTER was named President of the Local Services Division in
July 1998. Mr. Oyster served as Regional Vice President and General Manager, and
in other capacities, at Teleport Communications Group from August 1997 to July
1998. Mr. Oyster served in various capacities at AT&T from 1977 to 1997.
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JOSEPH HAINES was named Vice President of Local Operations in July 1998.
From 1992 to 1998, Mr. Haines held various positions with Teleport
Communications Group, most recently as its Regional Vice President of
Operations.
STEVEN L. SHAPIRO has served as Vice President of Finance, Chief Financial
Officer and Treasurer since July 1997. He served as Vice President and
Controller of Grossman's Inc., a publicly held retailer of building materials,
from 1993 to 1997, and as its Assistant Controller from 1986 to 1993. Mr.
Shapiro served as a certified public accountant with Arthur Andersen & Co. from
1979 to 1986.
STEVEN J. STANFILL has served as Vice President of Network Services since
1994. He served as Vice President of Network Operations at Ascom Communications,
a telecommunication services provider, from 1989 to 1994. From 1983 to 1989, Mr.
Stanfill served in various management capacities at National Applied Computer
Technologies, a telecommunications switching equipment manufacturer.
KEVIN B. MCCONNAUGHEY has served as Vice President and General Manager of
International Services since March 1997. From 1995 to 1997, he was Associate
Vice President of Business Development for Teleglobe International. From 1990 to
1995, Mr. McConnaughey was employed by Sprint International, where he held a
variety of product management, international carrier relations and marketing
positions.
Each director serves until his or her successor is duly elected and
qualified. Officers serve at the discretion of the Board of Directors. Robert T.
Hale, Jr. is the son of Robert T. Hale. There are no other family relationships
among the Company's executive officers and directors. No executive officer of
the Company is a party to an employment agreement with the Company.
COMPENSATION OF DIRECTORS
In July 1998, the Company adopted the 1998 Director Stock Option Plan (the
"Director Plan"). Under the terms of the Director Plan, options to purchase
5,000 shares of Common Stock will be granted to each new non-employee director
upon his or her initial election to the Board of Directors. Annual options to
purchase 2,500 shares of Common Stock will also be granted to each non-employee
director on the date of each annual meeting of stockholders, or on August 1 of
each year if no annual meeting is held by such date. Options granted under the
Director Plan will vest in four equal annual installments beginning on the first
anniversary of the date of grant. The exercisability of these options will be
accelerated upon the occurrence of an Acquisition Event (as defined in the
Director Plan). The exercise price of options granted under the Director Plan is
equal to the fair market value of the Common Stock on the date of grant. A total
of 100,000 shares of Common Stock may be issued upon the exercise of stock
options granted under the Director Plan. In addition, Directors are reimbursed
for out-of-pocket expenses incurred as a result of their service as Directors.
Pursuant to the Director Plan, on September 3, 1998 Messrs. Martin and McNay
each received an option to purchase 5,000 shares of Common Stock at an exercise
price of $15.00 per share.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the cash and
non-cash compensation during fiscal year 1997 earned by or awarded to the Chief
Executive Officer, the four other most highly compensated executive officers of
the Company whose combined salary and bonus exceeded $100,000 during the fiscal
year ended December 31, 1997, and the Chief Financial Officer of the Company
(the "Named Executive Officers").
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<PAGE> 92
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND TITLE YEAR SALARY BONUS(1)
- -------------- ---- -------- --------
<S> <C> <C> <C>
Robert T. Hale, Jr.......................................... 1997 $355,431(2) $2,770
Chief Executive Officer and President
Robert T. Hale.............................................. 1997 220,692(3) 2,725
Chairman of the Board of Directors
James J. Crowley............................................ 1997 160,000 4,353
Executive Vice President and Chief Operating Officer
Steven J. Stanfill.......................................... 1997 121,615 2,888
Vice President of Network Services
Kevin B. McConnaughey(4).................................... 1997 100,961 --
Vice President and General Manager
of International Services
Steven L. Shapiro (5)....................................... 1997 70,096 --
Vice President of Finance, Chief
Financial Officer and Treasurer
</TABLE>
- ---------------
(1) Includes the cash value of travel awarded as bonuses.
(2) Includes sales commissions of $49,662. Robert T. Hale, Jr.'s annual base
salary (excluding sales commissions) was reduced to $285,000 effective
August 17, 1998.
(3) Robert T. Hale's annual base salary was reduced to $195,000 effective
December 23, 1997.
(4) Commenced employment with the Company on March 17, 1997.
(5) Commenced employment with the Company on July 1, 1997.
EMPLOYEE BENEFIT PLANS
1998 STOCK INCENTIVE PLAN
The Company's 1998 Stock Incentive Plan (the "1998 Incentive Plan") was
adopted by the Company in July 1998. The 1998 Incentive Plan provides for the
grant of stock-based awards to employees, officers and directors of, and
consultants or advisors to, the Company. Under the 1998 Incentive Plan, the
Company may grant options that are intended to qualify as incentive stock
options ("incentive stock options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), options not intended to
qualify as incentive stock options ("nonqualified options"), restricted stock
and other stock-based awards. Incentive stock options may be granted only to
employees of the Company. A total of 1,400,000 shares of Common Stock may be
issued upon the exercise of options or other awards granted under the 1998
Incentive Plan. The number of shares with respect to which awards may be granted
to any employee under the 1998 Incentive Plan may not exceed 700,000 during any
calendar year. The exercisability of options or other awards granted under the
1998 Incentive Plan may in certain circumstances be accelerated in connection
with an Acquisition Event (as defined in the 1998 Incentive Plan). Options and
other awards may be granted under the 1998 Incentive Plan at exercise prices
that are equal to, less than or greater than the fair market value of the
Company's Common Stock, and the Board generally retains the right to reprice
outstanding options. The 1998 Incentive Plan expires in June 2008, unless sooner
terminated by the Board. As of July 15, 1998, the Company had granted options to
purchase an aggregate of 741,140 shares of Common Stock under the 1998 Incentive
Plan, including an option to purchase 120,000 shares to Mr. Crowley, an option
to purchase 23,334 shares to Mr. Stanfill, an option to purchase 14,620 shares
to Mr. McConnaughey, an option to purchase 10,045 shares to Mr. Shapiro, an
option to purchase 40,000 shares to Mr. Oyster and an option to purchase 40,000
shares to Mr. Haines. The remainder of the options were granted to approximately
190 employees of, and one consultant to, the Company. These options generally
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<PAGE> 93
become exercisable in four equal annual installments beginning on the first
anniversary of the date of grant, subject in certain cases to accelerated
vesting in connection with an Acquisition Event.
401(k) PLAN
Effective January 1, 1995, the Company adopted the Employee 401(k) and
Profit Sharing Plan (the "401(k) Plan") covering the Company's eligible
employees. Pursuant to the 401(k) Plan, employees may elect to reduce their
current compensation by up to the lesser of 15% of eligible compensation or the
statutorily prescribed annual limit ($10,000 in 1998) and have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does
not require, additional contributions to the 401(k) Plan by the Company on
behalf of all participants. The Company contributed $175,000 to the 401(k) Plan
in 1995. No additional contributions have been made by the Company. The 401(k)
Plan is intended to qualify under Section 401 of the Code, so that contributions
by employees or by the Company to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn, and contributions
by the Company, if any, are deductible by the Company when made.
CERTAIN TRANSACTIONS
The Company's office space in Quincy, Massachusetts is leased from a trust,
the beneficiaries of which are the stockholders of the Company. The Company
makes monthly rental payments to the trust of $35,900. In each of the years
ending December 31, 1997, 1996 and 1995, the amount paid to the trust was
$431,000. The Company is currently in the process of negotiating an increase in
the rental payments under this lease and expects that, following such increase,
the lease will be on terms no less favorable to the Company than could be
obtained in an arms' length transaction. The Company is also contingently liable
as a guarantor on a bank loan made to the trust. The outstanding balance on the
loan at December 31, 1997 and 1996 was approximately $1.5 million. In addition,
the trust is a guarantor on the Existing Bank Credit Facility. See "Description
of Certain Indebtedness".
On September 2, 1998, the Company paid a dividend in the aggregate amount
of $5.0 million. As a result, $2.5 million was distributed to each of Robert T.
Hale and Robert T. Hale, Jr. Robert T. Hale, Jr., reinvested $1.9 million in the
Company (representing approximately the distribution to him, net of his
estimated tax liability resulting from such dividend) in the form of a long-term
loan to the Company. Interest on such loan will accrue at Fleet's prime rate.
Principal and interest on such loan will be payable 10 days after the redemption
of the Series A Preferred Stock.
In December 1997, the Company's stockholders issued the Company loans
totaling $1,755,000. Interest on the loans accrued at the prevailing prime rate
(8.5% at December 31, 1997) and was payable monthly. There was no required
period for principal repayment. The loans, including accrued interest of
$12,017, were repaid in May 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The Company had a service arrangement with a marketing company, the
controlling stockholders of which include the Company's stockholders. The
marketing company provided services relative to establishing, training and
expanding the Company's sales organization. For the years ending December 31,
1997, 1996 and 1995, the amounts paid to the marketing company were $55,000,
$132,000 and $197,000, respectively. This service arrangement was terminated in
May 1997.
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<PAGE> 94
STOCK OWNERSHIP
The following table sets forth as of September 15, 1998 the number of
shares of Common Stock and the percentage of the outstanding shares of such
class that are beneficially owned by (i) each person that is the beneficial
owner of more than 5% of the outstanding shares of Common Stock, (ii) each of
the directors and Named Executive Officers of the Company and (iii) all of the
current directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
- ------------------------------------ --------- ----------
<S> <C> <C>
5% STOCKHOLDERS
Robert T. Hale.............................................. 5,000,000 50%
c/o Network Plus, Inc.
234 Copeland Street
Quincy, Massachusetts 02169
Robert T. Hale, Jr.......................................... 5,000,000 50%
c/o Network Plus, Inc.
234 Copeland Street
Quincy, Massachusetts 02169
OTHER DIRECTORS
James J. Crowley............................................ 0 --
David Martin................................................ 0 --
Joseph C. McNay............................................. 0 --
OTHER NAMED EXECUTIVE OFFICERS
Steven L. Shapiro........................................... 0 --
Kevin B. McConnaughey....................................... 0 --
Steven J. Stanfill.......................................... 0 --
All directors and executive officers as a group (10
persons).................................................. 10,000,000 100%
</TABLE>
- ---------------
(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed. Excludes options that vest subsequent to November 14,
1998.
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<PAGE> 95
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation (the "Charter") authorizes (i)
20,000,000 shares of Common Stock, $.01 par value, and (ii) 1,000,000 shares of
Preferred Stock, $.01 par value, of which 50,000 shares have been designated
13.5% Series A Cumulative Preferred Stock due 2009 and 50,000 shares have been
designated 13.5% Series A1 Cumulative Preferred Stock due 2009. Set forth below
and under "Description of the Series A Preferred Stock" is a description of the
capital stock of the Company.
COMMON STOCK
As of July 15, 1998, there were 10,000,000 shares of Common Stock issued
and outstanding and held of record by two stockholders. The holders of Common
Stock are entitled to receive dividends when and as dividends are declared by
the Board of Directors of the Company out of funds legally available therefor,
provided that if any shares of Preferred Stock are at the time outstanding, the
payment of dividends on the Common Stock or other distributions may be subject
to the declaration and payment of full cumulative dividends on outstanding
shares of Preferred Stock. Holders of Common Stock are entitled to one vote per
share on all matters submitted to a vote of the stockholders, including the
election of directors. Upon any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, any assets remaining
after the satisfaction in full of the prior rights of creditors and the
aggregate liquidation preference of any Preferred Stock (including the Series A
Preferred Stock) then outstanding will be distributed to the holders of Common
Stock ratably in proportion to the number of shares held by them. The Common
Stock is not publicly traded. See "Risk Factors -- Control by Existing
Stockholders; Potential Conflict of Interest; Deadlock; Antitakeover
Provisions".
PREFERRED STOCK
Under the Charter, the Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock from time to time in one or more series with
such preferences, terms and rights as the Board of Directors may determine
without further action by the stockholders of the Company. Accordingly, the
Board of Directors has the power to establish the provisions, if any, relating
to dividends, voting rights, redemption rates, sinking funds, liquidation
preferences and conversion rights for any series of Preferred Stock issued in
the future. For a description of the Series A Preferred Stock, see "Description
of the Series A Preferred Stock". No other shares of preferred stock have been
issued or are outstanding.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
LIMITATION OF LIABILITY OF DIRECTORS
The Company's Charter eliminates the personal liability of the Company's
directors to the Company or its stockholders for monetary damages for breach of
a director's fiduciary duty to the full extent permitted by the Delaware General
Corporation Law (the "DGCL").
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<PAGE> 96
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter provides that the directors and officers of the Company shall
be indemnified by the Company to the fullest extent authorized by Delaware law,
as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the Charter, 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 addition, the Charter
of the Company provides that the directors of the Company will not be personally
liable for monetary damages to the Company for breaches of their fiduciary duty
as directors if they act in good faith and in a manner they reasonably believe
to be in, or not opposed to, the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful.
The Company has purchased a general liability insurance policy that covers
certain liabilities of directors and officers of the Company arising out of
claims based on acts and omissions in their capacity as directors and officers.
CERTAIN CHARTER AND BY-LAW PROVISIONS
In the event the Company's Common Stock becomes or may become widely held,
the Board of Directors or the stockholders may adopt certain charter or by-law
provisions that have the effect of discouraging, delaying or making more
difficult a change in control of the Company or preventing the removal of
incumbent directors even if a majority of the Company's stockholders were to
deem such an attempt to be in the best interests of the Company. Such provisions
may include a classified board of directors, limitations in the manner in which
directors are elected and limitations on matters that may be presented at
meetings by stockholders.
DESCRIPTION OF CERTAIN INDEBTEDNESS
EXISTING BANK CREDIT FACILITY
The Existing Bank Credit Facility with Fleet provides NPI the ability to
borrow amounts up to $23 million from time to time prior to May 31, 2001. The
Existing Bank Credit Facility is secured by the assets of NPI and includes
certain restrictive covenants, including limitations on the ability of NPI to
incur additional indebtedness, to make loans and advances and to merge or
consolidate. The Existing Bank Credit Facility prohibits the payment by NPI of
dividends to its stockholders other than dividends in amounts necessary to pay
income taxes and related tax preparation costs of the Company's stockholders as
a result of the Company's status as an "S" corporation. The Existing Bank Credit
Facility also contains financial covenants, including minimum gross profits,
operating profits and losses, and minimum capitalization. At July 15, 1998,
there was $2.8 million of outstanding indebtedness under the Existing Bank
Credit Facility. See "Risk Factors -- Holding Company Structure".
STOCKHOLDER LOAN
On September 2, 1998, Robert T. Hale, Jr., the Company's President and
Chief Executive Officer, loaned $1.9 million to the Company. This amount
represents a reinvestment in the Company of a $2.5 million dividend distribution
to Robert T. Hale, Jr., net of the estimated tax liability related to such
distribution. Interest on such loan accrues at Fleet's prime rate. Principal and
interest on such loan will be payable 10 days after redemption of the Series A
Preferred Stock. See "Certain Transactions".
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<PAGE> 97
NEW REVOLVING CREDIT FACILITY
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to definitive documentation setting forth
the principal terms and conditions of the New Revolving Credit Facility, which
is available upon request from the Company. See "Risk Factors -- Substantial
Future Capital Requirements; Need for Additional Financing; Substantial
Leverage".
On August 14, 1998, the Company entered into a commitment letter with
Goldman Sachs Credit Partners L.P. for the New Revolving Credit Facility. The
New Revolving Credit Facility is a $60 million facility, concurrent with the
closing of which the Company expects to terminate the Existing Bank Credit
Facility. The New Revolving Credit Facility will have a term of 18 months and
will be secured by the assets of the Company. Under the New Revolving Credit
Facility, up to $60 million will be available, of which $30 million will be
available based upon a percentage of accounts receivable. Interest will be
payable at one percent above the prime rate. The New Revolving Credit Facility
will require the Company to meet, among other things, minimum levels of
revenues, access lines in service and EBITDA. See "Description of Certain
Indebtedness -- New Revolving Credit Facility".
It is contemplated that proceeds from borrowings under the New Credit
Facility will be used to repay and retire the Existing Bank Credit Facility. See
"Management's Discussion and Analysis of Results of Operations -- Liquidity and
Capital Resources".
DESCRIPTION OF THE SERIES A PREFERRED STOCK
The following is a summary of certain provisions of the Certificate of
Designation and the Series A Preferred Stock. A copy of the Certificate of
Designation and the form of Series A Preferred Stock is available upon request
to the Company at the address set forth under "Available Information". The
following summary of certain provisions of the Certificate of Designation does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Certificate of Designation. The
definitions of certain capitalized terms used but not defined in the following
summary are set forth under "-- Certain Definitions". Other capitalized terms
used but not defined herein and not otherwise defined under "-- Certain
Definitions" are defined in the Certificate of Designation.
GENERAL
At the consummation of the Initial Offering, the Company issued 40,000
shares of its 13.5% Series A Cumulative Preferred Stock Due 2009, $0.01 par
value per share. In this Exchange Offer, the Company will offer to exchange one
share of its 13.5% Series A1 Cumulative Preferred Stock Due 2009 for each
outstanding share of its 13.5% Series A Cumulative Preferred Stock Due 2009. The
13.5% Series A Cumulative Preferred Stock Due 2009 and the 13.5% Series A1
Cumulative Preferred Stock Due 2009 are substantially identical in all material
respects (except with respect to certain rights in connection with this Exchange
Offer), and, unless otherwise indicated, both are referred to in this Prospectus
as the "Series A Preferred Stock".
RANKING
The Series A Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding-up and dissolution, rank (i) senior to all
classes of common stock and to each other class of Capital Stock of the Company
or series of Preferred Stock of the Company outstanding on the Issue Date and
each other class or series established hereafter by the Board of Directors the
terms of which do not expressly provide that it ranks senior to, or on a parity
with, the Series A Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred
to, together with all classes of common stock of the Company, as "Junior
Stock"); (ii) on a parity with each class of Capital Stock of the Company or
series of Preferred Stock of the Company established hereafter by the Board of
Directors, the terms of which expressly provide that such class or series will
rank on a parity with the Series A Preferred Stock as to
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<PAGE> 98
dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "Parity Stock"); and (iii) junior to each class of
Capital Stock of the Company or series of Preferred Stock of the Company
established hereafter by the Board of Directors, the terms of which expressly
provide that such class or series will rank senior to the Series A Preferred
Stock as to dividend rights and rights upon liquidation, winding-up and
dissolution of the Company (collectively referred to as "Senior Stock").
While any shares of Series A Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks senior to or on parity with the Series A Preferred
Stock with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up without the consent of the holders of a majority of
the outstanding shares of Series A Preferred Stock. However, without the consent
of any holder of Series A Preferred Stock, the Company may create additional
classes of stock, increase the authorized number of shares of preferred stock or
issue series of a stock that ranks junior to the Series A Preferred Stock with
respect, in each case, to the payment of dividends and amounts upon liquidation,
dissolution and winding up. See "-- Voting Rights".
All claims of the holders of the Series A Preferred Stock, including
without limitation, claims with respect to dividend payments, redemption
payments, mandatory repurchase payments or rights upon liquidation, winding-up
or dissolution, shall rank junior to the claims of any holders of any debt of
the Company and its Subsidiary and all other creditors of the Company and its
Subsidiary. Substantially all the operations of the Company is conducted through
its Subsidiary and in future will be conducted through one or more of its
subsidiaries. Accordingly, the Company is and will be a holding company with no
assets other than the capital stock of such 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 the Company. Although the Certificate of Designation limits the
incurrence of Debt of the Company and certain of its subsidiaries, such
limitation is subject to a number of significant qualifications. Moreover, the
Certificate of Designation does not impose any limitation on the incurrence of
liabilities that are not considered Debt under the Certificate of Designation.
See "-- Certain Covenants -- Limitation on Debt".
DIVIDENDS
The holders of shares of Series A Preferred Stock will be entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Company legally available therefor, cumulative preferential
dividends from the Issue Date at a rate per share of 13.5% per annum of the
Specified Amount per share of Series A Preferred Stock, payable quarterly in
arrears on each of March 1, June 1, September 1 and December 1 (each a "Dividend
Payment Date") or, if any such date is not a Business Day, on the next
succeeding Business Day, to the holders of record as of the next preceding
February 15, May 15, August 15 and November 15, respectively. Subject to the
next succeeding sentence, dividends will be payable in cash. If any dividend
(other than any Special Dividends) payable on any Dividend Payment Date on or
before September 1, 2003 is not declared or paid in full in cash on such
Dividend Payment Date, the amount payable as dividends on such Dividend Payment
Date (other than any Special Dividends) that is not paid in cash on such
Dividend Payment Date will be added automatically to the Specified Amount of the
Series A Preferred Stock on such Dividend Payment Date (such dividends being
herein called the "Accumulated Dividends"). The first dividend payment of Series
A Preferred Stock will be payable on December 1, 1998. Dividends payable on the
Series A Preferred Stock will be computed on a basis of the 360-day year
consisting of twelve 30-day months and will be deemed to accrue on a daily
basis.
For a discussion of certain Federal income tax considerations relevant to
the payment of dividends on the Series A Preferred Stock, see "Certain United
States Federal Income Tax Consequences".
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<PAGE> 99
Dividends on the Series A Preferred Stock will accrue whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Certificate of
Designation will provide that the Company will take all actions required or
permitted under the Delaware General Corporation Law (the "DGCL") to permit the
payment of dividends on the Series A Preferred Stock.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Series A
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been added to the Specified Amount (if on or
before September 1, 2003), declared and paid, or declared and a sufficient sum
set apart for the payment of such dividend, upon all outstanding shares of
Series A Preferred Stock.
Except as provided in the next sentence, no dividend will be declared or
paid on any Parity Stock unless full cumulative dividends have been paid (or
deemed paid) on the Series A Preferred Stock for all prior dividend periods. If
accumulated dividends on the Series A Preferred Stock for all prior dividend
periods have not been paid (or deemed paid) in full then any dividend declared
on the Series A Preferred Stock for any dividend period and on any Parity Stock
will be declared ratably in proportion to accrued and unpaid dividends on the
Series A Preferred Stock and such Parity Stock.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock or (ii)
redeem, purchase or otherwise acquire for consideration any Junior Stock through
a sinking fund or otherwise, unless (A) all accrued and unpaid dividends with
respect to the Series A Preferred Stock and any Parity Stock at the time such
dividends are payable have been paid (or deemed paid) or funds have been set
apart for payment of such dividends and (B) sufficient funds have been paid or
set apart for the payment of the dividend for the current dividend period with
respect to the Series A Preferred Stock and any Parity Stock.
The Existing Bank Credit Facility prohibits the Company's Subsidiary from
paying cash dividends or making other distributions to the Company so that
unless and until a consent is obtained or such facility is refinanced by a
lender agreeing to such payments or distributions, no cash will be available to
pay dividends on the Series A Preferred Stock. See "Risk Factors -- Holding
Company Structure".
OPTIONAL REDEMPTION
Except as set forth below, the Series A Preferred Stock will not be
redeemable at the option of the Company prior to September 1, 2003. Thereafter,
the Series A Preferred Stock will be redeemable, at the Company's option
(subject to the legal availability of funds therefor), in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of the Specified
Amount thereof), plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends (including Special Dividends and an amount in
cash equal to a prorated dividend for any partial dividend period) (subject to
the rights of holders of record on the relevant record date to receive dividends
due on the relevant Dividend Payment Date), if redeemed during the 12-month
period commencing on September 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2003....................................................... 106.500%
2004....................................................... 104.333%
2005....................................................... 102.167%
2006 and thereafter........................................ 100.000%
</TABLE>
In the case of any partial redemption, selection of the Series A Preferred
Stock for redemption will be made on a pro rata basis.
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<PAGE> 100
MANDATORY REDEMPTION
As soon as practicable following the closing of a Senior Notes Offering the
net proceeds of which (excluding underwriting or other placement fees and
proceeds placed in escrow at the closing thereof pursuant to the terms of such
offering) received by the Company exceed $100 million, the Company will be
required to redeem (subject to the legal availability of funds therefor) all
outstanding shares of Series A Preferred Stock at a price in cash equal to 108%
of the Specified Amount thereof, plus, without duplication, an amount in cash
equal to all accumulated and unpaid dividends (including Special Dividends and
an amount in cash equal to a prorated dividend for any partial dividend period),
if any, to the date of redemption (subject to the rights of holders of record on
the relevant record date to receive dividends on the relevant Dividend Payment
Date).
In addition, if at any time and from time to time prior to September 1,
2001, the Company consummates one or more Public Equity Offerings, the Company
will be required to apply the first $25 million of net proceeds (excluding
underwriting or other placement fees and calculated on a cumulative basis
beginning with the first such Public Equity Offering) from such Public Equity
Offering or Offerings and one-half of each additional dollar of net proceeds
(excluding underwriting or other placement fees and calculated on a cumulative
basis beginning with the first such Public Equity Offering) in excess of $25
million to redeem the Series A Preferred Stock, at the following redemption
prices (expressed in percentages of the Specified Amount thereof), plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
(including Special Dividends and an amount in cash equal to a prorated dividend
for any partial dividend period), if any, to the date of redemption (subject to
the rights of holders of record on the relevant record date to receive dividends
due on the relevant Dividend Payment Date), if redeemed during the period ending
on the dates set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
June 1, 1999............................................... 102.000%
September 1, 1999.......................................... 104.000%
September 1, 2000.......................................... 106.000%
September 1, 2001.......................................... 108.000%
</TABLE>
In the case of any partial redemption, selection of the Series A Preferred
Stock for redemption will be made on a pro rata basis.
The Company will not be required to make sinking fund payments with respect
to the Series A Preferred Stock. The Certificate of Designation will provide
that the Company will take all actions required or permitted under Delaware law
to permit such redemption.
The Existing Bank Credit Facility prohibits the Company's Subsidiary from
paying cash dividends or making other distributions to the Company. See "Risk
Factors -- Holding Company Structure".
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, each holder of Series A Preferred Stock will be entitled to be
paid, out of the assets of the Company available for distribution to
stockholders, an amount equal to the Specified Amount per share of Series A
Preferred Stock held by such holder, plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding-up before any distribution is made on any
Junior Stock, including the Common Stock. If, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the amounts payable with
respect to the Series A Preferred Stock and all other Parity Stock are not paid
in full, the holders of the Series A Preferred Stock and the Parity Stock will
share equally and ratably in any distribution of assets of the Company in
proportion to the full liquidation preference and
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accumulated and unpaid dividends to which each is entitled. After payment of the
full amount of the liquidation preference and accumulated and unpaid dividends
to which they are entitled, the holders of shares of Series A Preferred Stock
will not be entitled to any further participation in any distribution of assets
of the Company. However, neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all the property or assets of the Company nor the consolidation or
merger of the Company with one or more entities shall be deemed to be a
liquidation, dissolution or winding-up of the Company. The liquidation
preference of the Series A Preferred Stock will be $1,000 per share.
The Certificate of Designation will not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Series A
Preferred Stock, although such liquidation preference will be substantially in
excess of the par value of such shares of Series A Preferred Stock.
VOTING RIGHTS
The holders of Series A Preferred Stock, except as otherwise required under
Delaware law or as provided in the Certificate of Designation, shall not be
entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Company.
The Certificate of Designation will provide that if (i) after September 1,
2003, dividends on the Series A Preferred Stock are in arrears and unpaid for
six or more dividend periods (whether or not consecutive); (ii) the Company
fails to redeem the Series A Preferred Stock on September 1, 2009, or fails to
otherwise discharge any redemption obligation with respect to the Series A
Preferred Stock; (iii) the Company fails to make an Offer to Purchase if such
offer is required by the provisions of the covenant described under "-- Certain
Covenants -- Change of Control", (iv) a breach or violation of any of the other
provisions described under the caption "-- Certain Covenants" occurs and the
breach or violation continues for a period of 60 days or more after the Company
receives notice thereof specifying the default from the holders of at least 25%
of the shares of Series A Preferred Stock then outstanding; or (v) the Company
fails to pay at final maturity (giving effect to any applicable grace period)
the principal amount of any Debt of the Company or any Significant Subsidiary or
the final maturity of any such Debt is accelerated because of a default and the
total amount of such Debt unpaid or accelerated exceeds $10 million and such
nonpayment continues, or such acceleration is not rescinded or waived, within 10
days, then the holders of the outstanding shares of Series A Preferred Stock,
voting together as a single class, will be entitled to elect to serve on the
Board of Directors the lesser of (x) two additional members to the Board of
Directors or (y) that number of directors constituting 25% of the members of the
Board of Directors, and the number of members of the Board of Directors will be
immediately and automatically increased by such number. Such voting rights of
the Series A Preferred Stock will continue until such time as, in the case of a
dividend default, all dividends in arrears on the Series A Preferred Stock are
paid in full in cash (or, if prior to September 1, 2003, in shares of Series A
Preferred Stock) and, in all other cases, any failure, breach or default giving
rise to such voting rights is remedied or waived by the holders of a majority of
the shares of Series A Preferred Stock then outstanding, at which time the term
of any directors elected pursuant to the provisions of this paragraph (subject
to the right of holders of any other preferred stock to elect such directors)
shall terminate. Each such event described in clauses (i) through (v) above is
referred to herein as a "Voting Rights Triggering Event".
The Certificate of Designation also will provide that the Company will not
authorize any class of Senior Stock without the affirmative vote or consent of
holders of a majority of the shares of Series A Preferred Stock then
outstanding, voting or consenting, as the case may be, as one class. In
addition, the Certificate of Designation will provide that the Company may not
authorize the issuance of any additional shares of Series A Preferred Stock
without the affirmative vote or consent of the holders of a majority of the then
outstanding shares of Series A Preferred Stock, voting or consenting, as the
case may be, as one class. The Certificate of Designation will also provide
that,
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except as set forth above, (a) the creation, authorization or issuance of any
shares of Junior Stock or Parity Stock, including the designation of a series
thereof within the existing class of Series A Preferred Stock, or (b) the
increase or decrease in the amount of authorized Capital Stock of any class,
including any preferred stock, shall not require the consent of the holders of
Series A Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of shares of Series A Preferred Stock.
REGISTRATION COVENANT; EXCHANGE OFFER
The Company has agreed pursuant to the Registration Agreement, for the
benefit of the Holders of the Series A Preferred Stock, (i) to file with the
Commission, within 90 days following the closing of the Initial Offering (the
"Closing"), a registration statement (the "Exchange Offer Registration
Statement") with respect to the Exchange Offer and (ii) to use its reasonable
best efforts to cause the Exchange Offer Registration Statement to become
effective as soon as practicable thereafter. The Company has further agreed to
commence the Exchange Offer promptly after the Exchange Offer Registration
Statement has become effective, hold the offer open for at least 30 days, and
exchange New Preferred Shares for all Original Preferred Shares validly tendered
and not withdrawn before the expiration of the Exchange Offer. The New Preferred
Shares are being offered in this Exchange Offer to satisfy the obligations of
the Company under the Registration Agreement.
Under existing Commission interpretations, the New Preferred Shares would
in general be freely transferable after the Exchange Offer without further
registration under the Securities Act, except that broker-dealers
("Participating Broker-Dealers") receiving New Preferred Shares in the Exchange
Offer will be subject to a prospectus delivery requirement with respect to
resale of those New Preferred Shares. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the New Preferred Shares (other than a resale of any unsold
allotment from the Initial Offering) by delivery of the prospectus contained in
the Exchange Offer Registration Statement. Under the Registration Agreement, the
Company is required to allow Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such New Preferred Shares. The Exchange Offer Registration Statement
will be kept effective for a period of up to 90 days after the Exchange Offer
has been consummated in order to permit resales of New Preferred Shares acquired
by broker-dealers in after-market transactions. Each Holder of the Original
Preferred Shares, (other than certain specified Holders) who wishes to exchange
such Original Preferred Shares for New Preferred Shares in the Exchange Offer
will be required to represent that any New Preferred Shares to be received by it
will be acquired in the ordinary course of its business, that at the time of the
commencement of the Exchange Offer it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Preferred Shares and that it is not an Affiliate of the Company.
However, if on or before the date of consummation of the Exchange Offer the
existing Commission interpretations are changed such that the New Preferred
Shares would not in general be freely transferable on such date, the Company
will, in lieu of effecting registration of New Preferred Shares, use its
reasonable best efforts to cause a registration statement under the Securities
Act relating to a shelf registration of the Original Preferred Shares for resale
by Holders (the "Resale Registration") to become effective and to remain
effective for a period of up to two years after the Closing. The Company will,
in the event of the Resale Registration, provide to the Holders of the Original
Preferred Shares copies of the prospectus that is a part of the registration
statement filed in connection with the Resale Registration, notify such Holders
when the Resale Registration for the Original Preferred Shares has become
effective and take certain other actions as are required to permit unrestricted
resales of the Original Preferred Shares. Use of the Resale Registration
registration statement by Holders will be subject to certain Company "black-out"
rights and customary information delivery requirements. A Holder of Original
Preferred Shares that sells
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such Original Preferred Shares pursuant to the Resale Registration generally
would be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Agreement
that are applicable to such Holder (including certain indemnification
obligations).
In the event that (i) the Company has not filed the registration statement
relating to the Exchange Offer (or, if applicable, the Resale Registration)
within 90 days following the Closing, (ii) such registration statement (or, if
applicable, the Resale Registration) has not become effective within 150 days
following the Closing, (iii) the Exchange Offer has not been consummated within
180 days following the Closing or (iv) any registration statement required by
the Registration Agreement is filed and declared effective but shall thereafter
cease to be effective (except as specifically permitted therein) without being
succeeded immediately by an additional registration statement filed and declared
effective (any such event referred to in clauses (i) through (iv), a
"Registration Default"), then dividends will accumulate (in addition to the
stated dividend on the Series A Preferred Stock) at the rate of 0.5% per annum
on the Specified Amount, for the period from the occurrence of the Registration
Default until such time as no Registration Default is in effect. Such additional
dividends (the "Special Dividends") will be payable in cash on each regular
dividend payment date. For each 90-day period that the Registration Default
continues, the per annum rate of such Special Dividends will increase by an
additional 0.25%, provided that such rate shall in no event exceed 1.0% per
annum in the aggregate. Special Dividends, if any, will be computed on the basis
of a 365 or 366 day year, as the case may be, and the number of days actually
elapsed.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which will be available upon request to the Company.
COVENANTS
The Certificate of Designation contains, among others, the following
covenants:
LIMITATION ON DEBT
(a) The Company may not, and may not permit any Restricted Subsidiary of
the Company to, Incur any Debt unless the ratio of (i) the aggregate
consolidated principal amount of Debt of the Company and its Restricted
Subsidiaries outstanding as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of such Debt and
any other Debt Incurred since such balance sheet date and the receipt and
application of the proceeds thereof to (ii) Consolidated Cash Flow Available for
Fixed Charges for the four full fiscal quarters next preceding the Incurrence of
such Debt for which consolidated financial statements are available, determined
on a pro forma basis as if any such Debt had been Incurred at the beginning of
such four fiscal quarters, would be less than 7.0 to 1 for such four-quarter
periods ending on or prior to September 1, 2000, and 5.0 to 1 for such periods
ending thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and any
Restricted Subsidiary (except as specified below) may incur any or all of the
following:
(i) Debt outstanding on the Issue Date;
(ii) Debt under any Bank Credit Agreement;
(iii) Purchase Money Debt Incurred to finance the construction,
acquisition, development, design, installation, integration, transportation
or improvement of Telecommunications Assets which, together with any other
outstanding Debt Incurred pursuant to this clause (iii) and any Debt
Incurred pursuant to clause (vi) of this paragraph (b) in respect of Debt
Incurred
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pursuant to this clause (iii), has an aggregate principal amount at the
time of Incurrence, not in excess of $100 million at any time outstanding;
(iv) Senior Notes the offering of which, together with any other
outstanding Debt Incurred pursuant to this clause (iv), resulted in net
proceeds (excluding underwriting or other placement fees and proceeds
placed in escrow at the closing thereof pursuant to the terms of such
offering) to the Company, not in excess of $100 million;
(v) Debt owed by the Company to any Restricted Subsidiary of the
Company or Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company; provided, however, that
upon either (x) the transfer or other disposition by such Restricted
Subsidiary or the Company of any Debt so permitted to a Person other than
the Company or another Restricted Subsidiary of the Company or (y) the
issuance (other than directors' qualifying shares), sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of such Restricted Subsidiary to a Person other than the Company
or another such Restricted Subsidiary, the provisions of this clause (v)
shall no longer be applicable to such Debt and such Debt shall be deemed to
have been Incurred at the time of such transfer or other disposition;
(vi) Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") (A) Debt outstanding on the Issue Date, (B) Debt Incurred
pursuant to paragraph (a) of this covenant or (C) Debt Incurred pursuant to
clause (iii) of this paragraph (b), in each case in an aggregate principal
amount not to exceed the aggregate principal amount of and accrued interest
on the Debt so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the Debt
so refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the amount of expenses of
the Company incurred in connection with such refinancing; provided,
however, that the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued, (x) does not
provide for payments of principal of such Debt at the stated maturity
thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Debt upon any event of default
thereunder), in each case prior to the time the same are required by the
terms of the Debt being refinanced and (y) does not permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such debt at the option of the holder thereof prior to the
final stated maturity of the Debt being refinanced, other than a redemption
or other retirement at the option of the holder of such Debt (including
pursuant to an offer to purchase made by the Company) which is conditioned
upon a change substantially similar to those described under "-- Change of
Control" or which is pursuant to provisions substantially similar to those
in the covenant described under "-- Limitation on Asset Dispositions";
(vii) Debt consisting of Permitted Interest Rate or Currency
Protection Agreements;
(viii) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations
of the Company or a Restricted Subsidiary, or in respect of a letter of
credit obtained to secure such performance;
(ix) Debt of the Company to Robert T. Hale, Jr. in an original
principal amount at the time of issuance not to exceed $2 million;
provided, however, that no payment of principal on such Debt may be made
prior to the redemption of the Series A Preferred Stock and the payment in
full of all accumulated dividends on the Series A Preferred Stock; and
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(x) Debt of the Company or any Restricted Subsidiary not otherwise
permitted to be Incurred pursuant to clauses (i) through (viii) above,
which, together with any other outstanding Debt Incurred pursuant to this
clause (x), has an aggregate principal amount or, in the case of Debt
issued at a discount, an accreted amount (determined in accordance with
generally accepted accounting principles) at the time of Incurrence, not in
excess of $10 million at any time outstanding.
Notwithstanding any other provision of this "Limitation on Debt" covenant,
the maximum amount of Debt that the Company or a Restricted Subsidiary may Incur
pursuant to this "Limitation on Debt" covenant shall not be deemed to be
exceeded, with respect to any outstanding Debt, due solely to the result of
fluctuations in exchange rates of currencies.
For purposes of determining compliance with this "Limitation on Debt"
covenant, in the event that an item of Debt meets the criteria of more than one
of the types of Debt the Company is permitted to incur pursuant to the foregoing
clauses (i) through (x), the Company shall have the right, in its sole
discretion, to classify such item of Debt and shall only be required to include
the amount and type of such Debt under the clause permitting the Debt as so
classified. For purposes of determining any particular amount of Debt under such
covenant, Guarantees or Liens with respect to letters of credit supporting Debt
otherwise included in the determination of a particular amount shall not be
included.
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) may not, directly or indirectly, declare or pay any
dividend, or make any distribution, in respect of any Junior Stock or to the
holders thereof (in their capacity as such), excluding any dividends or
distributions payable solely in shares of Junior Stock (other than Disqualified
Stock) or in options, warrants or other rights to acquire Junior Stock (other
than Disqualified Stock); (ii) may not, and may not permit any Restricted
Subsidiary to, purchase, redeem, or otherwise retire or acquire for value (a)
any Junior Stock of the Company or any Related Person of the Company or (b) any
options, warrants or rights to purchase or acquire shares of Junior Stock of the
Company or any Related Person of the Company or any securities convertible or
exchangeable into shares of Capital Stock of the Company or any Related Person
of the Company; and (iii) may not make, or permit any Restricted Subsidiary to
make, any Investment in, or payment on a Guarantee of any obligation of, any
Person, other than the Company or a Restricted Subsidiary of the Company, except
for Permitted Investments (each of clauses (i) through (iii) being a "Restricted
Payment") if: (1) any accrued and payable dividends (including dividends for the
then current dividend period) with respect to the Series A Preferred Stock or
any Parity Stock have not been paid (or deemed paid) in full and funds for such
payment have not been set apart shall have occurred and is continuing; or (2)
upon giving effect to such Restricted Payment, the Company could not Incur at
least $1.00 of additional Debt pursuant to the covenant described in paragraph
(a) of "-- Limitation on Debt" above; or (3) upon giving effect to such
Restricted Payment, the aggregate amount of all Restricted Payments from the
Issue Date exceeds the sum of: (a) (x) Consolidated Cash Flow Available for
Fixed Charges since the end of the last full fiscal quarter prior to the Issue
Date through the last day of the last full fiscal quarter ending immediately
preceding the date of such Restricted Payment (the "Calculation Period") minus
(y) 1.5 times Consolidated Interest Expense for the Calculation Period; plus (b)
the aggregate Net Cash Proceeds received by the Company from the issuance or
sale of its Junior 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 a trust
established by the Company or any of its Subsidiaries for the benefit of their
employees); plus (c) the amount by which Debt 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 Debt of the
Company convertible or exchangeable for Junior Stock (other than Disqualified
Stock) of the Company (less the amount of any cash, or the fair
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value of any property, distributed by the Company upon such conversion or
exchange); plus (d) $5 million.
Notwithstanding the foregoing, (i) the Company may pay any dividend on
Capital Stock of any class within 60 days after the declaration thereof if, on
the date when the dividend was declared, the Company could have paid such
dividend in accordance with the foregoing provisions; (ii) the Company may
repurchase any shares of its Common Stock or options to acquire its Common Stock
from Persons who are currently or were formerly directors, officers or employees
of the Company or any Restricted Subsidiary, provided that the aggregate amount
of all such repurchases made pursuant to this clause (ii) shall not exceed (a)
$1 million in any calendar year and (b) $5 million in the aggregate; (iii) the
Company and its Restricted Subsidiaries may refinance any Debt otherwise
permitted by clause (vi) of paragraph (b) under "-- Limitation on Debt" above;
(iv) the Company and its Restricted Subsidiaries may retire or repurchase any
Junior Stock of the Company or any Capital Stock of any Restricted Subsidiary of
the Company in exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of,
Junior Stock (other than Disqualified Stock) of the Company; and (v) the Company
may pay the dividend of $5 million declared on July 15, 1998. If the Company
makes a Restricted Payment which, at the time of the making of such Restricted
Payment, would in the good faith determination of the Company be permitted under
the Certificate of Designation, such Restricted Payment shall be deemed to have
been made in compliance with the Certificate of Designation notwithstanding any
subsequent adjustments made in good faith to the Company financial statements
affecting Consolidated Cash Flow Available for Fixed Charges or Consolidated
Interest Expense for any period.
LIMITATION ON ASSET DISPOSITIONS
The Company may not, and may not permit any Restricted Subsidiary to, make
any Asset Disposition in one or more related transactions occurring within any
12-month period unless: (i) the Company or the Restricted Subsidiary, as the
case may be, receives consideration for such disposition at least equal to the
fair market value for the assets sold or disposed of as determined by management
of the Company in good faith, which determination shall be conclusive; (ii) at
least 75% of the consideration for such disposition consists of (1) cash or
readily marketable cash equivalents or the assumption of Debt of the Company or
of the Restricted Subsidiary and release from all liability on the Debt assumed;
(2) Telecommunications Assets; or (3) shares of publicly-traded Voting Stock of
any Person engaged in the Telecommunications Business in the United States; and
(iii) all Net Available Proceeds, less any amounts invested within 365 days of
such disposition in new Telecommunications Assets, are applied within 365 days
of such disposition (1) first, to the permanent repayment or reduction of Debt
(other than Disqualified Stock) of the Company or Debt (other than Disqualified
Stock) of a Restricted Subsidiary of the Company, to the extent permitted under
the terms thereof and (2) second, to the extent of remaining Net Available
Proceeds, to make an Offer to Purchase outstanding shares of Series A Preferred
Stock at 100% of the Specified Amount thereof plus, without duplication, an
amount in cash equal to all accumulated and unpaid dividends (including Special
Dividends and an amount in cash equal to a prorated dividend for any partial
dividend period), if any, to the date of purchase (subject to the rights of
holders of record on the relevant record date to receive dividends due on the
relevant dividend payment date), and, to the extent required by the terms
thereof, any other Parity Stock of the Company at a price no greater than 100%
of the liquidation preference thereof plus accumulated dividends to the date of
purchase. To the extent any Net Available Proceeds remain after such uses, the
Company and its Restricted Subsidiaries may use such amounts for any purposes
not prohibited by the Certificate of Designation. Notwithstanding the foregoing,
these provisions shall not apply to any Asset Disposition which constitutes a
transfer, conveyance, sale, lease or other disposition of all or substantially
all the Company's properties or assets as described under "-- Mergers,
Consolidations and Certain Sales of Assets".
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TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, enter into any transaction (or series of related transactions) with
an Affiliate or Related Person of the Company (other than the Company or a
Restricted Subsidiary of the Company), including any Investment, either directly
or indirectly, unless such transaction is on terms no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained in a
comparable arm's-length transaction with an entity that is not an Affiliate or
Related Person and is in the best interests of such Company or such Restricted
Subsidiary. For any transaction that involves in excess of $1 million but less
than or equal to $5 million, the Chief Executive Officer of the Company or a
majority of the disinterested members of the Board of Directors of the Company
shall determine that the transaction satisfies the above criteria. For any
transaction that involves in excess of $5 million but less than or equal to $10
million, a majority of the disinterested members of the Board of Directors of
the Company shall determine that the transaction satisfies the above criteria.
For any transaction that involves in excess of $10 million, the Company shall
also obtain an opinion from a nationally recognized investment banking or
accounting firm or another nationally recognized expert with experience in
appraising the terms and conditions, taken as a whole, of the type of
transaction (or series of related transactions) for which the opinion is
required stating that such transaction (or series of related transactions) is on
terms and conditions, taken as a whole, no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable arm's-
length transaction with an entity that is not an Affiliate or Related Person of
the Company, which opinion shall be available for inspection by holders of
Series A Preferred Stock at the Company's offices. This covenant shall not apply
to Investments by an Affiliate or a Related Person of the Company in the Capital
Stock (other than Disqualified Stock) of the Company or any Restricted
Subsidiary of the Company.
CHANGE OF CONTROL
The Certificate of Designation will provide that, within 30 days of the
occurrence of a Change of Control, the Company shall make an Offer to Purchase
all outstanding shares of Series A Preferred Stock at a purchase price equal to
101% of the liquidation preference thereof plus accumulated and unpaid
dividends, if any, to the date of purchase (subject to the rights of holders of
record on the relevant record date to receive dividends due on the relevant
dividend payment date).
A "Change of Control" will be deemed to have occurred at such time as
either (a) any Person or any Persons acting together (other than Permitted
Holders or an underwriter engaged in a firm commitment underwriting on behalf of
the Company) that would constitute a "group" (a "Group") for purposes of Section
13(d) of the Exchange Act, or any successor provision thereto, shall
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act, or
any successor provision thereto) more than 50% of the aggregate voting power of
all classes of Voting Stock of the Company or (b) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any new directors whose election by the
Board of Directors or whose nomination by the Board of Directors for election by
the Company's stockholders was approved by a vote of at least a majority of the
members of the Board of Directors then in office who either were members of the
Board of Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office.
Except as described above with respect to a Change of Control, the
Certificate of Designation does not contain provisions that permit the Holders
of the Series A Preferred Stock to require that the Company repurchase or redeem
the Series A Preferred Stock in the event of a takeover, recapitalization or
similar restructuring.
The Company does not currently have adequate financial resources to effect
a repurchase of the Series A Preferred Stock upon a Change of Control and there
can be no assurance that the
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Company will have such resources in the future. The inability of the Company to
repurchase the Series A Preferred Stock upon acceptance of the Offer to Purchase
made following a Change of Control would constitute a Voting Rights Triggering
Event.
In addition, there may be restrictions contained in instruments evidencing
Debt incurred by the Company or its Restricted Subsidiaries permitted under the
Certificate of Designation which restrict or prohibit the ability of the Company
to effect any repurchase required under the Certificate of Designation in
connection with a Change of Control.
In the event that the Company makes an Offer to Purchase the Series A
Preferred Stock, the Company intends to comply with any applicable securities
laws and regulations, including any applicable requirements of Section 14(e) of,
and Rule 13e-4 and Rule 14e-1 under, the Exchange Act.
PROVISION OF FINANCIAL INFORMATION
The Company has agreed that, for so long as any Series A Preferred Stock
remains outstanding, it will furnish to the holders of the Series A Preferred
Stock and to securities analysts and prospective investors, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act. In addition, prior to the effectiveness of the Exchange Offer
Registration Statement, the Company will furnish to the holders of the Series A
Preferred Stock the quarterly and annual financial statements and related notes
and an accompanying Management's Discussion and Analysis of Financial Condition
and Results of Operations in the format that would be required to be included in
the Company's periodic reports filed with the Commission if the Company were
required to file such reports with the Commission. The Company will furnish such
information to the holders of the Series A Preferred Stock within 15 days after
the date on which the Company would have been required to file the same with the
Commission. Following the effectiveness of the Exchange Offer Registration
Statement (or earlier if the Company becomes obligated to file reports with the
Commission), the Company will furnish to the holders of the Series A Preferred
Stock within 15 days after it files them with the Commission copies of the
annual and quarterly reports and the information, documents, and other reports
that the Company is required to file with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act ("SEC Reports"). In the event the Company
shall cease to be required to file SEC Reports pursuant to the Exchange Act, the
Company will nevertheless continue to file such reports with the Commission
(unless the Commission will not accept such a filing) and furnish such reports
to the holders of Series A Preferred Stock. The Company will make copies of the
SEC Reports available to investors who request them in writing.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into the Company (other than the
consolidation or merger of a Restricted Subsidiary organized under the laws of a
State of the United States into the Company), or (ii) directly or indirectly,
transfer, sell, lease or otherwise dispose of all or substantially all its
assets (determined on a consolidated basis for the Company and its Restricted
Subsidiaries taken as a whole), unless: (1) in a transaction in which the
Company does not survive or in which the Company sells, leases or otherwise
disposes of all or substantially all its assets to any other Person, the
successor entity to the Company is organized under the laws of the United States
of America or any State thereof or the District of Columbia and the Series A
Preferred Stock shall be converted into or exchanged for and shall become shares
of such successor entity, having in respect of such successor entity the same
powers, preferences and relative participating, optional or other special rights
and the qualifications, limitations or restrictions thereon, that the Series A
Preferred Stock had immediately prior to such transaction; (2) immediately after
giving pro forma effect to such transaction as if such transaction had occurred
at the beginning of the last full fiscal quarter immediately prior to the
consummation of
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such transaction with the appropriate adjustments with respect to the
transaction being included in such pro forma calculation and treating any Debt
which becomes an obligation of the Company or a Subsidiary as a result of such
transaction as having been Incurred by the Company or such Subsidiary at the
time of the transaction, no Voting Rights Triggering Event, and no event that
after the giving of notice or lapse of time or both would become a Voting Rights
Triggering Event, shall have occurred and be continuing; (3) immediately after
giving effect to such transaction, the Consolidated Net Worth of the Company (or
the successor entity to the Company) is equal to or greater than that of the
Company immediately prior to the transaction; (4) immediately after giving
effect to such transaction, the Company (or the successor entity to the Company)
would be able to incur an additional $1.00 of Debt under paragraph (a) of the
Covenant described under "-- Limitation on Debt" above; and (5) the Company has
caused to be delivered to the holders of the Series A Preferred Stock an Opinion
of Counsel to the effect that the holders of the Series A Preferred Stock will
not recognize gain or loss for Federal income tax purposes as a result of such
transaction.
In the event of any transaction (other than a lease) described in and
complying with the immediately preceding paragraph in which the Company is not
the surviving person and the surviving person complies with clause (1) of the
preceding paragraph, such surviving person shall succeed to, and be substituted
for, and may exercise every right and power of, the Company, and the Company
will be discharged from its obligations under the Series A Preferred Stock and
the Certificate of Designation; provided that solely for the purpose of
calculating amounts described in clause (3) under the covenant described under
"Covenant -- Limitations on Restricted Payments", any such surviving person
shall only be deemed to have succeeded to and be substituted for the Company
with respect to the period subsequent to the effective time of such transaction,
and the Company (before giving effect to such transaction) shall be deemed to be
the "Company" for such purposes for all prior periods.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" the assets of the Company, and
therefore it may be unclear whether the foregoing provisions are applicable.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designation. Reference is made to the Certificate of Designation
for the full definition of all such terms, as well as any other terms used
herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of
any other Person existing at the time such Person merges with or into or
consolidates with or becomes a Restricted Subsidiary of such specified Person
and (ii) Debt secured by a Lien encumbering any asset acquired by such specified
Person, which Debt, in each case, was not Incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such 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.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary of the specified
Person, but
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excluding a disposition by a Restricted Subsidiary of such Person to such Person
or a Wholly Owned Restricted Subsidiary of such Person or by such Person to a
Wholly Owned Restricted Subsidiary of such Person) of (i) shares of Capital
Stock or other ownership interests of a Restricted Subsidiary of such Person
(other than pursuant to a transaction in compliance with the covenant described
under "-- Mergers, Consolidations and Certain Sales of Assets" above), (ii)
substantially all the assets of such Person or any of its Restricted
Subsidiaries representing a division or line of business (other than as part of
a Permitted Investment) or (iii) other assets or rights of such Person or any of
its Restricted Subsidiaries other than (A) in the ordinary course of business,
(B) that constitute a Permitted Investment or a Restricted Payment which is
permitted under the covenant "-- Limitation on Restricted Payments" above or (C)
pursuant to or in connection with Receivables Sales under, or Debt in connection
with Permitted Receivables Facilities permitted to be Incurred pursuant to the
covenant described under "-- Limitation on Debt"; provided that a transaction
described in clauses (i), (ii) and (iii) shall constitute an Asset Disposition
only if the aggregate consideration for such transfer, conveyance, sale, lease
or other disposition is equal to $1 million or more in any 12-month period.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the lesser of the amount of such penalty (in which case no rent
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated) or the rent which would otherwise
be required to be paid if such lease is not so terminated. "Attributable Value"
means, as to a Capital Lease Obligation, the principal amount thereof.
"Bank Credit Agreement" means any one or more (i) credit agreements (which
may include or consist of revolving credits) between the Company and/or any
Restricted Subsidiary of the Company and one or more banks or other financial
institutions providing financing for the business of the Company and its
Restricted Subsidiaries and (ii) Permitted Receivables Facilities, which credit
agreements and Permitted Receivables Facilities provide for borrowings by the
Company and its Restricted Subsidiaries in an aggregate principal amount
outstanding at any one time not to exceed $100 million, and any renewal,
extension, refinancing or refunding thereof in an amount which, together with
any principal amount remaining outstanding or available under all credit
agreements and Permitted Receivables Facilities of the Company and its
Restricted Subsidiaries, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of any credit agreement
or Permitted Receivables Facility so refinanced plus the amount of expenses
incurred in connection with such refinancing, does not exceed the aggregate
principal amount outstanding or available under all such credit agreements and
Permitted Receivables Facilities of the Company and its Restricted Subsidiaries
immediately prior to such renewal, extension, refinancing or refunding.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles (a "Capital Lease"). The stated maturity of such obligation shall be
the date
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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. The principal amount of such obligation shall be the
capitalized amount thereof that would appear on the face of a balance sheet of
such Person in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Common Stock" of any Person means Capital Stock of such Person that is not
Disqualified Stock.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of the Company and its Restricted Subsidiaries for such
period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of the Company and its Restricted Subsidiaries
for such period plus (iv) any non-cash expense related to the issuance to
employees of the Company or any Restricted Subsidiary of the Company of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, plus (v)
any charge related to any premium or penalty paid in connection with redeeming
or retiring any Debt prior to its stated maturity; provided, however, that there
shall be excluded therefrom the Consolidated Cash Flow Available for Fixed
Charges (if positive) of any Restricted Subsidiary of the Company (calculated
separately for such Restricted Subsidiary in the same manner as provided above
for the Company) that is subject to a restriction which prevents the payment of
dividends or the making of distributions to the Company or another Restricted
Subsidiary of the Company to the extent of such restriction.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of the Company and its Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (excluding interest
income) of the Company and its Restricted Subsidiaries for such period
calculated on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities; (iii) fees with respect to interest rate swap
or similar agreements or foreign currency hedge, exchange or similar agreements;
(iv) dividends on Preferred Stock of the Company and its Restricted Subsidiaries
held by Persons other than the Company or a Wholly Owned Restricted Subsidiary
(other than dividends paid in shares of Preferred Stock that is not Disqualified
Stock) declared and paid or payable; (v) accrued Disqualified Stock dividends of
the Company and its Restricted Subsidiaries, whether or not declared or paid;
(vi) interest on Debt guaranteed by the Company and its Restricted Subsidiaries;
and (vii) the portion of any Capital Lease Obligation paid during such period
that is allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by the Company or a Restricted
Subsidiary of the Company in a pooling-of-interests transaction for any period
prior to the date of such transaction, (b) the net income (or loss) of any
Person that is not a Restricted Subsidiary of the Company except to the extent
of the amount of dividends or other distributions actually paid to the Company
or a Restricted Subsidiary of the Company by such Person during such period, (c)
gains or losses on Asset Dispositions by the Company or its Restricted
Subsidiaries, (d) all
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extraordinary gains and extraordinary losses, (e) the cumulative effect of
changes in accounting principles, (f) non-cash gains or losses resulting from
fluctuations in currency exchange rates, (g) any non-cash gain or loss realized
on the termination of any employee pension benefit plan and (h) the tax effect
of any of the items described in clauses (a) through (g) above; provided,
further, that for purposes of any determination pursuant to the covenant
described under "Covenants -- Limitation on Restricted Payments," there shall
further be excluded therefrom the net income (but not net loss) of any
Restricted Subsidiary of the Company that is subject to a restriction which
prevents the payment of dividends or the making of distributions to the Company
or another Restricted Subsidiary of the Company to the extent of such
restriction.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles, less amounts attributable to
Disqualified Stock of such Person.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including any such obligations Incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business which are not overdue or which are being contested in good
faith), (v) every Capital Lease Obligation of such Person and all Attributable
Value in respect of a Sale and Leaseback Transaction of such Person, (vi) all
Receivables Sales of such Person, together with any obligation of such Person to
pay any discount, interest, fees, indemnities, penalties, recourse, expenses or
other amounts in connection therewith, (vii) all obligations to redeem
Disqualified Stock issued by such Person, (viii) every obligation under Interest
Rate or Currency Protection Agreements of such Person and (ix) every obligation
of the type referred to in clauses (i) through (viii) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has Guaranteed. The "amount" or "principal amount" of Debt at any time of
determination as used herein represented by (a) any Debt issued at a price that
is less than the principal amount at maturity thereof, shall be the amount of
the liability in respect thereof determined in accordance with generally
accepted accounting principles, (b) any Receivables Sale, shall be the amount of
the unrecovered capital or principal investment of the purchaser (other than the
Company or a Wholly Owned Restricted Subsidiary of the Company) thereof,
excluding amounts representative of yield or interest earned on such investment,
(c) any Disqualified Stock, shall be the maximum fixed redemption or repurchase
price in respect thereof, (d) any Capital Lease Obligation, shall be determined
in accordance with the definition thereof, or (e) any Permitted Interest Rate or
Currency Protection Agreement, shall be zero. In no event shall Debt include any
liability for taxes.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of such Person, any
Restricted Subsidiary of such Person or the holder thereof, in whole or in part,
on or prior to the final Stated Maturity of the Series A Preferred Stock;
provided, however, that any Preferred Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Preferred Stock upon the
occurrence of a Change of Control occurring prior to September 1, 2009 shall not
constitute Disqualified Stock if the change of control provisions applicable to
such Preferred Stock are no more favorable to the holders of such Preferred
Stock than the provisions applicable to the Series A Preferred Stock contained
in the covenant described under "Covenants -- Change of Control" and such
Preferred Stock specifically
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provides that the Company will not repurchase or redeem any such stock pursuant
to such provisions prior to the Company's repurchase of such number of shares of
Series A Preferred Stock as are required to be repurchased pursuant to the
covenant described under "Covenants -- Change of Control".
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher, "A-" or higher or "A-" or
higher according to Moody's Investors Service, Inc., Standard & Poor's Ratings
Group or Duff & Phelps Credit Rating Co. (or such similar equivalent rating by
at least one "nationally recognized statistical rating organization" (as defined
in Rule 436 under the Securities Act)), respectively, at the time as of which
any investment or rollover therein is made.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted average life to maturity of not more than one year
from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Debt, (ii) to purchase property, securities
or services for the purpose of assuring the holder of such Debt of the payment
of such Debt, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing"
and "Guarantor" shall have meanings correlative to the foregoing); provided,
however, that the Guarantee by any Person shall not include endorsements by such
Person for collection or deposit, in either case, in the ordinary course of
business.
"Hale Family" means collectively Robert T. Hale, Robert T. Hale, Jr. and
members of their immediate families; any of their respective spouses, estates,
lineal descendants, heirs, executors, personal representatives, administrators,
trusts for any of their benefit and charitable foundations to which shares of
the Company's Capital Stock beneficially owned by any of the foregoing have been
transferred; and any corporation or partnership, all of the Capital Stock of
which is owned by one or more of the foregoing Persons.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to generally accepted accounting principles or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt and that neither
the accrual of interest nor the accretion of original issue discount shall be
deemed an Incurrence of Debt; provided further, however, that the Company may
elect to treat all or any portion of revolving credit debt of the Company or a
Subsidiary as being Incurred from and after any date beginning the date the
revolving credit commitment is extended to the Company or a Subsidiary, by
memorializing such determination in the corporate records of the Company, and
any borrowings or reborrowings by the Company or a Subsidiary under such
commitment up to the amount of such commitment
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designated by the Company as Incurred shall not be deemed to be new Incurrences
of Debt by the Company or such Subsidiary.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person, but excluding any loan, advance or extension of credit to an
employee of the Company or any of its Restricted Subsidiaries in the ordinary
course of business, accounts receivables and other commercially reasonable
extensions of trade credit.
"Issue Date" means the first date on which any shares of Series A Preferred
Stock are issued pursuant to the Certificate of Designation.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
"Marketable Securities" means: (i) Government Securities; (ii) any time
deposit account, money market deposit and certificate of deposit maturing not
more than 270 days after the date of acquisition issued by, or time deposit of,
an Eligible Institution; (iii) commercial paper maturing not more than 270 days
after the date of acquisition issued by a corporation (other than an Affiliate
of the Company) 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., "A-1" or
higher according to Standard & Poor's Ratings Group or "A-1" or higher according
to Duff & Phelps Credit Rating Co. (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)); (iv) any banker's acceptances or money
market deposit accounts issued or offered by an Eligible Institution; (v)
repurchase obligations with a term of not more than 7 days for Government
Securities entered into with an Eligible Institution; and (vi) any fund
investing primarily in investments of the types described in clauses (i) through
(v) above.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses (including appraisals,
commissions, investment banking fees, and accounting, legal, broker and finder's
fees) Incurred and all Federal, state, provincial, foreign and local taxes
(including taxes payable upon payment or other distribution of funds from a
foreign subsidiary to the Company or another subsidiary of the Company) required
to be accrued as a liability as a consequence of such Asset Disposition, (ii)
all payments made by such Person or its Restricted Subsidiaries on any Debt
which is secured by such assets in accordance with the terms of any Lien upon or
with respect to such assets or which must by the terms of such Lien, 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 made to minority interest holders in Restricted Subsidiaries
of such Person or joint ventures as a result of such Asset
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Disposition, (iv) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in accordance
with generally accepted accounting principles against any liabilities associated
with such assets and retained by such Person or any Restricted Subsidiary
thereof, as the case may be, after such Asset Disposition, including, without
limitation, liabilities under any indemnification obligations and severance and
other employee termination costs associated with such Asset Disposition, in each
case as determined by management of the Company, in its reasonable good faith
judgment; provided, however, that any reduction in such reserve within 12 months
following the consummation of such Asset Disposition will be treated for all
purposes of the Certificate of Designation as a new Asset Disposition at the
time of such reduction with Net Available Proceeds equal to the amount of such
reduction, and (v) any consideration for an Asset Disposition (which would
otherwise constitute Net Available Proceeds) that is required to be held in
escrow pending determination of whether a purchase price adjustment will be
made, but amounts under this clause (v) shall become Net Available Proceeds at
such time and to the extent such amounts are released to such Person.
"Net Cash Proceeds" means the proceeds of any issuance or sale of Capital
Stock in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first-class mail, postage prepaid, to each holder at his address appearing in
the Stock Register on the date of the Offer offering to purchase up to the
number of shares of Series A Preferred Stock having the aggregate liquidation
preference specified in such Offer at the purchase price specified in such Offer
(as determined pursuant to the Certificate of Designation). Unless otherwise
required by applicable law, the Offer shall specify an expiration date (the
"Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of shares of Series A Preferred Stock within five Business Days
after the Expiration Date. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Commission, (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such financial statements referred to in clause (i) (including a
description of the events requiring the Company to make the Offer to Purchase),
(iii) if applicable, appropriate pro forma financial information concerning the
Offer to Purchase and the events requiring the Company to make the Offer to
Purchase and (iv) any other information required by applicable law to be
included therein). The Offer shall contain all instructions and materials
necessary to enable such holders to tender shares of Series A Preferred Stock
pursuant to the Offer to Purchase. The Offer shall also state:
a. the paragraph of the Certificate of Designation pursuant to which
the Offer to Purchase is being made;
b. the Expiration Date and the Purchase Date;
c. the aggregate number of shares of Series A Preferred Stock offered
to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by
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which such has been determined pursuant to the Certificate of Designation
provision requiring the Offer to Purchase) (the "Purchase Amount");
d. the purchase price to be paid by the Company for the Specified
Amount of shares of Series A Preferred Stock accepted for payment (as
specified pursuant to the Certificate of Designation) (the "Purchase
Price");
e. that the holder may tender all or any portion of the shares of
Series A Preferred Stock registered in the name of such holder;
f. the place or places where shares of Series A Preferred Stock are to
be surrendered for tender pursuant to the Offer to Purchase;
g. that dividends on any shares of Series A Preferred Stock not
tendered or tendered but not purchased by the Company pursuant to the Offer
to Purchase will continue to accumulate;
h. that on the Purchase Date the Purchase Price will become due and
payable upon each share of Series A Preferred Stock being accepted for
payment pursuant to the Offer to Purchase and that dividends thereon shall
cease to accumulate on and after the Purchase Date;
i. that each holder electing to tender a share of Series A Preferred
Stock pursuant to the Offer to Purchase will be required to surrender such
share of Series A Preferred Stock at the place or places specified in the
Offer prior to the close of business on the Expiration Date (such share of
Series A Preferred Stock being, if the Company so requires, duly endorsed
by, or accompanied by a written instrument of transfer in form satisfactory
to the Company duly executed by, the holder thereof or his attorney duly
authorized in writing);
j. that holders will be entitled to withdraw all or any portion of
shares of Series A Preferred Stock tendered if the Company receives, not
later than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
number of shares of Series A Preferred Stock the holder tendered, the
certificate number of the shares the holder tendered and a statement that
such holder is withdrawing all or a portion of his tender;
k. that (a) if shares of Series A Preferred Stock in an aggregate
number less than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase all
such shares of Series A Preferred Stock and (b) if shares of Series A
Preferred Stock in an aggregate number in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Company
shall purchase shares of Series A Preferred Stock equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only whole shares shall be purchased); and
l. that in the case of any holder whose shares of Series A Preferred
Stock are purchased only in part, the Company shall return all such
unpurchased shares or execute and deliver to the holder of such shares
without service charge, new shares as requested by such holder, in an
aggregate liquidation preference equal to and in exchange for the
unpurchased portion of the shares so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Holders" means the Hale Family.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional
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amount no greater than the payments due with respect to the Debt being hedged
thereby and not for purposes of speculation.
"Permitted Investment" means (i) any Investment in the Company or any
Restricted Subsidiary, (ii) any Investment in any Person as a result of which
such Person becomes a Wholly Owned Restricted Subsidiary, (iii) any Investment
in Marketable Securities, (iv) Investments in Permitted Interest Rate or
Currency Protection Agreements, (v) Investments made as a result of the receipt
of noncash consideration from an Asset Disposition that was made pursuant to and
in compliance with the covenant described under "Covenants -- Limitation on
Asset Dispositions" above, (vi) loans or advances to employees of the Company or
any Restricted Subsidiary that in the aggregate at any one time do not exceed $1
million, (vii) Strategic Investments in an amount not to exceed $5 million at
any one time outstanding and (viii) an amount equal to the sum of (a) $5 million
and (b) the aggregate Net Cash Proceeds received by the Company from the 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 a trust established by
the Company or any of its Subsidiaries for the benefit of their employees) to
the extent such Net Cash Proceeds have not been used pursuant to clause (3)(b)
of the first paragraph or clause (iv) of the second paragraph of the covenant
described under "-- Limitation on Restricted Payments" above.
"Permitted Receivables Facility" means a transaction pursuant to which any
Restricted Subsidiary transfers (pursuant to a sale, contribution to capital or
a combination thereof) to a Special Purpose Subsidiary Receivables and certain
related rights, and such Special Purpose Subsidiary securitizes such Receivables
and related rights pursuant to a loan agreement, receivables purchase agreement,
pooling and servicing agreement or similar contract with one or more commercial
paper conduits, banks, financial institutions or similar entities.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"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 (other than a registration statement on Form S-8 or any
successor form).
"Purchase Money Debt" means (i) Acquired Debt Incurred in connection with
the acquisition of Telecommunications Assets and (ii) Debt of the Company or of
any Restricted Subsidiary of the Company (including, without limitation, Debt
represented by Capital Lease Obligations, mortgage financings and purchase money
obligations) Incurred for the purpose of financing all or any part of the cost
of construction, acquisition, development, design, installation, integration,
transportation or improvement by the Company or any Restricted Subsidiary of the
Company of any Telecommunications Assets of the Company or any Restricted
Subsidiary of the Company, and including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as the same may be amended, supplemented, modified or restated from
time to time.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
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"Related Person" of any Person means any other Person directly or
indirectly owning (a) 10% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 10% or more of the
equity interest in such Person) or (b) 10% or more of the combined voting power
of the Voting Stock of such Person.
"Restricted Subsidiary" of the Company means any Subsidiary, whether
existing on or after the Issue Date, unless such Subsidiary is an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after the
later of the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset. The stated maturity of such arrangement
shall be the date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be terminated
by the lessee without payment of a penalty.
"Senior Notes" means Debt of the Company having a maturity of at least six
years.
"Senior Notes Offering" means an offering (whether private or registered
under the Securities Act) of Senior Notes.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"Special Purpose Subsidiary" means a corporation, limited liability
company, partnership or business trust, all of the capital stock or other equity
interests therein are owned, directly or indirectly, by the Company or any
Wholly Owned Restricted Subsidiary, that has been established for the purpose
of, and whose activities are limited to, the consummation of Receivables Sales
and activities incidental thereto.
"Specified Amount" means, on any date with respect to any share of Series A
Preferred Stock, the sum of (i) the Liquidation Preference with respect to such
share and (ii) the Accumulated Dividends with respect to such share that are
added automatically to the Specified Amount of such share.
"Strategic Investment" means (a) Investments that the Board of Directors
has determined in good faith will enable the Company or any of its Wholly Owned
Restricted Subsidiaries to obtain additional business that it might not be able
to obtain without making such Investment and (b) Investments in entities, the
principal function of which is to perform research and development with respect
to products and services that may be useful in the Telecommunications Business;
provided that the Company or one of its Wholly Owned Restricted Subsidiaries is
entitled or otherwise reasonably expected to obtain rights to such products or
services as a result of such Investment.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
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"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) creating, developing or marketing
communications related network equipment, software and other devices for use in
a Telecommunication Business or (iii) evaluating, participating or pursuing any
other activity or opportunity that is primarily related to those identified in
(i) or (ii) above and shall, in any event, include all businesses in which the
Company or any of its Subsidiaries are engaged on the Issue Date; provided that
the determination of what constitutes a Telecommunications Business shall be
made in good faith by the Board of Directors of the Company, which determination
shall be conclusive.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company
designated as such by the Board of Directors of the Company as set forth below
where (a) neither the Company nor any of its other Subsidiaries (other than
another Unrestricted Subsidiary) (i) provides credit support for, or Guarantee
of, any Debt of such Subsidiary or any Subsidiary of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Debt) or (ii) is
directly or indirectly liable for any Debt of such Subsidiary or any Subsidiary
of such Subsidiary, and (b) no default with respect to any Debt of such
Subsidiary or any Subsidiary of such Subsidiary (including any right which the
holders thereof may have to take enforcement action against such Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other Debt
of the Company and its Restricted Subsidiaries to declare a default on such
other Debt or cause the payment thereof to be accelerated or payable prior to
its final scheduled maturity and (2) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors of the Company may designate any Subsidiary
to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock
of, or owns or holds any Lien on any property of, any other Subsidiary of the
Company which is not a Subsidiary of the Subsidiary to be so designated or
otherwise an Unrestricted Subsidiary; provided that either (x) the Subsidiary to
be so designated has total assets of $1,000 or less or (y) immediately after
giving effect to such designation, the Company could incur at least $1.00 of
additional Debt pursuant to paragraph (a) under "Covenants -- Limitation on
Debt" above; and provided further, that the Company could make a Restricted
Payment in an amount equal to the greater of the fair market value and the book
value of such Subsidiary pursuant to the covenant described under
"Covenants -- Limitation on Restricted Payments" and such amount is thereafter
treated as a Restricted Payment for the purpose of calculating the aggregate
amount available for Restricted Payments thereunder. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary, provided
that, immediately after giving effect to such designation, the Company could
incur at least $1.00 of additional Debt pursuant to paragraph (a) under
"Covenants -- Limitation on Debt" above.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person 99% or more of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain U.S. federal income tax
consequences of the purchase, ownership and disposition of the Series A
Preferred Stock. This discussion only deals with persons that hold shares of
Series A Preferred Stock as capital assets within the meaning of Section 1221 of
the Code, and that purchase the Original Preferred Shares for cash at original
issue. This discussion does not address the U.S. federal income tax consequences
that may be relevant to a particular holder subject to special treatment under
certain U.S. federal income tax laws, such as dealers in securities or foreign
currency, banks, trusts, insurance companies, tax-exempt organizations, persons
who are not U.S. Holders (as defined below), persons that hold Series A
Preferred Stock as part of a straddle, hedge, synthetic security, constructive
sale or conversion transaction, persons that have a functional currency other
than the U.S. dollar and investors in pass-through entities.
This discussion is based on the Code, the final, temporary and proposed
Treasury regulations promulgated thereunder, administrative pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect. The Company has not
requested, and will not request, a ruling from the U.S. Internal Revenue Service
(the "IRS") with respect to any of the U.S. Federal income tax consequences
described below, and as a result, there can be no assurance that the IRS will
not disagree with or challenge any of the conclusions set forth herein.
LOSS OF S CORPORATION STATUS
The status of the Company as an "S Corporation" under Subchapter S of the
Code terminated as a result of the issuance of the Units in the Initial
Offering. As a result, the Company became taxable under the Code on its taxable
income at the entity level as a regular "C" corporation, generally at the rate
of 35%. Additionally, its income, losses and other tax items no longer "flow
through" to its shareholders, who instead are taxed on the Company's
distributions, which are treated as ordinary dividend income to the extent they
do not exceed the Company's current and accumulated earnings and profits, with
any excess generally taxable as capital gain. The Company also became subject to
entity-level taxation in many states that is less favorable than the state tax
treatment afforded S corporations.
U.S. HOLDERS
The following discussion is limited to persons who or which are U.S.
Holders that acquired Original Preferred Shares for cash upon their original
issuance. For these purposes, "U.S. Holder" means (i) an individual who is a
citizen or resident of the United States, (ii) a corporation or other entity
taxable as a corporation created or organized under the laws of the United
States or any political subdivision thereof or therein, (iii) an estate the
income of which is subject to U.S. federal income tax regardless of its source,
(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 United
States trustees have the authority to control all substantial decisions of the
trust or (v) any person or entity whose worldwide income or gain is otherwise
subject to U.S. federal income tax on a net income basis.
Classification of Series A Preferred Stock
Although the characterization of an instrument as debt or equity is a
factual determination the outcome of which cannot be predicted with certainty,
the Company intends to treat the Series A Preferred Stock as equity rather than
debt for U.S. federal income tax purposes. The remainder of this discussion
assumes that such treatment will be respected, but no opinion is either
expressed or implied on this issue.
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Series A Preferred Stock
Dividends
Distributions on the Series A Preferred Stock will constitute dividends to
the extent they are paid from current or accumulated earnings and profits of the
Company (as determined under U.S. federal income tax principles). Since the
Contingent Warrants are not separable from the Series A Preferred Stock until
the later of the Contingent Warrant Release Date and the Separation Date, the
Company intends to treat the Contingent Warrants as a distribution with respect
to the Series A Preferred Stock on each applicable Contingent Warrant Release
Date. Thus, the fair market value of the Contingent Warrants, if any,
distributed on each applicable Contingent Warrant Release Date will be a taxable
distribution to holders of the Series A Preferred Stock. Such amount will also
be the initial tax basis of the Contingent Warrants for U.S. federal income tax
purposes.
In addition to the amount of cash and Contingent Warrants received, a U.S.
Holder may be treated as having received an annual distribution, taxable as a
dividend to the extent of current or accumulated earnings and profits of the
Company, in an amount equal to the annual accrual of the difference between the
issue price of such Series A Preferred Stock and the redemption price (as
discussed below) of such stock (the "Redemption Premium"). Such accrual will be
determined under a constant yield method that will result in increasing amounts
of accruals of income over the accrual period. The accrual will not be required,
however, if the difference between the issue price of the Series A Preferred
Stock and the redemption price of such stock does not exceed a de minimis
amount, as determined under principles similar to the principles of Section
1273(a)(3) of the Code.
For purposes of determining the Redemption Premium, the Company intends to
treat the redemption price as the amount that will be paid upon retirement of
the Series A Preferred Stock on September 1, 2009. The IRS may assert, however,
that the Redemption Premium should be determined by using one of the higher
redemption prices that apply (1) in the event of an optional redemption by the
Company after September 1, 2003 (an "Optional Redemption") or (2) in the event
of a mandatory redemption by the Company following a Permitted Senior Notes
Offering or a Public Equity Offering (a "Mandatory Redemption"). The Company
believes that using a redemption price applicable to an Optional Redemption to
calculate the Redemption Premium is not required because, as of the issue date,
redemption pursuant to the Optional Redemption is not more likely than not to
occur, as described in Treasury Regulation Section 1.305-5(b)(3). The Company
believes that using a redemption price applicable to a Mandatory Redemption to
calculate the Redemption Premium is not required because, under Section
305(c)(1) of the Code and Treasury Regulation Section 1.305-5(b)(2) the Company
should not be treated as required to redeem the Series A Preferred Stock "at a
specified time," since (1) as of the issue date it is not possible to ascertain
the time at which a Mandatory Redemption might occur, if at all, and (2) it is
possible that, as of the issue date, the likelihood of a Mandatory Redemption
might be regarded as remote. However, despite the language of the Code and
Regulation section cited above, the preamble to these regulations contemplates
that a redemption triggered by an initial public offering may be treated as
non-remote, and the IRS may be successful in making such a contention. In this
event, the redemption price could be deemed to be as high as 108% of the
liquidation preference of the Series A Preferred Stock; the amount of the
Redemption Premium, and therefore the amounts of the income accruals described
above, would be correspondingly greater than the accruals, if any, determined by
the Company; and the income accruals would be required to be taken into account
entirely in a period or periods prior to the date on which the Mandatory
Redemption is deemed to occur for this purpose.
The Company's determination of the amount(s) of any required accruals of
Redemption Premium is binding on all U.S. Holders of the Series A Preferred
Stock (who may obtain this information from the Company) other than a U.S.
Holder that explicitly discloses that its determination of the amounts, if any,
of such accruals differs from that of the Company. Such disclosure must be made
on a statement attached to the U.S. Holder's timely filed federal income tax
return for the taxable year that includes the date the U.S. Holder acquired the
Series A Preferred Stock. Each U.S.
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Holder should consult its own tax advisor concerning the appropriate accruals of
Redemption Premium and related disclosure requirements.
Any dividends on the Series A Preferred Stock that are not paid in cash
will accrue and compound, and will therefore be payable upon the optional or
mandatory redemption of the Series A Preferred Stock. The tax treatment of such
accruing and compounding dividends ("Accumulated Dividends") is not free from
doubt. Under current law, it appears that Accumulated Dividends would not be
treated as having been received by holders of the Series A Preferred Stock until
such Accumulated Dividends were actually paid in cash (and would then be taxable
distributions for U.S. federal income tax purposes treated as dividends.) The
legislative history to the 1990 amendments to Section 305(c) of the Code,
however, grants the IRS authority to issue regulations (possibly with
retroactive effect) that would treat such Accumulated Dividends as part of the
redemption price of the stock. If Accumulated Dividends were included in the
redemption price of the Series A Preferred Stock, a holder would be required to
take such Accumulated Dividends into account in determining the amount that
constitutes the redemption premium price, as described above. The effect of such
treatment would be to treat such holder as having received such Accumulated
Dividends as constructive distributions at the time they accrue, rather than at
the time they are paid in cash. Until regulations requiring such treatment with
respect to Accumulated Dividends are issued, however, the Company intends to
take the position that Accumulated Dividends on Series A Preferred Stock need
not be treated as received by a holder until such time as such Accumulated
Dividends are actually paid to such holder in cash, and will report to the IRS
on that basis.
To the extent that the amount of (1) any actual distribution (including
those of Accumulated Dividends) or (2) any constructive distribution resulting
from the accrual of Redemption Premium on the Series A Preferred Stock
(including distributions of Contingent Warrants) exceeds the Company's current
and accumulated earnings and profits allocable to such distributions (as
determined for federal income tax purposes), such distribution will be treated
as a return of capital, thus reducing the U.S. Holder's adjusted tax basis in
such Series A Preferred Stock. Any such excess distribution that is greater than
the U.S. Holder's adjusted tax basis in the Series A Preferred Stock will be
taxed as capital gain and will be long-term capital gain if the U.S. Holder's
holding period for such Series A Preferred Stock exceeds one year.
Dividends Received Deduction
Under Section 243 of the Code, corporate U.S. Holders generally will be
able to deduct 70% of the amount of any distribution qualifying as a dividend.
There are, however, many exceptions and restrictions relating to the
availability of such dividends received deduction.
Section 246A of the Code reduces the dividends received deduction allowed
to a corporate U.S. Holder that has incurred indebtedness "directly
attributable" to its investment in portfolio stock. Section 246(c) of the Code
requires that, in order to be eligible for the dividends received deduction, a
corporate U.S. Holder must, among other things, hold the shares of the Series A
Preferred Stock for tax purposes for a minimum of 46 days (91 days in the case
of certain preferred stock dividends attributable to a period or periods
aggregating in excess of 366 days) during the 90-day period beginning on the
date which is 45 days before the date on which such share becomes ex-dividend
with respect to such dividend (during the 180-day period beginning on the date
which is 90 days before such ex-dividend date in the case of certain preferred
stock dividends attributable to a period or periods aggregating in excess of 366
days). A U.S. Holder's holding period for these purposes is suspended during any
period in which it has certain options or contractual obligations with respect
to substantially identical stock or holds one or more other positions with
respect to substantially similar or related property that diminishes the risk of
loss from holding the Series A Preferred Stock. No deduction is allowed if the
corporate U.S. Holder is under an obligation to make related payments with
respect to positions in substantially similar or related property. To the extent
the dividends received deduction is allowed, a corporate U.S. Holder's
liability, if any, for alternative minimum tax may be increased.
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Under Section 1059 of the Code, a corporate U.S. Holder is required to
reduce its tax basis (but not below zero) in the Series A Preferred Stock by the
nontaxed portion of any "extraordinary dividend" if such stock has not been held
for tax purposes for more than two years before the earliest of the date such
dividend is declared, announced, or agreed to. Generally, the nontaxed portion
of an extraordinary dividend is the amount excluded from income by operation of
the dividends received deduction provisions of Section 243 of the Code. An
extraordinary dividend on the Series A Preferred Stock generally would be a
dividend that (i) equals or exceeds 5% of the corporate U.S. Holder's adjusted
tax basis in the Series A Preferred Stock, treating all dividends having
ex-dividend dates within an 85-day period as one dividend or (ii) exceeds 20% of
the corporate U.S. Holder's adjusted tax basis in the Series A Preferred Stock,
treating all dividends having ex-dividend dates within a 365-day period as one
dividend. In determining whether a dividend paid on the Series A Preferred Stock
is an extraordinary dividend, a corporate U.S. Holder may elect to substitute
the fair market value of the stock for such U.S. Holder's adjusted tax basis for
purposes of applying these tests, provided such fair market value is established
to the satisfaction of the Secretary of the Treasury as of the day before the
ex-dividend date. An extraordinary dividend also includes any amount treated as
a dividend in the case of a redemption that is non-pro rata as to all
stockholders or in partial liquidation of the Company or which would not have
been treated as a dividend if any options had not been taken into account under
Section 318(a)(4) of the Code or Section 304(a) of the Code had not applied,
regardless of the stockholder's holding period and regardless of the size of the
dividend. If any part of the nontaxed portion of an extraordinary dividend is
not applied to reduce the U.S. Holder's tax basis as a result of the limitation
on reducing such basis below zero, such part will be treated as capital gain and
will be recognized in the taxable year in which the extraordinary dividend is
received.
Special rules exist with respect to extraordinary dividends for "qualified
preferred dividends." A qualified preferred dividend is any fixed dividend
payable with respect to any share of stock which (i) provides for fixed
preferred dividends payable not less frequently than annually and (ii) is not in
arrears as to dividends at the time the U.S. Holder acquired such stock. A
qualified preferred dividend does not include any dividend payable with respect
to any share of stock if the actual rate of return of such stock exceeds 15%.
Section 1059 does not apply to qualified preferred dividends if the corporate
U.S. Holder holds the stock with respect to which the dividends are paid for
more than five years. If the U.S. Holder disposes of such stock before it has
been held for more than five years, the amount subject to extraordinary dividend
treatment with respect to qualified preferred dividends is limited to the excess
of the actual rate of return over the stated rate of return. Actual or stated
rates of return are the actual or stated dividends expressed as a percentage of
the lesser of (1) the U.S. Holder's adjusted tax basis in such stock or (2) the
liquidation preference of such stock. CORPORATE U.S. HOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE POSSIBLE APPLICATION OF SECTION
1059 TO THEIR OWNERSHIP OR DISPOSITION OF THE SERIES A PREFERRED STOCK.
Disposition of Preferred Stock
A U.S. Holder's adjusted tax basis in the Series A Preferred Stock will, in
general, be the U. S. Holder's initial tax basis of such Series A Preferred
Stock increased by the Redemption Premium, if any, previously included in income
by the U.S. Holder. A corporate U.S. Holder's tax basis may be further adjusted
by the extraordinary dividend provisions discussed above. Upon the sale or other
disposition of Series A Preferred Stock (other than by redemption), a U.S.
Holder will generally recognize capital gain or loss equal to the difference
between the amount realized upon the disposition and the adjusted tax basis of
the Series A Preferred Stock. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if at the time of sale, exchange, or
other disposition the Series A Preferred Stock has been held for more than one
year. The deductibility of capital losses is subject to limitations.
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A redemption of the Series A Preferred Stock by the Company would be
treated, under Section 302 of the Code, either as a sale or exchange giving rise
to capital gain or loss or as a dividend. If a redemption is treated as a sale
or exchange, a U.S. Holder will generally recognize capital gain or loss as
described above, except to the extent that the redemption price includes
dividends which have been declared but not paid prior to the redemption, which
will be treated as dividends as described above. If a redemption of shares of
the Series A Preferred Stock is treated as a dividend with respect to a
particular U.S. Holder under Section 302 of the Code, such U.S. Holder (i) will
not recognize any loss on the redemption, (ii) will recognize dividend income
(rather than capital gain) in an amount equal to its proportionate share of the
Company's current or accumulated earnings and profits. Pursuant to Section 302
of the Code, the redemption will not be treated as a dividend, if after giving
effect to the constructive ownership rules of Section 318 of the Code, the
redemption (i) represents a "complete termination" of the redeeming U.S.
Holder's stock interest in the Company, (ii) is "substantially disproportionate"
with respect to the redeeming U.S. Holder or (iii) is "not essentially
equivalent to a dividend" with respect to the redeeming U.S. Holder, all within
the meaning of Section 302(b) of the Code. Under the constructive ownership
rules of Section 318 of the Code, a U.S. Holder of a Warrant will be treated as
owning the Common Stock which would be received pursuant to the exercise of such
Warrant. Accordingly, a redemption of Series A Preferred Stock could not,
standing alone, satisfy the "complete termination" test if the U.S. Holder owns
Warrants before and after the redemption, but could satisfy such test if the
U.S. Holder does not own Warrants or any other stock interest (including through
constructive ownership) after the redemption. A redemption will be "not
essentially equivalent to a dividend" as to a particular U.S. Holder if it
results in a "meaningful reduction" in such U.S. Holder's interest in the
Company (after application of the constructive ownership rules of Section 318 of
the Code). In general, there are no fixed rules for determining whether a
"meaningful reduction" has occurred. EACH U.S. HOLDER SHOULD CONSULT ITS OWN TAX
ADVISOR AS TO ITS ABILITY IN LIGHT OF ITS OWN PARTICULAR CIRCUMSTANCES TO
SATISFY ANY OF THE FOREGOING TESTS. ADDITIONALLY, CORPORATE U.S. HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE AVAILABILITY OF THE CORPORATE
DIVIDENDS RECEIVED DEDUCTION AND THE POSSIBLE APPLICATION OF THE EXTRAORDINARY
DIVIDEND RULES OF SECTION 1059 OF THE CODE TO A DISTRIBUTION THAT IS TAXABLE AS
A DIVIDEND.
Exchange Offer
The exchange of Original Preferred Shares for substantially identical
preferred stock (i.e., the New Preferred Shares) pursuant to this Exchange Offer
should not constitute a taxable event for U.S. federal income tax purposes. As a
result, (i) a U.S. Holder of Original Preferred Shares should not recognize
taxable gain or loss as a result of the exchange of Original Preferred Shares
for New Preferred Shares pursuant to the Exchange Offer, (ii) the holding period
of the New Preferred Shares should include the holding period of the Original
Preferred Shares surrendered in exchange therefor and (iii) a U.S. Holder's
adjusted tax basis in the New Preferred Shares should be the same as such U.S.
Holder's adjusted tax basis in the Original Preferred Shares surrendered in
exchange therefor.
Information Reporting and Backup Withholding
A noncorporate U.S. Holder of Series A Preferred Stock may be subject to
backup withholding at a 31% rate with respect to "reportable payments", which
include dividends (including any accrual of Redemption Premium) paid on Series A
Preferred Stock or the proceeds of a sale or exchange of the Series A Preferred
Stock. The payor of any reportable payments will be required to deduct and
withhold 31% of such payments if (i) the payee fails to furnish a correct
Taxpayer Identification Number (a "TIN") to the payor in the prescribed manner,
(ii) the IRS notifies the payor that the TIN furnished by the payee is
incorrect, (iii) the payee has failed properly to report the receipt of certain
reportable payments and the IRS has notified the payor that backup withholding
is required or (iv) the payee fails to certify under penalties of perjury that
such payee is not subject to backup withholding. If any one of these events
occurs with respect to a U.S. Holder of Series A Preferred
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<PAGE> 125
Stock, the payer of any reportable payment will be required to withhold 31% of
any such reportable payments with respect thereto.
Any amount withheld from a payment to a U.S. Holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
U.S. federal income tax liability, so long as the required information is
provided to the IRS. The payer of any reportable payment generally will report
to a U.S. Holder of Series A Preferred Stock and to the IRS the amounts of any
reportable payments made in respect to the Series A Preferred Stock for each
calendar year and the amount of tax withheld, if any, with respect to such
payments.
NON-U.S. HOLDERS
The discussion above is applicable only to U.S. Holders. The Series A
Preferred Stock may not be an appropriate investment for persons other than U.S.
Holders ("Non-U.S. Holders"), since dividends on the Series A Preferred Stock
(whether paid in cash or in-kind) generally will be subject to the withholding
of U.S. federal income tax at a 30% rate (or lower applicable treaty rate,
subject to applicable requirements, including the requirement to provide
specified documentation of foreign status). Tax consequences for Non-U.S.
Holders, if any, may differ if their investment in Series A Preferred Stock is
treated as effectively connected with their conduct of a trade or business
within the United States. The tax consequences to Non-U.S. Holders may be
complex and in some cases, adverse, and are not described herein except to the
limited extent set forth in this paragraph. Persons who are Non-U.S. Holders
should consult their own tax advisors prior to acquiring Series A Preferred
Stock.
PROSPECTIVE PURCHASERS OF UNITS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE APPLICATION TO THEIR PARTICULAR SITUATIONS OF U.S. FEDERAL
INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Preferred Shares for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Preferred Shares. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Preferred Shares received
in exchange for Original Preferred Shares where such shares were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that it will make this Prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale for a period
ending 90 days after the completion of the Exchange Offer.
The Company will not receive any proceeds from any sale of New Preferred
Shares by broker-dealers. New Preferred Shares received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Preferred Shares or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Preferred Shares. Any broker-dealer that resells New Preferred Shares that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Preferred Shares may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit of any such resale of New Preferred Shares and any commissions or
concessions received by any such persons may be deemed to be underwriting
120
<PAGE> 126
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than the expenses of counsel for the holders of the Original Preferred
Shares and commissions or concessions of any brokers or dealers, and will
indemnify the holders of the Original Preferred Shares (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF THE SECURITIES
The validity of the New Preferred Shares will be passed upon for the
Company by Hale and Dorr LLP, Boston, Massachusetts.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997
included in this Prospectus have been audited by PricewaterhouseCoopers LLP,
independent accountants, as stated in their report appearing herein.
121
<PAGE> 127
GLOSSARY
1+ OUTBOUND SERVICE -- Standard, self-dialed long distance telephone service.
"500 NUMBER" TECHNOLOGY -- A non-geographic area code system that allows for
"follow me" services.
ACCESS CHARGES -- The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ADVANCED INTELLIGENT NETWORK (AIN) -- A network architecture with three basic
elements: (1) Signal Control Points (SCPs) -- computers that hold databases in
which customer-specific information is stored for use by the network to route
calls; (2) Signal Switching Points (SSPs) -- digital telephone switches that can
communicate with SCPs and ask them for customer-specific instructions as to how
a call should be completed; and (3) Signal Transfer Points (STPs) -- packet
switches that shuttle messages between SSPs and SCPs.
AMERICAS 1 -- A submarine telecommunications cable system linking the United
States and several Caribbean and South American countries.
AUTOMATIC NUMBER IDENTIFICATION (ANI) -- The delivery of the calling party's
number by a LEC for billing or routing purposes and the subsequent delivery of
such number of end users.
BANDWIDTH -- The number of bits of information that can move through a
communications medium in a given amount of time; the capacity of a
telecommunications circuit or network to carry voice, data and video
information.
BUNDLED SERVICES -- Services for which a carrier must pay one all-inclusive
charge for switching, transmission, LEC access, and other charges.
CALL DETAIL RECORD (CDR) -- A paper or electronic record of the time, duration,
and points of origination and termination of a telephone call, made and kept
primarily for billing purposes.
CATVS (COMMUNITY ANTENNA TELEVISION OR CABLE TELEVISION) -- Cable television
service providers.
CENTREX -- A trademarked name for an ILEC service that offers direct dialing
within a given phone system, direct dialing of incoming calls and automatic
identification of outbound calls. This service simulates, through equipment
located centrally, the features of a dedicated switching system located within
an office building (a so-called Private Branch Exchange or PBX).
CO-CARRIER STATUS -- A relationship between CLECs that affords equal access to
and rights on each other's networks, and that provides access and services on an
equal basis.
COLLOCATION -- The physical or virtual connection of a telecommunications
carrier's equipment with a given LEC's system to facilitate the interconnection
of their respective switching/routing equipment.
COMMERCIAL MOBILE RADIO SERVICE (CMRS) -- The FCC's term for certain wireless
telecommunication services, provided on a commercial basis, including cellular
telephone service and personnel communications services.
COMMUNICATIONS ACT -- The Communications Act of 1934, 47 U.S.C. sec. 151 et
seq., as amended.
COMPETITIVE ACCESS PROVIDER (CAP) -- A company that provides its customers with
an alternative to the local exchange company for local transport of private line
and special access services, and interstate transport of switched access
telecommunications services.
COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC) -- A company that provides its
customers an alternative to the local telephone carrier for local transport of
private line, special access and switched local access telecommunications
services.
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CONTRACT TARIFFS -- Contractually prescribed rates for telecommunications
services, generally set forth on a per minute basis by place of termination of
call, and filed with a state or federal regulatory agency.
DEDICATED ACCESS LINES -- Telecommunications lines dedicated or reserved for use
exclusively by particular customers along predetermined routes (in contrast to
telecommunications lines within a LEC's public, switched network).
DIALING PARITY -- The ability to reach a given termination point by dialing the
same telephone number, or same number of digits, through any provider of
telecommunication services.
DSO, DS1, DS3 AND E1 SPEEDS -- Standard telecommunications industry signal
formats which are distinguishable by bit rate (the number of binary digits (0
and 1) transmitted per second).
FACILITIES-BASED PROVIDER -- A telecommunications company that carries all or a
portion of its traffic over its own network infrastructure, including switching
facilities and/or transport facilities; distinguished from a company that
carriers traffic solely over leased infrastructure elements. There is no
industry consensus on what constitutes a facilities-based carrier and the FCC
and state regulatory agency definitions vary accordingly.
FCC -- United States Federal Communications Commission.
FGD (FEATURE GROUP D) -- A trunk-side LATA access affording call supervision to
an interexchange carrier (IXC), a uniform access code, optional calling-party
identification, recording of access-charge billing details, and presubscription
to a customer-specified IXC. FGD also provides automatic number identification
(ANI) for billing purposes.
FILE TRANSFER PROTOCOL (FTP) -- A service that supports file transfer between
local and remote computers.
"FOLLOW ME" NUMBERS -- "Smart" telephone numbers that, through number
translation and computer switching, can be used to reach a person among various
possible locations (e.g., home, office, etc.).
FRAME RELAY SERVICE -- A high-speed data packet switching service used to
transmit data between computers.
HUNT SEQUENCING -- A series of telephone lines organized in such a way that if
the first line is busy the next line is hunted and so on until a free line is
found.
INCUMBENT LOCAL EXCHANGE CARRIERS (ILEC) -- Companies providing local telephone
services that were historically the sole local provider in their respective
regions, including RBOCs.
INDEFEASIBLE RIGHT OF USE ("IRU") -- An unconditional right to use a facility,
such as a fiber optic filament or right of way; this right is created by
contract and confers upon the holder certain indicia of ownership, while leaving
legal title in the hands of the grantor.
INTELLIGENT NETWORK -- See "AIN", above.
INTEGRATED COMMUNICATIONS PROVIDER (ICP) -- A telecommunications carrier that
provides packaged or integrated services from among a broad range of categories,
including local exchange, long distance, enhanced data, cable TV, and other
communications services.
INTEGRATED SERVICES DIGITAL NETWORK (ISDN) -- A transmission method that
provides circuit-switched access to a public network at high speeds for voice,
data and video transmission.
INTERCONNECTION AGREEMENT -- A contract between an ILEC and CLEC for the
interconnection of the two networks and CLEC access to the ILEC's unbundled
network elements and resale of the ILEC's services. Such an agreement sets out
the financial and operational aspects of such interconnection and access.
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INTERCONNECTION ORDERS -- Rulings by the FCC announced in August 1996 that
implemented the local competition provisions of the Telecommunications Act and
that require ILECs to provide interconnection to any CLEC, seeking such
interconnection.
INTEREXCHANGE CARRIER (IXC) -- A telecommunications company that provides
telecommunications services between local exchanges on an interstate or
intrastate basis.
INTER-LATA SERVICE -- Telecommunications services originating in one LATA and
terminating in another.
INTERNATIONAL GATEWAY SWITCH -- A switch that routes international
telecommunications traffic.
INTERNET PROTOCOL (IP) -- Network protocols that allow computers with different
architectures and operating system software to communicate with other computers
on the Internet.
INTERNET SERVICE PROVIDER (ISP) -- A vendor who provides access for customers to
the Internet and the World Wide Web.
INTRA-LATA SERVICE -- Telecommunications services originating and terminating in
the same LATA.
LOCAL ACCESS AND TRANSPORT AREA (LATA) -- A geographic area established by the
MFJ within which a former Bell System local exchange carrier offers switched
telecommunications services, including long distance services. The MFJ
established approximately 200 LATAs in the United States. The term is primarily
of historical significance since the enactment of the Telecommunications Act.
LOCAL EXCHANGE -- A geographic area determined by the appropriate state
regulatory authority in which calls generally are transmitted without toll
charges to the customer.
LOCAL EXCHANGE CARRIER (LEC) -- A telecommunications company that provides
telecommunications services in a geographic area in which calls generally are
transmitted without toll charges. LECs include both RBOCs and CLECs.
LOCAL MULTIPORT DISTRIBUTION SERVICE (LMDS) -- Digital wireless service licensed
by the FCC in the 28-30 GHz frequency band.
LOCAL NUMBER PORTABILITY (LNP) -- The ability of an end user to retain a given
telephone number upon changing local telephone service providers.
LOOPS -- Circuits that connect end users to telecommunications switching
equipment.
MODIFIED FINAL JUDGMENT (MFJ) -- The consent decree resulting from United States
v. AT&T that effected the breakup of AT&T and the separation of its local and
long distance businesses.
MULTICHANNEL MULTIPOINT DISTRIBUTION SERVICE (MMDS) -- A one-way domestic public
radio service rendered on microwave frequencies from a fixed station
transmitting to multiple receiving facilities located at fixed points.
MULTIPLEXING -- An electronic or optical process that combines a number of lower
speed transmission lines into one high-speed line in order to maximize capacity.
NETWORK -- A web of telecommunications equipment, including switches and lines,
over which telecommunications traffic can be transmitted.
NETWORK OPERATIONS CENTER -- The central office from which the Company manages
its network.
NODE -- A point on a network at which a router and user access equipment are
located.
NPI -- Network Plus, Inc., a wholly owned subsidiary of the Company.
ON-NET TRAFFIC -- Customer traffic that is switched by one or more of the
Company's switches; such traffic may be transported on third-party facilities.
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OFF-NET TRAFFIC -- Customer traffic that is neither switched nor transported on
the Company's network; such traffic is carried entirely on third-party
facilities.
OPERATIONAL SUPPORT SYSTEM (OSS) -- The Company's methods, procedures and
software that directly support the daily operations of its telecommunications
infrastructure.
PEERING -- The commercial practice under which ISPs exchange each other's
traffic without the payment of settlement charges. Peering occurs at both public
and private exchange points.
PERCENTAGE ALLOCATION ROUTING -- An 800 Service that allows a customer to route
pre-selected percentages of calls from each originating routing group (typically
an area code) to two or more answering locations. Allocation percentages may be
further dictated based on the day of the week, time of day, etc.
PERSONAL COMMUNICATIONS SERVICE (PCS) -- A type of wireless telephone system
licensed by the FCC that uses light, inexpensive handheld sets and communicates
via low-powered antennas.
POINT OF PRESENCE (POP) -- The location at which a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PRIVATE LINE -- A private, dedicated telecommunications line connecting
different point-to-point locations (excluding long distance carrier POPs).
PROVISIONING -- The act of supplying telecommunications services to a user,
including all associated transmission, fiber and equipment.
PUBLIC SWITCHED TELEPHONE NETWORK (PSTN) -- That portion of a local exchange
company's network available to all users generally on a shared basis (i.e., not
dedicated to a particular user). Traffic along the PSTN is generally switched at
the LECs central offices.
PUBLIC UTILITY COMMISSION (PUC) -- A state regulatory commission, existing in
most states, that regulates public utilities, including telecommunications
companies providing intrastate services.
REGIONAL BELL OPERATING COMPANIES (RBOCS) -- The regional local telephone
holding companies established by the MFJ that effected the breakup of AT&T, and
which generally had a monopoly on local telephone service in their respective
areas prior to the enactment of the Telecommunications Act.
ROUTING -- The process by which sophisticated computer switching equipment
directs a call from its point of origination to its point of termination.
Intelligent routing capabilities include time-of-day, day-of-week, and
day-of-year routing, which direct calls to varying termination points based on
specified computer instructions; and least cost routing, which chooses the most
cost-efficient route available.
SIGNALLING SYSTEM SEVEN (SS7) -- An advanced signaling protocol that helps
optimize a network's efficiency through intelligent out-of-band routing
decisions.
SIGNALLING TRANSFER POINT -- The signalling facility through which SS7 messages
must pass as they are transmitted to their points of termination.
SWITCH -- A sophisticated computer that (a) routes telecommunications
transmissions by selecting the paths or circuits to be used for the transmission
of information and (b) establishes a connection. Switches allow
telecommunications service providers to connect calls to their destinations
while providing advanced features and recording connection information for
future billing.
SWITCHED ACCESS SERVICE -- The origination or termination of long distance
traffic between a customer's premises and a long distance carrier's POP via
shared local trunks using a local switch.
SWITCHED TRAFFIC -- Telecommunications traffic along a switched network.
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TAT 12/13 RIOJA -- A transatlantic submarine telecommunications cable linking
the United States and Europe.
TELECOMMUNICATIONS ACT -- The federal Telecommunications Act of 1996, 47 U.S.C.
sec. 230 et seq.
TERMINATION POINT -- The destination point of a telephone call.
TPC-5 -- A transpacific submarine telecommunications cable system linking the
United States and East Asia.
TRUNK LINE SERVICE -- A service that combines multiple channels with
unrestricted access in such a manner that user demands for channels are
automatically "queued" and then allocated to the first available channels.
UNBUNDLED ACCESS -- Access to unbundled elements of a telecommunications
services provider's network including network facilities, equipment, features,
functions and capabilities, at any technically feasible point within such
network.
UNBUNDLED NETWORK ELEMENTS (UNE) -- The various portions of an ILECs network
that a CLEC can lease for purposes of building a facilities-based competitive
network, including copper lines, fiber, central office collocation space,
interoffice transport, operational support systems, local switching and rights
of way.
VIRTUAL PRIVATE NETWORK (VPN) -- A service that establishes a software-derived
network offering the appearance, functionality and usefulness of a dedicated
private network.
WIRELESS COMMUNICATIONS SERVICE -- A generic term for telecommunications
services transmitted by radio signal, as opposed to those sent over fiber optic
or copper lines.
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NETWORK PLUS, INC.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1997 FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-2
Balance Sheets as of December 31, 1997 and 1996........... F-3
Statements of Operations and Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995........... F-4
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.................................... F-5
Notes to Financial Statements............................. F-6
UNAUDITED JUNE 30, 1998 INTERIM FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1998 and December 31,
1997................................................... F-15
Statements of Operations and Retained Earnings for the
Three Months and Six Months Ended June 30, 1998 and
1997................................................... F-16
Statements of Cash Flows for the Six Months Ended June 30,
1998 and 1997.......................................... F-17
Notes to Unaudited Interim Financial Statements........... F-18
</TABLE>
F-1
<PAGE> 133
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Network Plus Corp.:
In our opinion, the accompanying balance sheets and the related statements
of operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Network Plus, Inc., a wholly owned
subsidiary of Network Plus Corp., at December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 24, 1998, except for the information in
Notes 12 and 15, for which the dates are
July 15, 1998 and September 3, 1998, respectively
F-2
<PAGE> 134
NETWORK PLUS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,502 $ 2,241
Accounts receivable, net of allowance for doubtful
accounts of $926 and $850, respectively................ 16,927 14,974
Marketable securities..................................... 65 62
Investments............................................... 9,500 2,093
Prepaid expenses.......................................... 415 308
Other current assets...................................... 112 93
------- -------
Total current assets.............................. 28,521 19,771
PROPERTY AND EQUIPMENT, NET................................. 6,957 3,075
OTHER ASSETS................................................ 103 69
------- -------
TOTAL ASSETS...................................... $35,581 $22,915
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $17,445 $14,023
Accrued liabilities....................................... 2,245 1,934
Revolving line of credit.................................. 4,510 2,000
Notes payable to stockholders............................. 1,755 --
Current portion of debt and capital lease obligations..... 5,694 193
------- -------
Total current liabilities......................... 31,649 18,150
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 3,623 664
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000 shares
authorized, 10,000,000 shares issued and outstanding... 100 100
Additional paid-in capital................................ 183 183
Retained earnings......................................... 26 3,818
------- -------
Total stockholders' equity........................ 309 4,101
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $35,581 $22,915
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 135
NETWORK PLUS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue............................................ $ 98,209 $ 75,135 $ 49,024
Direct cost of revenue............................. 78,106 57,208 35,065
---------- ---------- ----------
Gross profit....................................... 20,103 17,927 13,959
Operating expenses
Selling, general and administrative expenses....... 25,704 19,230 17,697
Depreciation and amortization...................... 994 533 276
---------- ---------- ----------
26,698 19,763 17,973
---------- ---------- ----------
Operating loss..................................... (6,595) (1,836) (4,014)
Other income (expense)
Interest and dividend income..................... 86 95 202
Other income, net................................ 3,917 3,529 7,859
Interest expense................................. (557) (313) (40)
---------- ---------- ----------
3,446 3,311 8,021
---------- ---------- ----------
Income (loss) before state income taxes............ (3,149) 1,475 4,007
Provision for state income taxes................... 42 60 312
---------- ---------- ----------
Net income (loss).................................. $ (3,191) $ 1,415 $ 3,695
========== ========== ==========
Retained earnings, beginning....................... 3,818 3,639 1,834
Distributions to stockholders...................... (601) (1,237) (1,890)
---------- ---------- ----------
Retained earnings, ending.......................... $ 26 $ 3,818 $ 3,639
========== ========== ==========
Net income (loss) per share -- basic and diluted... $ (.32) $ .14 $ .37
========== ========== ==========
Weighted average shares outstanding................ 10,000,000 10,000,000 10,000,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
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NETWORK PLUS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(3,191) $ 1,415 $ 3,695
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization.......................... 994 533 276
Provision for losses on accounts receivable............ 4,104 1,102 887
Amortization of AT&T credits........................... -- (1,810) (2,436)
Exercise of Tel-Save common stock warrants received as
consideration........................................ (3,570) (2,800) --
Valuation of Tel-Save common stock warrants received as
consideration........................................ (3,837) (2,093) --
Proceeds from sale of Tel-Save common stock............ -- 4,167 --
Gain on sale of Tel-Save common stock.................. -- (1,367) --
(Increase) decrease in assets:
Accounts receivable.................................. (6,059) (1,584) (7,967)
Prepaid expenses..................................... (107) (218) (60)
Other current assets................................. (19) 11 198
Other long-term assets............................... (34) (13) 484
(Decrease) increase in liabilities:
Accounts payable..................................... 8,022 4,146 6,727
Accrued liabilities.................................. 311 (438) 659
------- ------- -------
Net cash provided by (used for) operating
activities...................................... (3,386) 1,051 2,463
Cash flows from investing activities:
Proceeds from sale of fixed assets..................... 9 -- --
Proceeds from sale of fixed assets to affiliate........ -- 34 535
Capital expenditures................................... (3,363) (2,135) (860)
Purchase of marketable securities...................... (3) (3) --
Proceeds from sale of marketable securities............ -- 90 141
------- ------- -------
Net cash used for investing activities............ (3,357) (2,014) (184)
Cash flows from financing activities:
Net proceeds from line of credit....................... 2,510 2,000 --
Proceeds from note payable............................. -- 1,000 --
Proceeds from notes payable to stockholders............ 1,755 -- --
Proceeds from sale and leaseback of fixed assets....... 3,450 -- --
Payments on debt and capital lease obligations......... (1,110) (167) (13)
Distributions to stockholders.......................... (601) (1,237) (1,890)
------- ------- -------
Net cash provided by (used for) financing
activities...................................... 6,004 1,596 (1,903)
------- ------- -------
Net increase (decrease) in cash............................. (739) 633 376
Cash at beginning of year................................... 2,241 1,608 1,232
------- ------- -------
Cash at end of year......................................... $ 1,502 $ 2,241 $ 1,608
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................. $ 498 $ 298 $ 40
======= ======= =======
Income taxes......................................... $ 15 $ 243 $ 167
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 137
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Network Plus, Inc. (the "Company"), a wholly owned subsidiary of Network
Plus Corp. (see Note 12), is a switch-based carrier and switchless reseller of
long distance telecommunications services, principally to small and medium-sized
businesses in the Northeastern and Southeastern regions of the United States.
Revenues are derived from the sale of domestic and international telephone
services, calling cards, debit cards and paging services. The Company operates
two telephony switches, located in Quincy, Massachusetts and Orlando, Florida,
and contracts with Sprint Communications Company, LP ("Sprint") to provide
switching and dedicated voice and data services for a portion of the Company's
telecommunications traffic.
CASH EQUIVALENTS
All highly liquid cash investments with maturities of three months or less
at date of purchase are considered to be cash equivalents.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Telecommunication revenues and accounts receivable are recognized when
calls are completed or when services are provided. Accounts receivable include
both billed and unbilled amounts, and are reduced by an estimate for
uncollectible amounts.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life of the improvements. Upon retirement or other disposition of
property and equipment, the cost and related depreciation are removed from the
accounts and the resulting gain or loss is reflected in earnings.
CAPITAL LEASES
Capital leases, those leases which transfer substantially all benefits and
risks of ownership, are accounted for as acquisitions of assets and incurrences
of obligations. Capital lease amortization is included in depreciation and
amortization expense, with the amortization period restricted to the lease term.
Interest on the related obligation is recognized over the lease term at a
constant periodic rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
Effective March 1, 1992, the Company elected by the consent of its
stockholders to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay corporate federal
income taxes on its taxable income. Instead, the stockholders are liable for
individual income taxes on their share of the Company's taxable income.
F-6
<PAGE> 138
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company continues to pay state income taxes in those states that do not
fully recognize the Subchapter S provision and states that assess certain
franchise taxes.
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable. In
addition, risk exists in cash deposited in banks that may, at times, be in
excess of FDIC insurance limits. Cash balances are managed daily to reduce
revolving credit borrowings. The trade accounts receivable risk is limited due
to the breadth of entities comprising the Company's customer base and their
dispersion across different industries and geographical regions. The Company
evaluates the creditworthiness of customers, as appropriate, and maintains an
adequate allowance for potential uncollectible accounts.
EARNINGS (LOSS) PER SHARE
The Company computes and reports earnings per share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share". The computations of basic and
diluted earnings (loss) per common share are based upon the weighted average
number of common shares outstanding and potentially dilutive securities.
Potentially dilutive securities include convertible preferred stock, stock
options and warrants. There were no potentially dilutive securities outstanding
during 1997, 1996 or 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which is effective for fiscal years beginning after December 15, 1997,
including interim periods. SFAS 130 requires the presentation of comprehensive
income and its components. Comprehensive income presents a measure of all
changes in equity that result from recognized transactions and other economic
events during the period other than transactions with stockholders. The Company
will adopt SFAS 130 in the first quarter of 1998 and does not expect
comprehensive income to differ from reported net income.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal
years beginning after December 15, 1997. Interim reporting disclosures are not
required in the first year of adoption. SFAS 131 specifies revised guidelines
for determining an entity's operating segments and the type and level of
operating information to be disclosed. SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting. The
management approach described in SFAS 131 expands the required disclosures for
each segment. The Company will adopt SFAS 131 in its year ending December 31,
1998, and has yet to determine the impact of such adoption on the reporting of
its results of operations as currently presented.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The Company does not believe
that this pronouncement will have a material impact on its business or results
of operations.
F-7
<PAGE> 139
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
RECLASSIFICATIONS
Certain amounts in the financial statements for prior years have been
reclassified to conform with the current year presentation. Such
reclassifications had no effect on previously reported results of operations.
2. RELATED PARTY TRANSACTIONS
In December 1997, the Company's stockholders made loans to the Company
totaling $1,755. Interest on the loans accrues at the prevailing prime rate
(8.5% at December 31, 1997) and is payable monthly. There is no required period
for principal repayment. The loans were repaid in May 1998 and, accordingly,
have been classified as a current liability in the accompanying balance sheet.
The Company had a service arrangement through May 1997 with a marketing
company, the controlling stockholders of which include the Company's
stockholders. The marketing company provided services relative to establishing,
training and expanding the Company's sales organization. For the years ending
December 31, 1997, 1996 and 1995, the amounts paid to the marketing company were
$55, $132 and $197, respectively.
Office space, located in Quincy, Massachusetts, is leased from a trust, the
beneficiaries of which are the stockholders of the Company (see Note 11). The
Company makes monthly rental payments of $36. In each of the years ending
December 31, 1997, 1996, and 1995, the amount paid to the trust was $431.
3. MARKETABLE SECURITIES
Marketable securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- --------------------
COST FAIR VALUE COST FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
U.S. obligations.................................. $ 3 $ 3 $ 3 $ 3
Other securities.................................. 62 62 59 59
------ ------ ------ ------
$ 65 $ 65 $ 62 $ 62
====== ====== ====== ======
</TABLE>
4. INVESTMENTS AND SALE OF CUSTOMER BILLING BASE
Investments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- --------------------
COST FAIR VALUE COST FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Tel-Save warrants................................. $9,500 $9,500 $2,093 $2,093
====== ====== ====== ======
</TABLE>
In 1995, the Company sold three separate billing bases of customer accounts
to other telecommunications companies for cash totaling approximately $8,422 and
warrants to purchase shares of common stock of Tel-Save Holdings, Inc.
("Tel-Save"). The cash received was recognized as miscellaneous income in 1995.
The Company was required to fulfill certain sales volume obligations in order to
exercise the warrants. As of December 31, 1995, the Company had not met those
obligations and, accordingly, had ascribed no value to the warrants.
During 1996, the Company met the sales volume obligations to exercise a
portion of the outstanding warrants. Certain of these warrants were exercised
and common stock related to those
F-8
<PAGE> 140
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
warrants was sold by the Company, resulting in net proceeds and income of
$1,367. The remainder of the warrants that became exercisable in 1996 were
subsequently exercised in 1997. These warrants were classified as investments
and were valued at approximately $2,093 at December 31, 1996 using an
established valuation model. A total of approximately $3,460 was recognized as
other income in 1996 relating to these warrants.
The agreements between Tel-Save and the Company required the transfer of
ownership of the common stock certificates from Tel-Save to the Company upon the
Company meeting certain requirements, which the Company, based upon available
information, believed it had met in 1996 and 1997. Accordingly, in 1997, cash
payments totaling $3,570 were made to exercise all outstanding warrants. In
total, payments for warrants in 1997 were believed to entitle the Company to
765,000 shares of Tel-Save common stock, subject to the registration of the
shares by Tel-Save. The shares were registered with the Securities and Exchange
Commission in November 1997, but common stock certificates were not physically
transferred to the Company.
In order to take physical possession of the Tel-Save common stock
certificates, the Company filed suit against Tel-Save in January 1998. On June
24, 1998, a settlement agreement was signed between the parties pursuant to
which Tel-Save returned $1,470 paid by the Company during 1997 in its attempt to
exercise the final warrant for 315,000 shares, and canceled that warrant. In
addition, Tel-Save issued the remaining 450,000 shares to the Company and
simultaneously repurchased such shares for $8,030. There are no continuing
obligations between the parties. Accordingly, the Company's investment in
Tel-Save at December 31, 1997 was valued at the $9,500 received pursuant to the
settlement in June 1998, and other income of $3.8 million was recorded in 1997
to reflect this valuation.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ------------------
USEFUL LIFE 1997 1996
------------- ------- -------
<S> <C> <C> <C>
Switching equipment................................... 5 years $ 4,004 $ 1,513
Computer equipment.................................... 3-5 years 2,756 948
Office furniture and equipment........................ 7 years 1,272 1,157
Purchased software.................................... 3 years 694 275
Motor vehicles........................................ 5 years 174 175
Leasehold improvements................................ Term of lease 130 92
------- -------
9,030 4,160
Less accumulated depreciation and amortization........ (2,073) (1,085)
------- -------
$ 6,957 $ 3,075
======= =======
</TABLE>
In 1997, upon review of the Company's experience and expectations for
upgrades and replacement of equipment, the Company changed the estimated useful
life of its switching equipment from 12 years to 5 years. Depreciation expense
in 1997 was approximately $136 more than what would have otherwise been reported
had the change in estimate not been made. Annual depreciation expense related to
these assets will be approximately $407 more through 2002 than what would have
otherwise been reported had the change not been made.
In August 1997, the Company entered into a sale and leaseback of its
switching equipment. The equipment was sold at book value, which approximates
market value, and, consequently, no gain or loss was recorded on the sale. The
Company has the right to reacquire the equipment at the end of the lease's
five-year term.
F-9
<PAGE> 141
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Accrued interest......................................... $ 60 $ 14
Accrued salaries, wages, commissions and related taxes... 297 445
Customer deposits........................................ 361 125
Accrued income and franchise taxes....................... 766 879
Accrued taxes other than income and franchise............ 238 375
Other accrued liabilities................................ 523 96
------ ------
$2,245 $1,934
====== ======
</TABLE>
7. REVOLVING CREDIT AGREEMENT
The Company has a revolving line of credit with Fleet National Bank
("Fleet") for borrowings up to $7,000, including letters of credit, which
expires on May 31, 1998. Availability in excess of $5,000 is based upon a
percentage of accounts receivable. Interest is payable monthly at the bank's
prime rate or available LIBOR options. The revolving line of credit requires the
Company to meet certain debt service, liquidity and tangible net worth
covenants. At December 31, 1997, cash borrowings under the line of credit
totalled $4,510 and letters of credit issued in the ordinary course of business
totalled $120. At December 31, 1996, cash borrowings under the line totalled
$2,000 and there were no outstanding letters of credit. The interest rate on
such borrowings was 8.5% at December 31, 1997 and 8.25% at December 31, 1996.
The maximum borrowings under the agreement in 1997 and 1996 were $5,000 and
$3,000, respectively.
On May 1, 1998, the Company entered into new revolving credit agreement
with Fleet, which allows for up to $23 million of borrowings, based upon a
percentage of accounts receivable. The new agreement has a term of three years.
Interest is payable monthly at Fleet's prime rate or available LIBOR options.
The revolving credit agreement requires the Company to meet certain gross
margin, operating income and tangible net worth covenants. All outstanding notes
payable were paid in full with proceeds from the new facility.
8. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Notes payable.......................................... $ 4,600 $ 855
Capital lease obligations.............................. 4,717 2
------- -------
9,317 857
Less current portion................................... (5,694) (193)
------- -------
$ 3,623 $ 664
======= =======
</TABLE>
The Company issued a promissory note, dated December 1, 1997, to Sprint for
repayment of $4,600 previously classified as accounts payable. Monthly principal
payments are required from February 1998 through the note's maturity on
September 1, 1998. Interest accrues at a fixed rate of
F-10
<PAGE> 142
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9.75% per annum on the unpaid principal balance and is payable monthly. The
promissory note and accrued interest were paid in full on May 1, 1998.
In January of 1996, the Company entered into a five-year term loan
agreement in the amount of $1,000 at a fixed rate of 8.11% per year,
collateralized by switching equipment. This loan was repaid in October 1997. At
December 31, 1996, the unpaid principal on the loan was $846.
The Company's capital leases contain various covenants which, among other
things, require the Company to maintain specified ratios of total liabilities to
net worth and to meet certain net income requirements.
9. LEASE COMMITMENTS
The Company has entered into noncancellable operating leases for office
space in several locations in the eastern United States. The leases have
termination dates through 2003 and require the payment of various operating
costs including condominium fees. Rental expense related to the leases for the
years ended December 31, 1997, 1996 and 1995 were $733, $688 and $501,
respectively.
Minimum lease payments for the next five years and thereafter are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CAPITAL LEASES OPERATING LEASES
- ----------------------------------------------------- -------------- ----------------
<S> <C> <C>
1998................................................. $ 1,254 $ 684
1999................................................. 1,368 630
2000................................................. 1,230 346
2001................................................. 817 88
2002................................................. 750 90
Thereafter........................................... -- 75
------- -------
Total minimum lease payments......................... $ 5,419 $ 1,913
=======
Less imputed interest................................ (702)
-------
Present value of minimum lease payments.............. 4,717
Less current portion................................. (1,094)
-------
Long-term capital lease obligations.................. $ 3,623
=======
</TABLE>
Property and equipment under capital leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ----
<S> <C> <C>
Switching equipment......................................... $3,837 $--
Computer equipment.......................................... 1,527 --
Office equipment............................................ -- 3
------ ---
5,364 3
Less accumulated amortization............................... (515) (3)
------ ---
$4,849 $--
====== ===
</TABLE>
F-11
<PAGE> 143
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. UNEARNED CREDITS
In 1993 and 1994, the Company, through special sales promotions offered
through AT&T on three-year service contracts, received cash based on maintaining
annual sales commitment levels over a specific dollar amount. The total amounts
received from the AT&T promotions were amortized over the three-year length of
each contract and were fully amortized prior to 1997. Amortization of these
credits included in revenue in 1996 and 1995 was $1,810 and $2,436,
respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company is contingently liable as a guarantor on a bank loan made to
the trust from whom the Company leases office space in Quincy, Massachusetts
(see Note 2). The outstanding balance of the loan at December 31, 1997 and 1996
is $1,486 and $1,546, respectively.
12. STOCKHOLDERS' EQUITY
On July 15, 1998, the stockholders of the Company created Network Plus
Corp. ("NP Corp."), which was incorporated in the State of Delaware. NP Corp.
expects to elect to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. NP Corp. became the owner of 100% of the issued and
outstanding common stock of the Company on July 15, 1998, the date on which the
stockholders of the Company contributed their ownership interest in the Company
totaling 100 shares of common stock in return for 10,000,000 shares of common
stock, representing 100% of the ownership interest of NP Corp. These
transactions were initiated by the stockholders of the Company to achieve a
number of business objectives including an increase in the number of shares of
common stock authorized for issuance and issued and outstanding. The Company has
accounted for the effects of these transactions as a 100,000-for-1 stock split
and retroactively restated the accompanying financial statements to reflect
these transactions.
COMMON STOCK
The certificate of incorporation of NP Corp. authorizes the issuance of up
to 20,000,000 shares of $.01 par value common stock. There are 10,000,000 shares
of common stock issued and outstanding and held of record by two stockholders as
of July 15, 1998. The holders of common stock are entitled to receive dividends
when and as dividends are declared by the Board of Directors of NP Corp. out of
funds legally available therefor, provided that if any shares of preferred stock
are at the time outstanding, the payment of dividends on the common stock or
other distributions may be subject to the declaration and payment of dividends
on outstanding shares of preferred stock. Holders of common stock are entitled
to one vote per share on all matters submitted to a vote of the stockholders,
including the election of directors. Upon any liquidation, dissolution or
winding up of the affairs of NP Corp., whether voluntary or involuntary, any
assets remaining after the satisfaction in full of the prior rights of creditors
and the aggregate liquidation preference of any preferred stock then outstanding
will be distributed to the holders of common stock ratably in proportion to the
number of shares held by them. The common stock is not publicly traded.
PREFERRED STOCK
Under the certificate of incorporation of NP Corp., the Board of Directors
has the authority to issue up to 1,000,000 shares of $.01 par value preferred
stock from time to time in one or more series with such preferences, terms and
rights as the Board of Directors may determine without further action by the
stockholders of NP Corp. Accordingly, the Board of Directors has the power to
establish the provisions, if any, relating to dividends, voting rights,
redemption rates, sinking funds,
F-12
<PAGE> 144
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
liquidation preferences and conversion rights for any series of preferred stock
issued in the future. There are currently no shares of preferred stock
outstanding.
STOCK-BASED COMPENSATION PLANS
On July 15, 1998, NP Corp. adopted the 1998 Stock Incentive Plan (the "1998
Incentive Plan"). The 1998 Incentive Plan provides for the grant of stock-based
awards to employees, officers and directors of, and consultants or advisors to,
NP Corp. Under the 1998 Incentive Plan, the Company may grant options that are
intended to qualify as incentive stock options ("incentive stock options")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), options not intended to qualify as incentive stock options
("non-statutory options"), restricted stock and other stock-based awards.
Incentive stock options may be granted only to employees of NP Corp. or its
subsidiaries. A total of 1,400,000 shares of common stock may be issued upon the
exercise of options or other awards granted under the 1998 Incentive Plan. The
number of shares with respect to which awards may be granted to any employee
under the 1998 Incentive Plan may not exceed 700,000 during any calendar year.
The exercisability of options or other awards granted under the 1998 Incentive
Plan may, in certain circumstances, be accelerated in connection with an
Acquisition Event (as defined in the 1998 Incentive Plan). Options and other
awards may be granted under the 1998 Incentive Plan at exercise prices that are
equal to, less than or greater than the fair market value of NP Corp.'s common
stock, and the Board generally retains the authority to reprice outstanding
options. The 1998 Incentive Plan expires in July 2008, unless sooner terminated
by the Board.
On July 15, 1998, NP Corp. authorized the grant of a total of 741,140
options to purchase NP Corp. common stock at exercise prices at or above the
fair market value of NP Corp.'s common stock, as determined by its Board of
Directors. The options, when issued, will generally vest ratably over a period
of four years. NP Corp. and the Company intend to adopt the accounting
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation". Accordingly, the Company's or NP Corp.'s results of operations
are not expected to be materially affected by the options granted to date under
this plan.
On July 15, 1998, NP Corp. adopted the 1998 Director Stock Option Plan (the
"Director Plan"). Under the terms of the Director Plan, 5,000 shares of common
stock will be granted to each non-employee director upon his or her initial
election to the Board of Directors. Annual options to purchase 2,500 shares of
common stock will also be granted to each non-employee director on the date of
each annual meeting of stockholders, or on August 1 of each year if no annual
meeting is held by such date. Options granted under the Director Plan will vest
in four equal annual installments beginning on the first anniversary of the date
of grant. The exercisability of these options will be accelerated upon the
occurrence of an Acquisition Event (as defined in the Director Plan). The
exercise price of options granted under the Director Plan is equal to the fair
market value of the common stock on the date of grant. A total of 100,000 shares
of common stock may be issued upon the exercise of stock options granted under
the Director Plan. No options have been granted under this plan.
DIVIDEND
On July 15, 1998, the Board of Directors of NP Corp. declared a dividend in
the aggregate amount of $5,000. As a result, it is anticipated that $2,500 will
be distributed to each of the stockholders of NP Corp. Following receipt of the
dividend, one stockholder will loan the Company $1,875 (representing the
distribution to that stockholder, net of the estimated tax liability resulting
F-13
<PAGE> 145
NETWORK PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
from such distribution). Interest will accrue at Fleet's prime rate, and
interest and principal will be payable 10 days after redemption of the Series A
Preferred Stock.
13. MAJOR SUPPLIER
The Company has an agreement with Sprint to provide switching and dedicated
voice and data services. At expiration or any time prior, the Company can seek
to renew all material aspects of the agreement with Sprint. In the event that
renewal does not occur, the Company may be able to negotiate equally beneficial
terms with other major telecommunications companies. Should neither of these
alternatives be possible, there could be material adverse implications for the
Company's financial position and operations. Management's experience has been to
renegotiate agreements annually to ensure receiving competitive pricing, and
management believes the Company will be able to continue to renegotiate the
agreements. The current agreement was renegotiated, effective February 1998, and
will expire in February 2000.
14. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) and profit sharing plan (the "Plan") which is
open to all eligible employees under the Plan's provisions. The terms of the
Plan allow the Company to determine its annual profit sharing contribution.
There were no Company contributions to the Plan in 1997 or 1996. The Company's
contribution to the Plan in 1995 was $175.
15. SUBSEQUENT EVENT
On September 3, 1998, NP Corp. (see Note 12) issued 40,000 shares of 13.5%
Series A Cumulative Preferred Stock Due 2009 and initial warrants to purchase,
for $.01 per share, 310,000 shares of NP Corp.'s common stock (and contingent
warrants to purchase 600,000 shares of common stock) resulting in proceeds to NP
Corp. of $37.5 million, net of issuance costs of $2.5 million. A total value of
$4.35 million was ascribed to the initial warrants, net of issuance costs of
$0.3 million, and was accounted for as additional paid-in capital. The value
ascribed to the initial warrants was recorded as a discount to the preferred
stock which will be accreted to the preferred stock balance over an assumed
maturity period. Through September 3, 1998, NP Corp.'s activities consist
principally of the issuance of its preferred stock and warrants.
The issuance of the preferred stock terminated NP Corp.'s election to be
taxed under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, NP Corp. will provide for and report Federal and state income
taxes, if any.
F-14
<PAGE> 146
NETWORK PLUS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 8,194 $ 1,502
Accounts receivable, net of allowance for doubtful
accounts of $403 and $926, respectively................ 15,458 16,927
Marketable securities..................................... 66 65
Investments............................................... -- 9,500
Prepaid expenses.......................................... 1,230 415
Other current assets...................................... 142 112
------- -------
Total current assets.............................. 25,090 28,521
PROPERTY AND EQUIPMENT, NET................................. 8,361 6,957
OTHER ASSETS................................................ 227 103
------- -------
TOTAL ASSETS...................................... $33,678 $35,581
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $17,620 $17,445
Accrued liabilities....................................... 2,526 2,245
Revolving line of credit.................................. 9,000 4,510
Notes payable to stockholders............................. -- 1,755
Current portion of debt and capital lease obligations..... 1,132 5,694
------- -------
Total current liabilities......................... 30,278 31,649
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 3,167 3,623
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000 shares
authorized, 10,000,000 shares issued and outstanding... 100 100
Additional paid-in capital................................ 183 183
Retained earnings (deficit)............................... (50) 26
------- -------
Total stockholders' equity........................ 233 309
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $33,678 $35,581
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited interim financial
statements.
F-15
<PAGE> 147
NETWORK PLUS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue.......................... $ 27,103 $ 24,641 $ 52,305 $ 49,381
Direct cost of revenues.......... 19,992 19,330 38,828 38,440
----------- ----------- ----------- -----------
Gross profit..................... 7,111 5,311 13,477 10,941
Operating expenses
Selling, general and
administrative expenses..... 6,391 5,440 11,935 10,567
Depreciation and
amortization................ 483 168 951 324
----------- ----------- ----------- -----------
6,874 5,608 12,886 10,891
----------- ----------- ----------- -----------
Operating income (loss).......... 237 (297) 591 50
Other income (expense)
Interest and dividend income... 9 38 12 60
Other income, net.............. 16 20 37 37
Interest expense............... (293) (93) (578) (177)
----------- ----------- ----------- -----------
(268) (35) (529) (80)
----------- ----------- ----------- -----------
Income (loss) before state income
taxes.......................... (31) (332) 62 (30)
Provision for state income
taxes.......................... 125 -- 134 25
----------- ----------- ----------- -----------
Net loss......................... $ (156) $ (332) $ (72) $ (55)
=========== =========== =========== ===========
Retained earnings, beginning..... 106 3,808 26 3,818
Distributions to stockholders.... -- -- (4) (299)
----------- ----------- ----------- -----------
Retained earnings (deficit),
ending......................... $ (50) $ 3,476 $ (50) $ 3,464
=========== =========== =========== ===========
Net loss per share -- basic and
diluted........................ $ (.02) $ (.03) $ (.01) $ (.01)
=========== =========== =========== ===========
Weighted average shares
outstanding.................... 10,000,000 10,000,000 10,000,000 10,000,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited interim financial
statements.
F-16
<PAGE> 148
NETWORK PLUS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (72) $ (55)
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization.......................... 951 324
(Gain) loss on disposal of fixed assets................ (8) --
Exercise of Tel-Save common stock warrants............. -- (3,570)
Refund of exercise price of Tel-Save common stock
warrants.............................................. 1,470 --
Sale of Tel-Save common stock.......................... 8,030 --
Provision for losses on accounts receivable............ 729 639
(Increase) decrease in assets:
Accounts receivable.................................. 740 (1,881)
Prepaid expenses..................................... (815) (61)
Other current assets................................. (30) 23
Other long-term assets............................... (124) (28)
(Decrease) increase in liabilities:
Accounts payable..................................... 175 3,822
Accrued liabilities.................................. 281 (333)
------- -------
Net cash provided by (used for) operating
activities...................................... 11,327 (1,120)
Cash flows from investing activities:
Proceeds from disposal of fixed assets.................... 17 --
Capital expenditures...................................... (2,364) (1,605)
Purchase of marketable securities......................... (1) (1)
------- -------
Net cash used for investing activities............ (2,348) (1,606)
Cash flows from financing activities:
Net proceeds from line of credit.......................... 4,490 3,000
Payments on debt and capital lease obligations............ (6,773) (99)
Distributions to stockholders............................. (4) (299)
------- -------
Net cash provided by (used for) financing
activities...................................... (2,287) 2,602
------- -------
Net increase (decrease) in cash............................. 6,692 (124)
Cash at beginning of period................................. 1,502 2,241
------- -------
Cash at end of period....................................... $ 8,194 $ 2,117
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited interim financial
statements.
F-17
<PAGE> 149
NETWORK PLUS, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying Unaudited Interim Financial Statements of Network Plus,
Inc. (the "Company"), a wholly owned subsidiary of Network Plus Corp., have been
prepared in conformity with generally accepted accounting principles and, in the
opinion of management, include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results for the interim
periods. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
These unaudited interim financial statements should be read in conjunction
with the financial statements and related notes in the Company's annual audited
Financial Statements. The balance sheet as of December 31, 1997 has been derived
from the audited financial statements as of that date.
Certain amounts in the financial statements for the prior year have been
reclassified to conform with the current year presentation. Such
reclassifications had no effect on previously reported results of operations.
2. RELATED PARTY TRANSACTIONS
In December 1997, the Company's stockholders issued the Company loans
totaling $1,755. The loans were repaid on May 1, 1998.
The Company had a service arrangement through May 1997 with a marketing
company, the shareholders of which have a controlling interest in the Company.
The marketing company provided services relative to establishing, training and
expanding the Company's sales organization. During the six months ended June 30,
1997, $55 was paid to the marketing company.
Office space, located in Quincy, MA, is leased from a trust, the
beneficiaries of which are stockholders of the Company. The Company makes
monthly rental payments of $36. In each of the six-month periods ended June 30,
1998 and 1997, $216 was paid to the trust.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Switching equipment......................................... $ 6,160 $ 4,004
Computer equipment.......................................... 2,811 2,756
Office furniture and equipment.............................. 1,292 1,272
Purchased software.......................................... 725 694
Motor vehicles.............................................. 201 174
Leasehold improvements...................................... 184 130
------- -------
11,373 9,030
Less accumulated depreciation and amortization.............. (3,012) (2,073)
------- -------
$ 8,361 $ 6,957
======= =======
</TABLE>
In August 1997, upon review of the Company's experience and expectations
for upgrades and replacement of equipment, the Company changed the estimated
useful life of its switching equipment from 12 years to 5 years. Depreciation
expense in the six months ended June 30, 1997 was approximately $76 less than
what would have otherwise been reported had the change been previously made.
F-18
<PAGE> 150
NETWORK PLUS, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Accrued interest............................................ $ 83 $ 60
Accrued salaries, wages, commissions and related taxes...... 552 297
Customer deposits........................................... 159 361
Accrued income and franchise taxes.......................... 684 766
Accrued taxes other than income and franchise............... 331 238
Accrued agency commissions.................................. 440 340
Other accrued liabilities................................... 277 183
------ ------
$2,526 $2,245
====== ======
</TABLE>
5. REVOLVING CREDIT AGREEMENTS
The Company had a revolving line of credit with Fleet National Bank
("Fleet") for borrowings up to $7,000 including letters of credit, which was
terminated on May 1, 1998 upon entering into a new revolving credit agreement,
described below. At June 30, 1998, cash borrowings under the new revolving
credit agreement totaled $9,000 and letters of credit issued in the ordinary
course of business totaled $1,020. At December 31, 1997, cash borrowings under
the new revolving credit agreement totaled $4,510 and letters of credit totaled
$120. The interest rate on such borrowings was 7.4% at June 30, 1998 and 8.5% at
December 31, 1997.
On May 1, 1998, the Company entered into a new revolving credit agreement
with Fleet, which allows for up to $23,000 of borrowings, based upon a
percentage of accounts receivable. The new agreement has a term of three years.
Interest is payable monthly at Fleet's prime rate or available LIBOR options.
The revolving credit agreement requires the Company to meet certain gross
margin, operating income and tangible net worth covenants.
On August 14, 1998, the Company entered into a commitment letter with
Goldman Sachs Credit Partners, L.P. for a $60,000 revolving credit facility (the
"GSCP Facility"), concurrent with the closing of which the Company expects to
terminate the Fleet agreement. The GSCP Facility will have a term of 18 months.
Under the GSCP Facility, $30,000 will be available upon closing and up to an
additional $30,000 will be available based upon a percentage of accounts
receivable. Interest is payable monthly at one percent above the prime rate. The
GSCP Facility will require the Company to meet, among other things, minimum
levels of revenues, access lines in service and earnings before interest, taxes,
depreciation and amortization.
F-19
<PAGE> 151
NETWORK PLUS, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Note payable................................................ $ -- $ 4,600
Capital lease obligations................................... 4,299 4,717
------- -------
4,299 9,317
Less current portion........................................ (1,132) (5,694)
------- -------
$ 3,167 $ 3,623
======= =======
</TABLE>
The Company issued a promissory note, dated December 1, 1997, to Sprint for
repayment of $4,600 previously classified as accounts payable. On May 1, 1998,
the remaining balance of $3,700 due on the note was repaid.
The Company received a waiver from the lender for a violation at June 30,
1998 of the debt-to-equity financial covenant of its capital lease. The Company
continues to classify a portion of the capital lease liability as non-current
based on the expectation that the Company will be in compliance in subsequent
periods.
7. MAJOR SUPPLIER
The Company has an agreement with Sprint to provide switching and dedicated
voice and data services. At expiration or any time prior, the Company can renew
all material aspects of the agreement with Sprint. In the event that renewal
does not occur, the Company may be able to negotiate equally beneficial terms
with other major telecommunications companies. Should neither of these
alternatives be possible, there could be material adverse implications for the
Company's financial position and operations. Management's experience has been to
renegotiate agreements annually to ensure receiving competitive pricing, and
management believes the Company will be able to continue to renegotiate the
agreement. The current agreement was renegotiated, effective February 1998, and
will expire February 2000.
8. SIGNIFICANT CUSTOMER
During the six months ended June 30, 1998, the Company had one customer
that accounted for 11% of the Company's revenue. No other customer comprised
greater than 10% of total revenue.
9. EARNINGS PER SHARE
The computations of basic and diluted earnings per common share are based
upon the weighted average number of common shares outstanding and potentially
dilutive securities. Potentially dilutive securities include convertible
preferred stock, stock options and warrants. No potentially dilutive securities
were outstanding during the six months ended June 30, 1998 or 1997.
10. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement had no impact on the
Company's net income or stockholders' equity. There were no
F-20
<PAGE> 152
NETWORK PLUS, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
adjustments required to calculate comprehensive income for either the six months
ended June 30, 1998 or 1997.
11. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued which establishes standards for segment reporting in a full set of
general purpose financial statements. Management has not yet evaluated the
effects of this change on the reporting of its results of operations. The
Company will adopt SFAS 131 for its fiscal year ending December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the costs of Computer
Software Developed or Obtained for Internal Use". The Company does not believe
that this pronouncement will have a material impact on its business or results
of operations.
12. SUBSEQUENT EVENT
On September 3, 1998, Network Plus Corp. issued 40,000 shares of 13.5%
Series A Cumulative Preferred Stock Due 2009 and initial warrants to purchase,
for $0.1 per share, 310,000 shares of Network Plus Corp.'s common stock (and
contingent warrants to purchase 600,000 shares of common stock) resulting in
proceeds to Network Plus Corp. of $37.5 million, net of issuance costs of $2.5
million. A total value of $4.35 million was ascribed to the initial warrants,
net of issuance costs of $0.3 million, and was accounted for as additional
paid-in capital. The value ascribed to the initial warrants was recorded as a
discount to the preferred stock which will be accreted to the preferred stock
balance over an assumed maturity period. Through September 3, 1998, Network Plus
Corp.'s activities consist principally of the issuance of its preferred stock
and warrants.
The issuance of the preferred stock terminated Network Plus Corp.'s
election to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Accordingly, Network Plus Corp. will provide for and report
Federal and state income taxes, if any.
F-21
<PAGE> 153
- -------------------------------------------------------
- -------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH THE INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notice to Investors.................... i
Forward-Looking Statements............. ii
Available Information.................. ii
Summary................................ 1
Risk Factors........................... 14
Use of Proceeds........................ 28
Dividend Policy........................ 28
Capitalization......................... 29
The Exchange Offer..................... 30
Selected Financial Data................ 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 40
Business............................... 52
Government Regulation.................. 75
Management............................. 85
Certain Transactions................... 88
Stock Ownership........................ 89
Description of Capital Stock........... 90
Description of Certain Indebtedness.... 91
Description of the Series A Preferred
Stock................................ 92
Certain Federal Income Tax
Considerations....................... 115
Plan of Distribution................... 120
Validity of the Securities............. 121
Independent Accountants................ 121
Glossary............................... G-1
Index to Financial Statements.......... F-1
</TABLE>
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
[Network Plus Logo]
13.5% SERIES A1
CUMULATIVE PREFERRED STOCK
DUE 2009
------------------
PROSPECTUS
, 1998
------------------
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE> 154
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final action of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses (including attorneys' fees) which he or she actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under any corporation's by-law, agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Article Eighth of the Company's
Certificate of Incorporation (the "Certificate") and the Company's By-laws (the
"By-laws") provide that the Company shall indemnify each person who is or was a
director, officer or employee of the Company (including the heirs, executors,
administrators or estate of such person) or is or was serving at the request of
the Company as director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted under subsections 145(a), (b), and (c) of the DGCL or any successor
statute. The indemnification provided by the Certificate and the By-laws shall
not be deemed exclusive of any other rights to which any of those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. Expenses (including
attorneys' fees) incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding upon receipt of an undertaking by or on
behalf of the indemnified person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Company. The
Certificate further provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended to authorize corporate action further eliminating
II-1
<PAGE> 155
or limiting the personal liability of directors, then the liability of a
director of the Company shall be eliminated or limited to the fullest extent
permitted by the DGCL as so amended.
The By-laws provide that the Company may purchase and maintain insurance on
behalf of its directors, officers, employees and agents against any liabilities
asserted against such persons arising out of such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company.
3.2 -- Certificate of Designation of the Series A Preferred Stock.
3.3 -- Bylaws of the Company.
4.1 -- Exchange and Registration Rights Agreement dated as of
September 1, 1998 between the Company and the Purchasers.
4.2 -- Purchase Agreement dated as of September 1, 1998 between the
Company and the Purchasers.
5* -- Opinion of Hale and Dorr LLP.
8* -- Opinion of Hale and Dorr LLP with respect to certain tax
matters.
10.1 -- 1998 Stock Incentive Plan
10.2 -- 1998 Director Stock Option Plan
10.3*+ -- Resale Solutions Switched Services Agreement dated as of
June 21, 1998 between the Company and Sprint Communications
Company L.P.
10.4+ -- Agreement for the Provision of Fiber Optic Facilities and
Services dated as of July 17, 1998 between the Company and
Northeast Optic Network, Inc.
10.5+ -- IRU Agreement dated as of July 17, 1998 between the Company
and Qwest Communications Corporation.
10.6 -- Net Lease by and between Network Plus Realty Trust,
Landlord, and Network Plus, Inc., Tenant, dated July 1,
1993.
10.7 -- Interconnection Agreement Under Sections 251 and 252 of the
Telecommunications Act of 1996, dated September 4, 1998, by
and between New England Telephone and Telegraph Company
d/b/a Bell Atlantic--Massachusetts and Network Plus Inc.
10.8* -- Loan and Security Agreement by and between Network Plus,
Inc. as Borrower, Goldman Sachs Credit Partners L.P. and
Fleet National Bank as Lenders, Fleet National Bank as Agent
and Goldman Sachs Credit Partners L.P. as Syndication and
Arrangement Agent.
10.9+ -- Master Lease Agreement, dated as of August 8, 1997, between
Chase Equipment Leasing, Inc. and Network Plus, Inc., as
amended.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of Hale and Dorr LLP (included in their opinion
filed as Exhibit 5).
24 -- Power of Attorney (included on the signature pages hereto).
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to Clients.
99.4 -- Form of Letter to Nominees.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
II-2
<PAGE> 156
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of registrants
pursuant to the provisions described under Item 20 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE> 157
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Quincy, State of
Massachusetts, on September 28, 1998.
NETWORK PLUS CORP.
By: /s/ ROBERT T. HALE, JR.
-------------------------------
ROBERT T. HALE, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
The undersigned officers and directors of Network Plus Corp. hereby
severally constitute and appoint Robert T. Hale, Robert T. Hale, Jr., James J.
Crowley and Steven L. Shapiro, and each of them, attorneys-in-fact for the
undersigned, in any and all capacities, with the power of substitution, to sign
any amendments to this Registration Statement (including post-effective
amendments) and any subsequent registration statement for the same offering
which may be filed under Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all interests and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons, in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ ROBERT T. HALE Chairman of the Board September 28, 1998
- ---------------------------
ROBERT T. HALE
/s/ ROBERT T. HALE, JR. President, Chief Executive September 28, 1998
- --------------------------- Officer and Director
ROBERT T. HALE, JR. (Principal Executive Officer)
/s/ JAMES J. CROWLEY Executive Vice President, September 28, 1998
- --------------------------- Chief Operating Officer and
JAMES J. CROWLEY Director
/s/ STEVEN L. SHAPIRO Vice President of Finance, September 28, 1998
- --------------------------- Chief Financial Officer and
STEVEN L. SHAPIRO Treasurer (Principal Financial
and Accounting Officer)
/s/ DAVID MARTIN Director September 28, 1998
- ---------------------------
DAVID MARTIN
/s/ JOSEPH C. MCNAY Director September 28, 1998
- ---------------------------
JOSEPH C. MCNAY
</TABLE>
II-4
<PAGE> 158
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company.
3.2 -- Certificate of Designation of the Series A Preferred Stock.
3.3 -- Bylaws of the Company.
4.1 -- Exchange and Registration Rights Agreement dated as of
September 1, 1998 between the Company and the Purchasers.
4.2 -- Purchase Agreement dated as of September 1, 1998 between the
Company and the Purchasers.
5* -- Opinion of Hale and Dorr LLP.
8* -- Opinion of Hale and Dorr LLP with respect to certain tax
matters.
10.1 -- 1998 Stock Incentive Plan
10.2 -- 1998 Director Stock Option Plan
10.3*+ -- Resale Solutions Switched Services Agreement dated as of
June 21, 1998 between the Company and Sprint Communications
Company L.P.
10.4+ -- Agreement for the Provision of Fiber Optic Facilities and
Services dated as of July 17, 1998 between the Company and
Northeast Optic Network, Inc.
10.5+ -- IRU Agreement dated as of July 17, 1998 between the Company
and Qwest Communications Corporation.
10.6 -- Net Lease by and between Network Plus Realty Trust,
Landlord, and Network Plus, Inc., Tenant, dated July 1,
1993.
10.7 -- Interconnection Agreement Under Sections 251 and 252 of the
Telecommunications Act of 1996, dated September 4, 1998, by
and between New England Telephone and Telegraph Company
d/b/a Bell Atlantic--Massachusetts and Network Plus Inc.
10.8* -- Loan and Security Agreement by and between Network Plus,
Inc. as Borrower, Goldman Sachs Credit Partners L.P. and
Fleet National Bank as Lenders, Fleet National Bank as Agent
and Goldman Sachs Credit Partners L.P. as Syndication and
Arrangement Agent.
10.9+ -- Master Lease Agreement, dated as of August 8, 1997, between
Chase Equipment Leasing, Inc. and Network Plus, Inc., as
amended.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of Hale and Dorr LLP (included in their opinion
filed as Exhibit 5).
24 -- Power of Attorney (included on the signature pages hereto).
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to Clients.
99.4 -- Form of Letter to Nominees.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NETWORK PLUS CORP.
FIRST. The name of the Corporation is: Network Plus Corp.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 21,000,000 shares, consisting of
(i) 20,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 1,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
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<PAGE> 2
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently
-2-
<PAGE> 3
reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund
such indemnification payments to the Corporation to the extent of such insurance
reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
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<PAGE> 4
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification
or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a quorum of the
outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are not
at that time parties to the action, suit or proceeding in question, (c)
independent legal counsel (who may, to the extent permitted by law, be regular
legal counsel to the Corporation), or (d) a court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors
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<PAGE> 5
providing indemnification rights and procedures different from those set forth
in this Article. In addition, the Corporation may, to the extent authorized from
time to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Quincy, Massachusetts, on July 15, 1998.
/s/ James J. Crowley
--------------------
James J. Crowley
Sole Incorporator
-5-
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION
OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER
SPECIAL RIGHTS OF 13-1/2% SERIES A PREFERRED STOCK DUE 2009 AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
Network Plus Corp. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the board of directors of the
Corporation (the "Board of Directors") by its Certificate of Incorporation
(hereinafter referred to as the "Certificate of Incorporation"), and pursuant to
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, by unanimous written consent dated September
1, 1998, duly approved and adopted the following resolution (the "Resolution"):
RESOLVED that, pursuant to the authority vested in the Board of
Directors by its Certificate of Incorporation, the Board of Directors does
hereby create, authorize and provide for the issuance of 13-1/2% Series A
Cumulative Preferred Stock due 2009, par value $.01 per share, with a
stated value initially of $1,000 per share, consisting of 50,000 shares,
and 13-1/2% Series A1 Cumulative Preferred Stock due 2009, par value $.01
per share, with a stated value initially of $1,000 per share, consisting of
50,000 shares having the designations, preferences, relative,
participating, optional and other special rights and the qualifications,
limitations and restrictions thereof that are set forth in the Certificate
of Incorporation and in this Resolution as follows:
(a) DESIGNATION. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the Company (i) a series of Preferred
Stock designated as the "13-1/2% Series A Cumulative Preferred Stock due 2009"
(the "Class A Stock") and (ii) a series of Preferred Stock designated as the
"13-1/2% Series A1 Cumulative Preferred Stock due 2009" (the "Class A1 Stock").
The number of shares constituting the Class A Stock shall be 50,000, and the
number of shares constituting the Class A1 Stock shall be 50,000. The Class A
Stock and the Class A1 Stock are referred to as the "Series A Preferred Stock".
The liquidation preference of the Series A Preferred Stock shall be $1,000 per
share (the "Liquidation Preference"). "Specified Amount" shall have the meaning
set forth in paragraph (o).
(b) RANK. The Series A Preferred Stock will, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, rank (i) senior to
all classes of common stock and to each other class of Capital Stock of the
Company or series of Preferred Stock of the Company outstanding on the Issue
Date and each other class or series established hereafter by the Board of
Directors the terms of which do not expressly provide that it ranks senior to,
or on a parity with, the Series A Preferred Stock as to dividend rights and
rights on liquidation, winding-up and dissolution of the Company (collectively
referred to, together with all classes of common stock of the Company, as
"Junior Stock"); (ii) on a parity with each class of Capital Stock of the
Company or series of Preferred Stock of the Company established hereafter by the
Board of Directors, the terms of which expressly provide that such class or
series will rank on a parity with the Series A Preferred Stock as to dividend
rights and rights on liquidation, winding-up and dissolution (collectively
referred to as "Parity Stock"); and (iii) junior to each class of Capital Stock
of the Company or series of Preferred Stock of the Company established hereafter
by the Board of Directors, the terms of which expressly provide that such class
or series will rank senior to the Series A Preferred Stock as to dividend rights
and rights upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Stock"). While any shares of Series A
Preferred Stock are outstanding, the Company may not authorize, create or
increase the authorized amount of any class or
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<PAGE> 2
series of stock that ranks senior to or on parity with the Series A Preferred
Stock with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up without the consent of the Holders of a majority of
the outstanding shares of Series A Preferred Stock. All claims of the Holders of
the Series A Preferred Stock, including without limitation, claims with respect
to dividend payments, redemption payments, mandatory repurchase payments or
rights upon liquidation, winding-up or dissolution, shall rank junior to the
claims of any holders of any debt of the Company and its subsidiaries and all
other creditors of the Company and its subsidiaries.
(c) DIVIDENDS. (i) Holders of shares of Series A Preferred Stock will
be entitled to receive, when, as and if dividends are declared by the Board of
Directors of the Company out of funds of the Company legally available therefor,
cumulative preferential dividends from the Issue Date at a rate per share of
13-1/2% per annum of the Specified Amount per share of Series A Preferred Stock,
payable quarterly (each such quarterly period being herein called a "Dividend
Period") in arrears on each of March 1, June 1, September 1 and December 1 (each
a "Dividend Payment Date") or, if any such date is not a Business Day, on the
next succeeding Business Day, to the holders of record as of the next preceding
February 15, May 15, August 15 and November 15, respectively. In addition to the
dividends described in the preceding sentence, holders of outstanding shares of
Series A Preferred Stock will be entitled to Additional Dividends if and to the
extent provided for in the Exchange and Registration Rights Agreement. If any
dividend (other than any Additional Dividends) payable on any Dividend Payment
Date on or before September 1, 2003 is not declared or paid in full in cash on
such Dividend Payment Date, the amount payable as dividends on such Dividend
Payment Date (other than any Additional Dividends) that is not paid in cash on
such Dividend Payment Date will be added automatically to the Specified Amount
of the Series A Preferred Stock on such Dividend Payment Date and will be deemed
paid in full (such dividends being herein called the "Accumulated Dividends").
Except as provided herein, accrued and unpaid dividends, if any, will not bear
interest or bear dividends thereon.
(ii) All dividends paid with respect to shares of the Series A
Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the
holders entitled thereto.
(iii) Dividends on the Series A Preferred Stock will accrue whether or
not the Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Except as set forth in clause (c)(i) above, dividends will accumulate
to the extent they are not paid on the Dividend Payment Date for the period to
which they relate. The Company will take all actions required or permitted under
the Delaware General Corporation Law to permit the payment of dividends on the
Series A Preferred Stock.
(iv) No dividend whatsoever shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the Series
A Preferred Stock with respect to any dividend period unless all unpaid
dividends for all preceding dividend periods have been added to the Specified
Amount (if on or before September 1, 2003), declared and paid or declared and,
if applicable, a sufficient sum set apart for the payment of such dividend, upon
all outstanding shares of Series A Preferred Stock.
(v) Except as provided in the next sentence, no dividend will be
declared or paid (or deemed paid) on any Parity Stock unless full cumulative
dividends have been paid on the Series A Preferred Stock for all prior dividend
periods. If accumulated dividends on the Series A Preferred Stock for all prior
dividend periods have not been paid (or deemed paid) in full then any dividend
declared on the Series A Preferred Stock for any dividend period and on any
Parity Stock will be declared ratably in proportion to accrued and unpaid
dividends on the Series A Preferred Stock and such Parity Stock.
(vi) The Company will not (i) declare, pay or set apart funds for the
payment of any dividend or other distribution with respect to any Junior Stock
or (ii) redeem, purchase or otherwise acquire for consideration any Junior Stock
through a sinking fund or otherwise, unless (A) all accrued and unpaid dividends
with respect to the Series A Preferred Stock and any Parity Stock at the time
such dividends are payable have been paid (or deemed paid) or funds have been
set apart for payment of such dividends and (B) sufficient funds have been paid
or set apart for the payment of
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<PAGE> 3
the dividend for the current dividend period with respect to the Series A
Preferred Stock and any Parity Stock.
(vii) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption may be declared and paid at
any time, without reference to any regular Dividend Repayment Date, to holders
of record on such date, not more than 45 days prior to the payment thereof, as
may be fixed by the Board of Directors of the Company.
(viii) Dividends payable on the Series A Preferred Stock shall be
computed on the basis of a 360-day year of twelve 30-day months and will be
deemed to accrue on a daily basis.
(d) LIQUIDATION PREFERENCE. (i) Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, holders of Series A
Preferred Stock will be entitled to be paid, out of the assets of the Company
available for distribution to its stockholders, the Specified Amount, plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding-up
(including an amount equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up and including an amount equal to the redemption premium that would
have been payable had the Series A Preferred Stock been the subject of an
Optional Redemption on such date) before any distribution is made on any Junior
Stock, including, without limitation, common stock of the Company. If, upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the amounts payable with respect to the Series A Preferred Stock and all Parity
Stock are not paid in full, the Series A Preferred Stock and the Parity Stock
will share equally and ratably in any distribution of assets of the Company to
which each is entitled. After payment of the full amount of the Specified Amount
(and an amount equal to the accumulated and unpaid dividends to which they are
entitled), the holders of shares of Series A Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Company.
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the Company
nor the consolidation or merger of the Company with or into one or more entities
shall be deemed to be a liquidation, dissolution or winding-up of the Company.
(e) REDEMPTION. (i) (A) Except as set forth in this paragraph
(e)(i)(A), the Series A Preferred Stock will not be redeemable at the option of
the Company prior to September 1, 2003. Thereafter, the Series A Preferred Stock
will be redeemable, at the Company's option (subject to the legal availability
of funds therefor), 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 (the
"Optional Redemption Price") (expressed as a percentage of the Specified Amount
thereof), plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends (including Additional Dividends and an amount in cash equal
to a prorated dividend for any partial dividend period) if any, to the date of
redemption (the "Optional Redemption Date") (subject to the rights of holders of
record on the relevant record date to receive dividends due on the relevant
Dividend Payment Date), if redeemed during the 12-month period commencing on
September 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2003................................................. 106.500%
2004................................................. 104.333%
2005................................................. 102.167%
2006 and thereafter.................................. 100.000%
</TABLE>
(B) In the event of a redemption of only a portion of the then
outstanding shares of Series A Preferred Stock, the Company shall effect such
redemption on a pro rata basis, except that the Company may redeem such shares
held by holders of fewer than 100 shares (or shares held by holders who would
hold less than 100 shares as a result of such redemption), as may be determined
by the Company.
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<PAGE> 4
(ii) MANDATORY REDEMPTION. (A) As soon as practicable following the
closing of a Senior Notes Offering the net proceeds of which (excluding
underwriting or other placement fees and proceeds placed in escrow at the
closing thereof pursuant to the terms of such offering) received by the Company
exceed $100 million, the Company will be required to redeem (subject to the
legal availability of funds therefor) all outstanding shares of Series A
Preferred Stock at a price (the "Notes Redemption Price") in cash equal to 108%
of the Specified Amount thereof, plus, without duplication, an amount in cash
equal to all accumulated and unpaid dividends (including Additional Dividends
and an amount in cash equal to a prorated dividend for any partial dividend
period), if any, to the date of redemption (the "Notes Redemption Date")
(subject to the rights of holders of record on the relevant record date to
receive dividends on the relevant Dividend Payment Date).
(B) If at any time and from time to time prior to September 1, 2001,
the Company consummates one or more Public Equity Offerings, the Company will be
required to apply the first $25 million of net proceeds (excluding underwriting
or other placement fees and calculated on a cumulative basis beginning with the
first such Public Equity Offering) from such Public Equity Offering or Offerings
and one-half of each additional dollar of net proceeds (excluding underwriting
or other placement fees and calculated on a cumulative basis beginning with the
first such Public Equity Offering) in excess of $25 million to redeem the Series
A Preferred Stock, at the following redemption prices (the "Equity Redemption
Price" and, together with the Notes Redemption Price, the "Mandatory Redemption
Price") (expressed as a percentage of the Specified Amount thereof), plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends (including Additional Dividends and an amount in cash equal to a
prorated dividend for any partial dividend period) if any, to the date of
redemption (the "Equity Redemption Date" and, together with the Notes Redemption
Date, the "Mandatory Redemption Date") (subject to the rights of holders of
record on the relevant record date to receive dividends due on the relevant
Dividend Payment Date), if redeemed during the period ending on the dates set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
June 1, 1999..................................... 102.000%
September 1, 1999................................ 104.000%
September 1, 2000................................ 106.000%
September 1, 2001................................ 108.000%
</TABLE>
(C) The Company will take all actions required or permitted under
Delaware law to permit a redemption required by this paragraph (e)(ii).
(D) In the event of a redemption of only a portion of the then
outstanding shares of Series A Preferred Stock, the Company shall effect such
redemption on a pro rata basis, except that the Company may redeem such shares
held by holders of fewer than 100 shares (or shares held by holders who would
hold less than 100 shares as a result of such redemption), as may be determined
by the Company.
(iii) PROCEDURE FOR REDEMPTION. (A) On and after the Optional
Redemption Date or any Mandatory Redemption Date, as the case may be (the
"Redemption Date"), unless the Company defaults in the payment of the applicable
redemption price, dividends will cease to accumulate on shares of Series A
Preferred Stock called for redemption and all rights of holders of such shares
will terminate except for the right to receive the Optional Redemption Price or
the Mandatory Redemption Price, as the case may be, without interest; PROVIDED,
HOWEVER, that if a notice of redemption shall have been given as provided in
paragraph (iii)(B) below shall not have been given and the funds necessary for
redemption (including an amount in respect of all dividends that will accrue to
the Redemption Date) shall have been segregated and irrevocably set apart by the
Company, in trust for the benefit of the holders of the shares called for
redemption, then dividends shall cease to accumulate on the Redemption Date on
the shares to be redeemed and, at the close of business on the day on which such
funds are segregated and set apart, the holders of the shares to be redeemed
shall cease to be stockholders of the Company and shall be entitled only to
receive the Optional Redemption Price or the Mandatory Redemption Price, as the
case may be, for such shares.
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<PAGE> 5
(B) With respect to a redemption pursuant to paragraph e(i) or e(ii),
the Company will send a written notice of redemption by first class mail to each
holder of record of shares of Series A Preferred Stock, not fewer than 30 days
nor more than 60 days prior to the Redemption Date at its registered address
(the "Redemption Notice"); PROVIDED, HOWEVER, that no failure to give such
notice nor any deficiency therein shall affect the validity of the procedure for
the redemption of any shares of Series A Preferred Stock to be redeemed except
as to the holder or holders to whom the Company has failed to give said notice
or except as to the holder or holders whose notice was defective. The Redemption
Notice shall state:
(1) whether the redemption is pursuant to paragraph (e)(i) or (e)(ii)
hereof;
(2) the Optional Redemption Price or the Mandatory Redemption Price, as
the case may be;
(3) whether all or less than all the outstanding shares of the Series A
Preferred Stock are to be redeemed and the total number of shares of the
Series A Preferred Stock being redeemed;
(4) the Redemption Date;
(5) that the holder is to surrender to the Company, in the manner, at
the place or places and at the price designated, his certificate or
certificates representing the shares of Series A Preferred Stock to be
redeemed; and
(6) that dividends on the shares of the Series A Preferred Stock to be
redeemed shall cease to accumulate on such Redemption Date unless the
Company defaults in the payment of the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be.
(C) Each holder of Series A Preferred Stock shall surrender the
certificate or certificates representing such shares of Series A Preferred Stock
to the Company, duly endorsed (or otherwise in proper form for transfer, as
determined by the Company), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional Redemption Price
or Mandatory Redemption Price, as the case may be, for such shares shall be
payable in cash to the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event that less than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(f) VOTING RIGHTS. (i) The holders of Series A Preferred Stock, except
as otherwise required under Delaware law or as set forth in paragraphs (ii) and
(iii) below, shall not be entitled or permitted to vote on any matter required
or permitted to be voted upon by the stockholders of the Company.
(ii) (A) If (1) after September 1, 2003, dividends on the Series A
Preferred Stock are in arrears and unpaid for six or more Dividend Periods
(whether or not consecutive) (a "Dividend Default"); (2) the Company fails to
redeem the Series A Preferred Stock on September 1, 2009, or fails to otherwise
discharge any redemption obligation with respect to the Series A Preferred
Stock; (3) the Company fails to make an Offer to Purchase if such Offer to
Purchase is required by paragraph (h) hereof or fails to purchase shares of
Series A Preferred Stock from holders who elect to have such shares purchased
pursuant to such Offer to Purchase; (4) a breach or violation of any of the
provisions set forth in paragraph (l) hereof occurs and the breach or violation
continues for a period of 60 days or more after the Company receives notice
thereof specifying the default from the holders of at least 25% of the shares of
Series A Preferred Stock then outstanding; or (5) the Company fails to pay at
final maturity (giving effect to any applicable grace period) the principal
amount of any Debt of the Company or any Significant Subsidiary of the Company,
or the final stated maturity of any such Debt is accelerated because of a
default and the total amount of such Debt unpaid or accelerated exceeds $10
million and such nonpayment continues, or such acceleration is not rescinded or
waived within 10 days, then the number of directors constituting the Board of
Directors of the Company will be adjusted to permit the holders of a majority of
the then outstanding shares of Series A Preferred Stock, voting separately and
as a class, to elect the lesser of two directors and that number of directors
constituting 25% of the members of the Board of Directors. Each
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<PAGE> 6
such event described in clauses (1), (2), (3), (4) and (5) above is a "Voting
Rights Triggering Event".
(B) The voting rights set forth in subparagraph (f)(ii)(A) above will
continue until such time as (x) in the case of a Dividend Default, all dividends
in arrears on the Series A Preferred Stock are paid in full in cash, and (y) in
all other cases, any failure, breach or default giving rise to such Voting
Rights Triggering Event is remedied or waived by the holders of a majority of
the shares of Series A Preferred Stock then outstanding, at which time the term
of any directors elected pursuant to the provisions of subparagraph (f)(ii)(A)
above shall terminate. At any time after voting power to elect directors shall
have become vested and be continuing in the holders of Series A Preferred Stock
pursuant to subparagraph (f)(ii)(A) hereof, or if vacancies shall exist in the
offices of directors elected by the holders of Series A Preferred Stock, a
proper officer of the Company may, and upon the written request of the holders
of record of at least 25% of the shares of Series A Preferred Stock then
outstanding addressed to the secretary of the Company shall, call a special
meeting of the holders of Series A Preferred Stock for the purpose of electing
the directors which such holders are entitled to elect. If such meeting shall
not be called by a proper officer of the Company within 20 days after personal
service to the secretary of the Company at its principal executive offices, then
the holders of record of at least 25% of the outstanding shares of Series A
Preferred Stock may designate in writing one of their number to call such
meeting at the expense of the Company, and such meeting may be called by the
person so designated upon the notice required for the annual meetings of
stockholders of the Company and shall be held at the place for holding the
annual meetings of stockholders. Any holder of Series A Preferred Stock so
designated shall have, and the Company shall provide, access to the lists of
stockholders to be called pursuant to the provisions hereof.
(C) At any meeting held for the purposes of electing directors at which
the holders of Series A Preferred Stock shall have the right, voting together as
a separate class, to elect directors as aforesaid, the presence in person or by
proxy of the holders of at least a majority of the outstanding shares of Series
A Preferred Stock shall be required to constitute a quorum of such Series A
Preferred Stock.
(D) Any vacancy occurring in the office of a director elected by the
holders of Series A Preferred Stock may be filled by the remaining directors
elected by the holders of Series A Preferred Stock unless and until such vacancy
shall be filled by the holders of Series A Preferred Stock. The director to be
elected by the holders of Series A Preferred Stock shall agree, prior to his
election to office, to resign upon any termination of the right of the holders
of Series A Preferred Stock to vote as a class for a director as herein
provided, and upon any such termination the director then in office elected by
the holders of Series A Preferred Stock shall forthwith resign.
(iii) (A) So long as any shares of the Series A Preferred Stock are
outstanding, the Company will not authorize any class of Senior Stock without
the affirmative vote or consent of holders of at least a majority of the shares
of Series A Preferred Stock then outstanding, voting or consenting, as the case
may be, as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting. So long as any shares of the
Series A Preferred Stock are outstanding, the Company will not authorize the
issuance of any additional shares of Series A Preferred Stock without the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting or consenting, as the
case may be, as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.
(B) So long as any shares of the Series A Preferred Stock are
outstanding, the Company will not amend this Certificate of Designation so as to
affect adversely the specified rights, preferences, privileges or voting rights
of holders of shares of Series A Preferred Stock or to authorize the issuance of
any additional shares of Series A Preferred Stock without the affirmative vote
or consent of holders of at least two-thirds of the issued and outstanding
shares of Series A Preferred Stock, voting or consenting, as the case may be, as
one class, given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting.
(C) Except as set forth in paragraph (f)(iii)(A) above, (x) the
creation, authorization or issuance of any shares of any Junior Stock or Parity
Stock,
6
<PAGE> 7
including the designation of a series thereof within the existing class of
Series A Preferred Stock, or (y) the increase or decrease in the amount of
authorized Capital Stock of any class, including Preferred Stock, shall not
require the consent of holders thereof within the existing class of Series A
Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of shares of Series A Preferred Stock.
(iv) In any case in which the holders of Series A Preferred Stock shall
be entitled to vote pursuant to this paragraph (f) or pursuant to Delaware law,
each holder of Series A Preferred Stock entitled to vote with respect to such
matters shall be entitled to one vote for each share of Series A Preferred Stock
held.
(g) EXCHANGE OF CLASS A1 STOCK FOR CLASS A STOCK. The Class A1 Stock
will be issued by the Company only in connection with an exchange offer, on a
share for share basis, for the Class A Stock as required pursuant to the
Exchange and Registration Rights Agreement. Each share of Class A1 Stock issued
in exchange for a share of Class A Stock will be deemed to have the same
Specified Amount as the share of Class A Stock so exchanged.
(h) CHANGE OF CONTROL. (i) Within 30 days of the occurrence of a Change
of Control, the Company shall make an Offer to Purchase all outstanding shares
of Series A Preferred Stock at a purchase price equal to 101% of the Specified
Amount thereof plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends (including all Additional Dividends and an
amount in cash equal to a prorated dividend for any partial Dividend Period), if
any, to the date of purchase (subject to the rights of holders of record on the
relevant record date to receive dividends due on the relevant dividend payment
date).
(ii) The Company will comply with any tender offer rules under the
Exchange Act which then may be applicable, including Rules 13e-4 and 14e-1, in
connection with any offer required to be made by the Company to repurchase the
shares of Series A Preferred Stock as a result of a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this Certificate of Designation, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Certificate of Designation by virtue
thereof.
(iii) On the Purchase Date the Company shall (A) accept for payment the
shares of Series A Preferred Stock validly tendered pursuant to the Offer to
Purchase, (B) pay to the holders of shares so accepted the purchase price
therefor in cash and (C) cancel and retire each surrendered certificate. Unless
the Company defaults in the payment for the shares of Series A Preferred Stock
tendered pursuant to the Offer to Purchase required by this paragraph (h),
dividends will cease to accrue with respect to the shares of Series A Preferred
Stock tendered and all rights of holders of such tendered shares will terminate,
except for the right to receive payment therefor, on the Purchase Date.
(i) CONVERSION OR EXCHANGE. The holders of shares of Series A Preferred
Stock shall not have any rights hereunder to convert such shares into or
exchange such shares for shares of any other class or classes or of any other
series of any class or classes of Capital Stock of the Company.
(j) REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized and
unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock; PROVIDED,
HOWEVER, that so long as any shares of Series A Preferred Stock are outstanding,
any issuance of such shares must be in compliance with the terms hereof.
(k) BUSINESS DAY. If any payment, redemption or exchange shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(l) CERTAIN ADDITIONAL PROVISIONS. The Company covenants and agrees for
the benefit of the Holders as follows:
7
<PAGE> 8
(i) LIMITATION ON DEBT. (A) The Company may not, and may not permit any
Restricted Subsidiary of the Company to, Incur any Debt unless the ratio of (i)
the aggregate consolidated principal amount of Debt of the Company and its
Restricted Subsidiaries outstanding as of the most recent available quarterly or
annual balance sheet, after giving pro forma effect to the Incurrence of such
Debt and any other Debt Incurred since such balance sheet date and the receipt
and application of the proceeds thereof to (ii) Consolidated Cash Flow Available
for Fixed Charges for the four full fiscal quarters next preceding the
Incurrence of such Debt for which consolidated financial statements are
available, determined on a pro forma basis as if any such Debt had been Incurred
at the beginning of such four fiscal quarters, would be less than 7.0 to 1 for
such four-quarter periods ending on or prior to September 1, 2000, and 5.0 to 1
for such periods ending thereafter.
(B) Notwithstanding the foregoing paragraph (A), the Company and any
Restricted Subsidiary (except as specified below) may Incur any or all of the
following:
(i) Debt outstanding on the Issue Date;
(ii) Debt under any Bank Credit Agreement;
(iii) Purchase Money Debt Incurred to finance the construction,
acquisition, development, design, installation, integration, transportation
or improvement of Telecommunications Assets which, together with any other
outstanding Debt Incurred pursuant to this clause (iii) and any Debt
Incurred pursuant to clause (vi) of this paragraph (B) in respect of Debt
Incurred pursuant to this clause (iii), has an aggregate principal amount
at the time of Incurrence, not in excess of $100 million at any time
outstanding;
(iv) Senior Notes the offering of which, together with any other
outstanding Debt Incurred pursuant to this clause (iv), resulted in net
proceeds (excluding underwriting or other placement fees and proceeds
placed in escrow at the closing thereof pursuant to the terms of such
offering) to the Company, not in excess of $100 million;
(v) Debt owed by the Company to any Restricted Subsidiary of the
Company or Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company; PROVIDED, HOWEVER, that
upon either (x) the transfer or other disposition by such Restricted
Subsidiary or the Company of any Debt so permitted to a Person other than
the Company or another Restricted Subsidiary of the Company or (y) the
issuance (other than directors' qualifying shares), sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of such Restricted Subsidiary to a Person other than the Company
or another such Restricted Subsidiary, the provisions of this clause (v)
shall no longer be applicable to such Debt and such Debt shall be deemed to
have been Incurred at the time of such transfer or other disposition;
(vi) Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") (A) Debt outstanding on the Issue Date, (B) Debt Incurred
pursuant to paragraph (A) of this covenant or (C) Debt Incurred pursuant to
clause (iii) of this paragraph (b), in each case in an aggregate principal
amount not to exceed the aggregate principal amount of and accrued interest
on the Debt so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the Debt
so refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the amount of expenses of
the Company incurred in connection with such refinancing; PROVIDED,
HOWEVER, that the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued, (x) does not
provide for payments of principal of such Debt at the stated maturity
thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Debt upon any event of default
thereunder), in each case prior to the time the same are required by the
terms of the Debt being refinanced and (y) does not permit redemption or
other retirement (including
8
<PAGE> 9
pursuant to an offer to purchase made by the Company) of such debt at the
option of the holder thereof prior to the final stated maturity of the Debt
being refinanced, other than a redemption or other retirement at the option
of the holder of such Debt (including pursuant to an offer to purchase made
by the Company) which is conditioned upon a change substantially similar to
those described under paragraph (h) or which is pursuant to provisions
substantially similar to those in the covenant described under paragraph
(l)(iii);
(vii) Debt consisting of Permitted Interest Rate or Currency Protection
Agreements;
(viii) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations
of the Company or a Restricted Subsidiary, or in respect of a letter of
credit obtained to secure such performance;
(ix) Debt of the Company to Robert T. Hale, Jr. in an original
principal amount at the time of issuance not to exceed $2 million;
PROVIDED, HOWEVER, that no payment of principal on such Debt may be made
prior to the redemption of the Series A Preferred Stock and the payment in
full of all accumulated dividends on the Series A Preferred Stock; and
(x) Debt of the Company or any Restricted Subsidiary not otherwise
permitted to be Incurred pursuant to clauses (i) through (viii) above,
which, together with any other outstanding Debt Incurred pursuant to this
clause (x), has an aggregate principal amount or, in the case of Debt
issued at a discount, an accreted amount (determined in accordance with
generally accepted accounting principles) at the time of Incurrence, not in
excess of $10 million at any time outstanding.
(C) Notwithstanding any other provision of this paragraph (l)(i), the
maximum amount of Debt that the Company or a Restricted Subsidiary may Incur
pursuant to this paragraph (l)(i) shall not be deemed to be exceeded, with
respect to any outstanding Debt, due solely to the result of fluctuations in
exchange rates of currencies.
(D) For purposes of determining compliance with this paragraph (l)(i),
in the event that an item of Debt meets the criteria of more than one of the
types of Debt the Company is permitted to incur pursuant to the foregoing
clauses (i) through (x) of paragraph (B), the Company shall have the right, in
its sole discretion, to classify such item of Debt and shall only be required to
include the amount and type of such Debt under the clause permitting the Debt as
so classified. For purposes of determining any particular amount of Debt under
such covenant, Guarantees or Liens with respect to letters of credit supporting
Debt otherwise included in the determination of a particular amount shall not be
included.
(ii) LIMITATION ON RESTRICTED PAYMENTS. (A) The Company (i) may not,
directly or indirectly, declare or pay any dividend, or make any distribution,
in respect of any Junior Stock or to the holders thereof (in their capacity as
such), excluding any dividends or distributions payable solely in shares of
Junior Stock (other than Disqualified Stock) or in options, warrants or other
rights to acquire Junior Stock (other than Disqualified Stock); (ii) may not,
and may not permit any Restricted Subsidiary to, purchase, redeem, or otherwise
retire or acquire for value (a) any Junior Stock of the Company or any Related
Person of the Company or (b) any options, warrants or rights to purchase or
acquire shares of Junior Stock of the Company or any Related Person of the
Company or any securities convertible or exchangeable into shares of Capital
Stock of the Company or any Related Person of the Company; and (iii) may not
make, or permit any Restricted Subsidiary to make, any Investment in, or payment
on a Guarantee of any obligation of, any Person, other than the Company or a
Restricted Subsidiary of the Company, except for Permitted Investments (each of
clauses (i) through (iii) being a "Restricted Payment") if: (1) any accrued and
payable dividends (including dividends for the then current dividend period)
with respect to the Series A Preferred Stock or any Parity Stock have not been
paid (or deemed paid) in full and funds for such payment have not been set apart
shall have occurred and is continuing; or (2) upon giving effect to such
Restricted Payment, the Company could not Incur at least $1.00 of additional
Debt pursuant to the covenant described in paragraph (l)(i)(A) above; or (3)
upon giving effect to such Restricted
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<PAGE> 10
Payment, the aggregate amount of all Restricted Payments from the Issue Date
exceeds the sum of: (a) (x) Consolidated Cash Flow Available for Fixed Charges
since the end of the last full fiscal quarter prior to the Issue Date through
the last day of the last full fiscal quarter ending immediately preceding the
date of such Restricted Payment (the "Calculation Period") minus (y) 1.5 times
Consolidated Interest Expense for the Calculation Period; plus (b) the aggregate
Net Cash Proceeds received by the Company from the issuance or sale of its
Junior 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 a trust established by
the Company or any of its Subsidiaries for the benefit of their employees); plus
(c) the amount by which Debt 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 Debt of the Company convertible or
exchangeable for Junior Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or the fair value of any property, distributed by
the Company upon such conversion or exchange); plus (d) $5 million.
(B) Notwithstanding the foregoing paragraph (l)(ii)(A), (i) the Company
may pay any dividend on Capital Stock of any class within 60 days after the
declaration thereof if, on the date when the dividend was declared, the Company
could have paid such dividend in accordance with the foregoing provisions; (ii)
the Company may repurchase any shares of its Common Stock or options to acquire
its Common Stock from Persons who are currently or were formerly directors,
officers or employees of the Company or any Restricted Subsidiary, PROVIDED that
the aggregate amount of all such repurchases made pursuant to this clause (ii)
shall not exceed (a) $1 million in any calendar year and (b) $5 million in the
aggregate; (iii) the Company and its Restricted Subsidiaries may refinance any
Debt otherwise permitted by clause (vi) of paragraph (l)(i)(B) above; (iv) the
Company and its Restricted Subsidiaries may retire or repurchase any Junior
Stock of the Company or any Capital Stock of any Restricted Subsidiary of the
Company in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, Junior Stock
(other than Disqualified Stock) of the Company; and (v) the Company may pay the
dividend of $5 million declared on July 15, 1998. If the Company makes a
Restricted Payment which, at the time of the making of such Restricted Payment,
would in the good faith determination of the Company be permitted under the
Certificate of Designation, such Restricted Payment shall be deemed to have been
made in compliance with the Certificate of Designation notwithstanding any
subsequent adjustments made in good faith to the Company financial statements
affecting Consolidated Cash Flow Available for Fixed Charges or Consolidated
Interest Expense for any period.
(iii) LIMITATION ON ASSET DISPOSITIONS. The Company may not, and may
not permit any Restricted Subsidiary to, make any Asset Disposition in one or
more related transactions occurring within any 12-month period unless: (i) the
Company or the Restricted Subsidiary, as the case may be, receives consideration
for such disposition at least equal to the fair market value for the assets sold
or disposed of as determined by management of the Company in good faith, which
determination shall be conclusive; (ii) at least 75% of the consideration for
such disposition consists of (1) cash or readily marketable cash equivalents or
the assumption of Debt of the Company or of the Restricted Subsidiary and
release from all liability on the Debt assumed; (2) Telecommunications Assets;
or (3) shares of publicly-traded Voting Stock of any Person engaged in the
Telecommunications Business in the United States; and (iii) all Net Available
Proceeds, less any amounts invested within 365 days of such disposition in new
Telecommunications Assets, are applied within 365 days of such disposition (1)
first, to the permanent repayment or reduction of Debt (other than Disqualified
Stock) of the Company or Debt (other than Disqualified Stock) of a Restricted
Subsidiary of the Company, to the extent permitted under the terms thereof and
(2) second, to the extent of remaining Net Available Proceeds, to make an Offer
to Purchase outstanding shares of Series A Preferred Stock at 100% of the
Specified Amount thereof plus, without duplication, an amount in cash equal to
all accumulated and unpaid dividends (including all Additional Dividends and an
amount equal to a prorated dividend for any partial Dividend Period), if any, to
the date of purchase (subject to the rights of holders of record on the relevant
record date to receive dividends due on the relevant dividend payment date),
and, to the extent required by the terms thereof, any other Parity Stock of the
Company at a price no greater than 100% of the liquidation preference thereof
plus accumulated dividends to the date of purchase. To the extent any Net
Available Proceeds remain after such uses, the Company and its Restricted
Subsidiaries may use such amounts for any purposes not prohibited by the
Certificate of Designation. Notwithstanding the foregoing, these provisions
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shall not apply to any Asset Disposition which constitutes a transfer,
conveyance, sale, lease or other disposition of all or substantially all the
Company's properties or assets as described under paragraph (l)(vi) below.
(iv) TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS. The Company may
not, and may not permit any Restricted Subsidiary of the Company to, enter into
any transaction (or series of related transactions) with an Affiliate or Related
Person of the Company (other than the Company or a Restricted Subsidiary of the
Company), including any Investment, either directly or indirectly, unless such
transaction is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with an entity that is not an Affiliate or Related Person and is in
the best interests of such Company or such Restricted Subsidiary. For any
transaction that involves in excess of $1 million but less than or equal to $5
million, the Chief Executive Officer of the Company or a majority of the
disinterested members of the Board of Directors shall determine that the
transaction satisfies the above criteria. For any transaction that involves in
excess of $5 million but less than or equal to $10 million, a majority of the
disinterested members of the Board of Directors of the Company shall determine
that the transaction satisfies the above criteria. For any transaction that
involves in excess of $10 million, the Company shall also obtain an opinion from
a nationally recognized investment banking or accounting firm or another
nationally recognized expert with experience in appraising the terms and
conditions, taken as a whole, of the type of transaction (or series of related
transactions) for which the opinion is required stating that such transaction
(or series of related transactions) is on terms and conditions, taken as a
whole, no less favorable to the Company or such Restricted Subsidiary than those
that could be obtained in a comparable arm's-length transaction with an entity
that is not an Affiliate or Related Person of the Company, which opinion shall
be available for inspection by holders of Series A Preferred Stock at the
Company's offices. This covenant shall not apply to Investments by an Affiliate
or a Related Person of the Company in the Capital Stock (other than Disqualified
Stock) of the Company or any Restricted Subsidiary of the Company.
(v) PROVISION OF FINANCIAL INFORMATION. The Company has agreed that,
for so long as any Series A Preferred Stock remains outstanding, it will furnish
to the holders of the Series A Preferred Stock and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. In addition,
prior to the effectiveness of the Exchange Offer Registration Statement, the
Company will furnish to the holders of the Series A Preferred Stock the
quarterly and annual financial statements and related notes and an accompanying
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the format that would be required to be included in the Company's
periodic reports filed with the Commission if the Company were required to file
such reports with the Commission. The Company will furnish such information to
the holders of the Series A Preferred Stock within 15 days after the date on
which the Company would have been required to file the same with the Commission.
Following the effectiveness of the Exchange Offer Registration Statement (or
earlier if the Company becomes obligated to file reports with the Commission),
the Company will furnish to the holders of the Series A Preferred Stock within
15 days after it files them with the Commission copies of the annual and
quarterly reports and the information, documents, and other reports that the
Company is required to file with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act ("SEC Reports"). In the event the Company shall cease
to be required to file SEC Reports pursuant to the Exchange Act, the Company
will nevertheless continue to file such reports with the Commission (unless the
Commission will not accept such a filing) and furnish such reports to the
holders of Series A Preferred Stock. The Company will make copies of the SEC
Reports available to investors who request them in writing.
(vi) MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS. The Company
may not, in a single transaction or a series of related transactions, (i)
consolidate with or merge into any other Person or permit any other Person to
consolidate with or merge into the Company (other than the consolidation or
merger of a Restricted Subsidiary organized under the laws of a State of the
United States into the Company), or (ii) directly or indirectly, transfer, sell,
lease or otherwise dispose of all or substantially all its assets (determined on
a consolidated basis for the Company and its Restricted Subsidiaries taken as a
whole), unless: (1) in a transaction in which the Company does not survive or in
which the Company sells, leases or otherwise disposes of all or substantially
all its assets to any other Person, the successor entity to the Company is
organized under the laws of the United States of America or
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<PAGE> 12
any State thereof or the District of Columbia and the Series A Preferred Stock
shall be converted into or exchanged for and shall become shares of such
successor entity, having in respect of such successor entity the same powers,
preferences and relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereon, that the Series A Preferred
Stock had immediately prior to such transaction; (2) immediately after giving
pro forma effect to such transaction as if such transaction had occurred at the
beginning of the last full fiscal quarter immediately prior to the consummation
of such transaction with the appropriate adjustments with respect to the
transaction being included in such pro forma calculation and treating any Debt
which becomes an obligation of the Company or a Subsidiary as a result of such
transaction as having been Incurred by the Company or such Subsidiary at the
time of the transaction, no Voting Rights Triggering Event, and no event that
after the giving of notice or lapse of time or both would become a Voting Rights
Triggering Event, shall have occurred and be continuing; (3) immediately after
giving effect to such transaction, the Consolidated Net Worth of the Company (or
the successor entity to the Company) is equal to or greater than that of the
Company immediately prior to the transaction; (4) immediately after giving
effect to such transaction, the Company (or the successor entity to the Company)
would be able to incur an additional $1.00 of Debt under paragraph (l)(i)(A)
above; and (5) the Company has caused to be delivered to the holders of the
Series A Preferred Stock an Opinion of Counsel to the effect that the holders of
the Series A Preferred Stock will not recognize gain or loss for Federal income
tax purposes as a result of such transaction.
In the event of any transaction (other than a lease) described in and
complying with the immediately preceding paragraph in which the Company is not
the surviving person and the surviving person complies with clause (1) of the
preceding paragraph, such surviving person shall succeed to, and be substituted
for, and may exercise every right and power of, the Company, and the Company
will be discharged from its obligations under the Series A Preferred Stock and
the Certificate of Designation; PROVIDED that solely for the purpose of
calculating amounts described in clause (3) of paragraph (l)(ii)(A) above, any
such surviving person shall only be deemed to have succeeded to and be
substituted for the Company with respect to the period subsequent to the
effective time of such transaction, and the Company (before giving effect to
such transaction) shall be deemed to be the "Company" for such purposes for all
prior periods.
(m) CERTIFICATES. (i) FORM AND DATING. The Class A Stock and the
Transfer Agent's certificate of authentication shall be substantially in the
form of Exhibit A, which is hereby incorporated in and expressly made a part of
this Certificate of Designation. The Class A1 Stock and the Transfer Agent's
certificate of authentication shall be substantially in the form of Exhibit A;
PROVIDED, HOWEVER, that any reference to Class A shall be replaced with
references to Class A1 and shares of Class A1 Series A Preferred Stock need not
include references to the Exchange and Registration Rights Agreement or legends
applicable to Transfer Restricted Securities. The Series A Preferred Stock
certificate may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Series A Preferred Stock certificate shall be dated the
date of its authentication. The terms of the Series A Preferred Stock
certificate set forth in Exhibit A are part of the terms of this Certificate of
Designation.
(A) GLOBAL SERIES A PREFERRED STOCK. Class A Stock shall be issued
initially in the form of one or more fully registered global certificates with
the global securities legend and restricted securities legend set forth in
Exhibit A hereto (the "Global Series A Preferred Stock"), which shall be
deposited on behalf of the purchasers represented thereby with DTC (or with such
custodian as DTC may direct), and registered in the name of DTC or a nominee of
DTC, duly executed by the Company and authenticated by the Transfer Agent as
hereinafter provided. The number of shares of Series A Preferred Stock
represented by Global Series A Preferred Stock may from time to time be
increased or decreased by adjustments made on the records of the Transfer Agent
and DTC or its nominee as hereinafter provided.
(B) BOOK-ENTRY PROVISIONS. In the event Global Series A Preferred Stock
is deposited with or on behalf of DTC, the Company shall execute and the
Transfer Agent shall authenticate and deliver initially one or more Global
Series A Preferred Stock certificates that (a) shall be registered in the name
of DTC for such Global Series A Preferred Stock or the nominee of DTC and (b)
shall be delivered by the
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Transfer Agent to DTC or pursuant to DTC's instructions or held by the Transfer
Agent as custodian for DTC.
Members of, or participants in, DTC ("Agent Members") shall have no
rights under this Certificate of Designation with respect to any Global Series A
Preferred Stock held on their behalf by DTC or by a custodian of DTC or under
such Global Series A Preferred Stock, and DTC may be treated by the Company, the
Transfer Agent and any agent of the Company or the Transfer Agent as the
absolute owner of such Global Series A Preferred Stock for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Transfer Agent or any agent of the Company or the Transfer Agent
from giving effect to any written certification, proxy or other authorization
furnished by DTC or impair, as between DTC and its Agent Members, the operation
of customary practices of DTC governing the exercise of the rights of a holder
of a beneficial interest in any Global Series A Preferred Stock.
(C) CERTIFICATED SERIES A PREFERRED STOCK. Except as provided in this
paragraph (i) or in paragraph (iii), owners of beneficial interests in Global
Series A Preferred Stock will not be entitled to receive physical delivery of
certificated Series A Preferred Stock ("Certificated Series A Preferred Stock").
After a transfer of any Class A Stock during the period of the
effectiveness of a Shelf Registration Statement with respect to such Class A
Stock, all requirements pertaining to legends on such Class A Stock will cease
to apply, the requirements requiring any such Class A Stock issued to Holders be
issued in global form will cease to apply, and Certificated Series A Preferred
Stock without legends will be available to the transferee of the Holder of such
Class A Stock upon exchange of such transferring Holder's Class A Stock or
directions to transfer such Holder's interest in the Global Series A Preferred
Stock, as applicable. Upon the consummation of a Registered Exchange Offer with
respect to the Class A Stock pursuant to which Holders of such Class A Stock are
offered Class A1 Stock in exchange for their Class A Stock, all requirements
that Class A Stock be issued in global form will cease to apply and Certificated
Series A Preferred Stock with the restricted securities legend set forth in
Exhibit A hereto will be available to Holders of such Class A Stock that do not
exchange their Class A Stock, and Class A1 Stock in certificated form will be
available to Holders that exchange such Class A Stock in such Registered
Exchange Offer.
(ii) EXECUTION AND AUTHENTICATION. Two Officers shall sign the Series A
Preferred Stock for the Company by manual or facsimile signature. If required by
Delaware law, the Company's seal shall be impressed, affixed, imprinted or
reproduced on the Series A Preferred Stock and may be in facsimile form.
If an Officer whose signature is on Series A Preferred Stock no longer
holds that office at the time the Transfer Agent authenticates the Series A
Preferred Stock, the Series A Preferred Stock shall be valid nevertheless.
An Series A Preferred Stock shall not be valid until an authorized
signatory of the Transfer Agent manually signs the certificate of authentication
on the Series A Preferred Stock. The signature shall be conclusive evidence that
the Series A Preferred Stock has been authenticated under this Certificate of
Designation.
The Transfer Agent shall authenticate and deliver: (1) 40,000 shares of
Class A Stock for original issue and (2) 40,000 shares of Class A1 Stock for
issue only in a Registered Exchange Offer pursuant to the Exchange and
Registration Rights Agreement, in each case upon a written order of the Company
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. Such order shall specify the number of
shares of Series A Preferred Stock to be authenticated and the date on which the
original issue of Series A Preferred Stock is to be authenticated and whether
the Series A Preferred Stock is to be Class A Stock or Class A1 Stock.
The Transfer Agent may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Series A Preferred Stock. Unless
limited by the terms of such appointment, an authenticating agent may
authenticate Series A Preferred Stock whenever the Transfer Agent may do so.
Each reference in this Certificate of Designation to authentication by the
Transfer Agent includes authentication by such agent. An authenticating agent
has the same rights as the Transfer Agent or agent for service of notices and
demands.
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(iii) TRANSFER AND EXCHANGE. (A) TRANSFER AND EXCHANGE OF CERTIFICATED
SERIES A PREFERRED STOCK. When Certificated Series A Preferred Stock is
presented to the Transfer Agent with a request to register the transfer of such
Certificated Series A Preferred Stock or to exchange such Certificated Series A
Preferred Stock for an equal number of shares of Certificated Series A Preferred
Stock of other authorized denominations, the Transfer Agent shall register the
transfer or make the exchange as requested if its reasonable requirements for
such transaction are met; PROVIDED, HOWEVER, that the Certificated Series A
Preferred Stock surrendered for transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Transfer
Agent, duly executed by the Holder thereof or his attorney duly authorized
in writing; and
(2) in the case of Transfer Restricted Securities that are Certificated
Series A Preferred Stock, are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act or pursuant to
clause (I) or (II) below, and are accompanied by the following additional
information and documents, as applicable:
(I) if such Transfer Restricted Securities are being delivered to
the Transfer Agent by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect in substantially the form of Exhibit C hereto; or
(II) if such Transfer Restricted Securities are being transferred
to the Company or to a "qualified institutional buyer" ("QIB") in
accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 under the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B hereto).
(B) RESTRICTIONS ON TRANSFER OF CERTIFICATED SERIES A PREFERRED STOCK
FOR A BENEFICIAL INTEREST IN GLOBAL SERIES A PREFERRED STOCK. Certificated
Series A Preferred Stock may not be exchanged for a beneficial interest in
Global Series A Preferred Stock except upon satisfaction of the requirements set
forth below. Upon receipt by the Transfer Agent of Certificated Series A
Preferred Stock, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Transfer Agent, together with:
(1) if such Certificated Series A Preferred Stock is a Transfer
Restricted Security, certification that such Certificated Series A
Preferred Stock is being transferred to a QIB in accordance with Rule 144A
under the Securities Act; and
(2) whether or not such Certificated Series A Preferred Stock is a
Transfer Restricted Security, written instructions directing the Transfer
Agent to make, or to direct DTC to make, an adjustment on its books and
records with respect to such Global Series A Preferred Stock to reflect an
increase in the number of shares of Series A Preferred Stock represented by
the Global Series A Preferred Stock,
then the Transfer Agent shall cancel such Certificated Series A Preferred Stock
and cause, or direct DTC to cause, in accordance with the standing instructions
and procedures existing between DTC and the Transfer Agent, the number of shares
of Series A Preferred Stock represented by the Global Series A Preferred Stock
to be increased accordingly. If no Global Series A Preferred Stock is then
outstanding, the Company shall issue and the Transfer Agent shall authenticate,
upon written order of the Company in the form of an Officers' Certificate, a new
Global Series A Preferred Stock representing the appropriate number of shares.
(C) TRANSFER AND EXCHANGE OF GLOBAL SERIES A PREFERRED STOCK. The
transfer and exchange of Global Series A Preferred Stock or beneficial interests
therein shall be effected through DTC, in accordance with this Certificate of
Designation (including applicable restrictions on transfer set forth herein, if
any) and the procedures of DTC therefor.
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(D) TRANSFER OF A BENEFICIAL INTEREST IN GLOBAL SERIES A PREFERRED
STOCK FOR A CERTIFICATED SERIES A PREFERRED STOCK. (1) Any person having a
beneficial interest in Series A Preferred Stock that is being transferred or
exchanged pursuant to an effective registration statement under the Securities
Act or pursuant to clause (I) or (II) below may upon request, and if accompanied
by the information specified below, exchange such beneficial interest for
Certificated Series A Preferred Stock representing the same number of shares of
Series A Preferred Stock. Upon receipt by the Transfer Agent of written
instructions or such other form of instructions as is customary for DTC from DTC
or its nominee on behalf of any person having a beneficial interest in Global
Series A Preferred Stock and upon receipt by the Transfer Agent of a written
order or such other form of instructions as is customary for DTC or the person
designated by DTC as having such a beneficial interest in a Transfer Restricted
Security only, the following additional information and documents (all of which
may be submitted by facsimile):
(I) if such beneficial interest is being transferred to the person
designated by DTC as being the owner of a beneficial interest in Global
Series A Preferred Stock, a certification from such person to that
effect (in substantially the form of Exhibit C hereto); or
(II) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 under the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B hereto);
then, the Transfer Agent or DTC, at the direction of the Transfer Agent, will
cause, in accordance with the standing instructions and procedures existing
between DTC and the Transfer Agent, the number of shares of Series A Preferred
Stock represented by Global Series A Preferred Stock to be reduced on its books
and records and, following such reduction, the Company will execute and the
Transfer Agent will authenticate and deliver to the transferee Certificated
Series A Preferred Stock.
(2) Certificated Series A Preferred Stock issued in exchange for a
beneficial interest in a Global Series A Preferred Stock pursuant to this
paragraph (iii)(D) shall be registered in such names and in such authorized
denominations as DTC, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Transfer Agent. The Transfer
Agent shall deliver such Certificated Series A Preferred Stock to the
persons in whose names such Series A Preferred Stock are so registered in
accordance with the instructions of DTC.
(E) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL SERIES A PREFERRED
STOCK. Notwithstanding any other provisions of this Certificate of Designation
(other than the provisions set forth in paragraph (iii)(F)), Global Series A
Preferred Stock may not be transferred as a whole except by DTC to a nominee of
DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any
such nominee to a successor depository or a nominee of such successor
depository.
(F) AUTHENTICATION OF CERTIFICATED SERIES A PREFERRED STOCK. If at any
time:
(1) DTC notifies the Company that DTC is unwilling or unable to
continue as depository for the Global Series A Preferred Stock and a
successor depository for the Global Series A Preferred Stock is not
appointed by the Company within 90 days after delivery of such notice;
(2) DTC ceases to be a clearing agency registered under the Exchange
Act;
(3) there shall have occurred and be continuing a Voting Rights
Triggering Event; or
(4) the Company, in its sole discretion, notifies the Transfer Agent in
writing that it elects to cause the issuance of Certificated Series A
Preferred Stock under this Certificate of Designation,
then the Company will execute, and the Transfer Agent, upon receipt of a written
order of the Company signed by two Officers or by an Officer and either an
Assistant
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Treasurer or an Assistant Secretary of the Company requesting the authentication
and delivery of Certificated Series A Preferred Stock to the persons designated
by the Company, will authenticate and deliver Certificated Series A Preferred
Stock equal to the number of shares of Series A Preferred Stock represented by
the Global Series A Preferred Stock, in exchange for such Global Series A
Preferred Stock.
(G) LEGEND. (1) Except as permitted by the following paragraph (2),
each certificate evidencing the Global Series A Preferred Stock and the
Certificated Series A Preferred Stock (and all Series A Preferred Stock issued
in exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (3) TO THE COMPANY OR (4) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH
CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES."
(2) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by Global Series A
Preferred Stock) pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act:
(I) in the case of any Transfer Restricted Security that is a
Certificated Series A Preferred Stock, the Transfer Agent shall permit
the Holder thereof to exchange such Transfer Restricted Security for a
Certificated Series A Preferred Stock that does not bear the legend set
forth above and rescind any restriction on the transfer of such
Transfer Restricted Security;
(II) in the case of any Transfer Restricted Security that is
represented by a Global Series A Preferred Stock, the Transfer Agent
shall permit the Holder thereof to exchange such Transfer Restricted
Security for a Certificated Series A Preferred Stock Security that does
not bear the legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security, if the Holder's request
for such exchange was made in reliance on Rule 144 and the Holder
certifies to that effect in writing to the Transfer Agent (such
certification to be in the form set forth on the reverse of the
Transfer Restricted Security); and
(III) in the case of any Transfer Restricted Security that is
represented by a Global Series A Preferred Stock, the Transfer Agent
shall permit the Holder thereof to exchange such Transfer Restricted
Security (in connection with the offer to exchange Class A1 Stock for
Class A Stock pursuant to the Exchange and Registration Rights
Agreement) for another Global Series A Preferred Stock that does not
bear the legend set forth above.
(H) CANCELATION OR ADJUSTMENT OF GLOBAL SERIES A PREFERRED STOCK. At
such time as all beneficial interests in Global Series A Preferred Stock have
either been exchanged for Certificated Series A Preferred Stock, redeemed,
repurchased or canceled, such Global Series A Preferred Stock shall be returned
to DTC for cancelation or retained and canceled by the Transfer Agent. At any
time prior to such cancelation, if any beneficial interest in Global Series A
Preferred Stock is exchanged for Certificated Series A Preferred Stock,
redeemed, repurchased or canceled, the number of shares of Series A Preferred
Stock represented by such Global Series A Preferred Stock shall be reduced and
an adjustment shall be made on the books and records of the Transfer Agent with
respect to such Global Series A Preferred Stock, by the Transfer Agent or DTC,
to reflect such reduction.
(I) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF SERIES A
PREFERRED STOCK. (1) To permit registrations of transfers and exchanges, the
Company shall execute and the Transfer Agent shall authenticate Certificated
Series A
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Preferred Stock and Global Series A Preferred Stock as required pursuant to the
provisions of this paragraph (iii).
(2) All Certificated Series A Preferred Stock and Global Series A
Preferred Stock issued upon any registration of transfer or exchange of
Certificated Series A Preferred Stock or Global Series A Preferred Stock
shall be the valid obligations of the Company, entitled to the same
benefits under this Certificate of Designation, as the Certificated Series
A Preferred Stock or Global Series A Preferred Stock surrendered upon such
registration of transfer or exchange.
(3) Prior to due presentment for registration of transfer of any Series
A Preferred Stock, the Transfer Agent and the Company may deem and treat
the person in whose name any share of Series A Preferred Stock is
registered as the absolute owner of such Series A Preferred Stock and
neither the Transfer Agent nor the Company shall be affected by notice to
the contrary.
(4) No service charge shall be made to a Holder for any registration of
transfer or exchange upon surrender of any Series A Preferred Stock
Certificate at the office of the Transfer Agent maintained for that
purpose. However, the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Series A
Preferred Stock Certificates.
(5) Upon any sale or transfer of shares of Series A Preferred Stock
(including any Series A Preferred Stock represented by a Global Series A
Preferred Stock Certificate) pursuant to an effective registration
statement under the Securities Act, pursuant to Rule 144 under the
Securities Act or pursuant to an opinion of counsel reasonably satisfactory
to the Company that no legend is required:
(A) in the case of any Certificated Series A Preferred Stock, the
Transfer Agent shall permit the holder thereof to exchange such
Series A Preferred Stock for Certificated Series A Preferred Stock
that does not bear the legend set forth in paragraph (iii)(G)
above and rescind any restriction on the transfer of such Series A
Preferred Stock; and
(B) in the case of any Global Series A Preferred Stock, such Series A
Preferred Stock shall not be required to bear the legend set forth
in paragraph (iii)(G) above but shall continue to be subject to
the provisions of paragraph (iii)(D) hereof; PROVIDED, HOWEVER,
that with respect to any request for an exchange of Series A
Preferred Stock that is represented by Global Series A Preferred
Stock for Certificated Series A Preferred Stock that does not bear
the legend set forth in paragraph (iii)(G) above in connection
with a sale or transfer thereof pursuant to Rule 144 (and based
upon an opinion of counsel if the Company so requests), the Holder
thereof shall certify in writing to the Transfer Agent that such
request is being made pursuant to Rule 144 (such certification to
be substantially in the form of Exhibit B hereto).
(iv) REPLACEMENT CERTIFICATES. If a mutilated Series A Preferred Stock
certificate is surrendered to the Transfer Agent or if the Holder of a Series A
Preferred Stock certificate claims that the Series A Preferred Stock certificate
has been lost, destroyed or wrongfully taken, the Company shall issue and the
Transfer Agent shall countersign a replacement Series A Preferred Stock
certificate if the reasonable requirements of the Transfer Agent and of Section
8-405 of the Uniform Commercial Code as in effect in the State of New York are
met. If required by the Transfer Agent or the Company, such Holder shall furnish
an indemnity bond sufficient in the judgment of the Company and the Transfer
Agent to protect the Company and the Transfer Agent from any loss which either
of them may suffer if an Series A Preferred Stock certificate is replaced. The
Company and the Transfer Agent may charge the Holder for their expenses in
replacing a Series A Preferred Stock certificate. Every replacement Series A
Preferred Stock certificate is an additional obligation of the Company.
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(v) TEMPORARY CERTIFICATES. Until definitive Series A Preferred Stock
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary Series A Preferred Stock certificates.
Temporary Series A Preferred Stock certificates shall be substantially in the
form of definitive Series A Preferred Stock certificates but may have variations
that the Company considers appropriate for temporary Series A Preferred Stock
certificates. Without unreasonable delay, the Company shall prepare and the
Transfer Agent shall countersign definitive Series A Preferred Stock
certificates and deliver them in exchange for temporary Series A Preferred Stock
certificates.
(vi) CANCELATION. (A) In the event the Company shall purchase or
otherwise acquire Certificated Series A Preferred Stock, the same shall
thereupon be delivered to the Transfer Agent for cancelation.
(B) At such time as all beneficial interests in Global Series A
Preferred Stock have either been exchanged for Certificated Series A Preferred
Stock, redeemed, repurchased or canceled, such Global Series A Preferred Stock
shall thereupon be delivered to the Transfer Agent for cancelation.
(C) The Transfer Agent and no one else shall cancel and destroy all
Series A Preferred Stock certificates surrendered for transfer, exchange,
replacement or cancelation and deliver a certificate of such destruction to the
Company unless the Company directs the Transfer Agent to deliver canceled Series
A Preferred Stock certificates to the Company. The Company may not issue new
Series A Preferred Stock certificates to replace Series A Preferred Stock
certificates to the extent they evidence Series A Preferred Stock which the
Company has purchased or otherwise acquired.
(n) ADDITIONAL RIGHTS OF HOLDERS. In addition to the rights provided to
Holders under this Certificate of Designation, Holders shall have the rights set
forth in the Exchange and Registration Rights Agreement.
(o) CERTAIN DEFINITIONS. As used in this Certificate of Designation,
the following terms shall have the following meanings (and (1) terms defined in
the singular have comparable meanings when used in the plural and vice versa,
(2) "including" means including without limitation, (3) "or" is not exclusive
and (4) an accounting term not otherwise defined has the meaning assigned to it
in accordance with generally accepted accounting principles as in effect on the
Issue Date and all accounting calculations will be determined in accordance with
such principles), unless the content otherwise requires:
"ACQUIRED DEBT" means, with respect to any specified Person, (i) Debt
of any other Person existing at the time such Person merges with or into or
consolidates with or becomes a Restricted Subsidiary of such specified Person
and (ii) Debt secured by a Lien encumbering any asset acquired by such specified
Person, which Debt, in each case, was not Incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such 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.
"ASSET DISPOSITION" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary of the specified
Person, but excluding a disposition by a Restricted Subsidiary of such Person to
such Person or a Wholly Owned Restricted Subsidiary of such Person or by such
Person to a Wholly Owned Restricted Subsidiary of such Person) of (i) shares of
Capital Stock or other ownership interests of a Restricted Subsidiary of such
Person (other than pursuant to a transaction in compliance with paragraph
(l)(vi) above), (ii) substantially all the assets of such Person or any of its
Restricted Subsidiaries representing a division or line of business (other than
as part of a Permitted Investment) or (iii) other assets or
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rights of such Person or any of its Restricted Subsidiaries other than (A) in
the ordinary course of business, (B) that constitute a Permitted Investment or a
Restricted Payment which is permitted under paragraph (l)(ii) above or (C)
pursuant to or in connection with Receivables Sales under, or Debt in connection
with Permitted Receivables Facilities permitted to be Incurred pursuant to the
covenant described under paragraph (l)(i) above; PROVIDED that a transaction
described in clauses (i), (ii) and (iii) shall constitute an Asset Disposition
only if the aggregate consideration for such transfer, conveyance, sale, lease
or other disposition is equal to $1 million or more in any 12-month period.
"ATTRIBUTABLE VALUE" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the lesser of the amount of such penalty (in which case no rent
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated) or the rent which would otherwise
be required to be paid if such lease is not so terminated. "Attributable Value"
means, as to a Capital Lease Obligation, the principal amount thereof.
"BANK CREDIT AGREEMENT" means any one or more (i) credit agreements
(which may include or consist of revolving credits) between the Company and/or
any Restricted Subsidiary of the Company and one or more banks or other
financial institutions providing financing for the business of the Company and
its Restricted Subsidiaries and (ii) Permitted Receivables Facilities, which
credit agreements and Permitted Receivables Facilities provide for borrowings by
the Company and its Restricted Subsidiaries in an aggregate principal amount
outstanding at any one time not to exceed $100 million, and any renewal,
extension, refinancing or refunding thereof in an amount which, together with
any principal amount remaining outstanding or available under all credit
agreements and Permitted Receivables Facilities of the Company and its
Restricted Subsidiaries, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of any credit agreement
or Permitted Receivables Facility so refinanced plus the amount of expenses
incurred in connection with such refinancing, does not exceed the aggregate
principal amount outstanding or available under all such credit agreements and
Permitted Receivables Facilities of the Company and its Restricted Subsidiaries
immediately prior to such renewal, extension, refinancing or refunding.
"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 OBLIGATION" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles (a "Capital Lease"). The stated maturity of such
obligation 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. The principal amount of such
obligation shall be the capitalized amount thereof that would appear on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles.
"CAPITAL STOCK" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
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A "CHANGE OF CONTROL" will be deemed to have occurred at such time as
either (a) any Person or any Persons acting together (other than Permitted
Holders or an underwriter engaged in a firm commitment underwriting on behalf of
the Company) that would constitute a "group" (a "Group") for purposes of Section
13(d) of the Exchange Act, or any successor provision thereto, shall
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act, or
any successor provision thereto) more than 50% of the aggregate voting power of
all classes of Voting Stock of the Company or (b) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any new directors whose election by the
Board of Directors or whose nomination by the Board of Directors for election by
the Company's stockholders was approved by a vote of at least a majority of the
members of the Board of Directors then in office who either were members of the
Board of Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" of any Person means Capital Stock of such Person that is
not Disqualified Stock.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" for any period
means the Consolidated Net Income of the Company and its Restricted Subsidiaries
for such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of the Company and its Restricted Subsidiaries for such
period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of the Company and its Restricted Subsidiaries
for such period plus (iv) any non-cash expense related to the issuance to
employees of the Company or any Restricted Subsidiary of the Company of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, plus (v)
any charge related to any premium or penalty paid in connection with redeeming
or retiring any Debt prior to its stated maturity; PROVIDED, HOWEVER, that there
shall be excluded therefrom the Consolidated Cash Flow Available for Fixed
Charges (if positive) of any Restricted Subsidiary of the Company (calculated
separately for such Restricted Subsidiary in the same manner as provided above
for the Company) that is subject to a restriction which prevents the payment of
dividends or the making of distributions to the Company or another Restricted
Subsidiary of the Company to the extent of such restriction.
"CONSOLIDATED INCOME TAX EXPENSE" for any period means the consolidated
provision for income taxes of the Company and its Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"CONSOLIDATED INTEREST EXPENSE" means for any period the consolidated
interest expense included in a consolidated income statement (excluding interest
income) of the Company and its Restricted Subsidiaries for such period
calculated on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities; (iii) fees with respect to interest rate swap
or similar agreements or foreign currency hedge, exchange or similar agreements;
(iv) dividends on Preferred Stock of the Company and its Restricted Subsidiaries
held by Persons other than the Company or a Wholly Owned Restricted Subsidiary
(other than dividends paid in shares of Preferred Stock that is not Disqualified
Stock) declared and paid or payable; (v) accrued Disqualified Stock dividends of
the Company and its Restricted Subsidiaries, whether or not declared or paid;
(vi) interest on Debt guaranteed by the Company and its Restricted Subsidiaries;
and (vii) the portion of any Capital Lease Obligation paid during such period
that is allocable to interest expense.
"CONSOLIDATED NET INCOME" for any period means the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; PROVIDED that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by the Company or a Restricted
Subsidiary of the Company in a pooling-of-interests transaction for any period
prior to the date of such transaction, (b) the net income (or loss) of any
Person that is not a Restricted
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Subsidiary of the Company except to the extent of the amount of dividends or
other distributions actually paid to the Company or a Restricted Subsidiary of
the Company by such Person during such period, (c) gains or losses on Asset
Dispositions by the Company or its Restricted Subsidiaries, (d) all
extraordinary gains and extraordinary losses, (e) the cumulative effect of
changes in accounting principles, (f) non-cash gains or losses resulting from
fluctuations in currency exchange rates, (g) any non-cash gain or loss realized
on the termination of any employee pension benefit plan and (h) the tax effect
of any of the items described in clauses (a) through (g) above; PROVIDED FURTHER
that for purposes of any determination pursuant to the covenant described under
paragraph (l)(ii) above, there shall further be excluded therefrom the net
income (but not net loss) of any Restricted Subsidiary of the Company that is
subject to a restriction which prevents the payment of dividends or the making
of distributions to the Company or another Restricted Subsidiary of the Company
to the extent of such restriction.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Disqualified Stock of such Person.
"CONTINGENT WARRANT ESCROW AGREEMENT" means the Contingent Warrant
Escrow Agreement dated as of September 3, 1998 among the Company and American
Stock Transfer & Trust Company, as Contingent Warrant Escrow Agent.
"CONTINGENT WARRANTS" means 600,000 warrants, each to purchase one
share of Common Stock of the Company.
"DEBT" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including any such obligations Incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business which are not overdue or which are being contested in good
faith), (v) every Capital Lease Obligation of such Person and all Attributable
Value in respect of a Sale and Leaseback Transaction of such Person, (vi) all
Receivables Sales of such Person, together with any obligation of such Person to
pay any discount, interest, fees, indemnities, penalties, recourse, expenses or
other amounts in connection therewith, (vii) all obligations to redeem
Disqualified Stock issued by such Person, (viii) every obligation under Interest
Rate or Currency Protection Agreements of such Person and (ix) every obligation
of the type referred to in clauses (i) through (viii) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has Guaranteed. The "amount" or "principal amount" of Debt at any time of
determination as used herein represented by (a) any Debt issued at a price that
is less than the principal amount at maturity thereof, shall be the amount of
the liability in respect thereof determined in accordance with generally
accepted accounting principles, (b) any Receivables Sale, shall be the amount of
the unrecovered capital or principal investment of the purchaser (other than the
Company or a Wholly Owned Restricted Subsidiary of the Company) thereof,
excluding amounts representative of yield or interest earned on such investment,
(c) any Disqualified Stock, shall be the maximum fixed redemption or repurchase
price in respect thereof, (d) any Capital Lease Obligation, shall be determined
in accordance with the definition thereof, or (e) any Permitted Interest Rate or
Currency Protection Agreement, shall be zero. In no event shall Debt include any
liability for taxes.
"DTC" means The Depository Trust Company.
"DISQUALIFIED STOCK" of any Person means any Capital Stock of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of such Person, any
Restricted Subsidiary of such Person or the holder thereof, in whole or in part,
on or prior to the final Stated Maturity of
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the Series A Preferred Stock; PROVIDED, HOWEVER, that any Preferred Stock which
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require the Company to repurchase or redeem such
Preferred Stock upon the occurrence of a Change of Control occurring prior to
September 1, 2009 shall not constitute Disqualified Stock if the change of
control provisions applicable to such Preferred Stock are no more favorable to
the holders of such Preferred Stock than the provisions applicable to the Series
A Preferred Stock contained in paragraph (h) above and such Preferred Stock
specifically provides that the Company will not repurchase or redeem any such
stock pursuant to such provisions prior to the Company's repurchase of such
number of shares of Series A Preferred Stock as are required to be repurchased
pursuant to paragraph (h) above.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher, "A-" or higher or "A-" or
higher according to Moody's Investors Service, Inc., Standard & Poor's Ratings
Group or Duff & Phelps Credit Rating Co. (or such similar equivalent rating by
at least one "nationally recognized statistical rating organization" (as defined
in Rule 436 under the Securities Act)), respectively, at the time as of which
any investment or rollover therein is made.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" means the Exchange and
Registration Rights Agreement dated as of September 1, 1998 among the Company
and Goldman, Sachs & Co., Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner
and Smith Incorporated with respect to the Series A Preferred Stock.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted average life to maturity of not more than one year
from the date of Investment therein.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
"HALE FAMILY" means collectively Robert T. Hale, Robert T. Hale, Jr.
and members of their immediate families, any of their respective spouses,
estates, lineal descendants, heirs, executors, personal representatives,
administrators, trusts for any of their benefit, charitable foundations to which
shares of the Company's Capital Stock beneficially owned by any of the foregoing
have been transferred and corporations or partnerships, all the Capital Stock of
which is owned by one or more of the foregoing Persons.
"HOLDERS" means the registered holders from time to time of the Series
A Preferred Stock.
"INCUR" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to generally accepted accounting principles or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing);
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PROVIDED, HOWEVER, that a change in generally accepted accounting principles
that results in an obligation of such Person that exists at such time becoming
Debt shall not be deemed an Incurrence of such Debt and that neither the accrual
of interest nor the accretion of original issue discount shall be deemed an
Incurrence of Debt; PROVIDED FURTHER, HOWEVER, that the Company may elect to
treat all or any portion of revolving credit debt of the Company or a Subsidiary
as being Incurred from and after any date beginning the date the revolving
credit commitment is extended to the Company or a Subsidiary, by memorializing
such determination in the corporate records of the Company, and any borrowings
or reborrowings by the Company or a Subsidiary under such commitment up to the
amount of such commitment designated by the Company as Incurred shall not be
deemed to be new Incurrences of Debt by the Company or such Subsidiary.
"INITIAL WARRANTS" means 310,000 warrants, each to purchase one share
of Common Stock of the Company.
"INTEREST RATE OR CURRENCY PROTECTION AGREEMENT" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"INVESTMENT" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) to, or purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidence of Debt
issued by, any other Person, including any payment on a Guarantee of any
obligation of such other Person, but excluding any loan, advance or extension of
credit to an employee of the Company or any of its Restricted Subsidiaries in
the ordinary course of business, accounts receivables and other commercially
reasonable extensions of trade credit.
"ISSUE DATE" means the first date on which any shares of Series A
Preferred Stock are issued.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"LIEN" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
"MARKETABLE SECURITIES" means: (i) Government Securities; (ii) any time
deposit account, money market deposit and certificate of deposit maturing not
more than 270 days after the date of acquisition issued by, or time deposit of,
an Eligible Institution; (iii) commercial paper maturing not more than 270 days
after the date of acquisition issued by a corporation (other than an Affiliate
of the Company) 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., "A-1" or
higher according to Standard & Poor's Ratings Group or "A-1" or higher according
to Duff & Phelps Credit Rating Co. (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)); (iv) any banker's acceptances or money
market deposit accounts issued or offered by an Eligible Institution; (v)
repurchase obligations with a term of not more than 7 days for Government
Securities entered into with an Eligible Institution; and (vi) any fund
investing primarily in investments of the types described in clauses (i) through
(v) above.
"NET AVAILABLE PROCEEDS" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and
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expenses (including appraisals, commissions, investment banking fees, and
accounting, legal, broker and finder's fees) Incurred and all Federal, state,
provincial, foreign and local taxes (including taxes payable upon payment or
other distribution of funds from a foreign subsidiary to the Company or another
subsidiary of the Company) required to be accrued as a liability as a
consequence of such Asset Disposition, (ii) all payments made by such Person or
its Restricted Subsidiaries on any Debt which is secured by such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must by the terms of such Lien, 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 made to
minority interest holders in Restricted Subsidiaries of such Person or joint
ventures as a result of such Asset Disposition, (iv) appropriate amounts to be
provided by such Person or any Restricted Subsidiary thereof, as the case may
be, as a reserve in accordance with generally accepted accounting principles
against any liabilities associated with such assets and retained by such Person
or any Restricted Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by management
of the Company, in its reasonable good faith judgment; PROVIDED, HOWEVER, that
any reduction in such reserve within 12 months following the consummation of
such Asset Disposition will be treated for all purposes of the Certificate of
Designation as a new Asset Disposition at the time of such reduction with Net
Available Proceeds equal to the amount of such reduction, and (v) any
consideration for an Asset Disposition (which would otherwise constitute Net
Available Proceeds) that is required to be held in escrow pending determination
of whether a purchase price adjustment will be made, but amounts under this
clause (v) shall become Net Available Proceeds at such time and to the extent
such amounts are released to such Person.
"NET CASH PROCEEDS" means the proceeds of any issuance or sale of
Capital Stock in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by the
Company by first-class mail, postage prepaid, to each holder at his address
appearing in the Stock Register on the date of the Offer offering to purchase up
to the number of shares of Series A Preferred Stock having the aggregate
liquidation preference specified in such Offer at the purchase price specified
in such Offer (as determined pursuant to the Certificate of Designation). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of shares of Series A Preferred Stock within five Business Days
after the Expiration Date. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Commission, (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such financial statements referred to in clause (i) (including a
description of the events requiring the Company to make the Offer to Purchase),
(iii) if applicable, appropriate pro forma financial information concerning the
Offer to Purchase and the events requiring the Company to make the Offer to
Purchase and (iv) any other information required by applicable law to be
included therein). The Offer shall contain all instructions and
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materials necessary to enable such holders to tender shares of Series A
Preferred Stock pursuant to the Offer to Purchase. The Offer shall also state:
(a) the paragraph of the Certificate of Designation pursuant to which
the Offer to Purchase is being made;
(b) the Expiration Date and the Purchase Date;
(c) the aggregate number of shares of Series A Preferred Stock offered
to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been determined
pursuant to the Certificate of Designation provision requiring the Offer to
Purchase) (the "Purchase Amount");
(d) the purchase price to be paid by the Company for the Specified
Amount of shares of Series A Preferred Stock accepted for payment (as
specified pursuant to the Certificate of Designation) (the "Purchase
Price");
(e) that the holder may tender all or any portion of the shares of
Series A Preferred Stock registered in the name of such holder;
(f) the place or places where shares of Series A Preferred Stock are to
be surrendered for tender pursuant to the Offer to Purchase;
(g) that dividends on any shares of Series A Preferred Stock not
tendered or tendered but not purchased by the Company pursuant to the Offer
to Purchase will continue to accumulate;
(h) that on the Purchase Date the Purchase Price will become due and
payable upon each share of Series A Preferred Stock being accepted for
payment pursuant to the Offer to Purchase and that dividends thereon shall
cease to accumulate on and after the Purchase Date;
(i) that each holder electing to tender a share of Series A Preferred
Stock pursuant to the Offer to Purchase will be required to surrender such
share of Series A Preferred Stock at the place or places specified in the
Offer prior to the close of business on the Expiration Date (such share of
Series A Preferred Stock being, if the Company so requires, duly endorsed
by, or accompanied by a written instrument of transfer in form satisfactory
to the Company duly executed by, the holder thereof or his attorney duly
authorized in writing);
(j) that holders will be entitled to withdraw all or any portion of
shares of Series A Preferred Stock tendered if the Company receives, not
later than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
number of shares of Series A Preferred Stock the holder tendered, the
certificate number of the shares the holder tendered and a statement that
such holder is withdrawing all or a portion of his tender;
(k) that (a) if shares of Series A Preferred Stock in an aggregate
number less than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase all
such shares of Series A Preferred Stock and (b) if shares of Series A
Preferred Stock in an aggregate number in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Company
shall purchase shares of Series A Preferred Stock equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only whole shares shall be purchased); and
(l) that in the case of any holder whose shares of Series A Preferred
Stock are purchased only in part, the Company shall return all such
unpurchased shares or execute and deliver to the holder of such shares
without service charge, new shares as requested by such holder, in an
aggregate liquidation preference equal to and in exchange for the
unpurchased portion of the shares so tendered.
25
<PAGE> 26
Any Offer to Purchase shall be governed by and effected in accordance
with the Offer for such Offer to Purchase.
"OFFICER" means the Chairman of the Board of Directors, the President,
any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Transfer Agent. The counsel may be an employee of or counsel
to the Company or the Transfer Agent.
"PERMITTED HOLDERS" means the Hale Family.
"PERMITTED INTEREST RATE OR CURRENCY PROTECTION AGREEMENT" of any
Person means any Interest Rate or Currency Protection Agreement entered into
with one or more financial institutions in the ordinary course of business that
is designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"PERMITTED INVESTMENT" means (i) any Investment in the Company or any
Restricted Subsidiary, (ii) any Investment in any Person as a result of which
such Person becomes a Wholly Owned Restricted Subsidiary, (iii) any Investment
in Marketable Securities, (iv) Investments in Permitted Interest Rate or
Currency Protection Agreements, (v) Investments made as a result of the receipt
of noncash consideration from an Asset Disposition that was made pursuant to and
in compliance with paragraph (l)(iii) above, (vi) loans or advances to employees
of the Company or any Restricted Subsidiary that in the aggregate at any one
time do not exceed $1 million, (vii) Strategic Investments in an amount not to
exceed $5 million at any one time outstanding and (viii) an amount equal to the
sum of (a) $5 million and (b) the aggregate Net Cash Proceeds received by the
Company from the 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 a trust established by the Company or any of its Subsidiaries for the
benefit of their employees) to the extent such Net Cash Proceeds have not been
used pursuant to clause (3)(b) of the first paragraph or clause (iv) of
paragraph (l)(ii)(B) above.
"PERMITTED RECEIVABLES FACILITY" means a transaction pursuant to which
any Restricted Subsidiary transfers (pursuant to a sale, contribution to capital
or a combination thereof) to a Special Purpose Subsidiary Receivables and
certain related rights, and such Special Purpose Subsidiary securitizes such
Receivables and related rights pursuant to a loan agreement, receivables
purchase agreement, pooling and servicing agreement or similar contract with one
or more commercial paper conduits, banks, financial institutions or similar
entities.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"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 (other than a registration statement on Form S-4, S-8
or any successor form).
"PURCHASE MONEY DEBT" means (i) Acquired Debt Incurred in connection
with the acquisition of Telecommunications Assets and (ii) Debt of the Company
or of any Restricted Subsidiary of the Company (including, without limitation,
Debt represented
26
<PAGE> 27
by Capital Lease Obligations, mortgage financings and purchase money
obligations) Incurred for the purpose of financing all or any part of the cost
of construction, acquisition, development, design, installation, integration,
transportation or improvement by the Company or any Restricted Subsidiary of the
Company of any Telecommunications Assets of the Company or any Restricted
Subsidiary of the Company, and including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as the same may be amended, supplemented, modified or restated from
time to time.
"RECEIVABLES" means receivables, chattel paper, instruments, documents
or intangibles evidencing or relating to the right to payment of money in
respect of the sale of goods or services.
"RECEIVABLES SALE" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
"REGISTERED EXCHANGE OFFER" means a registered exchange offer of Series
A Preferred Stock under the Securities Act pursuant to the Exchange and
Registration Rights Agreement.
"RELATED PERSON" of any Person means any other Person directly or
indirectly owning (a) 10% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 10% or more of the
equity interest in such Person) or (b) 10% or more of the combined voting power
of the Voting Stock of such Person.
"RESTRICTED SUBSIDIARY" of the Company means any Subsidiary, whether
existing on or after the Issue Date, unless such Subsidiary is an Unrestricted
Subsidiary.
"SALE AND LEASEBACK TRANSACTION" of any Person means an arrangement
with any lender or investor or to which such lender or investor is a party
providing for the leasing by such Person of any property or asset of such Person
which has been or is being sold or transferred by such Person more than 365 days
after the later of the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset. The stated maturity of such arrangement
shall be the date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be terminated
by the lessee without payment of a penalty.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SENIOR NOTES" means Debt of the Company having a maturity of at least
six years.
"SENIOR NOTES OFFERING" means an offering (whether private or
registered under the Securities Act) of Senior Notes.
"SIGNIFICANT SUBSIDIARY" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"SPECIAL PURPOSE SUBSIDIARY" means a corporation, limited liability
company, partnership or business trust, all of the capital stock or other equity
interests therein are owned, directly or indirectly, by the Company or any
Wholly Owned Restricted Subsidiary, that has been established for the purpose
of, and whose activities are limited to, the consummation of Receivables Sales
and activities incidental thereto.
"SPECIFIED AMOUNT" means, on any date with respect to any share of
Series A Preferred Stock, the sum of (i) the Liquidation Preference with respect
to such
27
<PAGE> 28
share and (ii) the Accumulated Dividends with respect to such share that are
added automatically to the Specified Amount of such share.
"STRATEGIC INVESTMENT" means (a) Investments that the Board of
Directors has determined in good faith will enable the Company or any of its
Wholly Owned Restricted Subsidiaries to obtain additional business that it might
not be able to obtain without making such Investment and (b) Investments in
entities, the principal function of which is to perform research and development
with respect to products and services that may be useful in the
Telecommunications Business; PROVIDED that the Company or one of its Wholly
Owned Restricted Subsidiaries is entitled or otherwise reasonably expected to
obtain rights to such products or services as a result of such Investment.
"SUBSIDIARY" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"TELECOMMUNICATIONS ASSETS" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"TELECOMMUNICATIONS BUSINESS" means the business of (i) transmitting,
or providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) creating, developing or
marketing communications related network equipment, software and other devices
for use in a Telecommunication Business or (iii) evaluating, participating or
pursuing any other activity or opportunity that is primarily related to those
identified in (i) or (ii) above and shall, in any event, include all businesses
in which the Company or any of its Subsidiaries are engaged on the Issue Date;
PROVIDED that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors of the Company,
which determination shall be conclusive.
"TRANSFER AGENT" means the transfer agent for the Series A Preferred
Stock appointed by the Company, which initially shall be American Stock Transfer
& Trust Company.
"TRANSFER RESTRICTED SECURITIES" means each share of Class A Stock
until (i) such Class A Stock has been exchanged by a person other than a
broker-dealer for freely transferrable Class A1 Stock in a Registered Exchange
Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange
Offer of Class A Stock for Class A1 Stock, the date on which such Class A1 Stock
is sold to a purchaser who receives from such broker-dealer or prior to the date
of such sale a copy of the prospectus contained in the Registered Exchange Offer
registration statement, (iii) the date on which such Class A Stock has been
effectively registered under the Securities Act and disposed of in accordance
with a Shelf Registration Statement or (iv) the date on which such Class A Stock
is distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.
"UNITS" means the Units sold by the Company containing the Class A
Stock and the Warrants.
"UNRESTRICTED SUBSIDIARY" means (1) any Subsidiary of the Company
designated as such by the Board of Directors of the Company as set forth below
where (a) neither the Company nor any of its other Subsidiaries (other than
another Unrestricted Subsidiary) (i) provides credit support for, or Guarantee
of, any Debt of such Subsidiary or any Subsidiary of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Debt) or (ii) is
directly or indirectly liable for any Debt of such Subsidiary or any Subsidiary
of such Subsidiary, and (b) no default with respect to any Debt of such
Subsidiary or any Subsidiary of such Subsidiary (including any right which the
holders thereof may have to take enforcement action against such Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other Debt
of the Company and its Restricted Subsidiaries to declare a
28
<PAGE> 29
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity and (2) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Subsidiary to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, any other
Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so
designated or otherwise an Unrestricted Subsidiary; PROVIDED that either (x) the
Subsidiary to be so designated has total assets of $1,000 or less or (y)
immediately after giving effect to such designation, the Company could incur at
least $1.00 of additional Debt pursuant to paragraph (l)(i)(A) above; and
PROVIDED FURTHER that the Company could make a Restricted Payment in an amount
equal to the greater of the fair market value and the book value of such
Subsidiary pursuant to the covenant described under paragraph (l)(ii) above and
such amount is thereafter treated as a Restricted Payment for the purpose of
calculating the aggregate amount available for Restricted Payments thereunder.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary, provided that, immediately after giving effect to such
designation, the Company could incur at least $1.00 of additional Debt pursuant
to paragraph (l)(i)(A) above.
"VOTING STOCK" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"WARRANTS" means the Initial Warrants and the Contingent Warrants.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person 99% or more of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
IN WITNESS WHEREOF, said Network Plus Corp., has caused this
Certificate of Designation to be signed by Robert T. Hale, Jr., its President
and Chief Executive Officer, this first day of September 1998.
NETWORK PLUS CORP.,
by /s/ ROBERT T. HALE, JR.
---------------------------
Name: Robert T. Hale, Jr.
Title: President and Chief
Executive Officer
<PAGE> 30
Exhibit A
FACE OF SECURITY
The 13-1/2% Series A Cumulative Preferred Stock due 2009 (the "Series A
Preferred Stock") issued by Network Plus Corp. (the "Company") evidenced hereby
was initially issued as part of a unit (the "Units"), each Unit consisting of
(i) one share of Series A Preferred Stock, (ii) 7.75 Initial Warrants and (iii)
15 Contingent Warrants. Each Warrant entitles the holder thereof to purchase one
share of Common Stock from the Company at an exercise price of $0.01 per share,
subject to adjustment. The Contingent Warrants are held in escrow for the
benefit of holders of the Series A Preferred Stock pursuant to a Contingent
Warrant Escrow Agreement between the Company and American Stock Transfer & Trust
Company, as Contingent Warrant Escrow Agent. Until the earliest of (such
earliest date, the "Separation Date") (i) 90 days after the original issuance
date of the Warrants, (ii) a Change of Control, (iii) the occurrence of a Voting
Rights Triggering Event, (iv) the date on which a registration statement with
respect to the Series A Preferred Stock or an exchange offer for the Series A
Preferred Stock is declared effective, or (v) such earlier date as determined by
Goldman, Sachs & Co., Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner &
Smith, in their sole discretion, the Series A Preferred Stock evidenced hereby
may not be sold, assigned or otherwise transferred to any person unless,
simultaneously with such transfer, the holder hereof transfers to the same
transferee 7.75 Initial Warrants for each share of Series A Preferred Stock so
transferred. Until the later of the date on which the Contingent Warrants are
released from escrow and the Separation Date, the Series A Preferred Stock
evidenced hereby may not be sold, assigned or otherwise transferred to any
person unless, simultaneously with such transfer, the holder hereof transfers to
the same transferee the right to 15 Contingent Warrants (or such fewer number of
Contingent Warrants as are held in escrow in respect of each outstanding share
of Series A Preferred Stock) for each share of Series A Preferred Stock so
transferred.
[IF GLOBAL SECURITY: TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED
TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE CERTIFICATE OF DESIGNATION REFERRED TO BELOW.]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE
<PAGE> 31
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY AND ANY SECURITY INTO WHICH SUCH SECURITY IS EXCHANGEABLE MAY
BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) WITHIN THE UNITED
STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (iv) TO THE COMPANY, IN EACH OF CASES (i) THROUGH (iv) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION, AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT
OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
-2-
<PAGE> 32
No. _____ _______ Shares
Class A CUSIP No.: 64122D 20 9
Class A1 CUSIP No.: 64122D 30 8
13-1/2% Series A Cumulative Preferred Stock Due 2009
(Par Value $0.01)
(Initial Liquidation Preference $1,000 per share)
of
Network Plus Corp.
Network Plus Corp., a Delaware corporation (the "Company"), hereby
certifies that _________ (the "Holder") is the registered owner of _________ [if
Global Security: the number of shares set forth on Schedule A hereto] fully paid
and non-assessable shares of the Company's 13-1/2% Series A Cumulative Preferred
Stock Due 2009 (par value $0.01) (Liquidation Preference $1,000 per share) (the
"Series A Preferred Stock"). The shares of Series A Preferred Stock are
transferable on the books and records of the Registrar, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Series A Preferred Stock
represented hereby shall in all respects be subject to the provisions of the
Certificate of Incorporation and the Certificate of Designation in respect of
the Series A Preferred Stock, as the same may be amended from time to time (the
"Certificate of Incorporation"). Capitalized terms used herein but not defined
shall have the meaning given them in the Certificate of Incorporation. The
Company will provide a copy of the Certificate of Incorporation to a Holder
without charge upon written request to the Company at its principal place of
business.
Reference is hereby made to select provisions of the Series A Preferred
Stock set forth on the reverse hereof, and to the Certificate of Incorporation,
which select provisions and the Certificate of Incorporation shall for all
purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Certificate of Incorporation and is entitled to the benefits thereunder.
-3-
<PAGE> 33
Unless the Transfer Agent's Certificate of Authentication hereon has
been properly executed, these shares of Series A Preferred Stock shall not be
entitled to any benefit under the Certificate of Incorporation or be valid or
obligatory for any purpose.
Dated:
NETWORK PLUS CORP.,
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Series A Preferred Stock referred to in the within
mentioned Certificate of Incorporation.
Dated:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Transfer Agent,
By:
-------------------------------------
Authorized Signatory
-4-
<PAGE> 34
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF SERIES A PREFERRED STOCK
Re: 13-1/2% Class A and Class A1 Series A Cumulative Preferred Stock due 2009
(the "Series A Preferred Stock") of Network Plus Corp. (the "Company")
This Certificate relates to ____ shares of Series A Preferred Stock held in
[ ] */ book-entry or [ ] */ definitive form by _______________ (the
"Transferor").
The Transferor*:
[ ] has requested the Transfer Agent by written order to deliver in
exchange for its beneficial interest in the Global Series A Preferred Stock held
by the depository shares of Series A Preferred Stock in definitive, registered
form equal to its beneficial interest in such Global Series A Preferred Stock
(or the portion thereof indicated above); or
[ ] has requested the Transfer Agent by written order to exchange or
register the transfer of Series A Preferred Stock.
In connection with such request and in respect of such Series A
Preferred Stock, the Transferor does hereby certify that the Transferor is
familiar with the Certificate of Designation relating to the above captioned
Series A Preferred Stock and that the transfer of this Series A Preferred Stock
does not require registration under the Securities Act of 1933 (the "Securities
Act") because */:
[ ] Such Series A Preferred Stock is being acquired for the Transferor's
own account without transfer.
[ ] Such Series A Preferred Stock is being transferred to the Company.
[ ] Such Series A Preferred Stock is being transferred to a qualified
institutional buyer (as defined in Rule 144A under the Securities Act), in
reliance on Rule 144A.
[ ] Such Series A Preferred Stock is being transferred in reliance on and
in compliance with another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company so requests).
________________________________
[INSERT NAME OF TRANSFEROR]
by _____________________________
Date: ____________________
- ----------------
*/ Please check applicable box.
1
<PAGE> 1
EXHIBIT 3.3
-------------------------------------------------
BYLAWS
OF
NETWORK PLUS CORP.
A Delaware Corporation
Adopted July 15, 1998
-------------------------------------------------
1
<PAGE> 2
BYLAWS
TABLE OF CONTENTS
ARTICLE 1 - Stockholders
1.1 Place of Meetings
1.2 Annual Meeting
1.3 Special Meetings
1.4 Notice of Meetings
1.5 Voting List
1.6 Quorum
1.7 Adjournments
1.8 Voting and Proxies
1.9 Action at Meeting
1.10 Action without Meeting
ARTICLE 2 - Directors
2.1 General Powers
2.2 Number; Election and Qualification
2.3 Enlargement of the Board
2.4 Tenure
2.5 Vacancies
2.6 Resignation
2.7 Regular Meetings
2.8 Special Meetings
2.9 Notice of Special Meetings
2.10 Meetings by Telephone Conference Calls
2.11 Quorum
2.12 Action at Meeting
2.13 Action by Consent
2.14 Removal
2.15 Committees
2.16 Compensation of Directors
ARTICLE 3 - Officers
3.1 Enumeration
3.2 Election
3.3 Qualification
3.4 Tenure
3.5 Resignation and Removal
3.6 Vacancies
3.7 Chairman of the Board and Vice-Chairman of the Board
3.8 President
3.9 Vice Presidents
3.10 Secretary and Assistant Secretaries
3.11 Treasurer and Assistant Treasurers
3.12 Salaries
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock
4.2 Certificates of Stock
4.3 Transfers
4.4 Lost, Stolen or Destroyed Certificates
4.5 Record Date
ARTICLE 5 - General Provisions
5.1 Fiscal Year
5.2 Corporate Seal
5.3 Waiver of Notice
5.4 Voting of Securities
5.5 Evidence of Authority
5.6 Certificate of Incorporation
5.7 Transactions with Interested Parties
5.8 Severability
5.9 Pronouns
ARTICLE 6 - Amendments
6.1 By the Board of Directors
6.2 By the Stockholders
2
<PAGE> 3
BYLAWS
OF
NETWORK PLUS CORP.
A Delaware Corporation
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 Bylaws 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.
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 Bylaws, 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 Bylaws 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
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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 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 Bylaws. 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.
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
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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
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 Bylaws.
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.
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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 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 Bylaws 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 Bylaws, 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.
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
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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.
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 Bylaws, 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
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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.
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
Bylaws, 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 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 Bylaws, 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 Bylaws.
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.
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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.
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 Bylaws, 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 Bylaws 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
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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:
(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
Bylaws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these Bylaws.
5.9 PRONOUNS. All pronouns used in these Bylaws 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 Bylaws may be altered, amended
or repealed or new bylaws 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 Bylaws may be altered, amended or
repealed or new bylaws 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 bylaws shall have been stated in the notice
of such special meeting.
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EXHIBIT 4.1
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of September 1,
1998, among Network Plus Corp., a Delaware corporation (the "Company"), Goldman,
Sachs & Co., Lehman Brothers Inc., and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (together, the "Purchasers"), identified on Schedule I to the
Purchase Agreement (as defined herein), of the 13-1/2% Series A Cumulative
Preferred Stock due 2009 (the "Preferred Stock") of the Company.
The Company proposes to issue and sell to the Purchasers upon the terms
set forth in the Purchase Agreement the Shares (as defined herein). As an
inducement to the Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchasers thereunder, the
Company agrees with the Purchasers for the benefit of holders (as defined
herein) from time to time of the Registrable Shares (as defined herein) as
follows:
1. Certain Definitions.
For purposes of this Exchange and Registration Rights Agreement, the
following terms shall have the following respective meanings:
"Base Dividends" shall mean the dividends that would otherwise
accumulate on the Shares under the terms thereof and the Certificate of
Designation, without giving effect to the provisions of this Agreement.
The term "broker-dealer" shall mean any broker or dealer
registered with the Commission under the Exchange Act.
"Certificate of Designation" means the certificate of
designation of the Company establishing the terms of the Preferred
Stock.
"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the
Exchange Act or the Securities Act, whichever is the relevant statute
for the particular purpose.
"Effective Period" shall have the meaning assigned thereto in
Section 2(b) hereof.
"Effective Time", in the case of (i) an Exchange Registration,
shall mean the time and date as of which the Commission declares the
Exchange Registration Statement effective or as of which the Exchange
Registration Statement otherwise becomes effective and (ii) a Shelf
Registration, shall mean the time and date as of which the Commission
declares the Shelf Registration Statement effective or as of which the
Shelf Registration Statement otherwise becomes effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
or any successor thereto, as the same shall be amended from time to
time.
"Exchange Offer" shall have the meaning assigned thereto in
Section 2(a) hereof.
"Exchange Registration" shall have the meaning assigned
thereto in Section 3(d) hereof.
"Exchange Registration Statement" shall have the meaning
assigned thereto in Section 2(a) hereof.
"Exchange Shares" shall have the meaning assigned thereto in
Section 2(a) hereof.
The term "holder" shall mean each of the Purchasers and other
persons who acquire Registrable Shares from time to time (including any
successors or assigns), in each case for so long as such person owns
any Registrable Shares.
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The term "person" shall mean a corporation, association,
partnership, organization, business, limited liability company,
individual, government or political subdivision thereof or governmental
agency.
"Purchase Agreement" shall mean the Purchase Agreement, dated
as of September 1, 1998, between the Purchasers and the Company
relating to the Shares.
"Registrable Shares" shall mean the Shares; provided, however,
that a Share shall cease to be a Registrable Share when (i) in the
circumstances contemplated by Section 2(a) hereof, the Share has been
exchanged for an Exchange Share in an Exchange Offer as contemplated in
Section 2(a) (provided that any Exchange Share received by a
broker-dealer in an Exchange Offer in exchange for a Registrable Share
that was not acquired by the broker-dealer directly from the Company
will also be a Registrable Share through and including the earlier of
the 90th day after the Exchange Offer is completed or such time as such
broker-dealer no longer owns such Share); (ii) in the circumstances
contemplated by Section 2(b) hereof, a Shelf Registration Statement
registering such Share under the Securities Act has been declared or
becomes effective and such Share has been sold or otherwise transferred
by the holder thereof pursuant to and in a manner contemplated by such
effective Shelf Registration Statement; (iii) such Share is sold
pursuant to Rule 144 (or any successor provision) under circumstances
in which any legend borne by such Share relating to restrictions on
transferability thereof, under the Securities Act or otherwise, is
removed by the Company; (iv) such Share is eligible to be sold pursuant
to paragraph (k) of Rule 144; or (v) such Share shall cease to be
outstanding.
"Registration Default" shall have the meaning assigned thereto
in Section 2(c) hereof.
"Registration Expenses" shall have the meaning assigned
thereto in Section 4 hereof.
"Resale Period" shall have the meaning assigned thereto in
Section 2(a) hereof.
"Restricted Holder" shall mean (i) a holder that is an
affiliate of the Company within the meaning of Rule 405, (ii) a holder
who acquires Exchange Shares outside the ordinary course of such
holder's business, (iii) a holder who has arrangements or
understandings with any person to participate in the Exchange Offer for
the purpose of a distribution (within the meaning of the Securities
Act) of the Exchange Shares and (iv) a holder that is a broker-dealer,
but only with respect to Exchange Shares received by such broker-dealer
pursuant to an Exchange Offer in exchange for Registrable Shares
acquired by the broker-dealer directly from the Company.
"Rule 144", "Rule 405" and "Rule 415" shall mean, in each
case, such rule promulgated under the Securities Act (or any successor
provision), as the same shall be amended from time to time.
"Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
"Shares" shall mean, collectively, the 13-1/2% Cumulative
Preferred Stock due 2009 of the Company to be issued and sold to the
Purchasers, and securities issued in exchange therefor, as dividends
thereon or in lieu thereof; provided, however, that, with respect to
shares of Preferred Stock issued or issuable as dividends ("Dividend
Shares") on shares of Preferred Stock, for purposes of the definition
of Registrable Shares, (i) with respect to the Exchange Registration
Statement, "Shares" shall only include Dividend Shares issued prior to
the Effective Time of the Exchange Registration Statement and (ii) with
respect to the Shelf Registration Statement, "Shares" shall only
include Dividend Shares issued or issuable prior to the date that is
910 days after the Effective Time of the Shelf Registration Statement.
"Shelf Registration" shall have the meaning assigned thereto
in Section 2(b) hereof.
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<PAGE> 3
"Shelf Registration Statement" shall have the meaning assigned
thereto in Section 2(b) hereof.
"Special Dividends" shall have the meaning assigned thereto in
Section 2(c) hereof.
"Time of Delivery" shall mean September 3, 1998.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Exchange and Registration Rights Agreement, and the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Exchange and
Registration Rights Agreement as a whole and not to any particular Section or
other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Company agrees to
file under the Securities Act, as soon as practicable, but no later than 90 days
after the Time of Delivery, a registration statement relating to an offer to
exchange (such registration statement, the "Exchange Registration Statement",
and such offer, the "Exchange Offer") any and all of the Shares for a like
number of shares of preferred stock issued by the Company, which shares are
substantially identical to the Shares (and are entitled to the benefits of a
certificate of designation which is substantially identical to the Certificate
of Designation or is the Certificate of Designation), except that they have been
registered pursuant to an effective registration statement under the Securities
Act and do not contain registration rights, transfer restrictions and provisions
for the additional dividends contemplated in Section 2(c) below (such new shares
of preferred stock hereinafter called "Exchange Shares"). The Company agrees to
use its best efforts to cause the Exchange Registration Statement to become
effective under the Securities Act as soon as practicable, but no later than
150 days after the Time of Delivery. The Exchange Offer will be registered under
the Securities Act on the appropriate form required by the Commission and will
comply with all applicable tender offer rules and regulations under the Exchange
Act and all applicable federal and state securities laws. The Company further
agrees to hold the Exchange Offer open for at least 30 days, use its best
efforts to commence and complete the Exchange Offer no later than 45 days after
such Registration Statement has become effective, and issue Exchange Shares for
all Registrable Shares that have been properly tendered and not withdrawn on or
prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed
to have been "completed" only if the Exchange Shares received by holders other
than Restricted Holders in the Exchange Offer for Registrable Shares are, upon
receipt, transferable by each such holder without need for further compliance
with Section 5 of the Securities Act (except for the requirement to deliver a
prospectus included in the Exchange Registration Statement applicable to resales
by broker-dealers of Exchange Shares received by such broker-dealer pursuant to
an Exchange Offer in exchange for Registrable Shares other than those acquired
by the broker-dealer directly from the Company), and without material
restrictions under the blue sky or securities laws of a substantial majority of
the States of the United States of America. The Exchange Offer shall be deemed
to have been completed upon the earlier to occur of (i) the Company having
exchanged the Exchange Shares for all outstanding Registrable Shares pursuant to
the Exchange Offer and (ii) the Company having exchanged, pursuant to the
Exchange Offer, Exchange Shares for all Registrable Shares that have been
properly tendered and not withdrawn before the expiration of the Exchange Offer,
which shall be on a date that is at least 30 days following the commencement of
the Exchange Offer. The Company agrees (x) to include in the Exchange
Registration Statement a prospectus for use in connection with any resales of
Exchange Shares by a broker-dealer, other than resales of Exchange Shares
received by a broker-dealer pursuant to an Exchange Offer in exchange for
Registrable Shares acquired by the broker-dealer directly from the Company, and
(y) to keep such Exchange Registration Statement effective for a period (the
"Resale Period") beginning when Exchange Shares are first issued in the Exchange
Offer and ending upon the earlier of (x) the expiration of the 90th day after
the Exchange Offer has been completed or (y) such time as such broker-dealers no
longer own any Registrable Shares. With respect to such Exchange Registration
Statement, each broker-dealer that holds Exchange Shares received in an Exchange
Offer in exchange for Registerable Shares not acquired by it directly from the
Company shall have the benefit of the rights of indemnification and contribution
set forth in Sections 6(a), (c), (d) and (e) hereof.
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<PAGE> 4
(b) If prior to the time the Exchange Offer is completed existing
Commission interpretations are changed such that the shares of preferred stock
received by holders other than Restricted Holders in the Exchange Offer for
Registrable Shares are not or would not be, upon receipt, transferable by each
such holder without need for further compliance with Section 5 of the Securities
Act (except for the requirement to deliver a prospectus included in the Exchange
Registration Statement applicable to resales by a broker-dealer of Exchange
Shares received by such broker-dealer pursuant to an Exchange Offer in exchange
for Registrable Shares other than those acquired by the broker-dealer directly
from the Company), in lieu of conducting the Exchange Offer contemplated by
Section 2(a), the Company shall use its best efforts to file under the
Securities Act a "shelf" registration statement providing for the registration
of, and the sale on a continuous or delayed basis by the holders of, all of the
Registrable Shares, pursuant to Rule 415 or any similar rule that may be adopted
by the Commission (such filing, the "Shelf Registration" and such registration
statement, the "Shelf Registration Statement"). In addition, in the event that
the Purchasers shall not have resold all of the Shares (other than Shares
purchased by an affiliate of any Purchaser for investment purposes) initially
purchased by them from the Company pursuant to the Purchase Agreement, prior to
the consummation of the Exchange Offer, the Company shall file under the
Securities Act as soon as practicable a Shelf Registration Statement, which if
permitted by the Commission may be done by way of a post-effective amendment to
the Exchange Registration Statement. The Company agrees to use its best efforts
to cause the Shelf Registration Statement to become or be declared effective no
later than 120 days after such Shelf Registration Statement is filed and to keep
such Shelf Registration Statement continuously effective for a period (the
"Effectiveness Period") ending on the earlier of (x) the second anniversary of
the Effective Time (or such later date as determined by adding the number of
days in all Information Delay Periods to the date of such second anniversary) or
(y) such time as there are no longer any Registrable Shares outstanding. The
Company further agrees to supplement or make amendments to the Shelf
Registration Statement, as and when required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the Securities Act or rules and regulations
promulgated thereunder for a shelf registration, and the Company agrees to
furnish to the holders of the Registrable Shares copies of any such supplement
or amendment to such registration statement prior to its being used or promptly
following its filing with the Commission. Attached as Exhibit A hereto is a form
of Notice of Registration Statement and Selling Securityholder Questionnaire to
be completed by holders in connection with a Shelf Registration pursuant to this
Section 2(b), which may be amended or supplemented to the extent reasonably
determined by counsel to the Company.
(c) In the event that (i) the Company has not filed the Exchange
Registration Statement or Shelf Registration Statement on or before the date on
which such registration statement is required to be filed pursuant to Section
2(a) or 2(b), respectively, or (ii) such Exchange Registration Statement or
Shelf Registration Statement has not become effective or been declared effective
by the Commission on or before the date on which such registration statement is
required to become or be declared effective pursuant to Section 2(a) or 2(b),
respectively, or (iii) the Exchange Offer has not been completed within 180 days
after the Time of Delivery (if the Exchange Offer is then required to be made)
or (iv) any Exchange Registration Statement or Shelf Registration Statement
required by Section 2(a) or 2(b) hereof is filed and declared effective but
shall thereafter either be withdrawn by the Company or shall become subject to
an effective stop order issued pursuant to Section 8(d) of the Securities Act
suspending the effectiveness of such registration statement (except as
specifically permitted herein) without being succeeded immediately by an
additional registration statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default" and each
period during which a Registration Default has occurred and is continuing, a
"Registration Default Period"), then, as liquidated damages for such
Registration Default, subject to the provisions of Section 9(b), special
dividends ("Special Dividends"), in addition to the Base Dividends, shall
accumulate at a per annum rate of 0.50% on the Specified Amount (as defined in
the Certificate of Designation) for the first 90 days of the Registration
Default Period, at a per annum rate of 0.75% on the Specified Amount for the
second 90 days of the Registration Default Period and at a per annum rate of
1.00% on the Specified Amount thereafter for the remaining portion of the
Registration Default Period. The Special Dividends shall be payable in cash
quarterly in arrears on each March 1, June 1, September 1 and December 1.
Special Dividends, if any, shall be computed on the basis of a 360 day year of
twelve 30-day months and the number of days actually elapsed.
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<PAGE> 5
(d) The Company shall use its reasonable best efforts to effect the
transactions contemplated herein as so contemplated.
(e) Any reference herein to a registration statement as of any time
shall be deemed to include any document incorporated, or deemed to be
incorporated, therein by reference as of such time and any reference herein to
any post-effective amendment to a registration statement as of any time shall be
deemed to include any document incorporated, or deemed to be incorporated,
therein by reference as of such time.
(f) Notwithstanding anything to the contrary in this Agreement,
including without limitation Section 2 and 3 hereof, if at any time prior to the
expiration of the Effectiveness Period, outside counsel to the Company (which
counsel shall be experienced in securities laws matters) has determined in good
faith that it is reasonable to conclude that the filing of the Shelf
Registration Statement or the compliance by the Company with its disclosure
obligations in connection with such registration statement may require the
disclosure of information which the Board of Directors of the Company has
identified as material and which the Board of Directors has determined that the
Company has a bona fide business purpose for preserving as confidential, then
the Company may delay the filing or the effectiveness of the Shelf Registration
Statement (if not then filed or effective, as applicable) and shall not be
required to maintain the effectiveness thereof or amend or supplement the
Exchange Registration Statement or the Shelf Registration Statement for a period
(an "Information Delay Period") expiring three business days after the earlier
to occur of (A) the date on which such material information is disclosed to the
public or ceases to be material or the Company is able to so comply with its
disclosure obligations and Commission requirements or (B) 45 days after the
Company notifies the Holders of such good faith determination. There shall not
be more than four Information Delay Periods during the Effectiveness Period, and
there shall not be two Information Delay Periods during any contiguous 135 day
period.
(g) The Company will give prompt written notice, in such manner
prescribed by Section 9(c) hereof, to each holder of each Information Delay
Period. Such notice shall be given as soon as practicable after the Board of
Directors makes the determination referenced in Section 2(f). Such notice shall
state to the extent, if any, as is practicable, an estimate of the duration of
such Information Delay Period. Each holder, by his acceptance of any Registrable
Shares, agrees that (i) upon receipt of such notice of an Information Delay
Period it will forthwith discontinue disposition of Registrable Shares pursuant
to the Shelf Registration Statement, and (ii) will not deliver any prospectus
forming a part of the Shelf Registration Statement in connection with any sale
of Registrable Shares, as applicable until the expiration of such Information
Delay Period.
(h) In the event the Company enters into an Information Delay Period,
the Company will have no liability for failing to perform any obligations it may
have pursuant to Section 2 and 3 of this Agreement during such delay period;
provided, however, that nothing in Sections 2(f) through (h) shall prevent the
provisions of Section 2(c) of this Agreement from being operative and if Special
Dividends are accruing at the commencement of an Information Delay Period or a
Registration Default occurs during an Information Delay Period, Special
Dividends shall continue to accumulate until the Registration Default giving
rise to the accumulation of Special Dividends shall have been cured.
3. Registration Procedures.
(a) (i) In connection with the Exchange Offer, the Company shall
comply with all of the provisions of Section 3(d) and Section 3(e) below, shall
use its best efforts to effect such exchange to permit the sale of Registrable
Shares being sold in accordance with the intended method or methods of
distribution thereof, and, prior to effectiveness of the Exchange Offer
Registration Statement, shall, if required by the Commission, provide a
supplemental letter to the Commission (A) stating that the Company is
registering the Exchange Offer in reliance on the position of the Commission
enunciated in EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988),
MORGAN STANLEY AND CO., INC. (available June 5, 1991) and (B) including a
representation that the Company has not entered into any arrangement or
understanding with any person to distribute the Exchange Shares to be received
in the Exchange Offer and, if true, that, to the best of the Company's
information and belief, each holder participating in the Exchange Offer is
acquiring the Exchange Shares in its ordinary
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<PAGE> 6
course of business and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Shares received in the Exchange
Offer.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each holder of Registrable Shares shall
furnish, upon the request of the Company, prior to the consummation thereof, a
written representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an affiliate of the Company, (B) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Exchange Shares to be issued
in the Exchange Offer and (C) it is acquiring the Exchange Shares in its
ordinary course of business. In addition, all such holders of Registrable Shares
shall otherwise cooperate in the Company's preparations for the Exchange Offer.
Each holder hereby acknowledges and agrees that any broker-dealer and any such
holder, in either case, using the Exchange Offer (1) could not under Commission
policy as in effect on the date of this Agreement rely on the position of the
Commission enunciated in MORGAN STANLEY AND CO., INC. (available June 5, 1991)
and EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), as interpreted
in the Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters, and (2) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale transaction must
be covered by an effective registration statement containing the selling
shareholder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Exchange Shares obtained by such holder in
exchange for Exchange Shares acquired by such holder directly from the Company
or an affiliate of the Company.
If the Company files a registration statement pursuant to Section 2(a)
or Section 2(b), the following provisions shall apply:
(b) In connection with the Company's obligations with respect to the
registration of Exchange Shares as contemplated by Section 2(a) (the "Exchange
Registration"), if applicable, the Company shall, as soon as reasonably possible
(or as otherwise specified):
(i) prepare and file with the Commission, as soon as
practicable, but no later than 90 days after the Time of Delivery, an
Exchange Registration Statement on any form which may be utilized by
the Company and which shall permit the Exchange Offer and resales of
Exchange Shares by broker-dealers during the Resale Period to be
effected as contemplated by Section 2(a), and use its best efforts to
cause such Exchange Registration Statement to become effective as soon
as practicable thereafter, but no later than 150 days after the Time of
Delivery;
(ii) as soon as practicable prepare and file with the
Commission such amendments and supplements to such Exchange
Registration Statement and the prospectus included therein as may be
necessary to effect and maintain the effectiveness of such Exchange
Registration Statement for the periods and purposes contemplated in
Section 2(a) hereof and as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the
form of such Exchange Registration Statement, and promptly provide each
broker-dealer holding Exchange Shares with such number of copies of the
prospectus included therein (as then amended or supplemented), in
conformity in all material respects with the requirements of the
Securities Act and the rules and regulations of the Commission
thereunder, as such broker-dealer reasonably may request prior to the
expiration of the Resale Period, for use in connection with resales of
Exchange Shares;
(iii) promptly notify the holders of Registrable Shares, the
sales or placement agent, if any, and the managing underwriter or
underwriters, if any and each broker-dealer that has requested copies
of the prospectus included in such registration statement, and confirm
such advice in writing, (A) when such Exchange Registration Statement
or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with
respect to such Exchange Registration Statement or any post-effective
amendment, when the same has become effective, (B) of any comments by
the Commission and by the Blue Sky or securities commissioner or
regulator of any state with respect thereto or any request by the
Commission for amendments or
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<PAGE> 7
supplements to such Exchange Registration Statement or prospectus or
for additional information, (C) of the issuance by the Commission of
any stop order suspending the effectiveness of such Exchange
Registration Statement or the initiation or threatening of any
proceedings for that purpose, (D) if at any time the representations
and warranties of the Company contemplated by Section 5 hereof cease to
be true and correct in all material respects, (E) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Exchange Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose or (F)
at any time during the Resale Period when a prospectus is required to
be delivered under the Securities Act, that such Exchange Registration
Statement, prospectus, prospectus amendment or supplement or
post-effective amendment thereto does not conform in all material
respects to the applicable requirements of the Securities Act and the
rules and regulations of the Commission thereunder or contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(iv) in the event that the Company would be required to issue
the notice required by Section 3(b)(iii)(F) above, prepare and furnish
without delay to each such holder a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to
purchasers of such Exchange Shares during the Resale Period, such
prospectus shall conform in all material respects to the applicable
requirements of the Securities Act and the rules and regulations of the
Commission thereunder and shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; each holder of Registrable
Shares agrees that upon receipt of any notice from the Company pursuant
to Section 3(b)(iii)(C) or (F) hereof, such holder shall forthwith
discontinue the disposition of Exchange Shares pursuant to the Exchange
Registration Statement applicable to such Exchange Shares until such
holder shall have received copies of such amended or supplemented
prospectus, and if so directed by the Company, such holder shall
deliver to the Company (at the Company's expense) all copies, other
than permanent file copies, then in such holder's possession of the
prospectus covering such Exchange Shares at the time of receipt of such
notice;
(v) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such Exchange Registration Statement or
any post-effective amendment thereto at the earliest practicable date;
(vi) use its best efforts to (A) register or qualify the
Exchange Shares under the securities laws or blue sky laws of such
jurisdictions as are contemplated by Section 2(a), to the extent
required by such laws, no later than the commencement of the Exchange
Offer, (B) keep such registrations or qualifications in effect and
comply with such laws so as to permit the continuance of offers, sales
and dealings therein in such jurisdictions until the expiration of the
Resale Period and (C) take any and all other actions as may be
reasonably necessary or advisable to enable each broker-dealer holding
Exchange Shares to consummate the disposition thereof in such
jurisdictions; provided, however, that the Company shall not be
required for any such purpose to (1) qualify as a foreign corporation
in any jurisdiction wherein it would not otherwise be required to
qualify but for the requirements of this Section 3(b)(vi), (2) consent
to general service of process in any such jurisdiction or (3) make any
changes to its certificate of incorporation or by-laws or any agreement
between it and its stockholders;
(vii) use its best efforts to obtain the consent or approval
of each governmental agency or authority, whether federal, state or
local, which may be required to effect the Exchange Registration, the
Exchange Offer and the offering and sale of Exchange Shares by
broker-dealers during the Resale Period;
(viii) provide a CUSIP number for all Exchange Shares, not
later than the applicable Effective Time;
(ix) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders as
soon as practicable but no later than eighteen months after the
effective date of such Exchange
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<PAGE> 8
Registration Statement, an earnings statement of the Company and any
subsidiaries complying with Section 11(a) of the Securities Act
(including, at the option of the Company, Rule 158 thereunder).
(c) In connection with the Company's obligations with respect to the
Shelf Registration, if applicable, the Company shall use its best efforts to
cause the Shelf Registration to permit the disposition of the Registrable Shares
by the holders thereof in accordance with the intended method or methods of
disposition thereof provided for in the Shelf Registration Statement. In
connection therewith, the Company shall:
(i) prepare and file with the Commission, as soon as
practicable, a Shelf Registration Statement on any form which may be
utilized by the Company and which shall permit the disposition of the
Registrable Shares in accordance with the intended method or methods
thereof, as specified in writing by the holders of the Registrable
Shares, and use its best efforts to cause such Shelf Registration
Statement to become effective no later than 120 days after such shelf
registration statement is filed;
(ii) as soon as practicable prepare and file with the
Commission such amendments and supplements to such Shelf Registration
Statement and the prospectus included therein as may be necessary to
effect and maintain the effectiveness of such Shelf Registration
Statement for the period specified in Section 2(b) hereof and as may be
required by the applicable rules and regulations of the Commission and
the instructions applicable to the form of such Shelf Registration
Statement, and furnish to the holders of the Registrable Shares copies
of any such supplement or amendment simultaneously with or prior to its
being used or filed with the Commission;
(iii) comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Shares covered by
such Shelf Registration Statement in accordance with the intended
methods of disposition by the holders thereof provided for in such
Shelf Registration Statement;
(iv) provide (A) the holders of the Registrable Shares to be
included in such Shelf Registration Statement, (B) the underwriters
(which term, for purposes of this Exchange and Registration Rights
Agreement, shall include a person deemed to be an underwriter within
the meaning of Section 2(11) of the Securities Act), if any, thereof,
(C) any sales or placement agent therefor, (D) counsel for any such
underwriter or agent and (E) not more than one counsel for all the
holders of such Registrable Shares the opportunity to participate in
the preparation of such Shelf Registration Statement, each prospectus
included therein or filed with the Commission and each amendment or
supplement thereto; it being understood that the participation by the
holders of the Registrable Shares shall, to the greatest extent
possible be coordinated by such one counsel;
(v) for a reasonable period prior to the filing of such Shelf
Registration Statement, and throughout the period specified in Section
2(b), make available at reasonable times at the Company's principal
place of business or such other reasonable place for inspection by the
persons referred to in Section 3(c)(iv) who shall certify to the
Company that they have a current intention to sell the Registrable
Shares pursuant to the Shelf Registration such financial and other
information and books and records of the Company as reasonably
requested, and cause the officers, employees, counsel and independent
certified public accountants of the Company to respond to such
inquiries, as shall be reasonably necessary, in the judgment of the
respective counsel referred to in such Section, to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act;
provided, however, that each such party shall be required to maintain
in confidence and not disclose to any other person any information or
records reasonably designated by the Company as being confidential,
until such time as (A) such information becomes a matter of public
record (whether by virtue of its inclusion in such registration
statement or otherwise), or (B) such person shall be required so to
disclose such information pursuant to a subpoena or order of any court
or other governmental agency or body having jurisdiction over the
matter (subject to the requirements of such order, and only after such
person shall have given the Company prompt prior written notice of such
requirement), or (C) such information is required to be
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<PAGE> 9
set forth in such Shelf Registration Statement or the prospectus
included therein or in an amendment to such Shelf Registration
Statement or an amendment or supplement to such prospectus in order
that such Shelf Registration Statement, prospectus, amendment or
supplement thereto, as the case may be, complies with applicable
requirements of the Federal securities laws and the rules and
regulations of the Commission and does not contain an untrue statement
of a material fact or omit to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and; provided
further, however, that the foregoing inspection and information
gathering shall, to the greatest extent possible, be coordinated by a
single firm designated by holders of a majority of the aggregate
principal amount of Registrable Shares to be included in such offering;
(vi) promptly notify the selling holders of Registrable
Shares, any sales or placement agent therefor and any underwriter
thereof (which notification may be made through any managing
underwriter that is a representative of such under writer for such
purpose) and confirm such advice in writing, (A) when such Shelf
Registration Statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been
filed, and, with respect to such Shelf Registration Statement or any
post-effective amendment, when the same has become effective, (B) of
any comments by the Commission and by the Blue Sky or securities
commissioner or regulator of any state with respect thereto or any
request by the Commission for amendments or supplements to such Shelf
Registration Statement or prospectus or for additional information, (C)
of the issuance by the Commission of any stop order suspending the
effectiveness of such Shelf Registration Statement or the initiation or
threatening of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Company contemplated by Section
3(c)(xv) or Section 5 hereof cease to be true and correct in all
material respects, (E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (F) if at any time
when a prospectus is required to be delivered under the Securities Act,
such Shelf Registration Statement, prospectus, prospectus amendment or
supplement or post-effective amendment does not conform in all material
respects to the applicable requirements of the Securities Act and the
rules and regulations of the Commission thereunder or contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(vii) use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of such registration statement or
any post-effective amendment thereto at the earliest practicable date;
(viii) if requested by any managing underwriter or
underwriters, any placement or sales agent or any holder of Registrable
Shares, promptly incorporate in a prospectus supplement or
post-effective amendment such information as is required by the
applicable rules and regulations of the Commission and as such managing
underwriter or underwriters, such agent or such holder specifies should
be included therein relating to the terms of the sale of such
Registrable Shares, including information with respect to the principal
amount of Registrable Shares being sold by such holder or agent or to
any underwriters, the name and description of such holder, agent or
underwriter, the offering price of such Registrable Shares and any
discount, commission or other compensation payable in respect thereof,
the purchase price being paid therefor by such underwriters and with
respect to any other terms of the offering of the Registrable Shares to
be sold by such holder or agent or to such underwriters; and make all
required filings of such prospectus supplement or post-effective
amendment promptly after notification of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(ix) upon request, furnish to each holder of Registrable
Shares, each placement or sales agent, if any, therefor, each
underwriter, if any, thereof and the respective counsel referred to in
Section 3(c)(iv) an executed copy (or,
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<PAGE> 10
in the case of a holder of Registrable Shares, a conformed copy) of
such Shelf Registration Statement, each such amendment and supplement
thereto (in each case including all exhibits thereto (in the case of a
holder of Registrable Shares, upon request) and documents incorporated
by reference therein) and such number of copies of such Shelf
Registration Statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by
such holder, agent or underwriter, as the case may be) and of the
prospectus included in such Shelf Registration Statement (including
each preliminary prospectus and any summary prospectus), in conformity
in all material respects with the applicable requirements of the
Securities Act and the rules and regulations of the Commission
thereunder, and such other documents, as such holder, agent, if any,
and underwriter, if any, may reasonably request in order to facilitate
the offering and disposition of the Registrable Shares owned by such
holder, offered or sold by such agent or underwritten by such
underwriter and to permit such holder, agent and underwriter to satisfy
the prospectus delivery requirements of the Securities Act; and,
subject to Sections 2(a) and (b) and 3(c)(vi)(C), (E) and (F), the
Company hereby consents to the use of such prospectus (including such
preliminary and summary prospectus) and any amendment or supplement
thereto by each such holder and by any such agent and underwriter, in
each case in the form most recently provided to such person by the
Company, in connection with the offering and sale of the Registrable
Shares covered by the prospectus (including such preliminary and
summary prospectus) or any supplement or amendment thereto;
(x) use its best efforts to (A) register or qualify the
Registrable Shares to be included in such Shelf Registration Statement
under such securities laws or blue sky laws of such jurisdictions as
any holder of such Registrable Shares and each placement or sales
agent, if any, therefor and underwriter, if any, thereof shall
reasonably request, (B) keep such registrations or qualifications in
effect and comply with such laws so as to permit the continuance of
offers, sales and dealings therein in such jurisdictions during the
period the Shelf Registration is required to remain effective under
Section 2(b) above and for so long as may be necessary to enable any
such holder, agent or underwriter to complete its distribution of
Registrable Shares pursuant to such Shelf Registration Statement and
(C) take any and all other actions as may be reasonably necessary or
advisable to enable each such holder, agent, if any, and underwriter,
if any, to consummate the disposition in such jurisdictions of such
Registrable Shares; provided, however, that the Company shall not be
required for any such purpose to (1) qualify as a foreign corporation
in any jurisdiction wherein it would not otherwise be required to
qualify but for the requirements of this Section 3(e)(x), (2) consent
to general service of process in any such jurisdiction or (3) make any
changes to its certificate of incorporation or by-laws or any agreement
between it and its stockholders;
(xi) use its best efforts to obtain the consent or approval
of each governmental agency or authority, whether Federal, state or
local, which may be required to effect the Shelf Registration or the
offering or sale in connection therewith or to enable the selling
holder or holders to offer, or to consummate the disposition of, their
Registrable Shares;
(xii) cooperate with the holders of the Registrable Shares and
the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Shares to be sold, which certificates shall be printed, lithographed or
engraved, or produced by any combination of such methods, and which
shall not bear any restrictive legends; and, in the case of an
underwritten offering, enable such Registrable Shares to be in such
denominations and registered in such names as the managing underwriters
may request at least two business days prior to any sale of the
Registrable Shares;
(xiii) provide a CUSIP number for all Registrable Shares, not
later than the applicable Effective Time;
(xiv) enter into one or more underwriting agreements,
engagement letters, agency agreements, "best efforts" underwriting
agreements or similar agreements
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<PAGE> 11
(each of which shall be in customary form), as appropriate, including
customary provisions relating to indemnification and contribution, and
take such other actions in connection therewith as any holders of
Registrable Shares aggregating at least a majority in aggregate
principal amount of the Registrable Shares at the time outstanding
shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Shares; provided, that the Company
shall not be required to enter into any such agreement more than once
with respect to all of the Registrable Shares and may delay entering
into such agreement until the consummation of any underwritten public
offering which the Company shall have then initiated;
(xv) whether or not an agreement of the type referred to in
Section 3(e)(xiv) hereof is entered into and whether or not any portion
of the offering contemplated by the Shelf Registration is an
underwritten offering or is made through a placement or sales agent or
any other entity, (A) make such representations and warranties to the
holders of the Registrable Shares covered by such Shelf Registration
and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof in form, substance and scope as are
customarily made in connection with an offering of equity securities
pursuant to any appropriate agreement or to a registration statement
filed on the form applicable to the Shelf Registration; (B) obtain an
opinion of counsel to the Company in customary form and covering such
matters, of the type customarily covered by such an opinion, as the
placement or sales agent, if any, or as the managing underwriters, if
any, or as any holders of at least 331/3% aggregate liquidation
preference of the Registrable Shares at the time outstanding may
reasonably request (provided, however, that any disputes among holders
of Registrable Shares as to the contents of such opinion shall be
resolved among such holders, and the Company shall not be required to
obtain more than one customary opinion requested by such holders in
connection with any transaction), addressed to such holder or holders
and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof and dated the effective date of such
Shelf Registration Statement (and if such Shelf Registration Statement
contemplates an underwritten offering of a part or all of the
Registrable Shares, dated the date of the closing under the
underwriting agreement relating thereto) (it being agreed that the
matters to be covered by such opinion shall include the due
incorporation and good standing of the Company and any subsidiary; the
qualification of the Company and any subsidiary, if any, to transact
business as foreign corporations; the due authorization, execution and
delivery of the relevant agreement of the type referred to in Section
3(c)(xiv) hereof; the due authorization, execution, authentication and
issuance, and the validity and enforceability, of the Registrable
Shares; the absence of material legal or governmental proceedings
involving the Company; the absence of govern mental approvals required
to be obtained in connection with the Shelf Registration, the offering
and sale of the Registrable Shares, this Exchange and Registration
Rights Agreement or any agreement of the type referred to in Section
3(c)(xiv) hereof, except such approvals as may be required under state
securities or blue sky laws; the material compliance as to form of such
Shelf Registration Statement and any documents incorporated by
reference therein with the requirements of the Securities Act and the
rules and regulations of the Commission thereunder; and, such counsel
shall also state in such opinion that, as of the date of the opinion
and of the Shelf Registration Statement or most recent post-effective
amendment thereto, as the case may be, the absence from such Shelf
Registration Statement and the prospectus included therein, as then
amended or supplemented, and from the documents incorporated by
reference therein (in each case other than the financial statements and
other financial information contained therein) of an untrue statement
of a material fact or the omission to state therein a material fact
necessary to make the statements therein not misleading (in the case of
such documents, in the light of the circumstances existing at the time
that such documents were filed with the Commission under the Exchange
Act) in each case, subject to reasonable and customary limitations and
exceptions); (C) obtain a "comfort" letter or letters from the
independent certified public accountants of the Company addressed to
the selling holders of Registrable Shares, the placement or sales
agent, if any, therefor or the underwriters, if any, thereof, dated (i)
the effective date of such Shelf Registration Statement and (ii) the
effective date of any prospectus supplement to the prospectus included
in such Shelf Registration Statement or post-effective amendment to
such Shelf Registration Statement which includes
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<PAGE> 12
unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such
prospectus (and, if such Shelf Registration Statement contemplates an
underwritten offering pursuant to any prospectus supplement to the
prospectus included in such Shelf Registration Statement or
post-effective amendment to such Shelf Registration Statement which
includes unaudited or audited financial statements as of a date or for
a period subsequent to that of the latest such statements included in
such prospectus, dated the date of the closing under the underwriting
agreement relating thereto), such letter or letters to be in customary
form and covering such matters of the type customarily covered by
letters of such type; (D) deliver such documents and certificates,
including officers' certificates, as may be reasonably requested by any
holders of at least 331/3 aggregate principal amount of the Registrable
Shares at the time outstanding (provided, however, that any disputes
among holders of Registrable Shares as to the form or contents of such
documents shall be resolved among such holders, and the Company shall
not be required to deliver more than one set of customary documents and
certificates in connection with any transaction) or the placement or
sales agent, if any, therefor and the managing underwriters, if any,
thereof to evidence the accuracy of the representations and warranties
made pursuant to clause (A) above or those contained in Section 5(a)
hereof and the compliance with or satisfaction of any agreements or
conditions contained in the underwriting agreement or other agreement
entered into by the Company; and (E) undertake such obligations
relating to expense reimbursement, indemnification and contribution as
are provided in Section 6 hereof;
(xvi) notify in writing each holder of Registrable Shares of
any proposal by the Company to amend or waive any provision of this
Exchange and Registration Rights Agreement pursuant to Section 9(h)
hereof and of any amendment or waiver effected pursuant thereto, each
of which notices shall contain the text of the amendment or waiver
proposed or effected, as the case may be;
(xvii) in the event that any broker-dealer registered under
the Exchange Act shall underwrite any Registrable Shares or participate
as a member of an underwriting syndicate or selling group or "assist in
the distribution" (within the meaning of the Rules of Fair Practice and
the By-Laws of the National Association of Securities Dealers, Inc.
("NASD") or any successor thereto, as amended from time to time)
thereof, whether as a holder of such Registrable Shares or as an
underwriter, a placement or sales agent or a broker or dealer in
respect thereof, or otherwise, cooperate with such broker-dealer in
complying with the requirements of such Rules and By-Laws, including by
(A) if such Rules or By-Laws shall so require, cooperate in the
engaging of a "qualified independent underwriter" (as defined in the
schedules thereto (or any successor thereto)) to participate in the
preparation of the Shelf Registration Statement relating to such
Registrable Shares, to exercise usual standards of due diligence in
respect thereto and, if any portion of the offering contemplated by
such Shelf Registration Statement is an underwritten offering or is
made through a placement or sales agent, to recommend the price of such
Registrable Shares, (B) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 6 hereof, and (C) providing such information to
such broker-dealer as may be required in order for such broker-dealer
to comply with the requirements of the Rules of Fair Practice of the
NASD; and
(xviii) comply with all applicable rules and regulations of
the Commission, and make generally available to its security holders as
soon as practicable but in any event not later than eighteen months
after the effective date of such Shelf Registration Statement, an
earnings statement of the Company and any subsidiary complying with
Section 11(a) of the Securities Act (including, at the option of the
Company, Rule 158 thereunder).
(d) In the event that the Company would be required, pursuant to
Section 3(c)(vi)(F) above, to notify the selling holders of Registrable Shares,
the placement or sales agent, if any, therefor and the managing underwriters, if
any, thereof, as applicable, the Company shall without delay prepare and furnish
to each such holder, to each placement or sales agent, if any, and to each such
underwriter, if any, a reasonable number of copies of a prospectus supplemented
or amended so that,
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<PAGE> 13
as thereafter delivered to purchasers of Registrable Shares, such prospectus
shall conform in all material respects to the applicable requirements of the
Securities Act and the rules and regulations of the Commission thereunder and
shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. Each holder
of Registrable Shares agrees that upon receipt of any notice from the Company
pursuant to Section 3(c)(vi)(C) or (F) hereof, such holder shall forthwith
discontinue the disposition of Registrable Shares pursuant to the Shelf
Registration Statement applicable to such Registrable Shares until such holder
shall have received copies of such amended or supplemented prospectus, and if so
directed by the Company, such holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
holder's possession of the prospectus covering such Registrable Shares at the
time of receipt of such notice.
(e) The Company may require each holder of Registrable Shares as to
which any Shelf Registration pursuant to Section 2(b) is being effected to
furnish to the Company such information regarding such holder and such holder's
intended method of distribution of such Registrable Shares as the Company may
from time to time reasonably request in writing, but only to the extent that
such information is required in order to comply with the Securities Act. Each
such holder agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such holder to the
Company or of the occurrence of any event in either case as a result of which
any prospectus relating to such Shelf Registration contains or would contain an
untrue statement of a material fact regarding such holder or such holder's
intended method of disposition of such Registrable Shares or omits to state any
material fact regarding such holder or such holder's intended method of
disposition of such Registrable Shares required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such holder or the disposition of such Registrable Shares, an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly,
upon request, all expenses incident to the Company's performance of or
compliance with this Exchange and Registration Rights Agreement, including (a)
all Commission and any NASD registration, filing and review fees and expenses,
(b) all fees and expenses in connection with the qualification of the Shares for
offering and sale under the State securities and blue sky laws referred to in
Section 3(c)(x) hereof and determination of their eligibility for investment
under the laws of such jurisdictions as any managing underwriters or the holders
of such Registrable Shares may designate, including any reasonable fees and
disbursements of counsel for the selling holders or underwriters in connection
with such qualification and determination, (c) all expenses relating to the
preparation, printing, production, distribution and reproduction of each
registration statement required to be filed hereunder, each prospectus included
therein or prepared for distribution pursuant hereto, each amendment or
supplement to the foregoing, the expenses of preparing the Shares for delivery
and the expenses of photocopying any underwriting agreements, agreements among
underwriters, selling agreements and blue sky or legal investment memoranda and
all other documents in connection with the offering, sale or delivery of Shares
to be disposed of (including certificates representing the Shares), (d)
messenger, telephone and delivery expenses relating to the offering, sale or
delivery of Shares and the preparation of documents referred to in clause (c)
above, (e) fees and expenses of the Transfer Agent for the Preferred Stock and,
if required by the Transfer Agent, any agent of the Transfer Agent and any
counsel for the Transfer Agent and of any collateral agent or custodian, (f)
internal expenses (including all salaries and expenses of the Company's officers
and employees performing legal or accounting duties), (g) fees, disbursements
and expenses of counsel and independent certified public accountants of the
Company (including the expenses of any opinions or "comfort" letters required by
or incident to such performance and compliance), (h) any fees charged by
securities rating services for rating the Shares, (i) fees, expenses and
disbursements of any other
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<PAGE> 14
persons, including special experts, retained by the Company in connection with
such registration and determination of their eligibility for investment under
the "blue-sky" laws of such jurisdictions as any managing underwriters or the
holders of such Registrable Shares may designate, including any reasonable fees
and disbursements of one counsel for the selling holders or underwriters in
connection with such "blue-sky" qualification and determination (collectively,
the "Registration Expenses"). To the extent that any Registration Expenses are
incurred, assumed or paid by any holder of Registrable Shares or any placement
or sales agent therefor or underwriter thereof, the Company shall reimburse such
person for the full amount of the Registration Expenses so incurred, assumed or
paid reasonably promptly after receipt of a request therefor. Notwithstanding
the foregoing, the holders of the Registrable Shares being registered shall pay
all agency fees and commissions and underwriting discounts and commissions
attributable to the sale of such Registrable Shares and the fees and
disbursements of any counsel or other advisors or experts retained by such
holders (severally or jointly).
5. Representations and Warranties.
The Company represents and warrants to, and agrees with, each Purchaser
and each of the holders from time to time of Registrable Shares that:
(a) Each registration statement covering Registrable Shares
and each prospectus (including any preliminary or summary prospectus)
contained therein or furnished pursuant to Section 3(b) or Section 3(c)
hereof and any further amendments or supplements to any such
registration statement or prospectus, when it becomes effective or is
filed with the Commission, as the case may be, and, in the case of an
underwritten offering of Registrable Shares, at the time of the closing
under the underwriting agreement relating thereto, will conform in all
material respects to the applicable requirements of the Securities Act
and the rules and regulations of the Commission thereunder and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at all times subsequent to the
Effective Time when a prospectus would be required to be delivered
under the Securities Act, other than from (i) such time as a notice has
been given to holders of Registrable Shares pursuant to Section
3(c)(vi)(F) or Section 3(b)(iii)(F) hereof until (ii) such time as the
Company furnishes an amended or supplemented prospectus pursuant to
Section 3(e) or Section 3(b)(iv) hereof, each such registration
statement, and each prospectus (including any summary prospectus)
contained therein or furnished pursuant to Section 3(b) or Section 3(c)
hereof, as then amended or supplemented, will conform in all material
respects to the applicable requirements of the Securities Act and the
rules and regulations of the Commission thereunder and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by or
on behalf of a holder or holders of Registrable Shares expressly for
use therein.
(b) Any documents incorporated by reference in any prospectus
referred to in Section 5(a) hereof, when they become or became
effective or are or were filed with the Commission, as the case may be,
will conform or conformed in all material respects to the requirements
of the Securities Act or the Exchange Act, as applicable, and none of
such documents will contain or contained an untrue statement of a
material fact or will omit or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by or on behalf of a holder or holders of Registrable Shares expressly
for use therein.
(c) The compliance by the Company with all of the provisions
of this Exchange and Registration Rights Agreement and the consummation
of the transactions herein contemplated will not (i) result in any
violation of the
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<PAGE> 15
provisions of the certificate of incorporation, as amended, or the
by-laws of the Company or its subsidiaries, (ii) conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or its Subsidiary
is a party or by which the Company or its Subsidiary is bound or to
which any of the property or assets of the Company or its Subsidiary is
subject, or (iii) result in the violation of any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or its Subsidiary or any of their
properties other than, in the case of clauses (ii) and (iii) above, for
any breach, default or violation which would not have a material
adverse affect on the condition (financial or other), business,
prospects (as set forth or incorporated by reference in the prospectus
included in the applicable registration statement), affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its Subsidiary taken as a whole; and no
consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required
for the consummation by the Company of the transactions contemplated by
this Exchange and Registration Rights Agreement, except the
registration under the Securities Act of the Shares and such consents,
approvals, authorizations, registrations or qualifications as may be
required under State securities or blue sky laws in connection with the
offering and distribution of the Shares.
(d) This Exchange and Registration Rights Agreement has been
duly authorized, executed and delivered by the Company.
6. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless each of the holders of Registrable Shares included in a
registration statement filed pursuant to Section 2(a) or 2(b) hereof, and each
person who participates as a placement or sales agent or as an underwriter in
any offering or sale of such Registrable Shares against any losses, claims,
damages or liabilities, joint or several, to which such holder, agent or
underwriter may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which such
Registrable Shares were registered under the Securities Act, or any preliminary,
final or summary prospectus contained therein or furnished by the Company to any
such holder, agent or underwriter, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company shall, and it hereby agrees
to, reimburse such holder, such agent and such underwriter for any reasonable
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable to any such
person in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
or preliminary, final or summary prospectus, or amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of a holder or holders of Registrable Shares expressly
for use therein;
(b) Indemnification by the Holders and any Agents and Underwriters. The
Company may require, as a condition to including any Registrable Shares in any
registration statement filed pursuant to Section 2(b) hereof and to entering
into any underwriting agreement with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from the holder of
such Registrable Shares and from each underwriter named in any such underwriting
agreement, severally and not jointly, to (i) indemnify and hold harmless the
Company, and in the case of a Shelf Registration Statement all other holders of
Registrable Shares, against any losses, claims, damages or liabilities to which
the Company or such other holders of Registrable Shares may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
such
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<PAGE> 16
registration statement, or any preliminary, final or summary prospectus
contained therein or furnished by the Company to any such holder, agent or
underwriter, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such holder or underwriter expressly for use therein,
and (ii) reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that no such
holder shall be required to undertake liability to any person under this Section
6(b) for any amounts in excess of the dollar amount of the proceeds to be
received by such holder from the sale of such holder's Registrable Shares
pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability hereunder to the extent it is not
materially prejudiced as a result thereof (but shall relieve it from liability
under Section 6(a) or 6(b), as the case may be, to the extent the indemnifying
party is materially prejudiced) and in any event shall not relieve it from any
liability which it may have to any indemnified party other than under the
indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In
case any such action shall be brought against any indemnified party and it shall
notify an indemnifying party of the commencement thereof, and such indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent (which consent shall not be
unreasonably withheld) of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, such indemnifying party shall
not be liable to such indemnified party for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. The indemnifying party shall not be required to indemnify any
indemnified party for any amount paid or payable by such indemnified party in
the settlement of any action, proceeding or investigation without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party. No indemnifying party shall be required to indemnify an indemnified party
for any amount paid or payable by such indemnified party in the settlement of
any action, proceeding or investigation without the written consent of such
indemnifying party, which consent shall not be unreasonably withheld.
(d) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among
16
<PAGE> 17
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or by such indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 6(d)
were determined by pro rata allocation (even if the holders or any agents or
underwriters or all of them were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in this Section 6(d). The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, or liabilities
(or actions in respect thereof) referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(d), no holder shall be required
to contribute any amount in excess of the amount by which the dollar amount of
the proceeds received by such holder from the sale of any Registrable Shares
(after deducting any fees, discounts and commissions applicable thereto) exceeds
the amount of any damages which such holder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission, and no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The holders' and any underwriters' obligations in this
Section 6(d) to contribute shall be several in proportion to the principal
amount of Registrable Shares registered or underwritten, as the case may be, by
them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each holder, agent and underwriter and each person, if any, who controls any
holder, agent or underwriter within the meaning of the Securities Act; and the
obligations of the holders and any agents or underwriters contemplated by this
Section 6 shall be in addition to any liability which the respective holder,
agent or underwriter may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company (including any
person who, with his consent, is named in any registration statement as about to
become a director of the Company) and to each person, if any, who controls the
Company within the meaning of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Shares covered
by the Shelf Registration are to be sold pursuant to an underwritten offering,
the managing underwriter or underwriters thereof shall be designated by the
holders of at least a majority in aggregate principal amount of the Registrable
Shares to be included in such offering, provided that such designated managing
underwriter or underwriters is or are reasonably acceptable to the Company.
(b) Number of Underwritten Offerings. The Company shall not be
required, unless the Company's reasonable out-of-pocket expenses related thereto
are reimbursed at closing of such offering by the selling shareholders, to
facilitate more than two underwritten offerings requested by holders of
Registrable Shares pursuant to this Agreement. Holders of a majority of the
Registrable Shares to be included in any such underwritten offering may, at any
time prior to the filing of a final prospectus relating to such offering, revoke
their request for an underwritten offering by providing a written notice to the
Company revoking such request and, if such holders reimburse the Company for all
its reasonable out-of-pocket expenses incurred in connection with such proposed
underwritten offering such request shall not be deemed an underwritten offering
for purposes of the limitation in the first sentence of this Section 3(b);
provided, however, that, if such revocation was based on the Company's failure
to comply in any material respect with its obligations hereunder, such
reimbursement shall not be required.
17
<PAGE> 18
(c) Participation by Holders. Each holder of Registrable Shares hereby
agrees with each other such holder that no such holder may participate in any
underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Shares on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
The Company covenants to the holders of Registrable Shares that to the
extent it shall be required to do so under the Exchange Act, the Company shall
timely file the reports required to be filed by it under the Exchange Act or the
Securities Act (including the reports under Section 13 and 15(d) of the Exchange
Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission
under the Securities Act) and the rules and regulations adopted by the
Commission thereunder, all to the extent required from time to time to enable
such holder to sell Registrable Shares without registration under the Securities
Act within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Shares in connection with that holder's
sale pursuant to Rule 144, the Company shall deliver to such holder a written
statement as to whether, to the best of its knowledge, it has complied with such
requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant (other than
with the written consent of the holders of at least a majority of the
outstanding Registrable Shares), registration rights with respect to Registrable
Shares or any other securities which would be inconsistent with the terms
contained in this Exchange and Registration Rights Agreement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of their
respective obligations hereunder and that each party may be irreparably harmed
by any such failure, and accordingly agree that each party, in addition to any
other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of the respective obligations of any
other party under this Exchange and Registration Rights Agreement in accordance
with the terms and conditions of this Exchange and Registration Rights
Agreement, in any court of the United States or any State thereof having
jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Company, to it
at 234 Copeland Street, Quincy, MA 02169, Attention: Secretary, with a copy to
Hale and Dorr LLP, 60 State Street, Boston, MA 02109, Attention: Jeffrey N.
Carp, and if to a holder, to the address of such holder set forth in the
security register or other records of the Company, or to such other address as
the Company or any such holder may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
(d) Parties in Interest. All the terms and provisions of this Exchange
and Registration Rights Agreement shall be binding upon, shall inure to the
benefit of and shall be enforceable by the parties hereto and the holders from
time to time of the Registrable Shares and the respective successors and assigns
of the parties hereto and such holders. In the event that any transferee of any
holder of Registrable Shares shall acquire Registrable Shares, in any manner,
whether by gift, bequest, purchase, operation of law or otherwise, such
transferee shall, without any further writing or action of any kind, be deemed a
beneficiary hereof for all purposes and such Registrable Shares shall be held
subject to all of the terms of this Exchange and
18
<PAGE> 19
Registration Rights Agreement, and by taking and holding such Registrable Shares
such transferee shall be entitled to receive the benefits of, and be
conclusively deemed to have agreed to be bound by all of the applicable terms
and provisions of this Exchange and Registration Rights Agreement. If the
Company shall so request, any such successor, assign or transferee shall agree
in writing to acquire and hold the Registrable Shares subject to all of the
applicable terms hereof.
(e) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Exchange and Registration
Rights Agreement or made pursuant hereto shall remain in full force and effect
regardless of any investigation (or statement as to the results thereof) made by
or on behalf of the Purchasers or any holder of Registrable Shares, any
director, officer or partner of such holder, any agent or underwriter or any
director, officer or partner thereof, or any controlling person of any of the
foregoing, and shall survive delivery of and payment for the Registrable Shares
pursuant to the Purchase Agreement and the transfer and registration of
Registrable Shares by such holder and the consummation of an Exchange Offer.
(f) LAW GOVERNING. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
NEW YORK.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are inserted for
convenience only, do not constitute a part of this Exchange and Registration
Rights Agreement and shall not affect in any way the meaning or interpretation
of this Exchange and Registration Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration Rights
Agreement and the other writings referred to herein (including the form of
Shares) or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. This Exchange
and Registration Rights Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter. This
Exchange and Registration Rights Agreement may be amended and the observance of
any term of this Exchange and Registration Rights Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Company and the
holders of at least a majority of the Registrable Shares at the time
outstanding. Each holder of any Registrable Shares at the time or thereafter
outstanding shall be bound by any amendment or waiver effected pursuant to this
Section 9(h), whether or not any notice, writing or marking indicating such
amendment or waiver appears on such Registrable Shares or is delivered to such
holder. Notwithstanding the foregoing, a waiver or consent to departure from
the provisions hereof that relates exclusively to the rights of holders whose
Registrable Shares are being tendered pursuant to the Exchange Offer and that
does not affect directly or indirectly the rights of other holders whose
Registrable Shares are not being tendered pursuant to such Exchange Offer may be
given by the holders of at least a majority of the outstanding Registrable
Shares being tendered or registered.
(i) Inspection. For so long as this Exchange and Registration Rights
Agreement shall be in effect, this Exchange and Registration Rights Agreement
and a complete list of the names and addresses of all the holders of Registrable
Shares shall be made available for inspection and copying on any business day by
any holder of Registrable Shares for proper purposes only (which shall include
any purpose related to the rights of the holders of Registrable Shares under the
Shares and this Agreement) at the offices of the Company at the address thereof
set forth in Section 9(c) above.
19
<PAGE> 20
(j) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
Agreed to and accepted as of the date referred to above.
NETWORK PLUS CORP.
By: /s/ ROBERT T. HALE, JR.
---------------------------------
Name: Robert T. Hale, Jr.
Title: President and CEO
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
On behalf of each of the Purchasers,
By: /s/ GOLDMAN, SACHS & CO.
---------------------------------
(Goldman, Sachs & Co.)
20
<PAGE> 21
Exhibit A
NETWORK PLUS CORP.
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE](1)
The Depository Trust Company ("DTC") has identified you as a
DTC Participant through which beneficial interests in the Network Plus Corp.
(the "Company") 13-1/2% Series A Cumulative Preferred Stock due 2009 (the
"Shares") are held.
The Company is in the process of registering the Shares under
the Securities Act of 1933 for resale by the beneficial owners thereof. In order
to have their Shares included in the registration statement, beneficial owners
must complete and return the enclosed Notice of Registration Statement and
Selling Shareholder Questionnaire.
IT IS IMPORTANT THAT BENEFICIAL OWNERS OF THE SHARES RECEIVE A
COPY OF THE ENCLOSED MATERIALS AS SOON AS POSSIBLE as their rights to have the
Shares included in the registration statement depend upon their returning the
Notice and Questionnaire by [DEADLINE FOR RESPONSE]. Please forward a copy of
the enclosed documents to each beneficial owner that holds interests in the
Shares through you. If you require more copies of the enclosed materials or have
any questions pertaining to this matter, please contact Network Plus Corp., 234
Copeland Street, Quincy, MA 02169 (tel: 617-786-4000), Attention: Secretary.
- -----------------
(1) Not less than 28 calendar days from date of mailing.
<PAGE> 22
2
Network Plus Corp.
Notice of Registration Statement
and
SELLING STOCKHOLDER QUESTIONNAIRE
(Date)
Reference is hereby made to the Exchange and Registration
Rights Agreement (the "Exchange and Registration Rights Agreement"), between
Network Plus Corp. (the "Company") and the Purchasers named therein. Pursuant to
the Exchange and Registration Rights Agreement, the Company has filed with the
United States Securities and Exchange Commission (the "Commission") a
registration statement on Form [___] (the "Shelf Registration Statement") for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the "Securities Act"), of the Company's 13-1/2% Series A Cumulative
Preferred Stock due 2009 (the "Shares"). A copy of the Exchange and Registration
Rights Agreement is attached hereto. All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Exchange and Registration
Rights Agreement.
Each beneficial owner of Registrable Shares (as defined below)
is entitled to have the Registrable Shares beneficially owned by it included in
the Shelf Registration Statement. In order to have Registrable Shares included
in the Shelf Registration Statement, this Notice of Registration Statement and
Selling Stockholder Questionnaire ("Notice and Questionnaire") must be
completed, executed and delivered to the Company's counsel at the address set
forth herein for receipt ON OR BEFORE [DEADLINE FOR RESPONSE]. Beneficial owners
of Registrable Shares who do not complete, execute and return this Notice and
Questionnaire by such date (i) will not be named as Selling Stockholders in the
Shelf Registration Statement and (ii) may not use the Prospectus forming a part
thereof for resales of Registrable Shares.
Certain legal consequences arise from being named as a Selling
Stockholder in the Shelf Registration Statement and related Prospectus.
Accordingly, holders and beneficial owners of Registrable Shares are advised to
consult their own securities law counsel regarding the consequences of being
named or not being named as a Selling Stockholder in the Shelf Registration
Statement and related Prospectus.
The term "REGISTRABLE SHARES" is defined in the Exchange and
Registration Rights Agreement.
<PAGE> 23
3
ELECTION
The undersigned holder (the "Selling Stockholder") of
Registrable Shares hereby elects to include in the Shelf Registration Statement
the Registrable Shares beneficially owned by it and listed below in Item (c).
The undersigned, by signing and returning this Notice and Questionnaire, agrees
to be bound with respect to such Registrable Shares by the terms and conditions
of this Notice and Questionnaire and the Exchange and Registration Rights
Agreement, including, without limitation, Section 6 of the Registration Rights
Agreement, as if the undersigned Selling Stockholder were an original party
thereto.
Upon any sale of Registrable Shares pursuant to the Shelf
Registration Statement, the Selling Stockholder will be required to deliver to
the Company and the Transfer Agent the Notice of Transfer set forth in Exhibit B
to the Exchange and Registration Rights Agreement.
The Selling Stockholder hereby provides the following
information to the Company and represents and warrants that such information is
accurate and complete:
<PAGE> 24
QUESTIONNAIRE
(a) Full Legal Name of Selling Stockholder:
___________________________________________________________________________
(i) Full Legal Name of Registered Holder (if not the same as in (a)
above) of Registrable Shares Listed in Item (c) below:
___________________________________________________________________________
(ii) Full Legal Name of DTC Participant (if applicable and if not the
same as (i) above) Through Which Registrable Shares Listed in Item
(c) below are Held:
___________________________________________________________________________
(b) Address for Notices to Selling Stockholder:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Telephone: ________________________________
Fax: ________________________________
Contact Person: ________________________________
(c) Beneficial Ownership of Shares:
Except as set forth below in this Item (c), the undersigned does not
beneficially own any Shares.
(i) Principal amount of Registrable Shares beneficially owned: _________
CUSIP No(s). of such Registrable Shares: __________________________
(ii) Principal amount of securities other than Registrable Shares
beneficially owned: ________________________________________________
CUSIP No(s). of such other securities: _____________________________
(iii) Principal amount of Registrable Shares which the undersigned wishes
to be included in the Shelf Registration Statement: ________________
CUSIP No(s). of such Registrable Shares to be included in the Shelf
Registration Statement: ____________________________________________
(d) Beneficial Ownership of Other securities of the Company:
Except as set forth below in this Item (d), the undersigned Selling
Stockholder is not the beneficial or registered owner of any other securities of
the Company, other than the Shares listed above in Item (c).
<PAGE> 25
2
State any exceptions here:
(e) Relationships with the Company:
Except as set forth below, neither the Selling Stockholder nor any of its
affiliates, officers, directors or principal equity holders (5% or more) has
held any position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
(f) Plan of Distribution:
Except as set forth below, the undersigned Selling Stockholder intends to
distribute the Registrable Shares listed above in Item (c) only as follows (if
at all): Such Registrable Shares may be sold from time to time directly by the
undersigned Selling Stockholder or, alternatively, through underwriters,
broker-dealers or agents. Such Registrable Shares may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale, or at negotiated prices. Such
sales may be effected in transactions (which may involve crosses or block
transactions) (i) on any national securities exchange or quotation service on
which the Registered Shares may be listed or quoted at the time of sale, (ii) in
the over-the-counter market, (iii) in transactions otherwise than on such
exchanges or services or in the over-the-counter market, or (iv) through the
writing of options. In connection with sales of the Registrable Shares or
otherwise, the Selling Stockholder may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the Registrable
Shares in the course of hedging the positions they assume. The Selling
Stockholder may also sell Registrable Shares short and deliver Registrable
Shares to close out such short positions, or loan or pledge Registrable Shares
to broker-dealers that in turn may sell such securities.
State any exceptions here:
By signing below, the Selling Stockholder acknowledges that it understands
its obligation to comply, and agrees that it will comply, with the provisions of
the Exchange Act and the rules and regulations thereunder, particularly
Regulation M.
In the event that the Selling Stockholder transfers all or any portion of
the Registrable Shares listed in Item (c) above after the date on which such
information is provided to the Company, the Selling Stockholder agrees to notify
the transferee(s) at the time of the transfer of its rights and obligations
under this Notice and Questionnaire and the Exchange and Registration Rights
Agreement.
By signing below, the Selling Stockholder consents to the disclosure of the
information contained herein in its answers to Items (a) through (f) above and
the inclusion of such information in the Shelf Registration Statement and
related Prospectus. The Selling Stockholder understands that such information
<PAGE> 26
3
will be relied upon by the Company in connection with the preparation of the
Shelf Registration Statement and related Prospectus.
In accordance with the Selling Stockholder's obligation under Section 3(e)
of the Exchange and Registration Rights Agreement to provide such information as
may be required by law for inclusion in the Shelf Registration Statement, the
Selling Stockholder agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein which may occur subsequent to the
date hereof at any time while the Shelf Registration Statement remains in
effect. All notices hereunder and pursuant to the Exchange and Registration
Rights Agreement shall be made in writing, by hand-delivery, first-class mail,
or air courier guaranteeing overnight delivery as follows:
(i) To the Company:
Network Plus Corp.
234 Copeland Street
Quincy, Massachusetts 02169
Attention: Secretary
Telephone: (617) 786-4000
(ii) With a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Jeffrey N. Carp
Telephone: (617) 526-6000
Once this Notice and Questionnaire is executed by the Selling Stockholder
and received by the Company's counsel, the terms of this Notice and
Questionnaire, and the representations and warranties contained herein, shall be
binding on, shall inure to the benefit of and shall be enforceable by the
respective successors, heirs, personal representatives, and assigns of the
Company and the Selling Stockholder (with respect to the Registrable Shares
beneficially owned by such Selling Stockholder and listed in Item (c) above.
This Agreement shall be governed in all respects by the laws of the State of New
York.
<PAGE> 27
4
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: ________________
_________________________________________
Selling Stockholder
(Print/type full legal name of beneficial
owner of Registrable Shares)
By: _____________________________________
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Jeffrey N. Carp
(617) 526-6000
<PAGE> 28
Exhibit B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
Network Plus Corp.
c/o Transfer Agent
[name of Transfer Agent]
_________________________________
_________________________________
Attention: Authorized Officer
Re: Network Plus Corp. (the "Company")
13-1/2% Series A Cumulative Preferred Stock due 2009
----------------------------------------------------
Dear Sirs:
Please be advised that _____________________ has transferred
___________ shares of the above-referenced Preferred Stock pursuant to an
effective Registration Statement on Form [___] (File No. 333-____) filed by the
Company.
We hereby certify that the prospectus delivery requirements, if any, of
the Securities Act of 1933, as amended, have been satisfied and that the
above-named beneficial owner of the Preferred Stock is named as a "Selling
Holder" in the Prospectus dated ___________, 199_ or in supplements thereto, and
that the number of shares of Preferred Stock transferred are the shares of
Preferred Stock listed in such Prospectus opposite such owner's name.
Dated:
Very truly yours,
__________________________________
(Name)
By: ______________________________
(Authorized Signature)
<PAGE> 1
EXHIBIT 4.2
NETWORK PLUS CORP.
40,000 UNITS
CONSISTING OF 40,000 SHARES OF 13-1/2% CLASS A
CUMULATIVE PREFERRED STOCK DUE 2009
AND
310,000 INITIAL WARRANTS TO PURCHASE 310,000 SHARES
OF COMMON STOCK
AND
600,000 CONTINGENT WARRANTS TO PURCHASE 600,000 SHARES
OF COMMON STOCK
------------------------------------
PURCHASE AGREEMENT
September 1, 1998
Goldman, Sachs & Co.
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
As representatives of the several Purchasers
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Network Plus Corp., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Purchasers named in Schedule I hereto (the "Purchasers") an aggregate of 40,000
shares (the "Securities") of the 13-1/2% Class A Cumulative Preferred Stock due
2009 (the "Preferred Stock") of the Company to which 310,000 warrants (the
"Initial Warrants") for the purchase of 310,000 shares of common stock, par
value $0.01 per share ("Common Stock") of the Company and 600,000 warrants (the
"Contingent Warrants" and, together with the Initial Warrants, the "Warrants")
for the purchase of 600,000 shares of Common Stock, will be attached. The
Securities will be issued pursuant to a certificate of designation (the
"Certificate of Designation") amending the certificate of incorporation of the
Company. American Stock Transfer & Trust Company shall act as transfer agent
(the "Transfer Agent") for the Securities. The Warrants will be issued pursuant
to a warrant agreement dated as of September 3, 1998 (the "Warrant Agreement")
between the Company and American Stock Transfer & Trust Company as warrant agent
(the "Warrant Agent").
1. The Company represents and warrants to, and agrees with, each of the
Purchasers that:
(a) a preliminary offering circular, dated July 17, 1998 (the
"Preliminary Offering Circular") and an offering circular, dated September
1, 1998 (the "Offering Circular"), in each case including the international
supplement thereto, have been prepared in connection with the offering of
the Securities, the Warrants and shares of Common Stock issuable upon
exercise thereof. The Preliminary Offering Circular or the Offering Circular
and any amendments or supplements thereto did not and will not, as of their
respective dates, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by a Purchaser through
Goldman, Sachs & Co. expressly for use therein;
(b) neither the Company nor Network Plus, Inc., a Massachusetts
corporation (the "Subsidiary"), has sustained since the date of the latest
audited financial
1
<PAGE> 2
statements included in the Offering Circular any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Offering Circular; and, since the respective dates as
of which information is given in the Offering Circular, other than option
grants in the ordinary course of business, there has not been any change in
the capital stock or long-term debt of the Company or its Subsidiary or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its Subsidiary, otherwise than as set forth or contemplated in the Offering
Circular;
(c) the Company and its Subsidiary do not own any real property and
have good and marketable title to or the right to use all personal property
owned or used by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Offering
Circular or such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of
such property by the Company or the Subsidiary; and any real property and
buildings held under lease by the Company and its Subsidiary are held by
them under valid, subsisting and enforceable leases with such exceptions as
do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiary;
(d) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of Delaware, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Offering Circular, and has been duly qualified
as a foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; the
Subsidiary is an entity validly constituted and validly existing under the
laws of Massachusetts, with power and authority (corporate and other) to
own, lease and operate its property and assets and to conduct its business
as described in the Offering Circular, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification, or
is subject to no material liability or disability by reason of the failure
to be so qualified in any such jurisdiction;
(e) each of the Company and its Subsidiary has an authorized
capitalization as set forth in the Offering Circular, and all of the issued
shares of capital stock of the Company and its Subsidiary have been duly and
validly authorized and issued and are fully paid and non-assessable; the
shares of Common Stock initially issuable upon exercise of the Warrants have
been duly and validly authorized and reserved for issuance and, when issued
and delivered in accordance with the provisions of the Securities and the
Warrant Agreement referred to below, will be duly and validly issued, fully
paid and non-assessable and will conform to the description of the Common
Stock contained in the Offering Circular; the issuance of such shares of
Common Stock is not subject to preemptive or other similar rights; other
than as set forth in the Offering Circular, as amended or supplemented,
there are no outstanding (i) securities or obligations of the Company or its
Subsidiary convertible into or exchangeable for any shares of the share
capital of the Company or its Subsidiary, (ii) warrants, rights or options
to subscribe for or purchase from the Company or its Subsidiary any such
shares of the share capital of the Company or its Subsidiary or any other
securities of the Company or its Subsidiary or any such convertible or
exchangeable securities or obligations or (iii) obligations for the Company
or its Subsidiary to issue, purchase or redeem such shares, other
securities, any such convertible or exchangeable securities or obligations,
or any such warrants, rights, options or obligations; none of the holders of
any such securities or obligations have any preemptive rights or rights to
have "anti-dilution" or similar adjustments made in connection with the
issuance of the Warrants or the shares of Common Stock issuable upon
exercise thereof. Other than as set forth or contemplated in the Offering
Circular, as amended or supplemented, no person, firm or corporation has any
agreement or option, or right or privilege (whether pre-emptive or
contractual) capable of becoming an agreement,
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<PAGE> 3
including convertible securities and warrants, for the purchase from the
Company or its Subsidiary of any shares or other securities (whether issued
or unissued) in the share capital of the Company or its Subsidiary; all of
the issued capital stock of its Subsidiary is owned directly by the Company,
free and clear of all liens, encumbrances, equities or claims (except as
otherwise set forth in the Offering Circular); there are no restrictions on
subsequent transfers of the Securities under the laws of the United States
except as set forth in the Offering Circular, as amended or supplemented;
(f) the Preferred Stock has been duly authorized and, when the
Securities are issued and delivered pursuant to this Agreement, the
Securities will be duly and validly issued, fully paid and non-assessable
and will conform to the description of the Preferred Stock contained in the
Offering Circular; shares of Preferred Stock have been duly and validly
authorized and reserved for issuance upon payment of dividends on the
Preferred Stock in additional shares of Preferred Stock and when so issued
will be duly and validly issued, fully paid and non-assessable; the issuance
of any shares of Preferred Stock is not subject to preemptive or other
similar rights; and the Securities and the Certificate of Designation will
conform to the descriptions thereof in the Offering Circular and will be in
substantially the form previously delivered to you;
(g) none of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale of the
Securities) will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
regulation promulgated thereunder, including, without limitation,
Regulations T, U, and X of the Board of Governors of the Federal Reserve
System;
(h) prior to the date hereof, neither the Company nor any of its
affiliates has taken any action which is designed to or which has
constituted or which might have been expected to cause or result in
stabilization or manipulation of the price of any security of the Company in
connection with the offering of the Securities;
(i) The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement and countersigned by the Warrant Agent
as provided in the Warrant Agreement, will have been duly executed,
countersigned, issued and delivered and will constitute valid and legally
binding obligations of the Company entitled to the benefits provided by the
Warrant Agreement under which they are to be issued; the Warrant Agreement
has been duly authorized and, when executed by the Company and the Warrant
Agent, will constitute a valid and legally binding instrument enforceable in
accordance with its terms except that (i) the enforcement thereof may be
subject to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles and (ii) as any rights to indemnity or contribution
thereunder may be limited by applicable securities laws; and the Initial
Warrants, the Contingent Warrants and the Warrant Agreement will conform in
all material respects to the descriptions thereof in the Offering Circular
and will be substantially in the forms previously delivered to you;
(j) the Company and its Subsidiary are not, as of the date hereof,
and will not be at the Time of Delivery, in violation of their constituent
documents, by-laws or resolutions of their directors or shareholders;
(k) the Company and its Subsidiary are not or, at any Time of
Delivery, will not be in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
shareholders' agreement, indenture, mortgage, deed of trust, loan agreement,
note, lease, permit, license, franchise or other agreement or instrument to
which they are a party or by which they are bound or to which any of their
property or assets is subject other than such defaults as would not have a
material adverse effect on the condition (financial or other), business,
prospects described in the Offering Circular (collectively, "Prospects"),
affairs, management, financial position, shareholders' equity or results of
operations of the Company and its Subsidiary, taken as a whole;
(l) except as set forth in or contemplated by the Offering Circular,
(i) each of the Company and its Subsidiary has all material certificates,
consents, exemptions, orders, permits, licenses, authorizations, franchises
or other material
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<PAGE> 4
approvals (each, an "Authorization") of and from, and has made all material
declarations and filings with, all Federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts
and other tribunals, necessary or appropriate for the Company and its
Subsidiary to own, lease, license, use and construct its properties and
assets and to conduct its business in the manner described in the Offering
Circular; (ii) all such Authorizations are in full force and effect with
respect to the Company and its Subsidiary; (iii) to the best knowledge of
the Company, no event has occurred that permits, or after notice or lapse of
time could permit, the revocation, termination or modification of any such
Authorization; (iv) the Company and its Subsidiary are in compliance in all
material respects with the terms and conditions of all such Authorizations
and with the rules and regulations of the regulatory authorities and
governing bodies having jurisdiction with respect thereto; and (v) the
Company has no knowledge that any person is contesting or intends to contest
the granting of any material Authorization, except, in the case of clauses
(i) through (v) above, for any Authorization the absence, violation or loss
of which would not have a material adverse effect on the condition
(financial or other), business, Prospects, affairs, management, financial
position, shareholders' equity or results of operation of the Company and
its Subsidiary, taken as a whole;
(m) Neither the execution and delivery of this Agreement, the Warrant
Agreement or the Registration Rights Agreement (as defined herein), nor the
consummation of the transactions contemplated hereby or thereby nor
compliance with the terms, conditions and provisions hereof or thereof by
the Company will cause any suspension, revocation, impairment, forfeiture,
nonrenewal or termination of any Authorization;
(n) the issue and sale of the Securities and the compliance by the
Company with all of the provisions of the Securities, the Warrant Agreement,
the Registration Rights Agreement and this Agreement and the consummation of
the transactions herein and therein contemplated will not:
(i) result in any violation of the provisions of the constituent
documents, by-laws or resolutions of the directors or
shareholders of the Company or its Subsidiary;
(ii) conflict with nor will they result in a breach of or violation of
any of the terms or provisions of, or constitute a default under
(or an event which with notice or lapse of time, or both, would
constitute a default), or require consent under, or result in the
creation or imposition of any lien, charge or encumbrance on any
of the property or assets of the Company or its Subsidiary
pursuant to the terms of, any shareholders' agreement, employment
agreements, indenture, mortgage, deed of trust, loan agreement,
note, lease, permit, franchise or other agreement or instrument
to which the Company or its Subsidiary is a party or by which the
Company or its Subsidiary is bound or to which the property or
assets of the Company or its Subsidiary is subject; or
(iii) result in any violation of any law, rule or regulation or any
judgment, order or decree of any government, governmental
instrumentality or agency, regulatory body, court or body having
jurisdiction over the Company or its Subsidiary or any of their
properties and assets,
other than, in the case of clauses (ii) and (iii) above, for any breach,
default or violation which would not have a material adverse effect on the
condition (financial or other), business, Prospects, affairs, management,
financial position, shareholders' equity or results of operation of the
Company and its Subsidiary, taken as a whole, and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale of
the Securities or the Warrants or the consummation by the Company of the
transactions contemplated by this Agreement, the Warrant Agreement or the
Registration Rights Agreement except for the filing of a registration
statement by the Company with the Securities and Exchange Commission (the
"Commission") pursuant to the United States Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 5(k) hereof and such
consents, approvals, authorizations, registrations or qualifications as may
be required under state
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<PAGE> 5
securities or Blue Sky laws in connection with the purchase and distribution
of the Securities and the Warrants by the Purchasers;
(o) each of this Agreement and the Exchange and Registration Rights
Agreement between the Company and the Purchasers dated as of September 1,
1998 (the "Registration Rights Agreement") has been or will have been, when
executed and delivered, duly and validly authorized, executed and delivered
by the Company and constitutes or will constitute a valid and binding
obligation of the Company, enforceable against it in accordance with its
terms except (i) that the enforcement thereof may be subject to bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, and the discretion of the court before which any proceeding
therefor may be brought and (ii) as any rights to indemnity or contribution
thereunder may be limited by applicable securities laws;
(p) No holder of any security of the Company has or will have any
right to require the registration of such security by virtue of any
transactions contemplated by this Agreement, the Pledge Agreement or the
Registration Rights Agreement other than any such right that has been
expressly waived in writing;
(q) the statements set forth in the Offering Circular under the
captions "Description of the Units", "Description of the Class A Preferred
Stock", "Description of the Warrants" and "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the Units,
the Securities, the Warrants and the Common Stock, respectively, and under
the captions "Risk Factors -- The Telecommunications Act and Other
Regulation", "Business -- Industry Overview", "Government Regulation",
"Certain Transactions", "Description of Certain Indebtedness", "Certain
Federal Income Tax Considerations" and "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair in all material respects;
(r) other than as set forth in the Offering Circular, there are no
legal or governmental proceedings pending to which the Company or its
Subsidiary is a party or of which any property of the Company or its
Subsidiary is the subject which, if determined adversely to the Company or
its Subsidiary, would individually or in the aggregate have a material
adverse effect on the financial position, stockholders' equity or results of
operations of the Company and its Subsidiary, and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(s) when the Securities and the Warrants are issued and delivered
pursuant to this Agreement, neither the Securities nor the Warrants nor the
Common Stock will be of the same class (within the meaning of Rule 144A
under the Securities Act) as securities which are listed on a national
securities exchange registered under Section 6 of the Exchange Act or quoted
in a U.S. automated inter-dealer quotation system, and the Company has been
advised that the Securities and the Warrants have been designated
PORTAL-eligible securities;
(t) the Company is not, and after giving effect to the offering and
sale of the Securities, will not be, an "investment company", or an entity
"controlled" by an "investment company", as such term is defined in the
United States Investment Company Act of 1940, as amended (the "Investment
Company Act");
(u) neither the Company, nor any affiliate of the Company, nor any
person acting on its or their behalf (other than the Purchasers, as to which
the Company makes no representation) has offered or sold the Securities or
the Warrants by means of any general solicitation or general advertising
within the meaning of Rule 502(c) under the Securities Act or, with respect
to Securities or Warrants sold outside the United States to non-U.S. persons
(as defined in Rule 902 under the Securities Act), by means of any directed
selling efforts within the meaning of Rule 902 under the Securities Act and
the Company, any affiliate of the Company and any person acting on its or
their behalf has complied with and will implement the "offering restriction"
within the meaning of such Rule 902;
(v) within the preceding six months, neither the Company nor any
other person acting on behalf of the Company has offered or sold to any
person any Securities or Warrants, or any securities of the same or a
similar class as the Securities or the Warrants, other than Securities
offered or sold to the Purchasers hereunder. The
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<PAGE> 6
Company will take reasonable precautions designed to insure that any offer
or sale, direct or indirect, in the United States or to any U.S. person (as
defined in Rule 902 under the Securities Act) of any Securities or Warrants
or any substantially similar security issued by the Company, within six
months subsequent to the date on which the distribution of the Securities
and the Warrants has been completed (as notified to the Company by Goldman,
Sachs & Co.), is made under restrictions and other circumstances reasonably
designed not to affect the status of the offer and sale of the Securities or
the Warrants in the United States and to U.S. persons contemplated by this
Agreement as transactions exempt from the registration provisions of the
Securities Act;
(w) neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(x) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company, are independent public accountants with respect
to the Company under Rule 101 of the American Institute of Certified Public
Accountants' Code of Professional Conduct, and its interpretations and
rulings; and
(y) the audited balance sheet of the Company as at December 31, 1997
(including the notes thereto) included in the Offering Circular presents
fairly in all material respects the consolidated financial position of the
Company as at the date indicated and has been prepared in accordance with
generally accepted accounting principles ("GAAP"); the unaudited interim
financial statements of the Company (including the notes thereto) included
in the Offering Circular present fairly in all material respects the
financial position of the Company as at the dates indicated and the results
of operations and the changes in its financial position for the periods
specified, subject to year-end adjustments and have been prepared in
accordance with GAAP, except for the absence of footnotes and year-end
adjustments.
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each of the Purchasers, and each of the Purchasers
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of 96.75% of the liquidation preference thereof, plus accumulated
dividends, if any, from September 3, 1998 to the Time of Delivery hereunder, the
number of Securities set forth opposite the name of such Purchaser in Schedule I
hereto.
3. Upon the authorization by you of the release of the Securities and the
Warrants, the several Purchasers propose to offer the Securities and the
Warrants for sale upon the terms and conditions set forth in this Agreement and
the Offering Circular and each Purchaser hereby represents and warrants to, and
agrees with the Company that:
(a) it will offer and sell the Securities or the Warrants only (i) to
persons who it reasonably believes are "qualified institutional buyers"
("QIBs") within the meaning of Rule 144A under the Securities Act in
transactions meeting the requirements of Rule 144A or (ii) upon the terms
and conditions set forth in Annex I to this Agreement;
(b) it is an Institutional Accredited Investor; and
(c) it will not offer or sell the Securities or the Warrants by any
form of general solicitation or general advertising, including but not
limited to the methods described in Rule 502(c) under the Securities Act.
4. (a) The Securities and the Warrants to be purchased by each Purchaser
hereunder will be represented by one or more definitive global Securities,
global Initial Warrants and global Contingent Warrants in book-entry form which
will be deposited by or on behalf of the Company with The Depository Trust
Company ("DTC") or its designated custodian. The Company will deliver the
Securities and the Warrants to Goldman, Sachs & Co., for the account of each
Purchaser, against payment by or on behalf of such Purchaser of the purchase
price therefor by wire transfer in federal same-day funds payable to the order
of the Company, by causing DTC to credit the Securities and the Warrants to the
account of Goldman, Sachs & Co. at DTC. The Company will cause the certificates
representing the Securities and the Warrants to be made available to Goldman,
Sachs & Co. for checking at least twenty-four hours prior to the Time of
Delivery at the office of DTC or its designated custodian (the
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<PAGE> 7
"Designated Office"). The time and date of such delivery and payment shall be
9:30 a.m., New York City time, on September 3, 1998 or such other time and date
as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and
date are herein called the "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Securities and the Warrants and any additional documents requested by
the Purchasers pursuant to Section 7(k) hereof, will be delivered at such time
and date at the offices of Cravath, Swaine & Moore (the "Closing Location"), and
the Securities and the Warrants will be delivered at the Designated Office, all
at the Time of Delivery. A meeting will be held at the Closing Location at 3:00
p.m., New York City time, on the New York Business Day next preceding the Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Purchasers:
(a) to prepare the Offering Circular in a form reasonably approved by
you; to make no amendment or any supplement to the Offering Circular which
shall be reasonably disapproved by you promptly after reasonable notice
thereof; and to furnish you with copies thereof;
(b) promptly from time to time to take such action as you may
reasonably request to qualify the Securities, the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants for offering and sale
under the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Securities and the Warrants, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any jurisdiction;
(c) to furnish the Purchasers with copies of the Offering Circular
and each amendment or supplement thereto signed by an authorized officer of
the Company, together with the independent accountants' report(s) in the
Offering Circular, and any amendment or supplement containing amendments to
the financial statements covered by such report(s), signed by the
accountants, and additional copies thereof in such quantities as you may
from time to time reasonably request, and if, at any time prior to the
expiration of nine months after the date of the Offering Circular, any event
shall have occurred as a result of which the Offering Circular as then
amended or supplemented would include an untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such Offering Circular is delivered, not misleading, or, if for any other
reason it shall be necessary or desirable during such same period to amend
or supplement the Offering Circular, to notify you and upon your request to
prepare and furnish without charge to each Purchaser and to any dealer in
securities as many copies as you may from time to time reasonably request of
an amended Offering Circular or a supplement to the Offering Circular which
will correct such statement or omission or effect such compliance;
(d) during the period beginning from the date hereof and continuing
until the date 90 days after the Time of Delivery, not to offer, sell,
contract to sell or otherwise dispose of, except as provided hereunder, any
securities of the Company or its Subsidiary (other than as contemplated by
the Registration Rights Agreement) substantially similar to the Securities
or the Warrants or any shares of Common Stock or any securities of the
Company or its Subsidiary convertible or exchangeable for Preferred Stock,
Common Stock or other securities of the Company or its Subsidiary, as the
case may be, that are substantially similar to the Securities, the Warrants
or the Common Stock without the prior written consent of Goldman, Sachs &
Co.; in addition, the Company will take reasonable precautions designed to
insure that any offer or sale, direct or indirect, in the United States or
to any U.S. person (as defined in Rule 902 under the Securities Act) of any
Securities or Warrants or any substantially similar security issued by the
Company
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<PAGE> 8
or its Subsidiary, within six months subsequent to the date on which the
distribution of the Securities and the Warrants has been completed (as
notified to the Company by Goldman, Sachs & Co.), is made under
restrictions and other circumstances reasonably designed not to affect the
status of the offer and sale of the Securities and the Warrants in the
Unites States and to U.S. persons contemplated by this Agreement as
transactions exempt from the registration provisions of the Securities Act;
(e) not to be or become, at any time prior to the expiration of
three years after the Time of Delivery, an open-end investment company,
unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under Section 8
of the Investment Company Act;
(f) at any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, for the benefit of holders from time to time of
the Securities, to furnish at its expense, upon request, to holders of the
Securities, the Warrants or the Common Stock and prospective purchasers of
securities information (the "Additional Issuer Information") satisfying the
requirements of subsection (d)(4)(i) of Rule 144A under the Securities Act;
(g) to use its best efforts to cause the Securities and the Warrants
to be eligible for the PORTAL trading system of the National Association of
Securities Dealers, Inc.;
(h) to furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the date of the Offering Circular), consolidated
summary financial information of the Company and any subsidiaries for such
quarter in reasonable detail;
(i) during a period of five years from the date of the Offering
Circular, to furnish to you copies of all reports or other communications
(financial or other) concerning the Company made available to the public,
to investment analysts or, following registration of the Common Stock under
the Exchange Act, to stockholders, and to deliver to you (i) as soon as
they are available, copies of any reports and financial statements
furnished to or filed with the Commission or any securities exchange on
which any class of securities of the Company is listed; and (ii) such
additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent that the accounts of
the Company and its subsidiaries are consolidated in reports furnished to
its stockholders generally or to the Commission);
(j) during the period of two years after the Time of Delivery, the
Company will not, and will not permit any of its "affiliates" (as defined
in Rule 144 under the Securities Act) to, resell any of the Securities or
the Warrants which constitute "restricted securities" under Rule 144 that
have been reacquired by any of them except pursuant to an effective
registration statement under the Securities Act;
(k) the Company shall file and use its best efforts to cause to be
declared or become effective under the Securities Act, on or prior to 150
days after the Time of Delivery, a registration statement on Form S-4
providing for the registration of (i) another series of Preferred Stock of
the Company, with terms identical to the Securities (the "Exchange
Securities"), and (ii) the exchange of the Securities for the Exchange
Securities, all in a manner that will permit persons who acquire the
Exchange Securities to resell the Exchange Securities pursuant to Section
4(1) of the Securities Act;
(l) to use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Offering Circular under the caption "Use of Proceeds";
(m) to reserve and keep available at all times, free of preemptive
rights, shares of Preferred Stock for the purpose of enabling the Company
to satisfy any
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<PAGE> 9
obligation or election to issue shares of Preferred Stock as dividends upon
the Preferred Stock;
(n) to reserve and keep available at all times, free of preemptive
rights, shares of Common Stock for the purpose of enabling the Company to
satisfy any obligations to issue shares of its Common Stock upon exercise
of the Warrants; and
(o) not to (and to cause any subsidiaries not to) take, directly or
indirectly, any action which is designed to or which constitutes or which
might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company.
6. The Company covenants and agrees with the several Purchasers that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
issue of the Securities, the Warrants and the shares of Common Stock issuable
upon exercise of the Warrants and all other expenses in connection with the
preparation, printing and filing of the Preliminary Offering Circular and the
Offering Circular (which Offering Circular shall only be required to be
photocopied) and any amendments and supplements thereto and the mailing and
delivering of copies thereof to the Purchasers and dealers; (ii) the cost of
photocopying or producing any Agreement among Purchasers, this Agreement, the
Certificate of Designation, the Warrant Agreement, the Registration Rights
Agreement, the Blue Sky and Legal Investment Memoranda, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iii) all expenses
in connection with the qualification of the Securities, the Warrants and the
shares of Common Stock issuable upon exercise of the Warrants for offering and
sale under state securities laws as provided in Section 5(b) hereof, including
the fees and disbursements of counsel for the Purchasers in connection with such
qualification and in connection with the Blue Sky and legal investment surveys;
(iv) any fees charged by securities rating services for rating the Securities;
(v) the cost of preparing the Securities and the Warrants; (vi) the fees and
expenses of the Transfer Agent, the Warrant Agent and any agent of the Transfer
Agent or the Warrant Agent and the fees and disbursements of counsel for the
Transfer Agent or the Warrant Agent in connection with the Certificate of
Designation, the Warrant Agreement and the Securities; (vii) any cost incurred
in connection with the designation of the Securities, the Warrants and the
Common Stock for trading in PORTAL; and (viii) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the Purchasers
will pay all their own costs and expenses, including the fees of their counsel,
transfer taxes on resale of any of the Securities and the Warrants by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Purchasers hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of the Time of Delivery,
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) Cravath, Swaine & Moore, counsel for the Purchasers, shall have
furnished to you such opinion or opinions, dated the Time of Delivery, as
to such matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(b) Hale and Dorr LLP, counsel for the Company, shall have furnished to
you their written opinion, dated the Time of Delivery, in form and
substance satisfactory to you, with respect to the matters set forth in
Schedule 7(b).
(c) Swidler Berlin Shereff Friedman, LLP, counsel for the Company, shall
have furnished to you their written opinion, dated the Time of Delivery, in
form and substance satisfactory to you, with respect to the matters set
forth in Schedule 7(c).
(d) On the date of the Offering Circular prior to the execution of this
Agreement and also at the Time of Delivery, PricewaterhouseCoopers LLP
shall have furnished
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<PAGE> 10
to you a letter or letters, dated the respective dates of delivery thereof,
in form and substance satisfactory to you, to the effect set forth in Annex
II hereto;
(e) neither the Company nor its Subsidiary shall have sustained since the
date of the latest audited financial statements included in the Offering
Circular any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Offering Circular, and (ii) since
the respective dates as of which information is given in the Offering
Circular there shall not have been any change in the capital stock or
long-term debt of the Company or its Subsidiary or any change, or any
development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its Subsidiary, otherwise than as set forth
or contemplated in the Offering Circular, the effect of which, in any such
case described in Clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities and the Warrants on the terms and in the manner contemplated in
this Agreement and in the Offering Circular;
(f) on or after the date hereof (i) no downgrading shall have occurred in
any rating accorded the Company's debt securities or preferred stock by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the
Securities Act, and (ii) no such organization shall have publicly announced
that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities or
preferred stock;
(g) on or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (ii) a general moratorium on
commercial banking activities declared by either Federal or New York State
authorities; (iii) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national
emergency or war, if the effect of any such event specified in this Clause
(iii) in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the delivery of the Securities and the Warrants
on the terms and in the manner contemplated in the Offering Circular; or
(iv) the occurrence of any material adverse change in the existing,
financial, political or economic conditions in the United States or
elsewhere which, in the judgment of the Representatives, would materially
and adversely affect the financial markets or the markets for the
Securities and other debt or preferred equity securities;
(h) the Securities, the Warrants and the Common Stock shall have been
designated for trading on PORTAL;
(i) the Registration Rights Agreement shall have been duly authorized,
executed and delivered by the Company;
(j) the Warrant Agreement shall have been duly authorized, executed and
delivered by the Company;
(k) the Company shall have filed with the Secretary of State of the State
of Delaware the Certificate of Designation;
(l) the Commitment Letter dated August 14, 1998, between the Company and
Goldman Sachs Credit Partners, L.P. shall be in full force and effect; and
(m) the Company shall have furnished or caused to be furnished to you at
the Time of Delivery certificates of officers of the Company satisfactory
to you as to the accuracy of the representations and warranties of the
Company herein at and as of such Time of Delivery, as to the performance by
the Company of all of its obligations hereunder to be performed at or prior
to such Time of Delivery, as to the matters set forth in subsection (e) of
this Section and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Purchaser
against any losses, claims, damages or liabilities, joint or several, to which
such Purchaser may
10
<PAGE> 11
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Circular, the Offering Circular, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact necessary to make
the statements therein not misleading, and will reimburse each Purchaser for any
legal or other expenses reasonably incurred by such Purchaser in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Preliminary Offering Circular or the Offering
Circular or any such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by any Purchaser through
Goldman, Sachs & Co. expressly for use therein.
(b) Each Purchaser will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Offering Circular or the Offering Circular, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Preliminary Offering Circular or the Offering
Circular or any such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such Purchaser through
Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company
for any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability hereunder to the extent it is not materially
prejudiced as a result thereof (but shall relieve it from liability under
Section 8(a) or 8(b), as the case may be, to the extent the indemnifying party
is materially prejudiced) and in any event shall not relieve it from any
liability which it may have to any indemnified party otherwise than under such
subsection. In case any such action 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 therein 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 (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act, by or on behalf of any
indemnified party. No indemnifying party shall be required to indemnify an
indemnified party for any amount paid or payable by such indemnified party in
the settlement of any action, proceeding or investigation without the written
consent of such indemnifying party, which consent shall not be unreasonably
withheld.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above
11
<PAGE> 12
in respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Purchasers on the other from the offering of the
Securities and the Warrants. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Purchasers on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Purchasers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Purchasers, in each case as set forth in the Offering Circular. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Purchasers on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Purchasers agree that it would not be
just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Purchasers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Purchaser shall be required to contribute
any amount in excess of the amount by which the total price at which the
Securities and the Warrants underwritten by it and distributed to investors were
offered to investors exceeds the amount of any damages which such Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Purchasers' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Purchaser within the meaning of the Securities Act; and the obligations of the
Purchasers under this Section 8 shall be in addition to any liability which the
respective Purchasers may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company and to each person,
if any, who controls the Company within the meaning of the Securities Act.
9. (a) If any Purchaser shall default in its obligation to purchase the
Securities and Warrants which it has agreed to purchase hereunder, you may in
your discretion arrange for you or another party or other parties to purchase
such Securities and Warrants on the terms contained herein. If within thirty-six
hours after such default by any Purchaser you do not arrange for the purchase of
such Securities and Warrants, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Securities and Warrants on such
terms. In the event that, within the respective prescribed periods, you notify
the Company that you have so arranged for the purchase of such Securities and
Warrants, or the Company notifies you that it has so arranged for the purchase
of such Securities and Warrants, you or the Company shall have the right to
postpone the Time of Delivery for a period of not more than seven days, in order
to effect whatever changes may thereby be made necessary in the Offering
Circular, or in any other documents or arrangements, and the Company agrees to
prepare promptly any amendments to the Offering Circular which in your opinion
may thereby be made necessary. The term "Purchaser" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such
12
<PAGE> 13
person had originally been a party to this Agreement with respect to such
Securities and Warrants.
(b) If, after giving effect to any arrangements for the purchase of the
Securities and Warrants of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate liquidation
preference of such Securities and such aggregate number of Warrants which
remains unpurchased does not exceed one-eleventh of the aggregate liquidation
preference of all the Securities and the aggregate number of Warrants, then the
Company shall have the right to require each non-defaulting Purchaser to
purchase the number of Securities and the aggregate number of Warrants which
such Purchaser agreed to purchase hereunder and, in addition, to require each
non-defaulting Purchaser to purchase its pro rata share (based on the number of
Securities and the aggregate number of Warrants which such Purchaser agreed to
purchase hereunder) of the Securities and Warrants of such defaulting Purchaser
or Purchasers for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Purchaser from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Securities and Warrants of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate liquidation
preference of Securities which remains unpurchased exceeds one-eleventh of the
aggregate liquidation preference of all the Securities, or if the Company shall
not exercise the right described in subsection (b) above to require
non-defaulting Purchasers to purchase Securities and Warrants of a defaulting
Purchaser or Purchasers, then this Agreement shall thereupon terminate, without
liability on the part of any non-defaulting Purchaser or the Company, except for
the expenses to be borne by the Company and the Purchasers as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Purchaser from liability
for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Purchasers, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Purchaser or any controlling person of any Purchaser, or the Company, or
any officer or director or controlling person of the Company, and shall survive
delivery of and payment for the Securities and Warrants.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Purchaser except as
provided in Sections 6 and 8 hereof (as set forth in Section 9(c) hereof); but,
if for any other reason, the Securities and Warrants are not delivered by or on
behalf of the Company as provided herein, the Company will reimburse the
Purchasers through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Purchasers in making preparations for the purchase, sale and delivery of the
Securities and Warrants, but the Company shall then be under no further
liability to any Purchaser except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Purchasers, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Purchaser made or given
by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchasers shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Offering
Circular, Attention: Secretary; provided, however, that any notice to a
Purchaser pursuant to Section 8(c) hereof shall be delivered or sent by mail,
telex or facsimile transmission to such Purchaser at its address set forth in
its Purchasers' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13
<PAGE> 14
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Purchasers, the Company and, to the extent provided in Sections 8 and 10
hereof, the officers and directors of the Company and each person who controls
the Company or any Purchaser, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities and Warrants from any Purchaser shall be deemed a successor or assign
by reason merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us counterparts hereof (one for the Company and each of the
Representatives plus one for each counsel), and upon the acceptance hereof by
you, on behalf of each of the Purchasers, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Purchasers and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
NETWORK PLUS CORP.
By: /s/ ROBERT T. HALE, JR.
-------------------------
Name: Robert T. Hale, Jr.
Title: President and CEO
Accepted as of the date hereof:
Goldman, Sachs & Co.
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By: /s/ GOLDMAN, SACHS & CO.
------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Purchasers
14
<PAGE> 15
SCHEDULE I
<TABLE>
<CAPTION>
Initial Contingent
Number of Warrants Warrants
Securities Attached to Attached
to be Such to Such
Purchaser Purchased Securities Securities
--------- --------- ---------- ----------
<S> <C> <C> <C>
Goldman, Sachs & Co......................... 24,000 186,000 360,000
Lehman Brothers Inc......................... 8,000 62,000 120,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................. 8,000 62,000 120,000
------ ------- -------
Total................................
40,000 310,000 600,000
====== ======= =======
</TABLE>
15
<PAGE> 16
ANNEX I
(1) The Securities and the Warrants have not been and will not be
registered under the Securities Act and may not be offered or sold except
pursuant to an exemption from the registration requirements of the Securities
Act. Each Purchaser represents that it has offered and sold the Securities and
the Warrants, and will offer and sell the Securities and the Warrants (i) as
part of their distribution at any time and (ii) otherwise until 40 days after
the later of the commencement of the offering and the Time of Delivery, only in
accordance with Rule 144A under the Securities Act.
(2) Each Purchaser further represents and agrees that (i) it has not
offered or sold and prior to the date six months after the date of issue of the
Securities and the Warrants will not offer or sell any Securities or Warrants to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (b) it has complied, and will comply, with all
applicable provisions of the Financial Services Act of 1986 of Great Britain
with respect to anything done by it in relation to the Securities or the
Warrants in, from or otherwise involving the United Kingdom, and (c) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issuance of the Securities or the
Warrants to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
of Great Britain or is a person to whom the document may otherwise lawfully be
issued or passed on.
(3) Each Purchaser agrees that it will not offer, sell or deliver any of
the Securities or the Warrants in any jurisdiction outside the United States
except under circumstances that will result in compliance with the applicable
laws thereof, and that it will take at its own expense whatever action is
required to permit its purchase and resale of the Securities and Warrants in
such jurisdictions. Each Purchaser understands that no action has been taken to
permit a public offering in any jurisdiction outside the United States where
action would be required for such purpose. Each Purchaser agrees not to cause
any advertisement of the Securities or the Warrants to be published in any
newspaper or periodical or posted in any public place and not to issue any
circular relating to the Securities or the Warrants, except in any such case
with Goldman, Sachs & Co.'s express written consent and then only at its own
risk and expense.
A-1
<PAGE> 17
ANNEX II
Pursuant to Section 7(d) of the Purchase Agreement, the
accountants shall furnish letters to the Purchasers to the effect that:
(i) They are independent certified public accountants with
respect to Network Plus, Inc. (the "Company") under rule 101 of the
American Institute of Certified Public Accountants' Code of
Professional Conduct, and its interpretations and rulings;
(ii) The unaudited selected financial information with respect to
the results of operations and financial position of the Company for the
three most recent fiscal years included in the Offering Circular agrees
with the corresponding amounts (after restatements where applicable) in
the audited financial statements for such three fiscal years;
(iii) On the basis of limited procedures not constituting an audit
in accordance with generally accepted auditing standards, consisting of
a reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company, inspection of the minute books of the
Company since the date of the latest audited financial statements
included in the Offering Circular, inquiries of officials of the
Company responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) the unaudited statements of operations and retained
earnings, balance sheets and statements of cash flows included in
the Offering Circular are not in conformity with generally accepted
accounting principles applied on the basis substantially consistent
with the basis for the unaudited condensed statements of operations
and retained earnings, balance sheets and statements of cash flows
included in the Offering Circular;
(B) any other unaudited income statement data and balance
sheet items included in the Offering Circular do not agree with the
corresponding items in the unaudited financial statements from
which such data and items were derived, and any such unaudited data
and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
financial statements included in the Offering Circular;
(C) the unaudited financial statements which were not
included in the Offering Circular but from which were derived any
unaudited condensed financial statements referred to in Clause (A)
and any unaudited income statement data and balance sheet items
included in the Offering Circular and referred to in Clause (B)
were not determined on a basis substantially consistent with the
basis for the audited financial statements included in the Offering
Circular;
(D) any unaudited pro forma condensed financial statements
included in the Offering Circular do not comply as to form in all
material respects with the applicable accounting requirements or
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the capital
stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities,
in each case which were outstanding on the date of the latest
financial statements included in the Offering Circular) or any
increase in the long-term debt of the Company, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Offering Circular except in each case for changes, increases or
decreases which the Offering Circular discloses have occurred or
may occur or which are described in such letter; and
<PAGE> 18
(F) for the period from the date of the latest financial
statements included in the Offering Circular to the specified date
referred to in Clause (E) there were any decreases in net revenues
or operating profit or the total or per share amounts of net income
or other items specified by the Representatives, or any increases
in any items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases
which the Offering Circular discloses have occurred or may occur or
which are described in such letter; and
(iv) In addition to the examination referred to in their report(s)
included in the Offering Circular and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (iv) above, they have carried out certain
specified procedures, not constituting an audit in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company,
which appear in the Offering Circular, and have compared certain of
such amounts, percentages and financial information with the accounting
records of the Company and have found them to be in agreement.
A-2
<PAGE> 19
..........................., 1998
Dear Pricewaterhouse Coopers LLP:
Goldman, Sachs & Co., as representatives of the Purchasers of the preferred
stock and warrants to be issued by Network Plus Corp. (the "Company"), will be
reviewing certain information relating to the Company that will be included in
the Offering Circular. This review process, applied to the information relation
to the issue, is substantially consistent with the due diligence review process
that we would perform if this placement of securities were being registered
pursuant to the Securities Act of 1933 (the "Securities Act"). It is recognized
however that what is "substantially consistent" may vary from situation to
situation and may not be the same as that done in a registered offering of the
same securities for the same issuer and whether the procedures being, or to be,
followed will be "substantially consistent" will be determined by us on a
case-by-case basis. We are knowledgeable with respect to the due diligence
review process that would be performed if this placement of securities were
being registered pursuant to the Securities Act. We hereby request that you
deliver to us a "comfort" letter concerning the financial statements of the
issuer and certain statistical and other data included in the offering document.
We will contact you to identify the procedures we wish you to follow and the
form we wish the comfort letter to take.
Very truly yours,
........................................
(Goldman, Sachs & Co.)
A-1
<PAGE> 1
Exhibit 10.1
NETWORK PLUS CORP.
1998 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Network
Plus Corp., a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders 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 stockholders. Except where
the context otherwise requires, the term "Company" shall include any of the
Company's present or future subsidiary corporations, 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 (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each 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. 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 relating to or 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 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
<PAGE> 2
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"). All
references in the Plan to the "Board" shall mean the Board or a Committee of 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 8,
Awards may be made under the Plan for up to 1,400,000 shares of common stock,
$.01 par value per share, of the Company (the "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 8,
for Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 700,000 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.
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.
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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 by delivery to
the Company of a written notice of exercise signed by the proper person or by
any other form of notice (including electronic notice) approved by the Board
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, in its sole discretion,
otherwise provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
(3) when the Common Stock is registered under the
Exchange Act, by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by (or in a manner approved 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;
(4) to the extent permitted by the Board, in its sole
discretion by (i) delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or
(5) by any combination of the above permitted forms of
payment.
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<PAGE> 4
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, a
"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.
8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock
split, reverse stock split, stock dividend, recapitalization, combination of
shares, reclassification of shares, 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 per-Participant limit set forth in Section 4(b), (iii)
the number and class of securities and exercise price per share subject to each
outstanding Option, (iv) the repurchase price per share subject to each
outstanding Restricted Stock Award, and (v) the terms of each other outstanding
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
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<PAGE> 5
such an adjustment (or substitution) is necessary and appropriate. If this
Section 8(a) applies and Section 8(c) also applies to any event, Section 8(c)
shall be applicable to such event, and this Section 8(a) shall not be
applicable.
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed
liquidation or dissolution of the Company, the Board shall upon written notice
to the Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) ACQUISITION AND CHANGE IN CONTROL EVENTS
(1) DEFINITIONS
(A) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the
Company with or into another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive cash, securities or other
property; or
(ii) any exchange of shares of the
Company for cash, securities or other property pursuant to a statutory share
exchange transaction.
(B) A "Change in Control Event" shall mean:
(i) the acquisition by an individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership of any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) 50% or more of either (x) the
then-outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (y) the combined voting power of the then-outstanding
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that
for purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control Event: (A) any acquisition directly from the
Company (excluding an acquisition pursuant to the exercise, conversion or
exchange of any security exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company, unless the Person exercising,
converting or exchanging such security acquired such security directly from the
Company or an underwriter or agent of the Company), (B) any acquisition by any
employee benefit plan (or related
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<PAGE> 6
trust) sponsored or maintained by the Company or any corporation controlled by
the Company, (C) any acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with clauses (x) and (y) of
subsection (ii) of this definition or (D) any acquisition by Robert T. Hale,
Robert T. Hale, Jr., or any member of their immediate families, or any trust,
partnership, corporation or other entity controlled directly or indirectly by,
or any trust for the benefit of, Robert T. Hale, Robert T. Hale, Jr., or any
member of their immediate families (each such party is referred to herein as an
"Exempt Person"); or
(ii) the consummation of a merger,
consolidation, reorganization or statutory share exchange involving the Company
or a sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such transaction owns the
Company or substantially all of the Company's assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is referred
to herein as the "Acquiring Corporation") in substantially the same proportions
as their ownership of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively, immediately prior to such Business
Combination and (y) no Person (excluding any Exempt Person, the Acquiring
Corporation or any employee benefit plan or related trust maintained or
sponsored by the Company or by the Acquiring Corporation) beneficially owns,
directly or indirectly, 50% or more of the then-outstanding shares of common
stock of the Acquiring Corporation, or of the combined voting power of the
then-outstanding securities of such corporation entitled to vote generally in
the election of directors (except to the extent that such ownership existed
prior to the Business Combination).
(C) "Good Reason" shall mean any significant
diminution in the Participant's title, authority, or responsibilities from and
after such Acquisition Event or Change in Control Event, as the case may be, or
any reduction in the annual cash compensation payable to the Participant from
and after such Acquisition Event or Change in Control Event, as the case may be,
or the relocation of the place of business at which the Participant is
principally located to a location that is greater than 50 miles from the current
site.
(D) "Cause" shall mean any (i) willful failure
by the Participant, which failure is not cured within 30 days of written notice
to the
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<PAGE> 7
Participant from the Company, to perform his or her material responsibilities to
the Company or (ii) willful misconduct by the Participant which affects the
business reputation of the Company. The Participant shall be considered to have
been discharged for "Cause" if the Company determines, within 30 days after the
Participant's resignation, that discharge for Cause was warranted.
(2) EFFECT ON OPTIONS
(A) ACQUISITION EVENT. Upon the occurrence of an
Acquisition Event (regardless of whether such event also constitutes a Change in
Control Event), or the execution by the Company of any agreement with respect to
an Acquisition Event (regardless of whether such event will result in a Change
in Control Event), the Board shall provide that all outstanding Options shall be
assumed, or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof). If such Acquisition Event also
constitutes a Change in Control Event, except to the extent specifically
provided to the contrary in the instrument evidencing any Option or any other
agreement between a Participant and the Company, the Option shall continue to
become vested in accordance with the original vesting schedule set forth in such
Option; provided, however, that such Options shall become immediately
exercisable in full if, on or prior to the first anniversary of the date of the
consummation of the Acquisition Event, the Participant's employment with the
Company or the acquiring or succeeding corporation is terminated for Good Reason
by the Participant or is terminated without Cause by the Company or the
acquiring or succeeding corporation.
For purposes hereof, an Option shall be
considered to be assumed if, following consummation of the Acquisition Event,
the Option confers the right to purchase, for each share of Common Stock subject
to the Option immediately prior to the consummation of the Acquisition Event,
the consideration (whether cash, securities or other property) received as a
result of the Acquisition Event by holders of Common Stock for each share of
Common Stock held immediately prior to the consummation of the Acquisition Event
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if the consideration received as a result
of the Acquisition Event is not solely common stock of the acquiring or
succeeding corporation (or an affiliate thereof), the Company may, with the
consent of the acquiring or succeeding corporation, provide for the
consideration to be received upon the exercise of Options to consist solely of
common stock of the acquiring or succeeding corporation (or an affiliate
thereof) equivalent in fair market value to the per share consideration received
by holders of outstanding shares of Common Stock as a result of the Acquisition
Event.
Notwithstanding the foregoing, if the
acquiring or succeeding corporation (or an affiliate thereof) does not agree to
assume, or substitute
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<PAGE> 8
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants before the consummation of such Acquisition
Event; provided, however, that in the event of an Acquisition Event 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
Acquisition Event (the "Acquisition Price"), then the Board may instead provide
that all outstanding Options shall terminate upon consummation of such
Acquisition Event and that each Participant 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.
(B) CHANGE IN CONTROL EVENT THAT IS NOT AN
ACQUISITION EVENT. Upon the occurrence of a Change in Control Event that does
not also constitute an Acquisition Event, except to the extent specifically
provided to the contrary in the instrument evidencing any Option or any other
agreement between a Participant and the Company, the Option shall continue to
become vested in accordance with the original vesting schedule set forth in such
Option; provided, however, that each such Option shall be immediately
exercisable in full if, on or prior to the first anniversary of the date of the
consummation of the Change in Control Event, the Participant's employment with
the Company or the acquiring or succeeding corporation is terminated for Good
Reason by the Participant or is terminated without Cause by the Company or the
acquiring or succeeding corporation.
(3) EFFECT ON RESTRICTED STOCK AWARDS
(A) ACQUISITION EVENT THAT IS NOT A CHANGE IN
CONTROL EVENT. Upon the occurrence of an Acquisition Event that is not a Change
in Control Event, the repurchase and other rights of the Company under each
outstanding Restricted Stock Award shall inure to the benefit of the Company's
successor and shall apply to the cash, securities or other property which the
Common Stock was converted into or exchanged for pursuant to such Acquisition
Event in the same manner and to the same extent as they applied to the Common
Stock subject to such Restricted Stock Award.
(B) CHANGE IN CONTROL EVENT. Upon the occurrence
of a Change in Control Event (regardless of whether such event also constitutes
an Acquisition Event), except to the extent specifically provided to the
contrary in the instrument evidencing any Restricted Stock Award or any other
agreement between a Participant and the Company, the shares subject to the
Restricted Stock Award shall continue to become free from conditions or
restrictions in accordance with the
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<PAGE> 9
original schedule set forth in such Restricted Stock Award; provided, however,
that each such Restricted Stock Award shall immediately become free from all
conditions or restrictions if, on or prior to the first anniversary of the date
of the consummation of the Change in Control Event, the Participant's employment
with the Company or the acquiring or succeeding corporation is terminated for
Good Reason by the Participant or is terminated without Cause by the Company or
the acquiring or succeeding corporation.
(4) EFFECT ON OTHER AWARDS
(A) ACQUISITION EVENT THAT IS NOT A CHANGE IN
CONTROL EVENT. The Board shall specify the effect of an Acquisition Event that
is not a Change in Control Event on any other Award granted under the Plan at
the time of the grant of such Award.
(B) CHANGE IN CONTROL EVENT. Upon the occurrence
of a Change in Control Event (regardless of whether such event also constitutes
an Acquisition Event), except to the extent specifically provided to the
contrary in the instrument evidencing any Award or any other agreement between a
Participant and the Company, each other Award shall continue to become
exercisable, realizable, vested or free from conditions or restrictions in
accordance with the original schedule set forth in such Award; provided,
however, that each such Award shall immediately become fully exercisable,
realizable, vested or free from conditions or restrictions if, on or prior to
the first anniversary of the date of the consummation of the Change in Control
Event, the Participant's employment with the Company or the acquiring or
succeeding corporation is terminated for Good Reason by the Participant or is
terminated without Cause by the Company or the acquiring or succeeding
corporation.
9. 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 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.
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(c) BOARD DISCRETION. Except as otherwise provided by the Plan,
each Award may be made alone or in addition or in relation to any other Award.
The terms of each 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) 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. Except as the Board may
otherwise provide in an Award, when the Common Stock is registered under the
Exchange Act, Participants may satisfy such tax obligations in whole or in part
by delivery of 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.
(f) 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.
(g) 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.
(h) ACCELERATION. The Board may at any time provide that any
Options shall become immediately exercisable in full or in part, that any
Restricted Stock
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Awards shall be free of restrictions in full or in part or that any other 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.
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.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(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 stockholders, 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.
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(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 State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors on
July 15, 1998
Approved by the Board of Directors on
July 15, 1998
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<PAGE> 1
Exhibit 10.2
NETWORK PLUS CORP.
1998 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1998 Director Stock Option Plan (the "Plan") of
Network Plus Corp. (the "Company") is to encourage ownership in the Company by
outside directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. ADMINISTRATION
The Board of Directors (the "Board") shall supervise and administer the
Plan. Grants of stock options under the Plan and the amount and nature of the
awards to be granted shall be automatic in accordance with Section 5. However,
all questions of interpretation of the Plan or of any options issued under it
shall be determined by the Board and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be issued under the
Plan shall be 100,000 shares of the Company's Common Stock, $.01 par value per
share ("Common Stock"), subject to adjustment as provided in Section 9 of the
Plan.
(b) If any outstanding option under the Plan for any reason
expires or is terminated without having been exercised in full, the shares
allocable to the unexercised portion of such option shall again become available
for grant pursuant to the Plan.
(c) All options granted under the Plan shall be nonqualified
options not entitled to special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended to date and as it may be amended from time to
time (the "Code").
<PAGE> 2
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) OPTION GRANTS.
(1) Upon the approval of the Plan by the stockholders of
the Company, the Company shall grant to each eligible director an option for
5,000 shares of Common Stock.
(2) Upon the initial election of any eligible director as
a director of the Company following the approval of the Plan by the stockholders
of the Company, the Company shall grant to such director an option for 5,000
shares of Common Stock. No person serving as a director upon the approval of
this Plan by the stockholders of the Company shall receive such an option.
(3) On the date of each annual meeting of stockholders of
the Company following the approval of the Plan by the stockholders of the
Company, the Company shall grant to each eligible director who continues to
serve as a director immediately following such annual meeting an option for
2,500 shares of Common Stock. If in any calendar year no annual meeting of
stockholders is held prior to August 1, then in lieu of receiving such an option
grant on the date of the annual meeting of stockholders for such year, each
eligible director shall receive an option grant for 2,500 shares on August 1 of
such year. Notwithstanding the foregoing no director shall receive an option
under this Section 5(a)(3) if he or she received an option under Section 5(a)(1)
or (2) above within six (6) months prior to the date of grant under this Section
5(a)(3).
(b) OPTION EXERCISE PRICE. The option exercise price per share for
each option granted under the Plan shall equal (i) the last reported sales price
per share of the Company's Common Stock on the Nasdaq National Market (or, if
the Company is traded on a nationally recognized securities exchange on the date
of grant, the reported closing sales price per share of the Company's Common
Stock by such exchange) on the date of grant (or if no such price is reported on
such date such price as reported on the nearest preceding day) or (ii) if the
Common Stock is not traded on the Nasdaq National Market or such an exchange,
the fair market value per share on the date of grant as most recently determined
by the Board.
(c) OPTIONS NON-TRANSFERABLE. Except as otherwise provided in the
agreement evidencing the option grant, each option granted under the Plan by its
terms shall not be transferable by the optionee other than by will, or by the
laws of descent and distribution, and shall be exercised during the lifetime of
the optionee
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<PAGE> 3
only by the optionee. Except as otherwise provided in the agreement evidencing
the option grant, no option or interest therein may be transferred, assigned,
pledged or hypothecated by the optionee during the optionee's lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
(d) EXERCISE PERIOD. Each option shall become exercisable on a
cumulative basis as to 25% of the shares subject to the option on each of the
first, second, third and fourth anniversaries of the date of grant of such
option. Except as otherwise provided in the option agreements, in the event an
optionee ceases to serve as a director, each such option may be exercised by the
optionee (or, in the event of her death, by her administrator, executor or
heirs), at any time within 12 months after the optionee ceases to serve as a
director, to the extent such option was exercisable at the time of such
cessation of service. Notwithstanding the foregoing, no option shall be
exercisable after the expiration of 10 years from the date of grant.
(e) EXERCISE PROCEDURE. Options may be exercised only by written
notice to the Company at its principal office accompanied by (i) payment in cash
of the full consideration for the shares as to which they are exercised or (ii)
an irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price.
6. ASSIGNMENTS
The rights and benefits of participants under the Plan may not be
assigned, whether voluntarily or by operation of law, except as provided in
Section 5(c).
7. EFFECTIVE DATE
The Plan shall become effective immediately upon its approval by the
stockholders of the Company.
8. LIMITATION OF RIGHTS
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
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<PAGE> 4
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by such optionee's
options until the date of the issuance to such optionee of a stock certificate
therefor, and no adjustment will be made for dividends or other rights (except
as provided in Section 9) for which the record date is prior to the date such
certificate is issued.
9. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock split,
reverse stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, 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 securities and exercise price per share subject to
each outstanding option and (iii) the number and class of securities subject to
options issuable under Section 5(a) of this Plan shall be appropriately adjusted
by the Company (or substituted options 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 9(a) applies and
Section 9(c) also applies to any event, Section 9(c) shall be applicable to such
event, and this Section 9(a) shall not be applicable.
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed
liquidation or dissolution of the Company, the Board shall upon written notice
to the optionees provide that all then unexercised options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date.
(c) ACQUISITION AND CHANGE IN CONTROL EVENTS
(1) DEFINITIONS
(A) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the
Company with or into another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive cash, securities or other
property; or
(ii) any exchange of shares of the
Company for cash, securities or other property pursuant to a statutory share
exchange transaction.
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<PAGE> 5
(B) A "Change in Control Event" shall mean:
(i) the acquisition by an individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership of any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) 50% or more of either (x) the
then-outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (y) the combined voting power of the then-outstanding
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that
for purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control Event: (A) any acquisition directly from the
Company (excluding an acquisition pursuant to the exercise, conversion or
exchange of any security exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company, unless the Person exercising,
converting or exchanging such security acquired such security directly from the
Company or an underwriter or agent of the Company), (B) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (C) any acquisition by any
corporation pursuant to a Business Combination (as defined below) which complies
with clauses (x) and (y) of subsection (ii) of this definition or (D) any
acquisition by Robert T. Hale, Robert T. Hale, Jr., or any member of their
immediate families, or any trust, partnership, corporation or other entity
controlled directly or indirectly by, or any trust for the benefit of, Robert T.
Hale, Robert T. Hale, Jr., or any member of their immediate families (each such
party is referred to herein as an "Exempt Person"); or
(ii) the consummation of a merger,
consolidation, reorganization or statutory share exchange involving the Company
or a sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such transaction owns the
Company or substantially all of the Company's assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is referred
to herein as the "Acquiring Corporation") in substantially the same proportions
as their ownership of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively, immediately prior to such
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<PAGE> 6
Business Combination and (y) no Person (excluding any Exempt Person, the
Acquiring Corporation or any employee benefit plan or related trust maintained
or sponsored by the Company or by the Acquiring Corporation) beneficially owns,
directly or indirectly, 50% or more of the then-outstanding shares of common
stock of the Acquiring Corporation, or of the combined voting power of the
then-outstanding securities of such corporation entitled to vote generally in
the election of directors (except to the extent that such ownership existed
prior to the Business Combination).
(2) EFFECT ON OPTIONS
(A) ACQUISITION EVENT. Upon the occurrence of an
Acquisition Event (regardless of whether such event also constitutes a Change in
Control Event), or the execution by the Company of any agreement with respect to
an Acquisition Event (regardless of whether such event will result in a Change
in Control Event), the Board shall provide that all outstanding options shall be
assumed, or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof); PROVIDED THAT if such
Acquisition Event also constitutes a Change in Control Event, such assumed or
substituted options shall be immediately exercisable in full upon the occurrence
of such Acquisition Event.
For purposes hereof, an option shall be
considered to be assumed if, following consummation of the Acquisition Event,
the option confers the right to purchase, for each share of Common Stock subject
to the option immediately prior to the consummation of the Acquisition Event,
the consideration (whether cash, securities or other property) received as a
result of the Acquisition Event by holders of Common Stock for each share of
Common Stock held immediately prior to the consummation of the Acquisition Event
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if the consideration received as a result
of the Acquisition Event is not solely common stock of the acquiring or
succeeding corporation (or an affiliate thereof), the Company may, with the
consent of the acquiring or succeeding corporation, provide for the
consideration to be received upon the exercise of options to consist solely of
common stock of the acquiring or succeeding corporation (or an affiliate
thereof) equivalent in fair market value to the per share consideration received
by holders of outstanding shares of Common Stock as a result of the Acquisition
Event.
Notwithstanding the foregoing, if the
acquiring or succeeding corporation (or an affiliate thereof) does not agree to
assume, or substitute for, such options, then the Board shall, upon written
notice to the optionees, provide that all then unexercised options will become
exercisable in full as of a specified time prior to the Acquisition Event and
will terminate immediately prior to the consummation of such Acquisition Event,
except to the extent exercised by the optionees before the consummation of such
Acquisition Event; provided, however, in
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<PAGE> 7
the event of an Acquisition Event 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 Acquisition Event (the "Acquisition
Price"), then the Board may instead provide that all outstanding options shall
terminate upon consummation of such Acquisition Event and that each optionee
shall receive, in exchange therefor, a cash payment equal to the amount (if any)
by which (i) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding options (whether or not then exercisable),
exceeds (ii) the aggregate exercise price of such options.
(B) CHANGE IN CONTROL EVENT THAT IS NOT AN
ACQUISITION EVENT. Upon the occurrence of a Change in Control Event that does
not also constitute an Acquisition Event, all options then-outstanding shall
automatically become immediately exercisable in full.
10. AMENDMENT OF THE PLAN
The Board may at any time, and from time to time, suspend or
discontinue the Plan or modify or amend it in any respect whatsoever.
11. GOVERNING LAW
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors on
July 15, 1998
Approved by the stockholders on
July 15, 1998
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<PAGE> 1
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 10.4
AGREEMENT FOR THE PROVISION
OF
FIBER OPTIC FACILITIES AND SERVICES
BETWEEN
NORTHEAST OPTIC NETWORK, INC.
AND
NETWORK PLUS, INC.
Effective as of July 17, 1998 (the "Effective Date") Network Plus Inc., a
Massachusetts corporation, having an office at 234 Copeland Street, Quincy, MA
02169 ("Network Plus"), and NorthEast Optic Network, Inc., a Delaware
corporation, having an office at 391 Totten Pond Road, Suite 401, Waltham, MA
02154 ("NEON"), (collectively, the "Parties") agree as follows:
BACKGROUND. NEON and its affiliates are the exclusive owners of The New England
Optical Network (the "NEON Network"), a communication system located on property
owned by electric utility companies and others. Network Plus seeks to use part
of the NEON Network to operate its communication network. NEON is willing to
grant Network Plus the indefeasible right to use ("IRU") certain of NEON's
facilities and fiber optics filaments in exchange for certain payments and
annual fees.
1. THE NETWORK PLUS FIBERS. Upon completion pursuant to Section 2.3, NEON
shall be deemed to have conveyed to Network Plus an IRU for [*] AT&T True Wave
dark optical fibers to be specifically identified between NEON's Boston
Metropolitan Area POP and NEON's New York City, NY POP including any connectors
thereto as depicted in Exhibit 1, attached hereto. NEON will dedicate these [*]
fibers to Network Plus's use along the cable system (the "Network Plus Fibers"
or the "Network Plus Fiber Network") and represents and warrants that no other
party shall use such dedicated fibers at any time during the term of this
Agreement.
2. TERM, TERMINATION, USE AND COMPLETION OF NETWORK PLUS FIBER NETWORK.
2.1 TERM. The initial term of the IRU conveyed for the Network Plus Fiber
Network shall be [**] years from the date the Network Plus Fiber Network is
completed pursuant to Section 2.3 (the "Initial Term"). Unless Network Plus
gives NEON written notice at least [***********] days prior to the end of the
Initial Term, the term shall be automatically extended until the earlier of (i)
the end of the economic useful life of the Network Plus Fiber Network or (ii) as
to specific affected portions of the Network Plus Fiber Network, the expiration
of NEON's right to use certain rights of way and other facilities under its
agreement with Northeast Utilities Service Company dated September 27, 1994 (the
period of such extension being referred to herein as the "Renewal Period");
PROVIDED, however, that NEON's obligations pursuant to Sections 5.1, 5.2, 5.3,
5.4 (except for the last sentence thereof), 5.5, 11.1 and 11.2 shall terminate
at the end of the Initial Term and shall not apply during any Renewal Period.
[******************************************************************************
******].
2.2 USE. Network Plus may use the fibers covered by the IRU for (and only
for) any lawful purpose.
2.3 COMPLETION. The Network Plus Fiber Network as a whole shall be
complete, operational and available for use by Network Plus by April 1, 1999
(the "Completion Date"). Completion of the Network Plus Fiber Network shall be
deemed to have occurred when the Network Plus Fibers are in conformance in all
material respects with the technical specifications (the "Specifications") set
forth in Exhibit 2.3, and all acceptance testing has been completed to Network
Plus's reasonable satisfaction (the "Acceptance Date").
2.4 COMPLETION SCHEDULE. If completion of the Network Plus Fiber Network
does not take place by the Completion Date, a penalty of $[**] per day shall
accrue up to a total aggregate penalty of $[**], and that penalty charge shall
be due and payable by NEON 30 days following the Completion Date or on the
Acceptance Date, whichever shall occur first. If completion of the Network Plus
Fiber Network does not occur
<PAGE> 2
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
within 30 days of the Completion Date, Network Plus shall have the right to
terminate this Agreement immediately upon written notice to NEON.
The parties agree that they will negotiate in good faith a mutually
agreeable project plan (the "Project Plan") relating to the construction and
implementation of the Network Plus Fiber Network. This Project Plan will
include, without limitation, target dates for the construction of certain
segments, financial penalties in the event that NEON fails to satisfy its
obligations with respect to such target dates, and such other terms as the
parties may negotiate. Except as expressly agreed by the Parties in writing, (i)
such Project Plan, including all agreements and understandings between the
Parties relating to the execution of such Project Plan, shall not affect the
rights and obligations of the Parties as set forth in this IRU Agreement,
including but not limited to the first two sentences of this Section 2.4 and
(ii) such Project Plan shall not be deemed to be an amendment to the terms of
this IRU Agreement.
2.5 TERMINATION. Notwithstanding any provision contained in this Agreement
to the contrary, at any time after the Acceptance Date, Network Plus shall have
the option, in its sole discretion and for any reason, to terminate this
Agreement upon [***] days' prior written notice to NEON, without further
liability other than to pay the monthly lease charges specified in Section 4.1
(as adjusted under Section 4.2 and 4.3, as applicable) for months in the Initial
Term prior to the effective date of such termination.
2.6 RIGHT OF NOTICE. In the event that NEON contemplates entering into a
transaction with a third party as a result of which fewer than [****] fibers
would remain available on any route in the NEON Network, NEON shall notify
Network Plus in writing at least [****] days prior to entering into a written
agreement with respect to such transaction. NEON shall have no obligation to
disclose the terms of such contemplated transaction, nor shall Network Plus be
entitled to a right of first refusal or any other right (other than a right of
notice) pursuant to this Section 2.6.
3. DELIVERABLES.
3.1 DOCUMENTATION. In accordance with the time frame set forth in Section
3.2, herein, NEON shall deliver to Network Plus complete documentation regarding
the as-built condition of the Network Plus Fibers. This documentation
(hereinafter referred to as the "Deliverables") shall consist of the following,
which NEON represents and warrants will be true and correct in all material
respects:
(a) As-Built Drawings reflecting the specifications set forth in
Exhibit 3.1, attached hereto and incorporated herein.
(b) Technical specifications of the optical fiber cable,
associated splices and other equipment used in installing and
providing the Network Plus Fibers.
(c) List of names and 7 x 24 telephone numbers for NEON personnel
responsible for maintaining and repairing the Network Plus
Fibers.
3.2 DELIVERY AND NUMBER OF COPIES. The Deliverables shall be supplied
within 30 days after the Acceptance Date, provided, however, that the
Deliverable described in Section 3.1(c) shall be supplied upon execution of the
Agreement. NEON shall provide 2 copies of the Deliverables to Network Plus.
3.3 WORKING VERSIONS. Upon execution of this Agreement, NEON will supply to
Network Plus working versions of the Deliverables specified in Sections 3.1(a)
and (b), and shall supply updated versions of the Deliverables every [*********]
days thereafter, or, if sooner, immediately upon any material change thereto.
4. PAYMENT TERMS.
4.1 LEASE RATE. The lease rate for the Network Plus Fibers will be $[**]
per month for each month during the Initial Term. The first payment will be due
30 days after the Acceptance Date. Network Plus shall have the right to set off
against such payments any and all amounts owed by NEON to Network Plus (or to a
Network Plus supplier) under this Agreement, including without limitation
reimbursement for all
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
costs associated with matters undertaken by Network Plus pursuant to the terms
of this Agreement that are to be at NEON's cost and expense.
4.2 RATE ADJUSTMENTS. NEON agrees that the monthly lease rate for the
Network Plus Fibers will be the lowest price per fiber mile under the Term
hereof and for the fiber strand count herein charged by NEON for dark fiber
leases on the route on which the Network Plus Fibers are located. Should NEON
contract to lease dark fiber to a third party at a lower price per fiber mile on
the same Term for the same fiber count, then effective as of the commencement of
such lease, the lease rate payable hereunder for the relevant Network Plus
Fibers shall be lowered to the same price per fiber mile as in said third party
contract. NEON and Network Plus shall promptly thereafter execute an appropriate
amendment to this Agreement to document such new lease amount.
4.3 INFLATION. On January 1, 1999 and on January 1st of each year
thereafter during the Initial Term, the lease rate referred to in Section 4.1
hereof shall be increased by [**] of the percentage increase in the Consumer
Price Index for Urban Wage Earners, United States, Base 1982-84 = 100, issued by
the Bureau of Labor Statistics of the United States Department of Labor
("CPI-W"), for the immediately preceding calendar year. If the government body
issuing the CPI-W ceases to use the 1982-84 average of 100 as the basis for
calculation, the CPI-W shall be adjusted to the figure that would have been
arrived at had the manner of so calculating the CPI-W not been so changed. If
the CPI-W (or a successor or a substitute index) ceases to be published, or
ceases to be generally recognized as an index of inflation, the parties hereto
shall select and substitute an index which is mutually acceptable, published by
a governmental or other disinterested body with appropriate reconciliation of
the base of the substituted index with the base of the CPI-W.
4.4 SALES TAX. In addition to the lease rate, as adjusted periodically by
Sections 4.2 and 4.3, Network Plus shall be responsible for any and all sales
taxes levied on the grant of the IRU for the Network Plus Fiber Network and the
lease payments pursuant to Section 4.1.
5. MAINTENANCE AND REPAIR OF THE NETWORK PLUS FIBER NETWORK.
5.1 EMERGENCY MAINTENANCE. During the Initial term, NEON shall use its best
efforts to respond to any failure, interruption or impairment in the operation
of Network Plus Fibers within [**] hours after receiving a report from Network
Plus of any such failure, interruption or impairment, and Network Plus reserves
the right to have a representative present to assist in any maintenance or
repair. NEON will use its best efforts to have all fibers restored within [**]
hours of any failure, interruption or impairment. When trouble is encountered on
the Network Plus Fibers, Network Plus, to assist NEON in its maintenance
activities, will diagnose the trouble through OTDR testing, if possible, and
ascertain and notify NEON of the location address to the nearest cross street.
NEON shall use its best efforts to perform maintenance and repair to correct any
failure, interruption or impairment in the operation of the Network Plus Fibers
in accordance with the procedures set forth in Exhibit 5.1 attached hereto and
incorporated herein. In the event NEON fails to perform any necessary Emergency
Maintenance in accordance with the procedures set forth in Exhibit 5.1, Network
Plus shall have the right, with notice to NEON, but not the obligation, to
immediately undertake such Emergency Maintenance of the Network Plus Fibers, at
NEON's sole cost and expense. NEON shall not be required to provide emergency
maintenance services during any Renewal Term, except as mutually agreed by each
of the parties in writing.
5.2 ROUTINE MAINTENANCE. NEON will schedule and perform specific periodic
maintenance and repair checks and services during the Initial Term, as set forth
in NEON's Routine Maintenance Standards, attached hereto as Exhibit 5.2, from
time to time on the Network Plus Fibers, at NEON's reasonable discretion, upon
21 days' advance notice to Network Plus, or at Network Plus's reasonable
request. Network Plus and NEON will schedule such Routine Maintenance at
mutually agreeable times, and NEON shall reschedule any Routine Maintenance as
reasonably requested by Network Plus in writing at least [**] days prior to the
date of any scheduled Routine Maintenance. Network Plus may request reasonable
Routine Maintenance by delivering to NEON, not more than twice per agreement
year, for NEON's approval, a statement detailing the maintenance checks and
services Network Plus desires to be performed on the Network Plus Fibers. In the
event NEON fails to perform any Routine Maintenance in accordance with NEON's
Routine Maintenance Standards, after written notice by Network Plus, Network
Plus shall have the right, but not the obligation, to undertake such Routine
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<PAGE> 4
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Maintenance of the Network Plus Fibers, at NEON's sole cost and expense, using
contractors pre-approved by NEON.
5.3 OUTAGE CREDITS. Network Plus shall receive a credit ("Outage Credit")
against the fiber lease rate owed NEON hereunder in the event that the Network
Plus Fibers do not operate within the parameters of the Specifications. The
Outage Credit shall be equal to [**]th of the monthly lease rate, as adjusted,
multiplied by the number of fibers out of compliance for each hour or portion
thereof of noncompliance, as measured from the time Network Plus notifies NEON
of the problem until the time NEON, or Network Plus in the event of self help,
has corrected the problem.
5.4 SELF-HELP. In the event NEON, or others acting in Neon's behalf, after
written notice to Network Plus, at any time during the term of this Agreement
discontinues maintenance and/or repair of the Network Plus Fibers, Network Plus,
or others acting in Network Plus's behalf, shall have the right, but not the
obligation, to thereafter provide for the maintenance and repair of the Network
Plus Fibers, at NEON's sole cost and expense. Any such discontinuance shall be
upon no less than 6 months' prior written notice to Network Plus. In the event
of such discontinuance or during any Renewal Period, NEON shall obtain for
Network Plus, or others acting in Network Plus's behalf, adequate access to the
Rights-of-Way (as hereinafter defined) on or within which the Network Plus
fibers are located, for the purpose of permitting Network Plus, or others acting
in Network Plus's behalf, to undertake such maintenance and repair of the
Network Plus Fibers; provided, however, that such access shall be provided by
NEON at Network Plus's sole cost and expense during any Renewal Period.
5.5 REPLACEMENT. In the event all or any part of the Network Plus Fiber
Network shall require replacement during the Initial Term of this Agreement,
such replacement shall be made as soon as reasonably practical, at NEON's sole
cost and expense. If replacement of the Network Plus Fibers is required in
accordance with the preceding sentence, NEON shall give Network Plus written
notice of such replacement as soon as reasonably practicable before the
replacement optical fiber cable is ordered from the manufacturer. Network Plus
shall have the option, in its sole discretion, to be exercised by written notice
to NEON within 20 days of Network Plus's receipt of notice from NEON 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 Network Plus's use.
5.6 ESCALATION. Within [**********] days after execution of this Agreement,
the parties shall agree in writing upon a mutually acceptable plan for
escalating troubles, outages and similar matters.
5.7 DAMAGE BY NETWORK PLUS. In the event that the electronics, optronics or
other technologies employed by Network Plus interfere or adversely affect the
use of or damage any portion of the NEON Network, including the Network Plus
Fibers, (i) NEON shall be entitled to those indemnification rights set forth in
Section 13.3 hereof, and (ii) NEON shall have no maintenance obligation or
outage credit liability pursuant to this Section 5 as a result of such outage or
damage.
6. WARRANTIES.
6.1 CONFORMITY WITH SPECIFICATIONS. NEON represents and warrants that the
Network Plus Fiber Network 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 NEON's obligations under
Section 5, herein. Any maintenance or repairs to the NEON System required as a
result of a breach of the foregoing warranties shall be performed at NEON's sole
cost and expense.
6.2 NEON CORPORATE AUTHORITY. NEON represents and warrants to Network Plus
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 NEON have been duly and validly authorized by all
necessary corporate action on the part of NEON.
6.3 NETWORK PLUS CORPORATE AUTHORITY. Network Plus represents and warrants
to NEON 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 Network
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<PAGE> 5
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Plus have been duly and validly authorized by all necessary corporate action on
the part of Network Plus.
7. TAXES AND FEES.
7.1 GENERAL. NEON shall be responsible for and shall timely pay any and all
taxes and franchise, license and permit fees based on its use and ownership of
the Network Plus Network.
7.2 REAL ESTATE TAXES. [**]
7.3 TAXES RELATING TO NETWORK PLUS. [**]
8. RELOCATION. If, for any reason, NEON is required by any third party,
including, but not limited to, a governmental entity, or if NEON desires, for
any other reason, to relocate any of the facilities used or required in
providing the Network Plus Fibers or to relocate any of the facilities used or
required in providing the NEON System and the Network Plus Fibers, NEON shall
give Network Plus at least 60 days' (or such lesser period of notice that NEON
may have received from such third party) prior written notice of any such
relocation and Network Plus shall be entitled to terminate this Agreement, in
accordance with the provisions, excluding the notification period, of Section
2.4 herein, by giving at least [**] days' prior written notice to NEON. In the
event this Agreement is not terminated, NEON shall relocate the Network Plus
Fibers and, to the extent NEON is not reimbursed for the cost of such relocation
by a third party, governmental entity or otherwise, NEON shall be responsible
for all the costs associated with the relocation of the Network Plus Fibers.
9. CONDEMNATION. Upon its receipt of a formal notice of condemnation or
taking, NEON shall notify Network Plus immediately of any condemnation
proceeding filed against NEON containing the Network Plus Fiber Network or the
Utilities' property in or upon which the Network Plus Fiber Network shall have
been installed. NEON shall also notify Network Plus of any similar threatened
condemnation proceeding. If a taking or condemnation requires relocation of NEON
containing the Network Plus Fiber Network, NEON shall use its best efforts to
obtain an alternative route over which the Network Plus Fiber Network may be
relocated, at no cost to Network Plus. NEON shall be entitled to use any
condemnation proceeds otherwise payable to Network Plus to defray the reasonable
cost of such alternative route. Any excess proceeds received by NEON with
respect to Network Plus's interests shall be paid by NEON to Network Plus.
Subject to the foregoing, 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. NEON shall not sell the Network
Plus Fiber Network property to an acquiring agency, authority or other party in
lieu of condemnation without prior written notice to and consent of Network
Plus.
10. OWNERSHIP OF THE NETWORK PLUS FIBER NETWORK.
10.1 GENERAL. Network Plus shall have an undivided right of use of the
Network Plus Fibers. It is understood and agreed that NEON must and does
maintain legal title to the Network Plus Fiber Network subject to the IRU
hereunder. Notwithstanding the foregoing, it is understood and agreed as between
the parties that the grant of the IRU hereunder shall be treated for accounting
and federal and all applicable state and local tax purposes as the sale and
purchase of the Network Plus Fiber Network, and that on or after the Acceptance
Date, Network Plus shall be treated as the owner of the Network Plus Fiber
Network for such purposes; PROVIDED, however, that the IRU granted hereunder and
Network Plus's ownership status for tax, accounting and all other legal
purposes, shall revert to NEON upon the termination or expiration of this
Agreement. The parties agree to file their respective income tax returns,
property
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<PAGE> 6
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
tax returns, and other returns and reports for their respective Impositions on
such basis and, except as otherwise required by law, not to take any positions
inconsistent therewith.
10.2 REPRESENTATIONS TO THIRD PARTIES. Except as otherwise provided in this
Agreement, Network Plus shall not represent to any third party that any party
other than NEON is the legal owner of the Network Plus Fibers. NEON acknowledges
that Network Plus has contracted for the purchase of an IRU in the Network Plus
Fibers and agrees that it will not take any action which is inconsistent with
Network Plus's said position.
11. REQUIRED RIGHTS.
11.1 MAINTENANCE OF REQUIRED RIGHTS. NEON represents and warrants that NEON
has obtained or shall use its best efforts to obtain all Required Rights and
other rights, licenses, permits and authorizations as required to construct the
Network Plus Fiber Network and shall use its best efforts to maintain in place
all Required Rights necessary to operate the Network Plus Fiber Network
throughout the Initial Term hereof. Upon Network Plus's written request, NEON
shall make available for inspection by Network Plus, at NEON's offices, copies
of all information, documents, agreements, reports, permits, drawings and
specifications that in NEON's reasonable determination are material to the grant
of the IRU to Network Plus and available to NEON including, without limitation,
the Required Rights to the extent that the terms of each such document or the
legal restrictions applicable to such information or document permits disclosure
and further as may be redacted to protect disclosure of confidential business
and proprietary terms. NEON represents and warrants that any redacted portions
of the Required Rights documents shall not materially affect the rights of
Network Plus granted hereunder. "Required Rights" means any and all rights,
licenses, authorizations, rights of way, 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 (including any necessary
state, tribal or federal authorizations such as environmental permits), rights
of way and other agreements necessary for the installation and use of the
Network Plus Fiber Network.
11.2 EXPIRATION OF REQUIRED RIGHTS. In the event that, despite exercising
its best efforts to do so, NEON is unable to maintain in place one or more
Required Rights throughout the Initial Term, NEON shall use commercially
reasonable efforts to provide to Network Plus a Functionally Equivalent
Communications Path at NEON's sole cost to replace the portion of the Network
Plus Fiber Network that is affected by the loss of such Required Rights.
"Functionally Equivalent Communications Path" shall mean telecommunications
capabilities that, when used in conjunction with Network Plus's electronics,
optronics or technologies (as they exist at the time of such loss of such
Required Right), provide the same communications bandwidth between the same
locations. In the event that, despite exercising commercially reasonable efforts
pursuant to this Section 11.2, NEON is unable to provide a Functionally
Equivalent Communications Path, the Term of the IRU hereunder with respect to
the affected portion of the Network Plus Fiber Network shall automatically
expire upon such expiration or termination of the Required Right, and the lease
rate pursuant to Section 4.1 hereof shall be reduced in proportion to the
reduction in the total number of fiber miles in the Network Plus Fiber Network.
12. REGENERATORS.
12.1 SPECIFICATIONS OF SHELTER SPACE. NEON shall provide Network Plus with
[***] square feet of caged shelter space for placement of its electronics
equipment at NEON regenerator sites located along the route with 7/24 unescorted
access during the Initial Term. During any Renewal Period, NEON shall offer to
Network Plus such shelter space at a commercially reasonable rate. The Shelter
Equipment Layout is as identified in Exhibit 12.1. Network Plus shall pay NEON
for all incremental actual buildout costs associated with providing Network Plus
with secure separate shelter space and access.
12.2 BACKUP POWER. NEON will provide Network Plus with a minimum of
[**] hours of battery backup and generator power at each regenerator site.
Failure to provide such power during the Initial Term shall be deemed an Outage
for purposes of Section 5.3. During any Renewal Period, NEON shall offer to
Network Plus such backup and generator power at a commercially reasonable rate.
In addition, NEON shall permit Network Plus to install a generator plus at each
facility and shall permit Network Plus to attach its own generator to such plug
in the event Network Plus desires to do so.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
12.3 ACCESS TO NETWORK. NEON shall provide Network Plus with access to the
Network Plus Fiber Network at all regeneration sites and point of presence
("POP") locations. In addition, NEON shall provide Network Plus access to the
Network Plus Fiber Network at existing cable splice points, as reasonably
requested from time to time by Network Plus. All connections shall be performed
by NEON in accordance with NEON's applicable specifications and operating
procedures as approved by Network Plus, which approval shall not be unreasonably
withheld, and shall be at Network Plus's sole cost and expense, so long as such
cost and expense have been approved in advance in writing by Network Plus.
Network Plus shall have no limitations on the types of electronics, optronics or
technologies employed to utilize the Network Plus Fiber Network fibers, subject
to mutually agreeable safety procedures and so long as such electronics,
optronics or technologies do not interfere with the use of or present a risk of
damage to any portion of the NEON Network.
13. LIMITATION OF LIABILITY; INDEMNIFICATION.
13.1 CONSEQUENTIAL DAMAGES. Neither party shall be liable to the other party
for any indirect, special, punitive, or consequential damages (including, but
not limited to, any claim from any customer for loss of service) 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, its employees,
servants, contractors and/or agents. Each party agrees to use its best efforts
to include in any agreement with any third party relating to the use of NEON or
the Network Plus Fiber Network 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, its employees, servants,
contractors and/or agents.
13.2 CLAIMS AGAINST THIRD PARTIES. 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 NEON or the Network Plus Fiber Network
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.
13.3 INDEMNIFICATION. Each party 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 NEON, Network Plus or any other party operating or using
any part of NEON or the Network Plus Fiber Network) arising out of or resulting
in any way from the negligent acts or negligent omissions to act of such party,
its employees, servants, contractors, and/or agents (and/or, in the case of
NEON, for the negligent acts or negligent omissions to act of any other entity
to whom it grants or has granted an IRU or otherwise leases fiber or provides
services using the fiber) 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 in this Agreement.
14. INSURANCE. Each party shall, at its own expense, secure and maintain in
force throughout the term of this Agreement, General Liability Insurance with
competent 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 so-called umbrella or catastrophe forms. All policies required by this
Section 14 shall require the insurance companies to notify the other party at
least 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 the 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
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deductible shall apply regardless of the number of insured covered. Each Party
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.
15. ASSIGNMENT.
15.1 BY NETWORK PLUS. Except as provided in this Section 15.1, Network Plus
shall not assign or otherwise transfer this Agreement, in whole or in part, to
any other party without the prior written consent of NEON, which consent shall
not be unreasonably withheld or delayed; provided, however, that without such
consent, Network Plus shall have the right to assign, sublet or otherwise
transfer this Agreement, in whole or in part, to any parent, subsidiary or
affiliate of Network Plus which shall control, be under the control of or be
under common control with Network Plus, or any corporation which purchases all
or substantially all of the assets of Network Plus. Any assignee or transferee
shall continue to perform the Network Plus obligations to NEON under this
Agreement. It will be reasonable for NEON to take into consideration the
financial stability and ability to pay of any assignee.
15.2 BY NEON. Except as provided in this Section 15.2, NEON shall not assign
or otherwise transfer this Agreement, in whole or in part, to any other party
without the prior written consent of Network Plus, which consent shall not be
unreasonably withheld or delayed. It is expressly understood that Network Plus
shall not consent to any such assignment if Network Plus has reasonably
determined that the proposed assignee lacks appropriate financial viability and
technical capabilities suitable for providing maintenance and repair of the
Network Plus Fibers and is incapable of performing NEON's obligations under this
Agreement to Network Plus's satisfaction. Notwithstanding the foregoing
provisions of this Section 15.2, NEON shall have the right, without Network
Plus's consent, to assign or otherwise transfer this Agreement to any parent,
subsidiary or affiliate of NEON which shall control, be under the control of or
be under common control with NEON, or any corporation which purchases all or
substantially all of the assets of NEON. Any assignee or transferee shall
continue to perform the NEON obligations to Network Plus under the terms of this
Agreement.
15.3 PERMITTED SUCCESSORS AND ASSIGNS. Subject to the provisions of this
Section 15, 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.
16. LIENS.
16.1 IMPOSED THROUGH NEON. If the Network Plus Fiber Network becomes subject
to any mechanics', artisans' or materialmen's lien, or other encumbrance,
chargeable to or through NEON which interferes with Network Plus's use of the
Network Plus Fiber Network or which is not fully subordinated to Network Plus's
rights under this Agreement, NEON 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 Network Plus); provided, however, that if
any such lien or encumbrance is not so discharged and released within 30 days
after written notice by Network Plus to NEON, then Network Plus may pay or
secure the release or discharge thereof and NEON shall indemnify Network Plus
against all costs and expenses (including reasonable attorney's fees) incurred
in discharging and releasing such lien or encumbrance.
16.2 IMPOSED THROUGH NETWORK PLUS. If NEON becomes subject to any
mechanics', artisans', or materialmen's lien, or other encumbrances, chargeable
to or through Network Plus which interferes with NEON, Network Plus 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
NEON; provided, however, that if any such lien or encumbrance is not so
discharged and released within 30 days after written notice by NEON to Network
Plus, then NEON may pay or secure the release or discharge thereof and Network
Plus shall indemnify NEON against all costs and expenses (including reasonable
attorney's fees) incurred in discharging and releasing such lien or encumbrance.
16.3 NONDISTURBANCE AGREEMENTS. NEON agrees and acknowledges that it has no
right to use the Network Plus Fibers during the Term hereof, and that, from and
after the effective date of the Agreement, NEON shall keep the Network Plus
Fiber Network and Network Plus's IRU granted hereunder free from (a) any liens
of any third party attributable to NEON, and (b) any rights or claims of any
third party attributable to
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NEON. As provided in the previous sentence, NEON shall obtain from any entity in
favor of which NEON in its discretion shall have granted after the date hereof a
security interest or lien on all or part of the Network Plus Fiber Network a
written nondisturbance and attornment agreement substantially to the effect that
the holder of such security interest or lien acknowledges Network Plus's rights
and interests in and to the Network Plus Fiber Network and the IRU hereunder and
agrees that the same shall not be diminished, disturbed, impaired or interfered
with in any adverse respect by the holder of such security interest or lien,
except to the extent that such holder may succeed to the rights of NEON to
require Network Plus to perform its obligations hereunder.
17. FORCE MAJEURE. The obligations of the parties under this Agreement are
subject to, and neither party shall be in default under this Agreement due to,
any failure or delay in performance that 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 therefor; 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
Network Plus shall be entitled to itself take corrective action under the terms
of this Agreement; and provided further, that delays in NEON securing the
necessary rights-of-way for installation of NEON containing the Network Plus
Fiber Network shall not be deemed to be a force majeure, such delays being
otherwise provided for in this Agreement.
18. DEFAULT.
18.1 BY NETWORK PLUS. Network Plus shall not be in default under this
Agreement, or in breach of any provision hereof unless and until NEON shall have
given Network Plus written notice of such breach and Network Plus 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 Network Plus shall proceed promptly to cure the same and prosecute
such curing with due diligence, the time of curing such breach shall be extended
for such period of time as may be necessary to complete such curing up to a
maximum of 60 additional days. Upon the failure by Network Plus to timely cure
any such breach after notice thereof from NEON, NEON 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 Network
Plus.
18.2 BY NEON. NEON shall not be in default under this Agreement or in breach
of any provision hereof unless and until Network Plus shall have given NEON
written notice of such breach and NEON 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 NEON 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 NEON to timely cure any
such breach after notice thereof from Network Plus, Network Plus 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.
18.3 REMEDIES. 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 NEON or Network Plus at law or
in equity.
19. CONFIDENTIALITY. The Parties executed a Confidentiality Agreement on
May 11, 1998, attached hereto as Exhibit 19. Both parties acknowledge and agree
that the terms of that Confidentiality Agreement apply to and are binding as to
this Agreement in all respects.
20. NOTICES.
20.1 ADDRESSES. Unless otherwise provided herein, all notices and
communications concerning this Agreement shall be in writing and addressed as
follows:
If to NEON:
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NorthEast Optic Network, Inc.
391 Totten Pond Road, Suite 401
Waltham, MA 02154-2014
Attention: President
Facsimile Number: (781) 890-8404
with a copy to
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Alexander A. Bernhard
Facsimile Number: (617) 526-5000
If to NETWORK PLUS:
Network Plus, Inc.
234 Copeland Street
Quincy, MA 02169
Attention: Vice President, Network Operations
Facsimile Number: (617) 786-4013
or at such other address as may be designated in writing to the other party.
20.2 METHOD OF DELIVERY. 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, 5 days after deposit; if sent by facsimile, upon verification
of receipt; or, if sent by commercial overnight delivery service, 1 business day
after deposit.
21. 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.
22. DISPUTE RESOLUTION.
22.1 GENERAL. It is the intent of Network Plus and NEON 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 Section 22.
22.2 ARBITRATION. Any dispute arising out of or related to this Agreement,
which cannot be resolved by negotiation between the Parties, 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 22.2, 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 substantive laws of the
Commonwealth of Massachusetts and the plain meaning of the relevant documents,
and shall be final and binding. The arbitrator shall make written findings of
fact and conclusions of law in support of the award. The award may be confirmed
and enforced in any court of competent jurisdiction. All post-award proceedings
shall be governed by the USAA.
22.3 PENDING RESOLUTION. NEON shall continue to provide the Network Plus
Fiber Network pursuant to this Agreement during the proceedings described in
this Section 22 and Network Plus shall continue to make payments in accordance
with this Agreement.
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23. MISCELLANEOUS.
23.1 HEADINGS. The headings of the Sections of 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.
23.2 PLURALS AND CONJUNCTIONS. 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.
23.3 SEVERABILITY. 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.
23.4 AMENDMENTS. This Agreement may be amended only by a written instrument
executed by the party against whom enforcement of the modification is sought.
23.5 NO IMPUTED 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.
23.6 ENTIRE AGREEMENT. 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.
23.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and same
instrument.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.
NETWORK PLUS, INC.
By: /s/ James J. Crowley
------------------------------
James J. Crowley
Executive Vice President
NORTHEAST OPTIC NETWORK, INC.
By: /s/ Victor Colantonio
------------------------------
Victor Colantonio
President
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 2.3
TECHNICAL SPECIFICATIONS
[**]
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 3.1
SPECIFICATIONS
[**]
ACCEPTANCE TEST PLAN
NEON 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) for each fiber
Fiber acceptance testing will be performed to ensure that the _____ fibers will
operate within the parameters of the Specifications set forth in 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 run, 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.
7. Connector Assemblies
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Where required, all connector assemblies must be SCUPC physical contact
design, and must meet or exceed 50 dB return loss. Connectors must have
a mean insertion [less than] 0.4 dB with maximum insertion loss
[less than] 0.6 dB.
Connector assemblies will be placed in secure locations or have
lockable covers. The splice enclosure at the termination point shall be
of sufficient size to hold a slack loop of at least ten feet in length
in each direction. Where fibers are terminated, terminations shall be
made in both directions.
AS-BUILT DRAWING SPECIFICATIONS
NEON shall deliver As-built drawings in either Autocad or DXF format in addition
to five (5) "11 by 17" hard copies.
At a minimum, NEON'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 typical, 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
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EXHIBIT 5.1
EMERGENCY MAINTENANCE PROCEDURES
1. NOTIFICATION
New England Fiber shall notify NEON of interruption to service (signal loss,
service degradation, out of specification performance or other conditions) to
the fiber optic cable transmission system. NEON will dispatch technicians,
vehicles and equipment to initiate the repair of such conditions and the
restoration of service.
2. NEON CONTACTS
In the event of a service interruption contact NEON 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 (NORTEL SURVEILLANCE)
1-800-275-8726 select options 1 and 8
c. After Hours Digital Pager
888-768-9828
888-768-9829
d. Michael A. Musen
888-886-3123
This listing is subject to change.
3. DISPATCH:
NEON 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. NEON 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:
- Report of Damage
- Estimate time to repair
- Notification of Utilities if needed (i.e. down pole).
- Verbal report of tasks to repair given to the representative
of Customer and to New England Fiber.
4. REPAIR:
a. Channel or End Equipment Problems:
NEON 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. NEON technicians will remain on the call until all alarm or signal
problems have been corrected.
b. Outside Plant Repairs
Commencing immediately, NEON will restore service to the link
by fusion splice methods, as a first priority, or with
mechanical connectors as a second choice. NEON will use its
fusion splicer and OTDR power meter and
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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.
Upon the satisfactory completion and acceptance of the testing
by Customer, the service will be declared restored.
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5. END OF OUTAGE
NEON, INC. ______________________________________________________ OUTAGE REPORT
CUSTOMER:____________________DATE:_________________ TIME REPORTED______________
LOCATION:______________________________________________________________________
STREET: _____________________________ POLE/MANOLE: ___________________________
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:____________________________________________________________NEON, INC.
CUSTOMER:
LOCATION:
STREET:
CAUSE OF OUTAGE:
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EXHIBIT 5.2
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, 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.
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EXHIBIT 11.1
NEON SITE SPECIFICATIONS
1. NEON will provide the following to (Customer):
a) At least 120 square feet of floor space at Regenerator
location for electronics which shall be physically separated
and secured according to (Customer)'s specifications, with a
separate entrance for 24-hour (Customer) access.
b) Additional square footage may be required at specified sites
for (Customer) Electronics and administrative purposes.
c) Access to the site for (Customer) technicians/representatives
and vehicles, including full rights of ingress and egress into
the building to the (Customer) Space.
d) Fire suppression system, as approved by (Customer) 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) NEON will provide unistrut mounted to the ceiling above the
(Customer) Space per (Customer) engineering specifications.
g) All required Fiber Distribution Panels (FDPs) and relay racks.
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 (Customer) Electronics within the (Customer) Space.
i) Adequate equipment egress to be provided for (Customer)'s use.
j) Adequate parking for (Customer) 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 NEON Sites and (Customer)
Space.
POWER
1) NEON will provide (Customer) with all AC and DC power at the NEON Site
required to operate (Customer)'s equipment, to include the following:
a) An emergency backup generator is required. The generator must
be permanently installed at the NEON 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 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 (Customer)'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 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.
d) The NEON's battery plant will be engineered and maintained so
as to provide eight (8) hours reserve time for (Customer)
Electronics). This will require the NEON's DC power feeds to
be able to provide the full DC current load at a voltage no
smaller in magnitude than 43.44V
-20-
<PAGE> 21
continuously for eight (8) hours will no commercial or
generator AC power.
e) NEON will provide to (Customer) wire termination access to the
office principal ground bar of the NEON Site.
ENTRANCE
1) NEON will follow (Customer)'s specifications for diverse entrance when
bringing the (Customer) Fibers into the NEON Site.
2) (Customer) will have the right to bring in additional cables pursuant
to Exhibit H, and/or conduit to the (Customer) Space and NEON will work
with (Customer) to facilitate construction and/or installation for such
activities. NEON will not charge any additional charges for the
additional cable.
3) (Customer) will have the right to upgrade the NEON Site in the future
to a POP site. (Customer) will provide notice to NEON of its intent to
upgrade and will provide information regarding any additional facility
requirements.
MAINTENANCE
1) NEON will monitor and maintain the NEON Sites on a twenty-four (24)
hour a day, seven (7) days a week basis.
2) NEON will notify (Customer) immediately upon NEON becoming aware of any
potential service affecting condition(s).
3) NEON 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) NEON will maintain batteries within the DC power plant in accordance
with manufacturers' recommendations.
ENVIRONMENTAL CONDITIONING
1) NEON will maintain the environmental temperature inside the NEON Sites
at seventy-three degrees (73(degree sign)), plus or minus five degrees
(+/- 5(degree sign)). Humidity must not exceed 55%. Environmental
conditions within the NEON 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
NEON will provide to (Customer) visibility to NEON Site environmental and power
alarms. These alarms are dry-contract, normally open. All alarms will be
collected and brought into (Customer) Space. When (Customer) sees an alarm
condition, (Customer) will notify NEON and if appropriate, request NEON to
dispatch personnel immediately. The necessary alarms for a POP site and a
regenerator site are as follows:
1) Building Door
2) Building Temperature
3) Commercial AC Power
4) Fire & Smoke
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<PAGE> 22
NONDISCLOSURE AGREEMENT
PURPOSE: This NONDISCLOSURE AGREEMENT ("Agreement") dated May 11, 1998, is made
this day by and between FiveCom, Inc. and FiveCom affiliates ("FiveCom") with
its principal place of business at 391 Totten Pond Road, Suite 401, Waltham, MA
02154 and Network Plus of Quincy, MA 02169, in order to protect the confidential
and proprietary information ("Confidential Information") to be disclosed by the
parties to each other in connection with a matter of mutual interest ("Goal")
during a meeting on May 11, 1998, and subsequent communications related thereto.
For good and valuation consideration, the sufficiency of which is hereby
acknowledged, the parties agree to the following provisions of the Agreement:
1. To facilitate discussion, meetings and the conduct of business between
the parties regarding the Goal, it may be necessary for either party to
disclose to the other Confidential Information defined as technical,
customer, personnel and/or business information in written, graphic,
oral or other tangible or intangible forms including, but not limited
to, business plans, specifications, know how, records, field data,
computer programs, drawings, graphics, schematics, logo designs, maps,
models, samples, reports, conversations, notes, documentation or other
types of confidential information associated with each party's physical
plant, engineering, design, development plans, customer lists, and the
marketing and construction of telecommunication services, future
business plans and any other information marked "CONFIDENTIAL" by
either party. Such Confidential Information may contain proprietary or
confidential material or material subject to applicable laws regarding
secrecy of communications or trade secrets.
2. This Agreement applies only to Confidential Information that is
disclosed between the parties within two years after Effective Date
above.
3. All Confidential Information acquired by either party from the other
shall be and shall remain the exclusive property of the source.
4. Each party shall: receive in confidence any Confidential Information;
limit access to such Confidential Information except as necessary for
each party to work toward the Goal described above; and not disclose
such Confidential Information to others without the prior written
approval of the source.
5. Each party shall use such Confidential Information solely for purposes
of work, services or analysis related to the Goal described above and
for other purposes only upon such terms as may be agreed between the
parties in writing.
6. Each party shall return original Confidential Information promptly to
the disclosing party and, at the disclosing party's request, destroy
any copies of such Confidential Information providing to the disclosing
party a list of all such material destroyed.
7. Each party shall protect the disclosed Confidential Information from
disclosure, using at least the same degree of care to prevent the
unauthorized use, disclosure or publication of the Confidential
Information as it uses to protect its own Confidential Information and
shall return all Confidential Information upon either parties' written
request to the other to do so at any time.
8. The obligations with respect to Confidential Information shall extend
for a period of five years following the date of initial disclosure of
that Confidential Information and such obligations shall extend beyond
completion of the term of this Agreement.
9. Neither disclosure of Confidential Information nor this Agreement shall
be construed as a license to make, use or sell the Confidential
Information or derived products.
10. These Obligations do not apply to Confidential Information which:
a. As shown by reasonably documented proof, was in the other's
possession prior to receipt from the disclosure; or
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<PAGE> 23
b. As shown by reasonably documented proof, was received by one
party in good faith from a third party not subject to a
confidential obligation to the other party; or
c. Now is or later becomes publicly known through no breach of
confidential obligation by the receiving party; or
d. Is disclosed pursuant to a requirement imposed by a
governmental agency or is otherwise required to be disclosed
by operation of law, except that prior to any disclosure
pursuant to this subsection, the party receiving the request
for the Information shall notify the source party and shall
give that party an opportunity to participate in objecting to
production of the Confidential Information; or
e. Was developed by the receiving party without the developing
person(s) having access to any of the Confidential Information
received from the other party.
11. It is agreed that a violation of any of the provisions of this
Agreement will cause irreparable harm and injury to the non-violating
party and that party shall be entitled, in addition to any other rights
and remedies it may have at law or in equity, to an injunction
enjoining and restraining the violating party from doing or continuing
to do any such act and any other violations or threatened violations of
this Agreement. Absent a showing of willful violation of this
Agreement, neither party shall be liable to the other, whether in
contract or in tort or otherwise, for special, indirect, incidental or
consequential damages.
12. Neither this Agreement nor provision of Confidential Information
pursuant to it shall be construed as an agreement, commitment, promise
or representation by either party to do business with the other or to
do anything except as set out specifically in the Agreement.
13. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.
14. This Agreement sets forth the entire agreement between the parties with
respect to nondisclosure of Confidential Information pertaining to the
Goal and supersedes all prior agreements and understanding with respect
to this subject. This Agreement may be amended only by written
agreement executed by both parties. This Agreement shall not be
assigned or transferred by either party without the prior written
consent of the other party. This Agreement shall be binding on agents,
successors and permitted assigns of the party.
15. Unless terminated earlier by written notice, this Agreement shall
remain in full force for two (2) years.
-23-
<PAGE> 24
FIVECOM, INC. NETWORK PLUS
By: /s/ Victor Colantonio By: /s/ James J. Crowley
------------------------------ ------------------------------
Victor Colantonio, President James J. Crowley
Executive Vice President
FIVECOM, LLC
By its Manager
FiveCom, Inc.
By: /s/ Victor Colantonio
------------------------------
Victor Colantonio, President
FIVECOM OF MAINE, LLC
By its Manager
FiveCom, Inc.
By: /s/ Victor Colantonio
------------------------------
Victor Colantonio, President
NECOM, LLC
By its Manager
FiveCom, Inc.
By: /s/ Victor Colantonio
------------------------------
Victor Colantonio, President
-24-
<PAGE> 1
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 10.5
IRU AGREEMENT
THIS IRU AGREEMENT (this "Agreement") is made and entered into as of
July 17, 1998, by and between QWEST COMMUNICATIONS CORPORATION, a Delaware
corporation ("QWEST") and NETWORK PLUS, INC., a Massachusetts corporation
("NETWORK").
RECITALS
A. QWEST has entered into an IRU Fiber Exchange Agreement with a
third party (the "THIRD PARTY") pursuant to which QWEST has been granted an IRU
in certain dark fibers on a route from New York, New York to Boston,
Massachusetts (the "New York - Boston Segment") as more fully described on
Exhibit A attached hereto;
B. NETWORK desires to be granted the right to use certain optical
fibers in the New York - Boston Segment; and
C. QWEST desires to grant NETWORK a right to use certain fibers
and other rights in regeneration facilities on and along the New York - Boston
Segment;
Accordingly, in consideration of the mutual promises set forth below,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1
GRANT OF IRU IN THE NEW YORK - BOSTON SYSTEM
1.1 Effective as of the date when both the Delivery Date as
defined in Section 4.3 has occurred and the IRU Fee provided for in Section 2.1
has been paid, QWEST hereby grants to NETWORK and NETWORK hereby purchases from
QWEST an exclusive indefeasible right of use ("IRU"), for the purposes described
herein, in four (4) dark fibers, to be specifically identified, in the New York
- - Boston Segment (sometimes referred to herein as the "Segment"), and, to the
extent provided in Article 7, associated Regeneration Facilities, but in any
event excluding any electronic or optronic equipment, for the Term (as defined
in Article 6) and all on the terms and subject to the covenants and conditions
set forth herein (the "IRU"). The Dark Fibers subject to the IRU are referred to
as the "NETWORK Fibers".
ARTICLE 2
CONSIDERATION FOR GRANT
2.1 In consideration of the grant of the IRU hereunder by QWEST to
NETWORK, NETWORK agrees to pay to QWEST an IRU Fee (the "IRU Fee") of $[**]
per route mile as follows and in accordance with the payment schedule set forth
below:
(1) [**]% upon execution of this Agreement
(2) [**]% upon completion of fiber cable placement in
such Segment
(3) [**]% upon completion of fiber splicing and civil
construction
(4) [**]% upon the Delivery Date for the Segment
For purposes of determining the occurrence of the milestones
triggering payment obligations hereunder, completion of fiber cable placement
shall mean the fiber cable is pulled into the conduit, but without splicing.
Completion of the fiber splicing and civil construction shall mean that the
fibers are spliced and ready for testing and civil facilities are ready for the
customer to occupy and install their equipment.
2.2 In addition to the amounts payable under Section 2.1, NETWORK
shall be responsible to pay directly or reimburse QWEST for the pass-through
expenses required to be paid pursuant to Article 8.
2.3 All payments to QWEST set forth in this Article 2 shall be
made by wire transfer of immediately available funds to the account or accounts
designated by QWEST. The initial payment shall be due within three (3) days of
execution of the Agreement.
ARTICLE 3
CONSTRUCTION OF THE NEW YORK - BOSTON SEGMENT
<PAGE> 2
3.1 QWEST represents and NETWORK acknowledges that the New York -
Boston Segment is being constructed by the THIRD PARTY. QWEST represents that
the Segment will be constructed in accordance with the construction
specifications set forth in Exhibit B, industry standards and practices,
applicable building construction and safety codes for such construction and
installation, as well as any and all other applicable governmental laws, codes,
ordinances, statutes and regulations, and to perform in accordance with the
manufacturers' specifications set forth in Exhibit C (Fiber Specifications) and
to operate in accordance with Exhibit D (Fiber Cable Splicing, Testing and
Acceptance Procedures). All NETWORK Fibers will be Lucent True Wave.
3.2 QWEST represents and warrants that QWEST or the THIRD PARTY
have the obligation to obtain or have obtained all Required Rights (as defined
in Section 6.1) and other rights, licenses, permits and authorizations as
required to construct the New York - Boston Segment. Upon NETWORK's written
request, QWEST shall make available for inspection by NETWORK, at QWEST's
offices, copies of all information, documents, agreements, reports, permits,
drawings and specifications obtained by QWEST from the THIRD PARTY and
pertaining to this Article 3 that in QWEST's reasonable determination are
material to the grant of the IRU to NETWORK including, without limitation, the
Required Rights to the extent that the terms of each such document or the legal
restrictions applicable to such information or document permits disclosure and
further as may be redacted to protect disclosure of confidential business and
proprietary terms. QWEST represents that any redacted portions of the Required
Rights documents shall not materially affect the rights of NETWORK granted
hereunder.
ARTICLE 4
ACCEPTANCE AND TESTING OF NETWORK FIBERS
4.1 QWEST represents and warrants that the THIRD PARTY will test
all NETWORK Fibers in accordance with the procedures specified in Exhibit D
("Fiber Cable Splicing, Testing and Acceptance Procedures") to verify that the
NETWORK Fibers are installed and operational in accordance with the
specifications described in Exhibit C. As QWEST is provided notice by the THIRD
PARTY, QWEST shall provide NETWORK notice of the date and time of Fiber
Acceptance Testing such that NETWORK shall have the opportunity to have a person
or persons present to observe the Fiber Acceptance Testing. QWEST will provide
NETWORK with copies of all test results obtained from the THIRD PARTY pertaining
to the NETWORK Fibers prior to acceptance.
4.2 In the event the Fiber Acceptance Testing results show that
the NETWORK Fibers are not installed or operating within the parameters of the
applicable specifications, QWEST shall take or cause the THIRD PARTY to take
such action as shall be reasonably necessary with respect to such portion of the
NETWORK Fibers as are not installed or do not operate within the parameters of
the applicable specifications to bring the installation and operating standards
of such portion of the NETWORK Fibers within such parameters. After taking such
actions, QWEST shall cause the THIRD PARTY to provide a copy of the new test
results and QWEST shall provide a copy to NETWORK within fourteen (14) days of
the conclusion of the Fiber Acceptance Testing. The cycle described above of
testing, taking corrective action and re-testing shall take place as many time
as necessary to ensure that the NETWORK Fibers operate within the parameters of
the applicable specifications.
4.3 If the Fiber Acceptance Testing results are within the
parameters of the specifications in Exhibit D, NETWORK shall, within seven (7)
days of receipt of the test results, provide QWEST with a written notice
accepting the NETWORK Fibers. If NETWORK fails to accept its Fibers within seven
(7) days of receipt of the Fiber Acceptance Testing results, then NETWORK shall
be deemed to have accepted its Fibers unless it notifies QWEST within seven (7)
days of receipt of the Fiber Acceptance Testing results that such results are
unacceptable. The date of this notice or the date of deemed acceptance of the
NETWORK Fibers shall be the "Acceptance Date". Notwithstanding Acceptance as
provided herein, the parties agree that subject to extensions for delay
described in Article 20, Force Majeure, the date upon which QWEST will grant the
IRU to NETWORK after Acceptance Testing (the "Delivery Date") will be a date
which is mutually agreeable to the parties but in no event later than December
31, 1998. QWEST will use reasonable efforts to make available Dark Fibers for
lease to NETWORK prior to the Delivery Date subject to completion of the Segment
by the THIRD PARTY.
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<PAGE> 3
ARTICLE 5
DOCUMENTATION
5.1 Not later than ninety (90) days after the Acceptance Date,
QWEST shall provide NETWORK with the following documentation which shall be
complete, true and correct:
(a) As-built drawings for the Segment in accordance with
the requirements described in Exhibit B.
(b) Technical specifications of the optical fiber cable
and associated splices and other equipment placed in the Segment including test
results.
ARTICLE 6
TERM
6.1 The term of this Agreement shall begin on the Effective Date
and shall end at the earlier of the end of the economically useful life of the
NETWORK Fibers (the "Term") or subject to the provisions of Article 10, such
time as right of way agreements, including without limitation, rights, licenses,
authorizations, rights of way, 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 (including any necessary state,
tribal or federal authorizations such as environmental permits), rights of way
and other agreements necessary for the installation and use of the NETWORK
Fibers (all of which are referred to as the "Required Rights") are no longer
available to QWEST.
6.2 In the event that NETWORK, at any time, reasonably determines
that the NETWORK Fibers have reached the end of their economically useful life
and desires not to retain the IRU, NETWORK shall have the right to abandon the
IRU by written notice to QWEST. If, at any time during or after the last year of
the Term, NETWORK fails to use any of the NETWORK Fibers for any period of
thirty (30) consecutive days (except to the extent that such non-use is as a
result of any of the events described in Article 20 or as a result of
maintenance, restoration, relocation, or reconfiguration or as a result of the
failure of QWEST to observe and perform the terms of this Agreement), QWEST
shall give notice to NETWORK of proposed abandonment. In the event NETWORK fails
to notify QWEST within sixty (60) days of its intent to continue use of the
Fibers, NETWORK shall be deemed to have determined that the NETWORK Fibers have
reached the end of their economic life and, accordingly, has abandoned the
NETWORK Fibers. Upon any such notice of abandonment or acknowledgement of
abandonment, the Term of this Agreement shall expire and all rights to the New
York - Boston Segment and the use of such Segment shall revert to QWEST without
reimbursement of any fees or other payments previously made with respect
thereto, and from and after such time NETWORK shall have no further rights or
obligations hereunder with respect to such Segment (subject to the provisions of
Articles 12 and 17).
6.3 It is understood and agreed that the THIRD PARTY must and does
maintain legal title to the entire New York - Boston Segment subject to the IRU
hereunder. Notwithstanding the foregoing, it is understood and agreed as between
the parties that the grant of the IRU hereunder shall be treated for accounting
and federal and all applicable state and local tax purposes as the sale and
purchase of the NETWORK Fibers, and that on or after the Acceptance Date with
respect to the Segment, NETWORK shall be treated as the owner of the NETWORK
Fibers comprising the Segment for such purposes. The parties agree to file their
respective income tax returns, property tax returns, and other returns and
reports for their respective Impositions on such basis and, except as otherwise
required by law, not to take any positions inconsistent therewith. QWEST
represents and warrants that it will not convey any interest, including any
security interest, in the New York to Boston Segment, to any other entity in any
manner which is not fully consistent with, and subordinate to, NETWORK's rights
under this Agreement.
ARTICLE 7
NETWORK ACCESS; REGENERATION FACILITIES
7.1 QWEST shall provide NETWORK with access to the NETWORK Fibers
by a cable stub taken from the system by the THIRD PARTY and delivered to QWEST
at a QWEST designated location or, as mutually agreed to by the parties, in
selected THIRD PARTY POPs at the fiber distribution panel. All connections shall
be performed by QWEST, at NETWORK's sole cost and expense, in accordance with
QWEST's applicable specifications
-3-
<PAGE> 4
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
and operating procedures. NETWORK shall pay QWEST's costs for each such
connection within thirty (30) days of the date of NETWORK's receipt of QWEST's
invoice therefor. NETWORK shall have no limitations on the types of electronics
or technologies employed to utilize the NETWORK Fibers, subject to mutually
agreeable safety procedures and so long as such electronics or technologies do
not interfere with the use of or present a risk of damage to any portion of
QWEST's network. QWEST may route in the NETWORK Fibers through QWEST's separate
terminal endlink, POP or Regeneration Facilities at its sole discretion so long
as such routing does not have a material adverse effect on the security, the
safety or NETWORK's use of the NETWORK Fibers hereunder and QWEST is responsible
for all costs and expenses associated therewith.
7.2 Exhibit E sets forth the sites along the New York to Boston
Segment at which regeneration facilities currently are located or are to be
installed in accordance with the Specifications set forth on Exhibit F which
NETWORK desires to share with QWEST (collectively, the "Regeneration
Facilities"). Subject to (a) the availability of adequate and sufficient
Required Rights, space, power, and right-of-way access, and (b) the receipt of
all requisite permits, approvals and authorizations, available to NETWORK, QWEST
will make space available for up to one rack in certain regeneration facilities
and up to two racks in certain POPs available to NETWORK on a shared basis for a
cost per facility of $[**] per rack. All shared Regeneration Facilities shall
be subject to the provisions of this Agreement, and in particular Section 8.2
with respect to sharing of operating costs thereof.
ARTICLE 8
OPERATIONS
8.1 Each party shall have full and complete control and
responsibility for determining any network and service configurations or
designs, routing configurations, regrooming, rearrangement or consolidation of
channels or circuits and all related functions with regard to the use of that
party's Dark Fiber.
8.2 NETWORK shall reimburse QWEST for NETWORK's proportionate
share of all operating costs incurred by QWEST in connection with the
Regeneration Facilities provided pursuant to Section 7.2, including its
proportionate share of any monthly lease costs for any such facilities and/or
underlying property that QWEST leases (including, to the extent included in such
lease costs, base rent, maintenance, insurance, security and taxes), maintenance
of such facilities, and all power and utility fees and charges. NETWORK's
proportionate share of such operating costs, including a proportionate share of
common area costs, shall be the ratio that the floor space provided to NETWORK
in any such facility (including a proportionate share of the common area) bears
to (1) in the case of lease costs, the total space in such facility, and (2) in
the case of all other costs (including common area costs), the total utilized
space in such facility. QWEST shall submit invoices to NETWORK on an annual
basis for NETWORK's prorata share of such operating costs during the preceding
twelve months. QWEST will operate the Regeneration Facilities in a commercially
reasonable manner. NETWORK's reimbursement obligations for insurance and taxes
pursuant to this Section 8.2 shall in no event be duplicative of NETWORK's
payment obligations for insurance or taxes, respectively, as provided in Article
15 hereof, and in no event shall QWEST be relieved of its payment obligations
for insurance costs or taxes, respectively.
8.3 NETWORK acknowledges and agrees that, except as expressly
provided in Section 7.2, QWEST is not supplying nor is QWEST obligated to supply
to NETWORK any optronics or electronics or optical or electrical equipment or
other facilities, including, without limitation, generators, batteries, air
conditioners, fire protection and monitoring and testing equipment, all of which
are the sole responsibility of NETWORK, nor is QWEST responsible for performing
any work other than as specified in this Agreement.
ARTICLE 9
MAINTENANCE AND REPAIR OF THE NEW YORK - BOSTON SEGMENT
9.1 From and after the Acceptance Date the maintenance of the New
York - Boston Segment shall be provided in accordance with the maintenance
requirements and procedures set forth in Exhibit G hereto.
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<PAGE> 5
ARTICLE 10
PERMITS, REQUIRED RIGHTS; RELOCATIONS
10.1 QWEST represents and warrants that on or before the Delivery
Date with respect to the Segment to be delivered hereunder, the THIRD PARTY is
responsible to obtain any Required Rights and, thereafter, to use commercially
reasonable efforts to cause the Required Rights to remain in effect for a
minimum term of twenty years (the "Minimum Period"). QWEST agrees to exercise
all commercially reasonable efforts to enforce its rights to require Specific
Performance of the THIRD PARTY's obligations and other remedies available to
QWEST under its Agreement with the THIRD PARTY to keep the Required Rights in
force for the Minimum Period. QWEST acknowledges that its failure to exercise
such efforts will cause NETWORK irreparable harm, and that accordingly, NETWORK
shall have the right to obtain specific performance of QWEST's obligations set
forth in the preceding sentence.
10.2 Upon the expiration or termination of any Required Right that
is necessary in order to grant, continue or maintain the IRU granted hereunder
in accordance with the terms and conditions hereof, and so long as QWEST shall
have fully observed and performed its obligations under this Article 10 with
respect thereto, the Term of the IRU hereunder with respect to the Segment, or
any portion of the Segment affected by such expiration or termination of a
Required Right, shall automatically expire upon such expiration or termination
of the Required Right.
10.3 If, after the Acceptance Date with respect to the Segment,
(i) the THIRD PARTY or QWEST reasonable determines, or (ii) the THIRD PARTY or
QWEST is required by a third party with legal authority to so require
(including, without limitation, the grantor of a Required Right), or (iii)
NETWORK agrees to relocate any portion of the Segment, including any of the
facilities used or required in providing the IRU in such Segment hereunder,
QWEST or the THIRD PARTY, as applicable, shall proceed with such relocation, and
shall have the right, in good faith, to reasonably determine the extent of, the
timing of, and methods to be used for such relocation; PROVIDED THAT (a) any
such relocation shall be constructed and tested in accordance with the
specifications and drawings set forth in Exhibits B and C, and incorporate fiber
meeting the specifications set forth in Exhibit D and (b) if the relocation is
pursuant to (i) above, or subject to Article 20, to (ii) above, it shall not
adversely affect the operations, performance, connection points with NETWORK's
network or endpoints of the Segment.
10.4 Unless QWEST is reimbursed by a third party (which does not
have an interest in the fibers in the cable) NETWORK shall reimburse QWEST for
its proportionate share of all costs of such relocation, including without
limitation conduit relocation, fiber acquisition, splicing and testing, of the
portion of the Segment based on the proportion of the NETWORK Fibers to the
total fibers in the cable.
ARTICLE 11
USE OF NEW YORK - BOSTON SEGMENT
11.1 The requirements, restrictions, and/or limitations upon
NETWORK's right to use the NETWORK Fibers as provided and permitted under this
Agreement imposed under, and associated safety, operational and other rules and
regulations imposed in connection with, the Required Rights are referred to
collectively as the "Required Rights Requirements." NETWORK acknowledges and
agrees that it is taking its IRU on an "as is, where is" basis and that it is
receiving the interests in such IRU Fibers as set forth in this Agreement only
to the extent such interests are held by the conveying party.
11.2 Each of the parties represents, warrants and covenants that it
will use its fibers in compliance with and subject to the Required Rights
Requirements (to the extent provided by the THIRD PARTY and known to QWEST and
NETWORK) and all applicable government codes, ordinances, laws, rules and
regulations.
11.3 The IRU granted hereunder shall include the right at NETWORK's
cost to install additional equipment, or replaces existing equipment, in the
facility space provided to NETWORK pursuant to Article 7, subject to the
provisions of Article 7 and the Required Rights Requirements.
11.4 QWEST agrees and acknowledges that it has no right to use the
NETWORK Fibers during the Term hereof, and that, from and after the effective
date of the
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Agreement, QWEST shall keep the NETWORK Fibers and NETWORK's IRU granted
hereunder free from (a) any liens of any third party attributable to QWEST, and
(b) any rights or claims of any third party attributable to QWEST, as and to the
extent required pursuant to Article 10 hereof. As provided in the previous
sentence, QWEST shall obtain from any entity in favor of which QWEST in its
discretion shall have granted after the date hereof a security interest or lien
on all or part of the Segment a written nondisturbance agreement substantially
to the effect that such lienholder acknowledges NETWORK's rights and interests
in and to the NETWORK Fibers and the IRU hereunder and agrees that the same
shall not be diminished, disturbed, impaired or interfered with in any adverse
respect by such lienholder. QWEST represents that this same or similar provision
is in all other agreements under which QWEST has granted IRUs in the New York to
Boston Segment.
11.5 Subject to the provisions of Article 22 and this Article 11,
NETWORK may use the NETWORK Fibers and the IRU for any lawful telecommunications
purpose. NETWORK agrees and acknowledges that it has no right to use any of the
fibers, other than the NETWORK Fibers, included in the cable or otherwise
incorporated in the New York - Boston Segment, and that NETWORK shall keep any
and all of the New York - Boston Segment, other than the IRU granted to NETWORK
in the NETWORK Fibers free from any liens, rights or claims of any third party
attributable to NETWORK.
11.6 NETWORK and QWEST shall promptly notify each other of any
matters pertaining to, or the occurrence (or impending occurrence) of any event
which would be reasonably likely to give rise to any damage or impending damage
to or loss of the New York - Boston Segment that are known to such party.
11.7 NETWORK shall not use the NETWORK Fibers in a way which
physically interferes in any way with or adversely affects the use of the fibers
or cable of any other person using the New York - Boston Segment. QWEST shall
not use any other fibers in the New York - Boston Segment in a way which
physically interferes with or adversely affects the use of the NETWORK Fibers.
QWEST represents that this same or similar provision is in all other agreements
under which QWEST has granted IRUs in the New York to Boston Segment.
11.8 NETWORK and QWEST each agree to cooperate with and support the
other in complying with any requirements applicable to their respective rights
and obligations hereunder by any governmental or regulatory agency or authority.
ARTICLE 12
INDEMNIFICATION
12.1 Subject to the provisions of Articles 13 and 18, QWEST hereby
agrees to indemnify, defend, protect and hold harmless NETWORK and its
employees, officers and directors, from and against, and assumes liability for:
(a) Any injury, loss or damage to any person (including
NETWORK), tangible or intangible property or facilities of any person or entity
(including reasonable attorneys' fees and costs) to the extent arising out of or
resulting from the acts or omissions, negligent or otherwise, of QWEST, its
officers, employees, servants, affiliates, agents, contractors, or licensees
arising out of or in connection with a default (other than a default caused by a
failure of NETWORK to perform or comply with its obligations hereunder) by QWEST
in the performance of its obligations or breach of its representations under
this Agreement; and
(b) Any claims, liabilities or damages, including
reasonable attorneys' fees and costs, arising out of any violation by QWEST of
any regulation, rule, statue or court order of any local, state or federal
governmental agency, court or body in connection with the performance of its
obligations under this Agreement.
12.2 Subject to the provisions of Articles 13 and 18, NETWORK
hereby agrees to indemnify, defend, protect and hold harmless QWEST, and its
employees, officers and directors, from and against, and assumes liability for:
(a) Any injury, loss or damage to any person (including
QWEST), tangible or intangible property or facilities of any person or entity
(including reasonable attorneys' fees and costs) to the extent arising out of or
resulting from the acts or omissions, negligent or otherwise, of NETWORK, its
officers, employees, servants, affiliates, agents, contractors, licensees,
invitees or vendors arising out of or in connection with a default (other than a
default caused by a failure of QWEST
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
to perform or comply with its obligations hereunder) by NETWORK in the
performance of its obligations or breach of its representations under this
Agreement; and
(b) Any claims, liabilities or damages, including
reasonable attorneys' fees and costs, arising out of any violation by NETWORK of
any regulation, rule, statue or court order of any local, state or federal
governmental agency, court or body in connection with its use of the IRU and/or
the NETWORK Fibers and Associated Property hereunder.
12.3 The parties hereby expressly recognize and agree that each
party's said obligation to indemnify, defend, protect and save the other
harmless is not a material obligation to the continuing performance of the
parties' other obligations, if any, hereunder. In the event that a party shall
fail for any reason to so indemnify, defend, protect and save the other
harmless, the injured party hereby expressly recognizes that its sole remedy in
such event shall be to seek a remedy under Article 21 against the other party
for its damages as a result of the other party's failure to indemnify, defend,
protect and save harmless. The obligations of the parties under this Article 12
shall survive the expiration or termination of this Agreement.
12.4 Nothing contained herein shall operate as a limitation on the
right of either party hereto to bring an action for damages against any third
party, including indirect, special or consequential damages, based on any acts
or omissions of such third party as such acts or omissions may affect the
operation or use of the NETWORK Fibers or the QWEST network, except as may be
limited by Required Rights Requirements; 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 other party to pursue
any such action against such third party.
ARTICLE 13
LIMITATION OF LIABILITY
13.1 Notwithstanding any provision of this Agreement to the
contrary, neither party shall be liable to the other party for any special,
incidental, indirect, punitive or consequential damages, whether foreseeable or
not, arising out of, or in connection with such party's failure to perform its
respective obligations or breach of its respective representations hereunder,
including, but not limited to, damage or loss of property or equipment, loss of
profits or revenue, cost of capital, (whether arising out of transmission
interruptions or problems, any interruption or degradation of service or
otherwise), or claims of customers, in each case whether occasioned by any
construction, reconstruction, relocation, repair or maintenance performed by, or
failed to be performed by, the other party or any other cause whatsoever,
including breach of contract, breach of warranty, negligence, or strict
liability, all claims with respect to which such special, incidental, indirect,
punitive or consequential damages are hereby specifically waived.
ARTICLE 14
INSURANCE
14.1 Following the Delivery Date with respect to the Segment, and
throughout the Term of the IRU with respect to the Segment, each party shall
procure and maintain in force, at its own expense:
(a) not less than $[**] combined single limit
liability insurance, on an occurrence basis, for personal injury and property
damage, including, without limitation, injury or damage arising from the
operation of vehicles or equipment and liability for completed operations;
(b) workers' compensation insurance in amounts required
by applicable law and employers' liability insurance with a limit of at least
$[**] per occurrence; and
(c) automobile liability insurance covering death or
injury to any person or persons, or damage to property arising from the
operation of vehicles or equipment, with limits of not less than $[**] per
occurrence; and
14.2 Both parties expressly acknowledge that a party shall be
deemed to be in compliance with the provisions of this Article 14 if it
maintains an approved self-insurance program providing for a retention of up to
$[**]. If either party
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provides any of the foregoing coverages on a claims-made basis, such policy or
policies shall be for at least a three-year extended reporting or discovery
period. Unless otherwise agreed, NETWORK's and QWEST's insurance policies shall
be obtained and maintained with companies rated "A" or better by Best's Key
Rating Guide and each party shall provide the other with an insurance
certificate confirming compliance with this requirement for each policy
providing such required coverage.
14.3 In the event either party fails to obtain the required
insurance and a claim is made or suffered, such party shall indemnify and hold
harmless the other party from any and all claims for which the required
insurance would have provided coverage. Further, in the event of any such
failure which continues after seven (7) days' written notice thereof by the
other party, such other party may, but shall not be obligated to, obtain such
insurance and will have the right to be reimbursed for the cost of such
insurance by the party failing to obtain such insurance.
14.4 In the event coverage is denied or reimbursement of a properly
presented claim is disputed by the carrier for insurance provided above, the
party carrying such coverage shall make good-faith efforts to pursue such claim
with its carrier.
14.5 Both parties shall obtain from their insurance companies
providing the coverages required by this Agreement the permission of such
insurers to allow that party to waive all rights of subrogation and each party
does hereby waive all rights of said insurance companies to subrogation against
the other, its parent corporation, affiliates, subsidiaries, assignees,
officers, directors, and employees or any other party entitled to indemnify
under this Agreement.
ARTICLE 15
TAXES, FEES AND OTHER GOVERNMENTAL IMPOSITIONS
15.1 The parties acknowledge and agree that it is their mutual
objective and intent to (a) minimize, to the extent feasible, the aggregate
Impositions payable with respect to the New York - Boston Segment and (b) share
such Impositions according to their respective interests in the New York -
Boston Segment, and that they will cooperate with each other and coordinate
their mutual efforts to achieve such objectives in accordance with the
provisions of this Article 15. It is understood and agreed as between the
parties that the grant of the IRU in the NETWORK Fibers shall be treated for
accounting and federal and all applicable state and local tax purposes as the
sale and purchase of the NETWORK Fibers and that on or after the Acceptance
Date, NETWORK shall be treated as the owner of the NETWORK Fibers for such
purposes. The parties agree to file their respective income tax returns,
property tax returns, and other returns and reports for their respective
Impositions on such basis and except as otherwise required by law, not to take
any positions inconsistent therewith.
ARTICLE 16
NOTICE
16.1 Unless otherwise provided herein, all notices and
communications concerning this Agreement shall be addressed to the other party
as follows:
If to QWEST: Qwest Communications Corporation
ATTENTION: President
555 Seventeenth Street
Denver, Colorado 80202
Telephone No.: (303) 291-1400
with a copy to: Qwest Communications Corporation
ATTENTION: Director, Contract Administration
555 Seventeenth Street
Denver, Colorado 80202
Telephone No.: (303) 291-1624
Fax No.: (303) 291-1742
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<PAGE> 9
If to NETWORK: NETWORK PLUS, Inc.
ATTENTION: President
234 Copeland Street
Quincy, Massachusetts
Telephone No.: ________________
with a copy to:
or at such other address as either party may designate from time to time in
writing to the other party.
16.2 Unless otherwise provided herein, notices shall be hand
delivery, sent by registered or certified U.S. mail, postage prepaid, or by
commercial overnight delivery service, or transmitted by facsimile, and shall be
deemed served or delivered to the addressee or its office when received at the
address for notice specified above when hand delivered, upon confirmation of
sending when sent by fax, on the day after being sent when sent by overnight
delivery service, or three (3) days after deposit in the mail when sent by U.S.
mail.
ARTICLE 17
CONFIDENTIALITY
17.1 (a) QWEST and NETWORK hereby agree that if either party
provides (or, prior to the execution hereof, has provided) confidential or
proprietary information to the other party ("Proprietary Information"), such
Proprietary Information shall be held in confidence, and the receiving party
shall afford such Proprietary Information the same care and protection as it
affords generally to its own confidential and proprietary information (which in
any case shall be not less than reasonable care) in order to avoid disclosure to
or unauthorized use by any third party.
(b) As used herein, Proprietary Information shall mean
any and all technical or business information furnished, in whatever form or
medium, or disclosed by QWEST to NETWORK including, but not limited to, product
or service specifications, prototypes, computer programs, models, drawings,
marketing plans, financial data, and personnel statistics. In addition, the
parties acknowledge and agree that this Agreement, including all of the terms,
conditions and provisions hereof, all drafts hereof, and all information
disclosed by either party to the other in connection with or pursuant to this
Agreement constitutes Proprietary Information.
(c) All Proprietary Information, unless otherwise
specified in writing, shall remain the property of the disclosing party, shall
be used by the receiving party only for the intended purpose of performing its
obligations under this Agreement, and such written Proprietary Information,
including all copies thereof, shall be returned to the disclosing party or
destroyed after the receiving party's need for it has expired or upon the
request of the disclosing party. Proprietary Information shall not be reproduced
except to the extent necessary to accomplish the purpose and intent of this
Agreement, or as otherwise may be permitted in writing by the disclosing party.
17.2 The foregoing provisions of Section 17.1 shall not apply to
any Proprietary Information which (a) becomes publicly available other than
through the recipient; (b) is required to be disclosed by a governmental or
judicial law, order, rule or regulation; (c) is independently developed by the
disclosing party; (d) becomes available to the disclosing party without
restriction from a third party not subject to an obligation to protect such
Proprietary Information; or (e) to the extent (and only to the extent) that
disclosure is reasonably necessary in connection with the settlement of any
dispute or enforcement of either party's rights under this Agreement in
accordance with the provisions of this Agreement, in which case appropriate
protective measures shall be taken to preserve the confidentiality of such
Proprietary Information as fully as possible within the confines of such
settlement or enforcement process. If any Proprietary Information is required to
be disclosed pursuant to the foregoing clause (b), the party required to make
such disclosure shall promptly inform the other party of the requirements of
such disclosure and shall cooperate with the other party in seeking a protective
order or similar relief.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
17.3 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 without the prior written approval of the other
party.
17.4 Each party shall have the right to review and approve any
publicity material, press releases, or other public statements by the other that
refer to such party or that describe any aspect of this Agreement. Each party
agrees not to issue any such publicity materials, press releases, or public
statements without the prior written approval of the other party.
17.5 Nothing in this Agreement establishes a license for either
party to use any of the other party's brands, marks or logos without prior
written approval of the other party.
17.6 Nothing herein shall be construed as granting any right or
license under any copyrights, inventions, or patents now or hereafter owned or
controlled by QWEST.
17.7 Notwithstanding Sections 17.1 and 17.2 of this Article, either
party may disclose Proprietary Information to its employees, agents, and legal,
financial, and accounting advisors and providers (including its lenders and
other financiers) to the extent necessary or appropriate in connection with the
negotiation and/or performance of this Agreement or its obtaining of financing,
PROVIDED THAT each such party is notified of the confidential and proprietary
nature of such Proprietary Information and is subject to or agrees to be bound
by similar restrictions on its use and disclosure.
17.8 The provisions of this Article shall survive expiration or
termination of this Agreement for a period of three years thereafter.
ARTICLE 18
DEFAULT
18.1 With respect to all payments required to be made by NETWORK
hereunder, including, without limitation, payment of the IRU Fee and all other
amounts payable by NETWORK hereunder, if NETWORK fails to make a payment by the
date due and payable hereunder, from and after such date, (a) such unpaid amount
shall bear accrued interest compounded monthly until paid at an annual rate
equal to one hundred fifty percent ([**]%) of the prime rate of interest
published by the Wall Street Journal the date any such payment is due or, if
lower, the highest percentage allowed by law and (b) if such payment is due with
respect to the Segment on or prior to the Acceptance Date of the Segment, the
Estimated Delivery Date for the Segment shall be extended by a number of days
equal to the number of days that elapse from the date such payment is due until
paid. In the event any amount or amounts due and payable hereunder remain unpaid
for a period of thirty (30) days after written notice from QWEST to NETWORK,
then QWEST may, in its sole and absolute discretion and in addition to its other
rights and remedies hereunder, terminate any and all of its obligations
hereunder with respect to the Segment, and to apply any and all amounts
previously paid by NETWORK hereunder with respect to the Segment toward the
payment of any other amounts then or thereafter payable by NETWORK hereunder.
With respect to all of its other obligations hereunder, if
NETWORK fails to perform a nonpayment obligation and such failure shall continue
for a period of thirty (30) days after QWEST shall have given NETWORK written
notice of such failure, NETWORK shall be in default hereunder unless NETWORK
shall have cured such failure or such failure is otherwise waived in writing by
QWEST within such thirty (30) days; PROVIDED, HOWEVER, that where such failure
cannot reasonably be cured within such 30- day period, if NETWORK shall proceed
promptly to cure the same and prosecute such cure with due diligence, the time
for curing such failure shall be extended for such period of time as may be
necessary to complete such cure; and PROVIDED FURTHER that if NETWORK certifies
in good faith to QWEST in writing that a nonpayment failure has been cured, such
failure shall be deemed to be cured unless QWEST otherwise notifies NETWORK in
writing within fifteen (15) days of receipt of such notice from NETWORK.
NETWORK shall be in default hereunder (a) automatically upon
the making by NETWORK or Parent of a general assignment for the benefit of its
creditors, the filing by NETWORK or Parent of a voluntary petition in bankruptcy
or the filing by NETWORK or Parent of any petition or answer seeking, consenting
to, or acquiescing in reorganization, arrangement, adjustment, composition,
liquidation, dissolution, or
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similar relief; or (b) one hundred twenty (120) days after the filing of an
involuntary petition in bankruptcy or other insolvency protection against
NETWORK which is not dismissed within such one hundred twenty (120) days.
Except as otherwise provided in this Section 18.1, upon any
default by NETWORK, after written notice thereof from QWEST, QWEST may (a) take
such action as it determines, in its sole discretion, to be necessary to correct
the default and, subject to Section 13.1, recover from NETWORK its reasonable
costs incurred in correcting such default, and (b) pursue any legal remedies it
may have under applicable law or principles of equity relating to such default,
including specific performance.
18.2 With respect to QWEST's obligations hereunder, in the event
that QWEST shall fail to perform an obligation and such failure shall continue
for a period of thirty (30) days after NETWORK shall have given QWEST written
notice of such failure, QWEST shall be in default hereunder unless QWEST shall
have cured such failure or such failure is otherwise waived in writing by
NETWORK within such thirty (30) days; PROVIDED HOWEVER, that where such failure
cannot reasonably be cured within such 30-day period, or if QWEST's failure is
a failure of the THIRD PARTY to complete the construction, installation and
satisfactory Fiber Acceptance Testing by the Estimated Delivery Date for the
Segment pursuant to Section 4.3, or QWEST's failure to deliver an IRU in the
fibers pursuant to RECITAL A, if QWEST shall proceed promptly to cure the same
and prosecute such cure with due diligence, or with respect to the Estimated
Delivery Date, shall proceed to diligently complete or to cause the THIRD PARTY
to complete the construction, installation and testing, the time for curing such
failure, including a failure to meet an Estimated Delivery Date, shall be
extended for such period of time as may be necessary to complete such cure or
such construction, installation and testing; and PROVIDED FURTHER, that if QWEST
certifies in good faith to NETWORK in writing that failure has been cured, such
failure shall be deemed to be cured unless NETWORK otherwise notifies QWEST in
writing within fifteen (15) days of receipt of such notice from QWEST.
Notwithstanding the foregoing provisions of this paragraph, in the event a force
majeure event or occurrence described in Article 20 or any other event causes an
extension of the Estimated Delivery Date and such event or occurrence has not
been terminated, avoided or resolved by the date that is six (6) months
following the Estimated Delivery Date, NETWORK may elect, in its sole
discretion, by written notice to QWEST, to terminate this Agreement and recover
from QWEST the amount of the IRU Fee previously paid by NETWORK hereunder with
respect to the Segment. Upon any such election and payment, neither party shall
have any further rights or obligations.
QWEST shall be in default hereunder (a) automatically upon the
making by QWEST of a general assignment for the benefit of its creditors, the
filing by QWEST of a voluntary petition in bankruptcy or the filing by QWEST of
any petition or answer seeking, consenting to, or acquiescing in reorganization,
arrangement, adjustment, composition, liquidation, dissolution, or similar
relief, or (b) one hundred twenty (120) days after the involuntary filing of a
petition in bankruptcy or other insolvency protection against QWEST which is not
dismissed within such 120-day period.
Except as otherwise provided in this Section 18.02, upon any
default by QWEST, after notice thereof from NETWORK, NETWORK may (a) take such
action as it determines, in its sole discretion, to be necessary to correct the
default, and, subject to Section 13.01, recover from QWEST its reasonable costs
in correcting such default, and (b) pursue any legal remedies it may have under
applicable law or principles of equity relating to such default including
specific performance.
ARTICLE 19
TERMINATION
19.1 This Agreement automatically shall terminate with respect to a
Segment upon the expiration or termination of the Term of the IRU respecting the
Segment pursuant to Article 6 or Section 17.02 hereof.
19.2 Upon the expiration or termination of this Agreement, the IRU
shall immediately terminate and all rights of NETWORK to use the Segment, the
NETWORK Fibers, the associated property or any part thereof relating to the
Segment, shall cease and QWEST shall owe NETWORK no additional duties or
consideration with respect to the Segment. Promptly thereupon, NETWORK shall
remove all of NETWORK's electronics, equipment, and other NETWORK property from
such Segment and any related
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QWEST facilities at its sole cost, under QWEST's supervision (which supervision
shall be without cost to NETWORK).
19.3 Notwithstanding the foregoing, no termination or expiration of
this Agreement shall affect the rights or obligations of any party hereto (a)
with respect to any then existing defaults or the obligation to make any payment
hereunder for services rendered prior to the date of termination or expiration,
(b) with respect to any accrued liability for taxes pursuant to Article 15, or
(c) pursuant to Article 12, Article 13, or Article 17 herein, which shall
survive the expiration or termination hereof.
ARTICLE 20
FORCE MAJEURE
20.1 Neither party shall be in default under this Agreement if and
to the extent that any failure or delay in such party's performance of one or
more of its obligations hereunder is caused by any of the following conditions,
and such party's performance of such obligation or obligations shall be excused
and extended for and during the period of any such delay: act of God; fire;
flood; fiber, Cable, or other material failures, shortages or unavailability or
other delay in deliver not resulting from the responsible party's failure to
timely place orders therefor (it being expressly acknowledged that the Cable
that is being acquired for and installed in the New York - Boston Segment and
that will include the NETWORK Fibers must include higher fiber counts than that
necessary solely for the NETWORK Fibers in order to permit completion of the
entire New York - Boston Segment); lack of or delay in transportation;
government codes, ordinances, laws, rules, regulations or restrictions; war or
civil disorder; strikes or other labor disputes; failure of a third party to
grant or recognize the Required Rights (provided that QWEST has made timely and
reasonable commercial efforts to obtain the same), or any other cause beyond the
reasonable control of such party. The party claiming relief under this Article
shall notify the other in writing of the existence of the event relied on and
the cessation or termination of said event, and the party claiming relief shall
exercise reasonable commercial efforts to minimize the time of any such delay.
ARTICLE 21
DISPUTE RESOLUTION
21.1 Except as provided in Sections 18.1 and 18.2, if the parties
are unable to resolve any disagreement or dispute arising under or related to
this Agreement, including without limitation, the failure to agree upon any item
requiring a mutual agreement of the parties hereunder, they shall resolve the
disagreement or dispute by arbitration as prescribed in this Section. The
Federal Arbitration Act, 9 U.S.C. Sections 1-15, not state law, shall govern the
arbitrability of all claims.
21.2 A single arbitrator engaged in the practice of law who is
knowledgeable about the subject matter of this Agreement shall conduct the
arbitration under the then current rules of the American Arbitration Association
(the "AAA"). The arbitrator shall be selected in accordance with AAA procedures
from a list of qualified people maintained by the AAA. The arbitration shall be
conducted in the regional AAA office in Chicago, Illinois, and all expedited
procedures prescribed by the AAA rules shall apply.
21.3 There shall be no discovery other than the exchange of
information which is provided to the arbitrator by the parties. The arbitrator
shall have authority only to award compensatory damages and shall not have
authority to award punitive damages, other noncompensatory damages or any other
form of relief; the parties hereby waive all rights to any claims for relief
other than compensatory damages. The arbitrators' fees and other costs of the
arbitration shall be borne by the party against whom the award is rendered,
except as the arbitrator may otherwise provide in a written opinion. The
arbitrator shall apply the substantive laws of the State of New York and the
terms and conditions of this Agreement, and shall make written findings of fact
and conclusions of law in support of the award.
21.4 If any party files a judicial or administrative action
asserting claims subject to arbitration as prescribed herein, and another party
successfully stays such action or compels arbitration of said claims, the party
filing said action shall pay
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the other party's costs and expenses incurred in seeking such stay or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 22
ASSIGNMENT AND DARK FIBER TRANSFERS
22.1 Except as provided below, QWEST shall not assign, encumber or
otherwise transfer this Agreement or all or any portion of its rights or
obligations hereunder to any other party without the prior written consent of
NETWORK, which consent will not be unreasonably withheld or delayed.
Notwithstanding the foregoing, QWEST shall have the right, without NETWORK's
consent, to (a) subcontract any of its construction or maintenance obligations
hereunder, or (b) assign or otherwise transfer this Agreement in whole or in
part (1) as collateral to any institutional lender to QWEST (or institutional
lender to any permitted transferee or assignee of QWEST) subject to the prior
rights and obligations of the parties hereunder, (2) to any parent, subsidiary
or affiliate of QWEST, (3) to any person, firm or corporation which shall
control, be under the control of or be under common control with QWEST, or (4)
any corporation or other entity into which QWEST may be merged or consolidated
or which purchases all or substantially all of the stock or assets of QWEST;
PROVIDED THAT the assignee or transferee in any such circumstance shall continue
to be subject to all of the provisions of this Agreement, including without
limitation, this Section 22.1 (except that any lender referred to in clause
(b)(1) above shall not incur any obligations under this Agreement nor shall it
be restricted from exercising any right of enforcement or foreclosure with
respect to any related security interest or lien, so long as the purchaser in
foreclosure is subject to the provisions of this Agreement, including, without
limitation, this Section 22.1); and PROVIDED FURTHER THAT promptly following any
such assignment or transfer, QWEST shall give NETWORK written notice identifying
the assignee or transferee. In the event of any permitted partial assignment of
any rights hereunder, QWEST shall remain the sole point of contact with NETWORK.
No permitted partial or complete assignment shall release or discharge QWEST
from its duties and obligations hereunder.
22.2 Except as provided in this Section 22.2 and the following
Section 22.3, NETWORK shall not assign, encumber or otherwise transfer this
Agreement or all or any portion of its rights or obligations hereunder to any
other party without the prior written consent of QWEST, which consent will not
be unreasonably withheld or delayed. Subject to the provisions of Section 22.3
(which provision shall be binding upon any permitted assignee or transferee
hereunder), NETWORK shall have the right, without QWEST's consent, to assign or
otherwise transfer this Agreement in whole or in part (a) as collateral to any
institutional lender to NETWORK (or institutional lender to any permitted
transferee or assignee of NETWORK) subject to the prior rights and obligations
of the parties hereunder, (b) to any parent, subsidiary or affiliate of NETWORK,
(c) to any person, firm or corporation which shall control, be under the control
of or be under common control with NETWORK, or (d) any other entity into which
NETWORK may be merged or consolidated or which purchases all or substantially
all of the stock or assets of NETWORK; PROVIDED THAT the assignee or transferee
in any such circumstance shall continue to be subject to all of the provisions
of this Agreement, including without limitation this Section 22.2 and the
following Section 22.3 (except that any lender referred to in clause (a) above
shall not incur any obligations under this Agreement, nor shall it be restricted
from exercising any right of enforcement or foreclosure with respect to any
related security interest or lien, so long as the purchaser in foreclosure is
subject to the provisions of this Agreement, including, without limitation, this
Section 22.2 and the following Section 22.3); and PROVIDED FURTHER THAT in any
of circumstances described in clauses (b), (c) or (d) all of the payment
obligations of NETWORK hereunder for the remainder of the Term shall be paid in
full as a condition to such transfer or assignment; and PROVIDED FURTHER THAT
promptly following any such assignment or transfer, NETWORK shall give QWEST
written notice identifying the assignee or transferee. In the event of any
permitted partial assignment of any rights hereunder, NETWORK shall remain the
sole party and point of contact with QWEST hereunder. No permitted partial or
complete assignment shall release or discharge NETWORK or Parent from its duties
and obligations hereunder.
22.3 Notwithstanding the provisions of Article 11, except as
expressly permitted in Section 22.2(a)-(d), inclusive, without the prior written
consent of QWEST, which consent may be withheld in QWEST's sole discretion,
until 5 years from the Delivery Date, NETWORK shall not sell, assign, lease,
grant an IRU with respect to, exchange, encumber, or otherwise in any manner
transfer or make available in any manner to any third party the ownership, right
to use, or use of, or access in any
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<PAGE> 14
manner to, any of NETWORK's rights in the whole and discrete NETWORK Fibers
comprising the Segment as Dark Fibers (any of the foregoing, a "Restricted
Transaction") (or engage in substantive discussions or negotiations with respect
to a Restricted Transaction), or otherwise engage in a similar transaction with
respect to any NETWORK Fibers comprising the Segment in a manner designed or
intended to circumvent the foregoing limitations.
22.4 This Agreement and each of the parties' respective rights and
obligations under this Agreement, shall be binding upon and shall inure to the
benefit of the parties hereto and each of their respective permitted successors
and assigns.
ARTICLE 23
REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS
23.1 Each party represents and warrants that:
(a) it has the full right and authority to enter into,
execute, deliver and perform its obligations under this Agreement;
(b) this Agreement constitutes a legal, valid and binding
obligation enforceable against such party in accordance with its terms, subject
to bankruptcy, insolvency, creditors' rights and general equitable principles;
and
(c) its execution of and performance under this Agreement
shall not violate any applicable existing regulations, rules, statues or court
orders of any local, state or federal government agency, court or body.
23.2 QWEST represents and warrants that the terms of its Agreement
with the THIRD PARTY specifically provide that QWEST may grant an IRU in its
dark fibers to a third party and, further, that the terms of the Required Rights
documents do not preclude the assignment of its fibers to NETWORK.
23.3 QWEST represents and warrants that the Segment shall be
constructed by the THIRD PARTY substantially and in all material respects in
accordance with the specifications set forth in Exhibit B hereto.
23.4 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT QWEST MAKES NO
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE NETWORK FIBERS OR THE SEGMENTS
DELIVERABLE HEREUNDER, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
PARTICULAR PURPOSE, AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
23.5 The parties acknowledge and agree that on and after the
Acceptance Date NETWORK's sole rights and remedies (as between the parties
hereto) with respect to any defect in or failure of the NETWORK Fibers (other
than any defect or failure caused by the willful or negligent act or omission of
QWEST) to perform in accordance with the applicable vendor's or manufacturer's
specifications with respect to the NETWORK Fibers shall be limited to the
particular vendor's or manufacturer's warranty with respect thereto, which
warranty, to the extent permitted by the terms thereof, shall be assigned to
NETWORK upon its request. In the event any maintenance or repairs to the New
York - Boston Segment are required as a result of a breach of any warranty made
by any manufacturers, contractors or vendors, unless NETWORK shall elect to
pursue such remedies itself, QWEST shall pursue all remedies against such
manufacturers, contractors or vendors on behalf of NETWORK, and QWEST shall
reimburse NETWORK's costs for any maintenance NETWORK has incurred as a result
of any such breach of warranty to the extent the manufacturer, contractor or
vendor has paid such costs.
ARTICLE 24
GENERAL
24.1 WAIVER. The failure of either party hereto to enforce any of
the provisions of this Agreement, or the waiver thereof in any instance, shall
not be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.
24.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York, without
reference to its choice of law principles. Subject to Article 21 hereof, any
litigation based hereon,
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<PAGE> 15
or arising out of or in connection with a default by either party in the
performance of its obligations hereunder, shall be brought and maintained
exclusively in the courts of the State of New York, or in the United States
District Court in New York, and each party hereby irrevocable submits to the
jurisdiction of such courts for the purpose of any such litigation and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with such litigation.
24.3 RULES OF CONSTRUCTION. The captions or headings in this
Agreement are strictly for convenience and shall not be considered in
interpreting this Agreement or as amplifying or limiting any of its content.
Words in this Agreement which import the singular connotation shall be
interpreted as plural, and words which import the plural connotation shall be
interpreted as singular, as the identity of the parties or object referred to
may require.
(a) Unless expressly defined herein, words having well
known technical or trade meanings shall be so construed. All listing of items
shall not be taken to be exclusive, but shall include other items, whether
similar or dissimilar to those listed, as the context reasonably requires.
(b) Except as set forth to the contrary herein, any right
or remedy of NETWORK or QWEST shall be cumulative and without prejudice to any
other right or remedy, whether contained herein or not.
(c) This Agreement has been fully negotiated between and
jointly drafted by the parties.
(d) All actions, activities, consents, approvals and
other undertakings of the parties in this Agreement shall be performed in a
reasonable and timely manner. Except as specifically set forth herein, for the
purpose of this Agreement the standards and practices of performance within the
telecommunications industry in the relevant market shall be the measure of a
party's performance.
24.4 ENTIRE AGREEMENT. This Agreement constitutes the entire and
final agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements relating to the
subject matter hereof, which are of no further force or effect. The Exhibits
referred to herein are integral parts hereof and are hereby made a part of this
Agreement. To the extent that any of the provisions of any Exhibit hereto are
inconsistent with the express terms of this Agreement, the terms of this
Agreement shall prevail. This Agreement may only be modified or supplemented by
an instrument in writing executed by a duly authorized representative of each
party and delivered to the party relying on the writing.
24.5 NO PERSONAL LIABILITY. Each action or claim against any party
arising under or relating to this Agreement shall be made only against such
party as a corporation, and any liability relating thereto shall be enforceable
only against the corporate assets of such party. No party shall seek to pierce
the corporate veil or otherwise seek to impose any liability relating to, or
arising from, this Agreement against any shareholder, employee, officer or
director of the other party. Each of such persons is an intended beneficiary of
the mutual promises set forth in this Article and shall be entitled to enforce
the obligations of this Article.
24.6 RELATIONSHIP OF THE PARTIES. The relationship between NETWORK
and QWEST shall not be that of partners, agents, or joint venturers for one
another, and nothing contained in this Agreement shall be deemed to constitute a
partnership or agency agreement between them for any purposes, including, but
not limited to federal income tax purposes. NETWORK and QWEST, in performing any
of their obligations hereunder, shall be independent contractors or independent
parties and shall discharge their contractual obligations at their own risk
subject, however, to the terms and conditions hereof.
24.7 SEVERABILITY. If any term, covenant or condition contained
herein is, to any extent, held invalid or unenforceable in any respect under the
laws governing this Agreement, the remainder of this Agreement shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
24.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
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<PAGE> 16
In confirmation of their consent and agreement to the terms and
conditions contained in this IRU Agreement and intending to be legally bound
hereby, the parties have executed this IRU Agreement as of the date first above
written.
QWEST COMMUNICATIONS CORPORATION,
a Delaware corporation
By: /s/ A.D. Wandry
----------------------------------
Name: A.D. Wandry
Title: SR VP - NED
NETWORK PLUS, INC.
a Massachusetts corporation
By: /s/ James Crowley
----------------------------------
Name: James J. Crowley
Title: Executive Vice President
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<PAGE> 17
GLOSSARY OF TERMS
The following terms shall have the stated definitions in this
Agreement.
(a) "Acceptance Date" has the meaning ascribed to it in Section
4.03.
(b) "Cable" when used herein as defined term means the fiber optic
cable and the fibers contained therein, and associated splicing connections,
splice boxes, and vaults to be installed by the THIRD PARTY as part of the New
York - Boston Segment. When not a defined term, cable shall mean the fiber optic
cable and the fibers contained therein.
(c) "Costs" when used herein as a defined term means actual,
direct and documented costs paid or payable in accordance with the established
accounting procedures generally used by QWEST and which it utilizes in billing
third parties for reimbursable projects which costs shall include, without
limitation, the following: (1) internal labor costs, including wages and
salaries, and benefits and overhead allocable to such labor costs (with the
overhead allocation percentage equal to thirty percent (30%)), and (2) other
direct costs and out-of-pocket expenses on a pass-through basis (e.g.,
equipment, materials, supplies, contract services, etc.).
(d) "Dark Fiber" means fiber provided without electronics or
optronics, and which is not "lit" or activated; PROVIDED THAT such fiber may be
used in any manner and for any purpose permitted under Article 11.
(e) "Delivery Date" means, with respect to the New York - Boston
Segment to be delivered hereunder, the date set forth in Section 4.3 hereto with
respect to such Segment, as any such date may be extended for and during (1) the
period of any delay described in Article 20, and/or (2) the period of any
payment default pursuant to Section 18.1.
(f) "Impositions" means all taxes, fees, levies, imposts, duties,
charges or withholdings of any nature (including, without limitation, franchise,
license and permit fees), together with any penalties, fines or interest thereon
arising out of the transactions contemplated by this Agreement and/or imposed
upon the New York - Boston Segment by any federal, state or local government or
other public taxing authority.
(g) "Indefeasible Right of Use" or "IRU" means (1) an exclusive,
indefeasible right of use, for the purposes described herein, in the NETWORK
Fibers, as granted in Article 2, and (2) an associated non-exclusive,
indefeasible right of use, for the purposes described herein, in the Associated
Property; PROVIDED THAT the IRU granted hereunder does not provide NETWORK with
any ownership interest in or other rights to physical access to, control of,
modification of, encumbrance in any manner of, or other use of the New York -
Boston Segment except as expressly set forth herein.
(h) "Minimum Period" is as defined in Section 6.2.
(i) "POP" means the NETWORK point of presence at locations along
the New York - Boston route.
(j) "Regeneration Sites" are as defined on Exhibit E.
"Regeneration Facilities" are Regeneration Sites to be shared by NETWORK as
described in Section 7.2.
(k) "Required Rights" are as defined in Section 6.1.
(l) "Required Rights Requirements" are defined in Section 11.1.
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<PAGE> 18
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT A
SEGMENT
The Segment is approximately [**] route miles from [**], Boston, Massachusetts
to [**], New York, New York.
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<PAGE> 19
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT B
STANDARD CONSTRUCTION AND FIBER SPECIFICATIONS
All specifications for the Segment as defined in the Agreement will be as
follows unless there is an existing route being utilized. In the event that an
existing route is being utilized, the specifications that exist will prevail.
1.0 GENERAL.
The intent of this Exhibit is to outline the specifications for
construction of a fiber optic cable system. In all cases, the standards
contained in this Exhibit or the standards of the federal, state, local
or private agency having jurisdiction, whichever is stricter, shall be
followed.
[**]
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[Three pages omitted]
<PAGE> 20
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT D
FIBER CABLE SPLICING, TESTING, AND ACCEPTANCE PROCEDURES
[**]
[One page omitted]
<PAGE> 21
EXHIBIT E
Regeneration Facilities
<PAGE> 22
EXHIBIT G
MAINTENANCE SPECIFICATIONS AND PROCEDURES
Table of Contents:
1. Maintenance Activities
1.1. Preventative Maintenance
1.1.1. Cable Damage Prevention
1.1.2. Patrolling
1.1.3. Signs
1.1.4. Voltage Suppressor/Arrestor
1.2. Planned Cable Activity
1.2.1. Intrusive PCAs
1.2.2. Non-Intrusive PCAs
1.2.3. Responsibilities of SP and SR
1.3. Cable Restoration
1.3.1. Types of Restorations
1.4. Hazardous Conditions/Service Precautions
1.5. Disaster Recovery
2. Operation/Network Control Center(s)
2.1 Operations/Network Control Centers
3. Facilities
4. Coverage Period
5. Subcontracting
6. Fees and Costs
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<PAGE> 23
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT G
[**]
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[Seven pages omitted]
<PAGE> 1
Exhibit 10.6
Net Lease
by and between
Network Plus Realty Trust, Landlord
and
Network Plus, Inc., Tenant
dated July 1, 1993
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - Reference Data..................................................
1.1 Subjects Referred To............................................
1.2 Exhibits........................................................
ARTICLE II - Premises and Term..............................................
2.1 Premises........................................................
2.2 Term............................................................
ARTICLE III - Improvements..................................................
3.1 Leasehold Improvements; Tenant Access Date......................
ARTICLE IV - Rent...........................................................
4.1 The Fixed Rent..................................................
4.2 Additional Rent.................................................
4.2.1 Real Estate Taxes......................................
4.2.2 Tax Fund Payments......................................
4.2.3 Insurance..............................................
4.2.4 Utilities..............................................
4.2.5 Common Charges.........................................
ARTICLE V - Tenant's Additional Covenants...................................
5.1 Affirmative Covenants...........................................
5.1.1 Perform Obligations....................................
5.1.2 Use....................................................
5.1.3 Repair and Maintenance.................................
5.1.4 Compliance with Law....................................
5.1.5 Compliance with Condominium Documents..................
5.1.6 Indemnity..............................................
5.1.7 Environmental Compliance...............................
5.1.8 Landlord's Right to Enter..............................
5.1.9 Personal Property at Tenant's Risk.....................
5.1.10 Yield Up...............................................
5.1.11 Estoppel Certificate...................................
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<PAGE> 3
5.2 Negative Covenants..............................................
5.2.1 Assignment and Subletting..............................
5.2.2 Overloading and Nuisance...............................
ARTICLE VI - Casualty or Taking.............................................
6.1 Termination.....................................................
6.2 Restoration.....................................................
6.3 Award...........................................................
ARTICLE VII - Defaults......................................................
7.1 Events of Default...............................................
7.2 Landlord's Right to Cure Defaults...............................
7.3 Effect of Waivers of Default....................................
7.4 No Accord and Satisfaction......................................
ARTICLE VIII - Mortgages....................................................
8.1 Rights of Mortgage Holders......................................
8.2 Lease Superior or Subordinate to Mortgages......................
8.3 Lender's Consent................................................
8.4 Rights of Holder of Mortgage....................................
ARTICLE IX - Miscellaneous Provisions.......................................
9.1 Notices from One Party to the Other.............................
9.2 Quiet Enjoyment.................................................
9.3 Lease not to be Recorded........................................
9.4 Bind and Inure; Limitation of Landlord's Liability..............
9.5 Acts of God.....................................................
9.6 Landlord's Default..............................................
9.7 Brokerage.......................................................
9.8 Applicable Law and Construction.................................
9.8.1 Applicable Law.........................................
9.8.2 No Other Agreement.....................................
9.8.3 Titles.................................................
9.8.4 "Landlord" and "Tenant"................................
9.9 Submission Not an Offer.........................................
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<PAGE> 4
N E T L E A S E
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO.
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1.
Date of this Lease: July 1, 1993
Property: The land and the buildings thereon known and numbered as 1261
Furnace Brook Parkway, and 238-240 Copeland Street, Quincy, MA, comprising the
Furnace Brook Office Condominium as more particularly described in Exhibit A
hereto.
Premises: That portion of. the Property located at 238-240 Copeland Street,
containing 34,359 rentable square feet of space, more or less, being all of the
space constituting Units 20, 21, 30, 40, 41, 43 and 44 of the Furnace Brook
Office Condominium as more particularly described in the Furnace Brook Office
Condominium Master Deed dated August 4, 1988 and recorded with the Norfolk
County Registry of Deeds in Book 8068, Page 11 and registered with the Norfolk
Registry District of the Land Court as Document No. 550465 (the "Master Deed").
The Premises shall include the right to use in common with others entitled
thereto the common areas and facilities of the Condominium (the "Common
Elements"), as defined and described in the Master Deed, including the By-Laws
of the
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<PAGE> 5
Condominium (the "By-Laws"), and the rules and regulations promulgated
thereunder and plan related thereto (collectively, the "Condominium Documents").
Building: The building located on the Property known and numbered as
238-240 Copeland Street, Quincy, MA, and containing the Premises.
Landlord: Robert T. Hale, Robert T. Hale, Jr. and Judith B. Hale, as
Trustees of Network Plus Realty Trust, under Declaration of Trust dated June 30,
1993 to be recorded with Norfolk Registry of Deeds and filed with the Norfolk
Registry District of the Land Court as of the Date of this Lease, as amended
from time to time.
Original Address of Landlord: 238-240 Copeland Street, Quincy, MA.
Tenant: Network Plus, Inc., a Massachusetts corporation.
Original Address of Tenant: 300 Crown Colony Drive, Quincy, MA 02169
Term: Seven (7) Lease Years
Annual Fixed Rent Rate: As set forth in Section 4.1 herein.
Permitted Uses: Business office purposes or such other purposes as are
consistent with the uses permitted under the Condominium Documents and such
other rules and regulations as may now or hereafter govern the uses permitted in
the Condominium, and no other use or purpose.
Public Liability Insurance Limits:
Bodily Injury: $1,000,000.00
Property Damage: $5,600,000 (100% replacement value)
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<PAGE> 6
1.2 EXHIBITS.
The Exhibits listed below in this section are incorporated in this Lease by
reference and are to be construed as a part of this Lease:
EXHIBIT A. Description of Premises and Property on which Premises are
located.
EXHIBIT A-1. Plan showing the Premises, including appurtenances thereto,
if any.
EXHIBIT B. Description of Leasehold Improvements.
ARTICLE II
PREMISES AND TERM
2.1 PREMISES. Landlord hereby leases and demises to Tenant and Tenant
hereby leases from Landlord, subject to and with the benefit of the terms,
covenants, conditions and provisions of this Lease, the Premises, together with
the right to use the Common Elements in common with others entitled thereto, as
the same are defined and described in Paragraph 5 of the Master Deed. The Common
Elements include, but are not limited to, the Property, the structural elements
of the Building, the common entrances, lobbies, restrooms, corridors and
stairways of the Building, all conduits, ducts, pipes, plumbing, wiring and
heating systems serving the Premises in common with others and the parking areas
and parking spaces, loading areas, and outdoor storage areas located on the
Property.
2.2 TERM. TO HAVE AND TO HOLD for a term beginning on July 1, 1993, (the
"Commencement Date") and continuing for the Term, unless sooner terminated as
hereinafter provided. "Lease Year" herein shall mean each successive period of
12
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<PAGE> 7
consecutive calendar months beginning on the Commencement Date if the
Commencement Date is on the first day of a month, otherwise beginning on the
first day of the month immediately succeeding the Commencement Date.
ARTICLE III
IMPROVEMENTS
3.1 LEASEHOLD IMPROVEMENTS; TENANT ACCESS DATE.
(a) Landlord hereby acknowledges that Landlord has approved the plans
and outline specifications (the "Leasehold Improvement Plans") in Exhibit B
attached hereto, for improvements to the Premises to be completed by Tenant (the
"Leasehold Improvements"). Tenant and its agents shall be permitted to enter the
Premises on the Tenant Access Date, as hereinafter defined, to cause the
Leasehold Improvements to be installed, at Tenant's expense, in accordance with
the Leasehold Improvement Plans, in a good and workmanlike manner, and in
compliance with all applicable laws, ordinances, regulations and orders of
governmental authorities.
(b) Landlord shall deliver the Premises to Tenant on July 1, 1993
(the "Tenant Access Date") broom clean but otherwise "AS IS" as to condition and
layout. Tenant may enter the Premises at any time on or after the Tenant Access
Date in order to construct the Leasehold Improvements and perform or inspect
other work as necessary to prepare the Premises for Tenant's use and occupancy.
Tenant shall substantially complete the Leasehold Improvements by October 31,
1993, subject to the provisions of Section 9.5 hereof. Tenant agrees that it
will, proceeding with all
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<PAGE> 8
reasonable dispatch from the time it receives from Landlord a notice that the
Premises are ready for work by Tenant, construct the Leasehold Improvements so
as to ready the Premises for the opening by Tenant of its business in the
Premises.
During the period of occupancy of the Premises by Tenant after the
Commencement Date, all provisions of this Lease, including the provisions
relating to the payment of rent and real estate taxes and assessments, shall
apply regardless of the progress of the construction of the Leasehold
Improvements.
ARTICLE IV
RENT
4.1 THE FIXED RENT. On the Commencement Date, Tenant covenants and agrees
to pay to Landlord an Initial Rent Payment in the sum of $350,000.00 and
thereafter, Tenant covenants and agrees to pay to Landlord, without notice or
demand and without reduction or setoff, Annual Fixed Rent, in equal installments
of 1/12th of the Annual Fixed Rent in advance on the first day of each calendar
month included in the Term; and for any portion of a calendar month at the
beginning or end of the Term, at that rate payable in advance for such portion.
Annual Fixed Rent shall be an amount equal to the greater of (a) $150,000.00 per
annum (equivalent of $12,500.00 per month) or (b) an amount equal to one and
one- quarter (1.25) times the annual Debt Service Payments required pursuant to
that certain $900,000.00 loan by Shawmut Bank, N.A. ("Lender") to Landlord as
evidenced by the Promissory Note
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<PAGE> 9
executed by Landlord dated June 30, 1993 (the "Note"). Debt Service Payments
shall be defined according to the terms of the Note.
4.2 ADDITIONAL RENT. This Lease is a NET LEASE, and Landlord shall not be
obligated to pay any charge or bear any expense whatsoever against or with
respect to the Premises except to the extent hereinafter provided, nor shall the
rent payable hereunder be subject to any reduction or offset whatsoever on
account of any such charge or otherwise, except as hereinafter provided. In
order that the Fixed Rent shall be absolutely net to Landlord, Tenant covenants
and agrees to pay, as Additional Rent, taxes, betterment assessments, insurance
costs, utility charges, and condominium charges with respect to the Premises as
provided in this Section 4.2 as follows:
4.2.1 REAL ESTATE TAXES. Tenant shall pay, directly to Landlord,
pursuant to Section 4.2.2 herein: (i) all taxes, assessments (special or
otherwise), levies, fees, water and sewer rents and charges, and all other
government levies and charges, general and special, ordinary and extraordinary,
foreseen and unforeseen, which are, at any time prior to or during the Term
hereof, imposed or levied upon or assessed against (A) the Premises, (B) any
Fixed Rent, Additional Rent or other sum payable hereunder or (C) this Lease, or
the leasehold estate hereby created, or which arise in respect of the operation,
possession or use of the Premises; (ii) all gross receipts or similar taxes
imposed or levied upon, assessed against or measured by any Fixed Rent,
Additional Rent or other sum payable hereunder; (iii) all sales, value added,
use and similar taxes at any time levied, assessed or payable on account of
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<PAGE> 10
the acquisition, leasing or use of the Premises; and (iv) all charges for
utilities furnished to the Premises which may become a lien on the Premises
(collectively "taxes and assessments" or if singular "tax or assessment").
Nothing contained in this Lease shall, however, require Tenant to pay any
franchise, corporate, estate, inheritance, succession capital levy or transfer
tax of Landlord, or any income, profits or revenue tax or charge upon the rent
payable by Tenant under this Lease (other than any tax referred to in clause
(ii) above.) Landlord shall promptly furnish to Tenant a copy of any notice of
any public, special or betterment assessment received by Landlord concerning the
Premises.
4.2.2 TAX FUND PAYMENTS. Tenant shall as Additional Rent, on the first
day of each month of the Term, make tax fund payments to Landlord. "Tax fund
payments" refer to such payments as Landlord shall reasonably determine to be
sufficient to provide in the aggregate a fund adequate to pay all taxes and
assessments referred to in Section 4.2.1 when they become due and payable. If
the aggregate of said tax fund payments is not adequate to pay all said taxes
and assessments, Tenant shall pay to Landlord the amount by which such aggregate
is less than the amount of all said taxes and assessments, such payment to be
made on or before the later of (a) 10 days after receipt by Tenant of notice
from Landlord of such amount, or (b) the 30th day prior to the last day on which
such taxes and assessments may be paid without interest or penalty. If Tenant
shall have made the aforesaid tax fund payments, Landlord shall pay to the
proper authority charged with the collection thereof, all taxes and assessments
referred to in Section 4.2.1, up to
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<PAGE> 11
the amount of such tax fund payments, and furnish Tenant, upon request,
reasonable evidence of such payment. Any balance remaining after such payment by
Landlord shall be accounted for to Tenant annually. In the event of any default
under the terms of this Lease, any part or all of said reserve fund may, at the
election of Landlord, be applied to any of Tenant's obligations under this
Lease.
4.2.3 INSURANCE. Tenant shall take out and maintain throughout the
Term the following insurance protecting Landlord and the holder of any mortgage
as named insureds and with such additional insureds as Landlord from time to
time may designate by notice to Tenant, the premiums under which shall be
Additional Rent:
4.2.3.1 All-risk insurance covering all buildings and
improvements now existing or hereafter erected upon the Premises, and all
equipment, fixtures, motors, machinery, furnishings and furniture installed in
or used in connection with the Premises, with such additional endorsements as
may be necessary to include coverage for vandalism and malicious conduct,
floods, water damage, earthquake and debris removal and demolition, with a
co-insurance provision of 80% or an agreed amount clause, in an amount at least
equal to the replacement cost of all such buildings, improvements, equipment,
fixtures, motors, machinery, furnishings and furniture (but not less than the
agreed amount if coverage is pursuant to an agreed amount clause) as such
replacement cost may from time to time be determined by agreement or by
appraisal made at Tenant's expense by an accredited insurance appraiser approved
by Landlord which may be required
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<PAGE> 12
by either party whenever three years have elapsed since the last such agreement
or appraisal, or when alterations or additions increasing cost have been made.
4.2.3.2 Rental value or similar insurance against abatement or
loss of rent in an amount equal to at least all the Fixed Rent and Additional
Rent payable for one year under this Article IV.
4.2.3.3 Comprehensive general liability insurance indemnifying
Landlord and Tenant against all claims and demands for any injury to person or
property which may be claimed to have occurred on or about the Premises or on
the sidewalk or ways adjoining the Premises, in amounts which shall, at the
beginning of the Term, be at least equal to the limits set forth in Section 1.1,
and, from time to time during the Term, shall be for such higher limits, if any,
as are customarily carried in the area in which the Premises are located on
property similar to the Premises and used for similar purposes, and such
insurance shall include workmen's compensation insurance with statutory limits
covering all of Tenant's employees working on the Premises.
4.2.3.4 Insurance against loss or damage from sprinklers and
from leakage or explosion or cracking of boilers, pipes carrying steam or water,
or both, pressure vessels or similar apparatus, in the so-called "broad form"
and in such amounts as Landlord may reasonably require. Also, insurance against
such other hazards as may from time to time be required by Lender or any other
bank, insurance company or other lending institution holding a first mortgage on
the Premises, provided that such insurance is customarily carried in the area in
which the
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Premises are located on property similar to the Premises and used for similar
purposes.
4.2.3.5 At all times during the Term during the course of any
construction or renovation of any improvements or alterations on the Premises,
completed value form, "all physical loss", builder's risk~insurance on all work
being performed on the Premises, in such amounts as Landlord may reasonably
require and owner's contingent or protective liability insurance, covering
claims not covered by or under the terms of the above-mentioned comprehensive
general liability insurance, with combined single limit coverage at least equal
to the limits set forth in Section 1.1, or such higher limits as Landlord may
reasonably require, and workman's compensation insurance covering all persons
working on the job site or in connection with such construction.
4.2.3.6 Policies for insurance required under the provisions of
Sections 4.2.3.1, 4.2.3.2, 4.2.3.4 and 4.2.3.5 (except as to liability and
workman's compensation insurance under Section 4.2.3.5) shall, in case of loss,
be first payable to Lender and any other holders of any mortgages on the
Premises under a standard non-contributing mortgagee's clause, and shall also
provide for the adjustment of claims with the insurers under such policies by
Landlord and Lender. All policies of insurance required under this Section 4.2.3
shall be deposited with Lender.
All policies required under this Section 4.2.3 shall be obtained from
responsible companies qualified to do business in the state in which the
Premises are located and in good standing therein, which companies and the
amount of insurance
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allocated thereto shall be subject to Landlord's approval. Tenant agrees to
furnish Landlord with policies of all such insurance prior to the beginning of
the Term hereof and of each renewal policy at least 30 days prior to the
expiration of the policy it renews. Each such policy shall be non-cancellable
with respect to the interest of Landlord and Lender and any other holders of any
mortgages on the Premises without at least 30 days' prior written notice
thereto. In the event provision for any such insurance is to be by a blanket
insurance policy, the policy shall allocate a specific amount of coverage to the
Premises, which allocation shall be sufficient in amount to satisfy the
requirements of this Section 4.2.3.
4.2.3.7 All insurance which is carried by either party with
respect to the Premises or to furniture, furnishings, fixtures or equipment
therein or alterations or improvements thereto, whether or not required, shall
include provisions which either designate the other party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery against
the other party to the extent such rights have been waived by the insured party
prior to occurrence of loss or injury, insofar as, and to the extent that such
provisions may be effective without making it impossible to obtain insurance
coverage from responsible companies qualified to do business in the state in
which the Premises are located (even though extra premium may result therefrom).
Each party shall be entitled to have duplicates or certificates of any policies
containing such provisions. Each party hereby waives all rights of recovery
against the other for loss or injury against which the waiving party is
protected by insurance containing said non-subrogation provisions, reserving,
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however, any rights with respect to any excess of loss or injury over the amount
recovered by such insurance.
4.2.4 UTILITIES. Tenant shall pay directly to the proper authorities
charged with the collection thereof, or to the Furnace Brook Office Condominium
Association (the "Condominium Association"), as the case may be, all charges for
water, sewer, gas, electricity, telephone and other utilities or services used
or consumed on the Premises, whether called charge, tax, assessment, fee or
otherwise, including, without limitation, water and sewer use charges and taxes,
if any, all such charges to be paid as the same from time to time become due.
4.2.5 COMMON CHARGES. Tenant shall pay directly to the Condominium
Association all common charges attributable to the Premises payable by Landlord,
as a Unit Owner of the Condominium to meet the Common Expenses of the
Condominium, as this amount may be determined and assessed pursuant to Article
VI of the By-Laws or pursuant to any other provisions of the Condominium
Documents or any other rules and regulations which may now or hereafter govern
the payment of common charges by Unit Owners of the Condominium. Tenant shall
pay said common charges at such time or times as they are assessed pursuant to
the Condominium Documents or the determination of the Board of Managers of the
Condominium, and shall, in all events, pay such assessed common charges at least
five (5) days prior to the due date for payment thereof.
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ARTICLE V
TENANT'S ADDITIONAL COVENANTS
5.1 AFFIRMATIVE COVENANTS. Tenant covenants at its sole expense at all
times during the Term and for such prior or subsequent time as Tenant occupies
the Premises or any part thereof:
5.1.1 PERFORM OBLIGATIONS. To perform promptly all of the obligations
of Tenant set forth in this Lease; and to pay when due the Fixed Rent and
Additional Rent and all charges, rates and other sums which by the terms of this
Lease are to be paid by Tenant.
5.1.2 USE. To use the Premises only for the Permitted Uses, and from
time to time to procure all licenses and permits necessary therefor at Tenant's
sole expense.
5.1.3 REPAIR AND MAINTENANCE. Except as otherwise provided in Article
VI, to keep the Premises in good order, condition and repair and in at least as
good order, condition and repair as they are in on the Commencement Date or may
be put in during the Term, reasonable use and wear excepted.
5.1.4 COMPLIANCE WITH LAW. To make all repairs, alterations, additions
or replacements to the Premises required by any law or ordinance or any order or
regulation of any public authority; to keep the Premises equipped with all
safety equipment so required; to pay all municipal, county, or state taxes
assessed against the leasehold interest hereunder, or against personal property
of any kind on or about the Premises; and to comply with the orders,
regulations, variances, licenses
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and permits of or granted by governmental authorities with respect to zoning,
building, fire, health and other codes, regulations, ordinances or laws
applicable to the Premises, and the condition, use or occupancy thereof.
5.1.5 COMPLIANCE WITH CONDOMINIUM DOCUMENTS. To comply with all the
terms and conditions of the Master Deed including but not limited to Paragraph 8
thereof, the By-Laws, and any other of the Condominium Documents.
5.1.6 INDEMNITY. Tenant shall defend, with counsel approved by
Landlord, all actions, against Landlord, any partner, trustee, stockholder,
officer, director, employee or beneficiary of Landlord, Lender and any other
holders of mortgages on the Premises and any other party having an interest in
the Premises (herein, "Indemnified Parties") with respect to, and shall pay,
protect, indemnify and save harmless, to the extent permitted by law, all
Indemnified Parties from and against, any and all liabilities, losses, damages,
costs, expenses (including reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature (a) to which any
Indemnified Party is subject because of its estate or interest in the Premises
or (b) arising from (i) injury to or death of any person, or damage to or loss
of property, on or about the Premises or on adjoining sidewalks, streets or
ways, or connected with the use, condition or occupancy of any thereof, (ii)
violation by Tenant of this Lease, (iii) any act, fault, omission, or other
misconduct of Tenant or its agents, contractors, licensees, sublessees or
invitees, or (iv) the release, existence or removal of any Hazardous Materials
(as hereinafter defined) on, in or under the Premises.
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5.1.7 ENVIRONMENTAL COMPLIANCE. Not to cause or permit any hazardous
or toxic wastes, hazardous or toxic materials (collectively, "Hazardous
Materials") to be used, generated, stored or disposed of on, under or about, or
transported to or from, the Premises (collectively, "Hazardous Materials
Activities") without first receiving Landlord's written consent, which may be
withheld for any reason and revoked at any time. If Landlord consents to any
such Hazardous Materials Activities, Tenant shall conduct them in strict
compliance (at Tenant's expense) with all applicable Regulations, as hereinafter
defined, and using all necessary and appropriate precautions to prevent any
spill, discharge, release or exposure to persons or property. Tenant shall
indemnify, defend with counsel acceptable to Landlord, and hold Landlord
harmless from and against any and all loss, costs, expenses, claims, damages or
liabilities arising out of all Hazardous Materials Activities on the Premises,
whether or not consented to by Landlord. For purposes hereof, Hazardous
Materials shall include, but not be limited to, substances defined as "hazardous
substances", "toxic substances", or "hazardous wastes" in the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; the federal Hazardous Materials Transportation Act, as amended; and the
federal Resource Conservation and Recovery Act, as amended; those substances
defined as "hazardous wastes" in the Massachusetts Hazardous Waste Facility
Siting Act, as amended (Massachusetts General Laws Chapter 21D); those
substances defined as "hazardous materials" or "oil" in Massachusetts General
Laws Chapter 21E, as amended; and as such substances are defined in any
regulations
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adopted and publications promulgated pursuant to any of said laws (collectively,
"Regulations"). If Landlord consents to any Hazardous Materials Activities,
prior to using, storing or maintaining any Hazardous Materials on or about the
Premises, Tenant shall provide Landlord with a list of the types and quantities
thereof, and shall update such list as necessary for continued accuracy. Tenant
shall also provide Landlord with a copy of any Hazardous Materials inventory
statement required by any applicable Regulations, and any update filed in
accordance with any applicable Regulations. If Tenant's activities violate or
create a risk of violation of any Regulations or cause a spill, discharge,
release or exposure to any persons or property, Tenant shall cease such
activities immediately upon notice from Landlord. Tenant shall immediately
notify Landlord both by telephone and in writing of any spill, discharge,
release or exposure of Hazardous Materials or of any condition constituting an
"imminent hazard" under any Regulations. Landlord, Landlord's representatives
and employees and Lender may enter the Premises at any time during the Term to
inspect Tenant's compliance herewith, and may disclose any spill, discharge,
release, or exposure or any violation of any Regulations to any governmental
agency with jurisdiction. Nothing herein contained shall prohibit Tenant from
using minimal quantities of cleaning fluid and office supplies which may
constitute Hazardous Materials but which are customarily present in premises
devoted to office use, provided that such use is in compliance with all
Regulations and shall be subject to all of the other provisions of this
Section 5.1.7.
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5.1.8 LANDLORD'S RIGHT TO ENTER. To permit Landlord and its agents to
enter the Premises at reasonable times to examine the Premises, to make such
repairs and replacements as Landlord may elect, without, however, any obligation
to do so, and to show the Premises to prospective purchasers, lenders and
tenants, and, during the last six months of the Term, to keep affixed in
suitable places notices of availability of the Premises.
5.1.9 PERSONAL PROPERTY AT TENANT'S RISK. All of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of Tenant and of all persons claiming by, through or under Tenant which, during
the continuance of this Lease or any occupancy of the Premises by Tenant or
anyone claiming under Tenant, may be on the Premises, shall be at the sole risk
and hazard of Tenant and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or exonerated from
any liability to Tenant or to any other person for any injury, loss, damage or
liability to the extent prohibited by law.
5.1.10 YIELD UP. At the expiration of the Term or earlier termination
of this Lease: to surrender all keys to the Premises, to remove all furnishings,
fixtures, equipment and other personal property now or hereafter located in the
Premises, purchased or leased by Tenant with its own funds, which are not
affixed to the Premises or which Landlord has agreed in writing that Tenant may
remove at the
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expiration of the Term, to remove such installations made by Tenant as Landlord
may request and all Tenant's signs wherever located, to repair all damage caused
by such removal and to yield up the Premises (including all installations and
improvements made by Tenant, except for trade fixtures, and such of said
installations or improvements as Landlord shall request Tenant to remove),
broom-clean and in the same good order and repair in which Tenant is obliged to
keep and maintain the Premises by the provisions of this Lease.
5.1.11 ESTOPPEL CERTIFICATE. Upon not less than 15 days' prior notice
by Landlord, to execute, acknowledge and deliver to Landlord a statement in
writing, addressed to such party as Landlord shall designate in its notice to
Tenant, certifying that this Lease is unmodified and in full force and effect
and that Tenant has no defenses, offsets or counterclaims against its
obligations to pay the Fixed Rent and Additional Rent and any other charges and
to perform its other covenants under this Lease (or, if there have been any
modifications that the same is in full force and effect as modified and stating
the modifications and, if there are any defenses, offsets or counterclaims,
setting them forth in reasonable detail), the dates to which the Fixed Rent and
Additional Rent and other charges have been paid and a statement that Landlord
is not in default hereunder (or if in default, the nature of such default, in
reasonable detail). Any such statement delivered pursuant to this Section 5.1.11
may be relied upon by any prospective purchaser or mortgagee of the Premises, or
any prospective assignee of any such mortgagee.
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5.2 NEGATIVE COVENANTS. Tenant covenants at all times during the Term and
for such further time as Tenant occupies the Premises or any part thereof:
5.2.1 ASSIGNMENT AND SUBLETTING. Not to assign, transfer, mortgage or
pledge this Lease or to grant a security interest in Tenant's rights hereunder,
or to sublease (which term shall be deemed to include the granting of
concessions and licenses and the like) or permit anyone other than Tenant to
occupy all or any part of the Premises or suffer or permit this Lease or the
leasehold interest hereby created or any other rights arising under this Lease
to be assigned, transferred or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law, unless, in each instance (i)
the prior written consent of Landlord thereto shall have been obtained, which
consent shall not be unreasonably withheld, (ii) any defaults then existing with
respect to the obligations of Tenant under this Lease shall have been cured,
(iii) in the case of a proposed assignment, sublease or occupancy by another,
the proposed assignee, sublessee, or occupant is qualified to do business in the
state in which the Premises are located and such assignee, sublessee, or
occupant executes and delivers to Landlord an agreement satisfactory to Landlord
or its successors and assigns by which such assignee, sublessee or occupant
shall be bound by and shall assume all the obligations of Tenant under this
Lease relating to the portion or all of the Premises acquired by such assignee,
sublessee or occupant. Tenant may assign this Lease or sublet any portion or all
of the Premises to any corporation, partnership, trust, association or other
business or organization (x) directly or indirectly controlling and beneficially
owning Tenant, (y) directly or indirectly controlled by
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and beneficially owned by Tenant, or to any successor of Tenant by merger,
consolidation or acquisition of substantially all of the assets of Tenant,
without the prior written consent of Landlord as required in (i) above, provided
that (a) Tenant shall deliver to Landlord at least 30 day's advance notice of
such proposed assignment or sublease, (b) in the case of a merger, consolidation
or sale, the net worth of Tenant's successor (determined in accordance with
generally accepted accounting principles) immediately after such merger,
consolidation or sale shall be at least equal to the net worth of Tenant
(similarly determined) immediately prior to such merger, consolidation or sale.
In the event of a proposed subletting, Tenant's request for Landlord's
consent shall constitute an offer to Landlord to release from this Lease that
portion of the Premises proposed to be sublet, which offer Landlord may accept
within 30 days after receipt. If Landlord accepts such offer, this Lease shall
be deemed to have been amended by deleting such portion from the Premises and by
reducing the Fixed Rent by an amount equal to the product of the Fixed Rent
multiplied times a fraction, the numerator of which shall be equal to the net
rentable floor area of such portion deleted from the Premises and the
denominator of which shall be equal to the net rentable floor area of the
Premises including the deleted portion. Thereafter, for all purposes of this
Lease the Premises shall mean the balance of the premises demised hereunder
following deletion of the affected portion thereof, and all Additional Rent
payable hereunder shall be adjusted pro-rata, accordingly. Such amendment shall
be effective on the proposed effective date of the sublease as specified in
Tenant's
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request for consent. Landlord's failure to accept Tenant's offer to release
shall not constitute a consent to the proposed subletting.
Any attempted assignment, transfer, mortgage, pledge, grant of
security interest, sublease or other encumbrance, except as permitted by this
Section 5.2.1, shall be void. No assignment, transfer, mortgage, grant of
security interest, sublease or other encumbrance, whether or not approved, and
no indulgence granted by Landlord to any assignee, sublessee or occupant shall
in any way impair Tenant's continuing primary liability (which after an
assignment or subletting shall be joint and several with the assignee or
sublessee) of Tenant hereunder, and no approval in a particular instance shall
be deemed to be a waiver of the obligation to obtain Landlord's approval in any
other case.
5.2.2 OVERLOADING AND NUISANCE. Not to injure, overload, deface or
otherwise harm the Premises; nor commit any nuisance; nor permit the emission of
any objectionable noise or odor; nor make, allow or suffer any waste; nor make
any use of the Premises which is improper, offensive or contrary to any law or
ordinance or which will invalidate any of Landlord's insurance.
ARTICLE VI
CASUALTY OR TAKING
6.1 TERMINATION. In the event that the Premises, or any material part
thereof, shall be taken by any public authority or for any public use, or shall
be
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destroyed or damaged by fire or casualty, or by the action of any public
authority, then this Lease may be terminated at the election of Landlord. Such
election, which may be made notwithstanding the fact that Landlord's entire
interest may have been- divested, shall be made by the giving of notice by
Landlord to Tenant within 30 days after the right of election accrues.
6.2 RESTORATION. If Landlord does not exercise said election, this Lease
shall continue in force and a just proportion of the rent reserved, according to
the nature and extent of the damages sustained by the Premises, but not in
excess of the net proceeds of insurance recovered by Landlord under the rental
value or similar insurance carried by Tenant pursuant to Section 4.2.3.2, shall
be suspended or abated until the Premises, or what may remain thereof, shall be
put by Landlord in proper condition for use, which Landlord covenants to do with
reasonable diligence to the extent permitted by the net proceeds of insurance
recovered or damages awarded for such taking, destruction or damage and subject
to zoning and building laws or ordinances then in existence.
6.3 AWARD. Irrespective of the form in which recovery may be had by law,
all rights to damages or compensation shall belong to Landlord in all cases.
Tenant hereby grants to Landlord all of Tenant's rights to such damages and
covenants to deliver such further assignments thereof as Landlord may from time
to time request.
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ARTICLE VII
DEFAULTS
7.1 EVENTS OF DEFAULT. (a) If Tenant shall default in the performance of
any of its obligations to pay the Fixed Rent or Additional Rent hereunder and if
such default shall continue for 10 days after notice from Landlord designating
such default or if within 30 days after notice from Landlord to Tenant
specifying any other default or defaults Tenant has not commenced diligently to
correct the default or defaults so specified or has not thereafter diligently
pursued such correction to completion, or (b) if Tenant becomes insolvent or
fails to pay its debts as they fall due, or (c) if the leasehold estate under
this Lease or any substantial part of the property of Tenant is taken on
execution, or by other process of law, or is attached or subjected to any other
involuntary encumbrance, or (d) if a receiver, trustee, custodian, guardian,
liquidator or similar agent is appointed with respect to Tenant, or if any such
person or a mortgagee, secured party or other creditor takes possession of the
Premises or of any substantial part of the property of Tenant, and, in either
case, if such appointment or taking of possession is not terminated within 30
days after it first occurs, or (e) if a petition is filed by or with the consent
of Tenant under any federal or state law concerning bankruptcy, insolvency,
reorganization, arrangement, or relief from creditors, and such petition is not
dismissed within 30 days thereafter, or (f) if Tenant or any Guarantor which is
a corporation dissolves or is dissolved or liquidates or adopts any plan or
commences any proceeding, the result of which is intended to include dissolution
or liquidation, then, Landlord may immediately or at any time
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thereafter terminate this Lease whereupon all rights and liabilities of the
parties hereto shall cease.
7.2 LANDLORD'S RIGHT TO CURE DEFAULTS. Landlord may, but shall not be
obligated to, cure, at any time, following 10 days' prior notice to Tenant,
except in cases of emergency when no notice shall be required, any default by
Tenant under this Lease; and whenever Landlord so elects, all costs and expenses
incurred by Landlord, including reasonable attorneys' fees, in curing a default
shall be paid by Tenant to Landlord as Additional Rent on demand.
7.3 EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by Landlord to
any act or omission which otherwise would be a breach of any covenant or
condition herein, or any waiver by Landlord of the breach of any covenant or
condition herein, shall not in any way be held or construed (unless expressly so
declared) to operate so as to impair the continuing obligation of any covenant
or condition herein, or otherwise, except as to the specific instance, operate
to permit similar acts or omissions.
The failure of Landlord to seek redress for violation of, or to insist upon
the strict performance of, any covenant or condition of this lease shall not be
deemed a waiver of such violation nor prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by Landlord of rent with knowledge of the breach
of any covenant of this Lease shall not be deemed to have been a waiver of such
breach by Landlord, or by Tenant, unless such waiver be in writing signed by the
party to be charged. No
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consent or waiver, express or implied, by Landlord to or of any breach of any
agreement or duty shall be construed as a waiver or consent to or of any other
breach of the same or any other agreement or duty.
7.4 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a lesser sum
than the Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such rent or
charge due, unless Landlord elects by notice to Tenant to credit such sum
against the most recent installment due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed a waiver, an agreement or an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
ARTICLE VIII
MORTGAGES
8.1 RIGHTS OF MORTGAGE HOLDERS. The word "mortgage" as used herein
includes mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances, and modifications, consolidations, extensions,
renewals, replacements and substitutes thereof. The word "holder" shall mean a
mortgagee, and any subsequent holder or holders of a mortgage. Landlord and
Tenant hereby acknowledge that Lender is the current and only holder of a
mortgage on the Premises. Until Lender or any other holder of a mortgage
(hereinafter
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"holder" or "holder of a mortgage") shall enter and take possession of the
Premises for the purpose of foreclosure, such holder shall have only such rights
of Landlord as are necessary to preserve the integrity of this Lease as
security. Upon entry and taking possession of the Premises for the purpose of
foreclosure, such holder shall have all the rights of Landlord. Notwithstanding
any other provision of this Lease to the contrary, including without limitation
Section 9.4, no such holder of a mortgage shall be liable either as mortgagee or
as assignee, to perform, or be liable in damages for failure to perform, any of
the obligations of Landlord unless and until such holder shall enter and take
possession of the Premises for the purpose of foreclosure. Upon entry for the
purpose of foreclosure, such holder shall be liable to perform all of the
obligations of Landlord accruing from and after such entry subject to and with
the benefit of the provisions of Section 9.4, provided that a discontinuance of
any foreclosure proceeding shall be deemed a conveyance under said provisions to
the owner of the Premises. No Fixed Rent, Additional Rent or any other charge
shall be paid more than 30 days prior to the due dates thereof and payments made
in violation of this provision shall (except to the extent that such payments
are actually received by a mortgagee in possession or in the process of
foreclosing its mortgage) be a nullity as against such holder of a mortgage and
Tenant shall be liable for the amount of such payments to such holder. Tenant
agrees on request of Landlord to execute and deliver from time to time any
agreement which may be necessary to implement the provisions of this
Section 8.1.
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8.2 LEASE SUPERIOR OR SUBORDINATE TO MORTGAGES. This Lease is and shall
continue to be subject and subordinate to the presently existing mortgage held
by Lender or any future mortgages secured by the Premises, and to any and all
advances hereafter made thereunder, and to the interest of Lender and any other
holder or holders thereof in the Premises. Lender shall have the election to
subordinate the mortgage held by Lender to this Lease, exercisable by filing
with the appropriate recording office a notice of such election, whereupon this
Lease shall have priority over such mortgage. A copy of such filing shall be
given to Tenant. Such election by the Lender shall not affect priority with
respect to this Lease of any other mortgage.
Any mortgage or other voluntary lien or other encumbrance recorded
subsequent to the recording of the notice or short form referred to in Section
9.3 shall be subject and subordinate to this Lease unless Landlord and the
holder of any such subsequent mortgage and Lender and any other holders of
mortgages prior to such subsequent mortgage elect to subordinate this Lease to
such subsequent mortgage and to any and all advances thereafter made thereunder
and to the interest of the holder thereof in the Premises, such election to be
exercisable by Landlord and Lender and all such other holders by filing with the
appropriate recording office (a) a notice of such election and (b) an agreement
between the holder of such subsequent mortgage and Tenant, consented to by
Lender and the other holders of all mortgages having priority over such
subsequent mortgage, by the terms of which such holder will agree to recognize
the rights of Tenant under this Lease and to accept Tenant as
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tenant of the Premises under the terms and conditions of this Lease in the event
of acquisition of title by such holder through foreclosure proceedings or
otherwise and Tenant will agree to recognize the holder of such subsequent
mortgage as Landlord in such event, which agreement shall be made expressly to
bind and inure to the benefit of the successors and assigns of Tenant and of
such holder and upon anyone purchasing said Premises at any foreclosure sale
brought by such holder. Tenant and Landlord agree to execute and deliver any
appropriate instruments necessary to carry out the agreements contained in this
Section 8.2. Any such subsequent mortgage to which this Lease is subordinated
may contain such terms, provisions and conditions as the holder deems usual or
customary.
8.3 LENDER'S CONSENT. Landlord and Tenant hereby agree and acknowledge
that this Lease shall be of no force and effect unless and until approved and
consented to by Lender, as evidenced by Lender's signature hereto.
8.4 RIGHTS OF HOLDER OF MORTGAGE. No act or failure to act on the part of
Landlord which would entitle Tenant under the terms of this Lease, or by law, to
be relieved of Tenant's obligations hereunder or to terminate this Lease, shall
result in a release or termination of such obligations or a termination of this
Lease unless (i) Tenant shall have first given written notice of Landlord's act
or failure to act to Lender or any other of Landlord's mortgagees of record, if
any, specifying the act or failure to act on the part of Landlord which could or
would give basis to Tenant's rights; and (ii) Lender or any other such
mortgagees, after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable
- 28 -
<PAGE> 32
time thereafter; but nothing contained in this Section 8.4 shall be deemed to
impose any obligation on Lender or any other such mortgagees to correct or cure
any condition. "Reasonable time" as used above means and includes a reasonable
time to obtain possession of the mortgaged premises if Lender or any other such
mortgagee elects to do so and a reasonable time to correct or cure the condition
if such condition is determined to exist.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or permitted
hereunder shall be in writing and addressed, if to the Tenant, at the Original
Address of Tenant or such other address as Tenant shall have last designated by
notice in writing to Landlord and, if to Landlord, at the Original Address of
Landlord or such other address as Landlord shall have last designated by notice
in writing to Tenant. Any notice shall be deemed duly given when mailed to such
address postage prepaid, registered or certified mail, return receipt requested,
or when delivered to such address by hand.
9.2 QUIET ENJOYMENT. Landlord agrees that upon Tenant's paying the rent
and performing and observing the terms, covenants, conditions and provisions on
its part to be performed and observed, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises during the Term without any manner of
hindrance or molestation from Landlord or anyone claiming under Landlord,
subject, however, to the terms of this Lease.
- 29 -
<PAGE> 33
9.3 LEASE NOT TO BE RECORDED. Landlord and Tenant agree that they will not
record this Lease. Both parties shall, upon the request of either, execute and
deliver a notice or short form of this Lease in such form, if any, as may be
permitted by applicable statute. If this Lease is terminated before the Term
expires the parties shall execute, deliver and record an instrument
acknowledging such fact and the actual date of termination of this Lease, and
Tenant hereby appoints Landlord its attorney-in-fact, coupled with an interest,
with full power of substitution to execute such instrument.
9.4 BIND AND INURE; LIMITATION OF LANDLORD'S LIABILITY. The obligations of
this Lease shall run with the land, and this Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. No owner of the Premises shall be liable under this Lease except for
breaches of Landlord's obligations occurring while owner of the Premises.
Neither Landlord nor any trustee or beneficiary thereof shall have any personal
liability hereunder, it being expressly agreed that all liability of Landlord
hereunder shall be limited to the assets of Landlord which comprise the Premises
but no upon other assets of Landlord.
9.5 ACTS OF GOD. In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil commotion,
fire, flood or other casualty, labor difficulties, shortages of labor, materials
or equipment, government regulations, unusually severe weather, or other causes
beyond such party's reasonable control shall not be counted in determining the
time during which work shall be completed, whether such time be designated by a
fixed date, a fixed
- 30 -
<PAGE> 34
time or a "reasonable time", and such time shall be deemed to be extended by the
period of such delay.
9.6 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default in
the performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of 30 days
following receipt of notice from Tenant or such additional time as is reasonably
required to correct any such default after notice has been given by Tenant to
Landlord specifying the nature of Landlord's alleged default.
9.7 BROKERAGE. Tenant warrants and represents that it has had no dealings
with any broker or agent in connection with this Lease and covenants to defend
with counsel approved by Landlord, hold harmless and indemnify Landlord from and
against any and all cost, expense or liability for any compensation, commissions
and charges claimed by any broker or agent with respect to Tenant's dealings in
connection with this Lease or the negotiation thereof.
9.8 APPLICABLE LAW AND CONSTRUCTION.
9.8.1 APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the laws of the state in which the Premises are located. If any
term, covenant, condition or provision of this Lease or the application thereof
to any person or circumstances shall be declared invalid, or unenforceable by
the final ruling of a court of competent jurisdiction having final review, the
remaining terms, covenants, conditions and provisions of this Lease and their
application to persons or circumstances shall not be affected thereby and shall
continue to be
- 31 -
<PAGE> 35
enforced and recognized as valid agreements of the parties, and in the place of
such invalid or unenforceable provision, there shall be substituted a like, but
valid and enforceable provision which comports to the findings of the aforesaid
court and most nearly accomplishes the original intention of the parties.
9.8.2 NO OTHER AGREEMENT. There are no oral or written agreements
between Landlord and Tenant affecting this Lease. This Lease may be amended, and
the provisions hereof may be waived or modified, only by instruments in writing
executed by Landlord and Tenant.
9.8.3 TITLES. The titles of the several Articles and Sections
contained herein are for convenience only and shall not be considered in
construing this Lease.
9.8.4 "LANDLORD" AND "TENANT". Unless repugnant to the context, the
words "Landlord" and "Tenant" appearing in this Lease shall be construed to mean
those named above and their respective heirs, executors, administrators,
successors and assigns, and those claiming through or under them respectively.
If there be more than one tenant the obligations imposed by this Lease upon
Tenant shall be joint and several.
9.9 SUBMISSION NOT AN OFFER. The submission of a draft of this Lease
or a summary of some or all of its provisions does not constitute an offer to
lease or demise the Premises, it being understood and agreed that neither
Landlord nor Tenant shall be legally bound with respect to the leasing of the
Premises unless and until this Lease has been executed by both Landlord and
Tenant and a fully executed copy delivered.
- 32 -
<PAGE> 36
WITNESS the execution hereof under seal as of the day and year set forth in
Section 1.1.
Landlord:
NETWORK PLUS REALTY TRUST
/s/ Robert T. Hale
--------------------------------------------
Robert T. Hale, as Trustee as aforesaid
and not individually
/s/ Robert T. Hale, Jr.
--------------------------------------------
Robert T. Hale, Jr., as Trustee as
aforesaid and not individually
/s/ Judith B. Hale
--------------------------------------------
Judith B. Hale, as Trustee as
Aforesaid and not individually
Tenant:
NETWORK PLUS, INC.
By: /s/ Robert T. Hale, Jr.
-----------------------------------------
Name: Robert T. Hale, Jr.
Its: President
- 33 -
<PAGE> 37
THE FOREGOING LEASE IS CONSENTED TO (INCLUDING ALL THE TERMS AND
CONDITIONS THEREOF, INCLUDING WITHOUT LIMITATION PARAGRAPHS 4.21 (REAL ESTATE
TAXES), 4.23 (INSURANCE), 5.17 (ENVIRONMENTAL COMPLIANCE), 5.2.1 (ASSIGNMENT AND
SUBLETTING) AND ARTICLE VIII (MORTGAGES)).
SHAWMUT BANK, N.A.
By: /s/ Raymond C. Hoefling
---------------------------------------
Name: Raymond C. Hoefling
Its: Vice President
- 34 -
<PAGE> 38
EXHIBIT A
DESCRIPTION OF PROPERTY
FURNACE BROOK OFFICE CONDOMINIUM
The land included in the Condominium is the land at 1261 Furnace Brook Parkway,
Quincy, Norfolk County, Massachusetts, consisting of parcels of registered land
and unregistered land more particularly bounded and described as follows:
PARCEL ONE: (REGISTERED LAND)
The land at Furnace Brook Parkway and Miller Street, Quincy, Norfolk County,
Massachusetts, being shown as Lot 4 on land Court Plan No. 36142B, dated
September 14, 1986, a copy of which is filed at the Land Registration Office for
Norfolk County, with Certificate of Title No. 103768.
PARCEL TWO: (REGISTERED LAND)
The land at Furnace Brook Parkway and Copeland Street, Quincy, Norfolk County,
Massachusetts, being shown as Lots 3 and 5 on Land Court Plan No. 36142B, dated
September 14, 1986, a copy of which is filed at the Land Registration Office for
Norfolk County, with Certificate of Title No. 103768, and a parcel being shown
on a plan by George Baroud, Surveyor, dated August 1965 filed in the land
Registration Office as No. 34049A, a copy of a portion of which is filed at the
Land Registration Office for Norfolk County, with Certificate of Title No.
79990, Book 400.
PARCEL THREE: (REGISTERED LAND)
The land at Furnace Brook Parkway, Quincy, Norfolk County, Massachusetts, shown
as Lot 7 on a "Plan of Land on Miller Street, Quincy, Mass. Being a Subdivision
of Lot 6 as shown on Land Court Plan 36142B" dated June 10, 1988, by Neil J.
Murphy, Registered Land Surveyor, as approved by the Court, filed with said
Registry District as Land Court Plan No. 36142C.
PARCEL FOUR: (UNREGISTERED LAND)
The land at Copeland Street, Quincy, Norfolk County, Massachusetts, more
particularly bounded and described as follows:
A-1
<PAGE> 39
NORTHERLY: by Copeland street, 23.7 feet;
EASTERLY: by land now or formerly of Alice M. White, 176.52 feet;
SOUTHERLY: by land now or formerly of Edward Ward, et ux., 21.7 feet;
WESTERLY: by land now or formerly of George Patriarca, et al, 178.00 feet.
Said parcel is shown as Plot 9 on City of Quincy, Assessor's Plan No. 4017.
PARCEL FIVE (UNREGISTERED LAND)
The land at Copeland Street, Quincy, Norfolk County, Massachusetts, more
particularly bounded and described as follows:
NORTHERLY: by Copeland Street, 38.00 feet;
EASTERLY: by land now or formerly of Joseph Maglott and land now or
formerly of Edward Ward, et ux. 174.14 feet;
SOUTHERLY: by land now or formerly of Edward Ward et ux, 37.92 feet;
WESTERLY: by land formerly of Alice M. White, 176.52 feet.
Said parcel is shown as Plot 10 on City of Quincy Assessors' Plan No. 4017.
There is excepted from Parcels Four and Five the following:
The land in Quincy, Norfolk County, Massachusetts, bounded and described as
follows.
Commencing at a point on the Northeasterly lot line of Lot B-2 on a plan
entitled "Subdivision Plan of Land in Quincy" dated May 16, 1962, by Edward H.
Collagan, R.L.S., recorded with Norfolk Deeds, Plan Book 364, Plan 135 (said lot
line being shown as 81.92 feet on said plan), and running
North 69 degrees 49' 45" West by said lot line a distance of 59.62 feet; then
turning and running
North 20 degrees 37' 43" East a distance of 18.0 feet; then turning and running
South 70 degrees 15' 42" East a distance of 59.84 feet; then turning and running
South 21 degrees 16' 58" West a distance of 18.46 feet to the point of
beginning.
Said parcel is shown as Lot A on a "Plan of Land in Quincy" dated February 12,
1987, revised May 9, 1987, by Neil J. Murphy, Registered Land Surveyor, recorded
with Norfolk Deeds, Plan Book Plan No.
A-2
<PAGE> 40
PARCEL SIX: (UNREGISTERED LAND)
The land in Quincy, Norfolk County, Massachusetts, bounded and described as
follows:
Commencing at a point on the Northeasterly lot line of Lot B-2 on a plan
entitled "Subdivision Plan of Land in Quincy" dated May 16, 1962, by Edward H.
Collagan, R.L.S., recorded with Norfolk Deeds, Plan Book 364, Plan 135 (said lot
line being shown as 125.0 + feet on said plan), and running
North 24 degrees 06' 48" East by said lot line a distance of 61.53 feet; then
turning and running
North 66 degrees 17' 12" East a distance of 7.0 feet; then turning and running
South 21 degrees 16' 58" West a distance of 27.00 feet; then turning and running
North 66 degrees 13' 02" West a distance of 29.0 feet; then turning and running
South 21 degrees 16' 58" West a distance of 41.68 feet; then turning and running
South 70 degrees 15' 42" East a distance of 32.59 feet to the point of
beginning.
Said parcel is shown as Lot C on a "Plan of Land in Quincy" dated February 12,
1987, revised May 8, 1987, by Neil J. Murphy, Registered Land Surveyor, recorded
with Norfolk Deeds, Plan Book __________, Plan No. _____.
For title to PARCEL ONE see Deeds of Fred Solomon filed with the Norfolk County
Registry District of the Land Court as Document Nos. 522733 and 522734.
For title to PARCEL TWO see Deed of Fred Solomon filed with said Registry
District as Document No. 522732.
For title to PARCEL THREE see Deeds of Fred Solomon filed with said Registry
District as Document Nos. 522733 and 522734.
For title to PARCEL FOUR see Deed of Fred Solomon filed with said Registry
District as Document No. 522732 and recorded with Norfolk County Registry of
Deeds on May 28, 1987 as Instrument No. 64363.
For titled to PARCEL FIVE see Deed of Fred Solomon filed with said Registry
District as Document No. 522732 and recorded with said Deeds on May 28, 1987, as
Instrument No. 64363.
A-3
<PAGE> 41
For title to PARCEL SIX see Deed from Donald J. O'Neill, Frederick M. O'Neill,
and John J. Carr, Jr., Trustees of CD Realty Trust 57, u/d/t dated July 31,
1987, recorded with Norfolk Deeds on 1988 as Instrument No. __________, said
Deed being recorded with said Deeds on ______________, 1988 as Instrument No.
A-4
<PAGE> 42
EXHIBIT A-1
Description of Premises
FURNACE BROOK OFFICE CONDOMINIUM
<TABLE>
<CAPTION>
UNIT BLDG. FLOOR APPROX. AREA PERCENTAGE
NO. NO. LOCATION OF UNIT INTEREST
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
20 B second 10,167.8 19.45
21 B second 731.2 1.40
30 B third 11,908.3 22.78
40 B fourth 3,157.6 6.04
41 B fourth 841.2 1.61
43 B fourth 1,393.0 2.66
44 B fourth 6,160.5 11.77
</TABLE>
A-1-1
<PAGE> 43
EXHIBIT B
To Lease Between
Trustees of Network Plus Realty Trust, Landlord
and
Network Plus, Inc., Tenant
SCHEDULE OF LEASEHOLD IMPROVEMENTS
1. Network Plus, corporate offices, 2nd floor plan, Al.2, prepared by
John M. Sheskey, Associates, Inc., Architects, dated June 14, 1993.
2. Network Plus, corporate offices, 3rd floor plan, Al.3, prepared by
John M. Sheskey, Associates, Inc., Architects, dated June 14, 1993.
B-1
<PAGE> 44
FIRST AMENDMENT TO NET LEASE
THIS FIRST AMENDMENT TO NET LEASE made this 30th day of April, 1998, by and
between NETWORK PLUS REALTY TRUST, a Massachusetts nominee trust ("Landlord")
and NETWORK PLUS, INC., a Massachusetts corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into a written Net Lease dated July 1,
1993 (the "Net Lease") of certain premises located at 238-240 Copeland Street,
Quincy, MA; and
WHEREAS, Landlord and Tenant mutually desire to amend the Net Lease.
NOW, THEREFORE, in consideration of One ($1.00) Dollar and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant do hereby mutually agree to amend the Net
Lease as follows:
1. Section 4.1 shall be amended by deleting the second sentence thereof
in its entirety and by substituting instead the following new sentence:
"Annual Fixed Rent shall be in an amount equal to $431,205.24 per
annum (equivalent of $35,933.77 per month)."
2. In all other respects, except as hereinabove amended, the terms,
provisions, conditions and covenants contained in the Net Lease shall remain in
full and force and effect and continue to apply and bind the parties.
WITNESS the execution hereof under seal as of the day and year set forth
above.
LANDLORD:
NETWORK PLUS REALTY TRUST
/s/ Robert T. Hale
-------------------------------------
Robert T. Hale, as Trustee as
aforesaid and not individually
/s/ Robert T. Hale
-------------------------------------
Robert T. Hale, as Trustee as
aforesaid and not individually
<PAGE> 45
/s/ Judith B. Hale
----------------------------------------
Judith B. Hale, as Trustee as
aforesaid and not individually
TENANT:
NETWORK PLUS, INC.
By: /s/ Robert T. Hale, Jr.
-------------------------------------
Robert T. Hale, Jr.
President
CONSENT
The foregoing First Amendment to Net Lease is consented to,
Fleet Bank, N.A. (successor by merger
to Shawmut Bank, N.A.)
By: /s/ Raymond C. Hoefling
-------------------------------------
Name: Raymond C. Hoefling
Its: Vice President
<PAGE> 1
EXHIBIT 10.7
INTERCONNECTION AGREEMENT UNDER SECTIONS 251
AND 252 OF THE TELECOMMUNICATIONS ACT OF 1996
DATED AS OF SEPTEMBER 4, 1998
BY AND BETWEEN
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
D/B/A
BELL ATLANTIC - MASSACHUSETTS
AND
NETWORK PLUS, INC.
<PAGE> 2
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS
ACT OF 1996
This Interconnection Agreement (this "Agreement"), under Sections 251
and 252 of the Telecommunications Act of 1996 (the "Act"), is effective as of
the 4th day of September, 1998 (the "Effective Date"), by and between New
England Telephone and Telegraph Company, d/b/a Bell Atlantic - Massachusetts
("BA" or "Bell Atlantic"), a New York corporation with offices 185 Franklin
Street, Boston, Massachusetts 02110, and Network Plus, Inc. ("Network Plus"), a
Massachusetts corporation with offices at 234 Copeland Street, Quincy, MA 02169
(each a "Party" and, collectively, the "Parties").
WHEREAS, Network Plus has requested that BA make available to Network
Plus interconnection, service and unbundled network elements upon the same terms
and conditions as provided in the Interconnection Agreement (and amendments
thereto) between Teleport Communications Boston ("TCG") and BA, dated as of
October 29, 1997, for Massachusetts, approved by the Massachusetts Department of
Public Utilities under Section 252 of the Act (the "Separate Agreement") and
attached as Appendix 1 hereto; and
WHEREAS, BA has undertaken to make such terms and conditions available
to Network Plus hereby only because and, to the extent required by, Section
252(i) of the Act.
NOW, THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Network Plus and BA hereby agree as follows:
1.0 INCORPORATION OF APPENDIX BY REFERENCE
1.1 Except as expressly stated herein, the terms and conditions of Appendix
1 hereto (with all Schedules and Exhibits thereto) are incorporated by reference
in their entirety herein and form an integral part of this Agreement.
1.2 References in Appendix 1 hereto to Teleport Communications Boston or to
TCG shall for purposes of this Agreement be deemed to refer to Network Plus.
1.3 References in Appendix 1 hereto to the "Effective Date", the date of
effectiveness thereof and like provisions shall for purposes of this Agreement
be deemed to refer to the date first written above. Unless terminated earlier in
accordance with the terms of Appendix 1 hereto, this Agreement shall continue in
effect until the Separate Agreement is terminated.
1.4 All notices, affidavits, exemption-certificates or other
communications to BA under Section 29.8 of Appendix 1 hereto shall be sent to
the following address:
Tax Administration
Bell Atlantic Corporation
1095 Avenue of the Americas
Room 3109
New York, New York 10036
1.5 Notices to Network Plus under Section 29.12 of Appendix 1 hereto
shall be sent to the following address:
Network Plus, Inc.
Attn: Lisa Korner
234 Copeland Street
Quincy, Massachusetts 02169
Phone: 617/552-5254
Facsimile: 617/786-8406
1.6 Notices to BA under Section 29.12 of Appendix 1 hereto shall be
sent to the following address:
-2-
<PAGE> 3
President - Telecom Industry Services
Bell Atlantic
1095 Avenue of the Americas
40th Floor
New York, New York 10036
Facsimile: (212) 597-2585
2.0 CLARIFICATIONS
2.1 The Parties agree that if any judicial or regulatory authority of
competent jurisdiction determines (or has determined) that BA is not required to
furnish any service or item or provide any benefit to telecommunications
carriers otherwise required to be furnished or provided to Network Plus
hereunder, then BA may, at its sole option, avail itself of any such
determination by providing written notice thereof to Network Plus.
2.2 The entry into, filing and performance by BA of this Agreement does not
in any way constitute a waiver by BA of any of the rights and remedies it may
have to seek review of any of the provisions of the Separate Agreement, or to
petition the Commission, other administrative body or court for reconsideration
or reversal of any determination made by any of them, or to seek review in any
way of any portion of this Agreement in connection with Network Plus's election
under Section 252(i) of the Act.
[Intentionally Left Blank]
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of this 4th day of September, 1998.
NETWORK PLUS, INC. BELL ATLANTIC - MASSACHUSETTS
By: /s/ Michael Oyster By: /s/ Jeffrey A. Masoner
------------------ -----------------------
Printed: Michael Oyster Printed: Jeffrey A. Masoner
Title: President, Local Title: Vice President -- Interconnection
Services Division Services Policy & Planning
-3-
<PAGE> 4
APPENDIX I
-4-
<PAGE> 5
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS
ACT OF 1996
DATED AS OF OCTOBER 29, 1997
BY AND BETWEEN
BELL ATLANTIC-MASSACHUSETTS
AND
TELEPORT COMMUNICATIONS BOSTON
-5-
<PAGE> 6
TABLE OF CONTENTS
SECTION PAGE
1.0 DEFINITIONS
2.0 INTERPRETATION AND CONSTRUCTION
3.0 SCOPE
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)
4.1 Scope
4.2 Physical Interconnection of Networks
4.3 Numbering Plans
4.4 Technical Specifications
4.5 Interconnection in Additional LATA
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE
TRAFFIC PURSUANT TO SECTION 251(c)(2)
5.1 Scope of Traffic
5.2 Switching System Hierarchy
5.3 Trunk Group Architecture and Traffic Routing
5.4 Signaling
5.5 Grades of Service
5.6 Measurement and Billing
5.7 Reciprocal Compensation Arrangements -- Section 251(b)(5)
5.8 Municipal Calling Service
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO SECTION
251(c)(2)
6.1 Scope of Traffic
6.2 Trunk Group Architecture and Traffic Routing
6.3 Meet-Point Billing Arrangements
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
7.2 Tandem Transit Service ("Transit Service")
7.3 Dedicated Transit Service
7.4 911/E911 Arrangement
8.0 JOINT NETWORK CONFIGURATION AND GROOMING PLAN AND INSTALLATION,
MAINTENANCE, TESTING AND REPAIR
8.1 Joint Network Configuration and Grooming Plan
8.2 Installation, Maintenance, Testing and Repair
9.0 UNBUNDLED ACCESS -- SECTION 251(c)(3)
9.1 Local Link Transmission Types
9.2 ADSL and HDSL
9.3 Port Types
9.4 Private Lines, Special Access and Switched Transport
9.5 Limitations on Unbundled Access
9.6 Availability of Other Network Elements on an Unbundled Basis
9.7 Provisioning of Unbundled Links
9.8 Maintenance of Unbundled Network Elements
9.9 Acknowledgments Related to Unbundled Network Elements
10.0 RESALE -- SECTIONS 251(c)(4) and 251(b)(1)
10.1 Availability of Wholesale Rates for Resale
10.2 Availability of Retail Rates for Resale
10.3 Term and Volume Discounts
11.0 NOTICE OF CHANGES -- SECTION 251(c)(5)
12.0 COLLOCATION -- SECTION 251(c)(6)
-6-
<PAGE> 7
13.0 NUMBER PORTABILITY -- SECTION 251(b)(2)
13.1 Scope
13.2 Procedures for Providing INP Through Remote Call Forwarding
13.3 Procedures for Providing INP Through Route Indexing
13.4 Procedures for Providing INP Through Full NXX Code Migration
13.5 Other Interim Number Portability Options
13.6 Receipt of Terminating Compensation on Traffic to INP'ed Numbers
14.0 NUMBER RESOURCES ASSIGNMENTS
15.0 DIALING PARITY -- SECTION 251(b)(3)
16.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4)
17.0 DATABASES AND SIGNALING
18.0 REFERRAL ANNOUNCEMENT
19.0 DIRECTORY SERVICES ARRANGEMENTS
19.1 Directory Listings and Directory Distributions
19.2 Directory Assistance ("DA") and Operator Services
19.3 Directory Assistance Call Completion
19.4 Directory Assistance Credits
19.5 Direct Access to Directory Assistance
19.6 Inward Operator Services
19.7 Operator Service
19.8 0+ Mechanized Operator Calls
19.9 0- Operator Handled Calls
19.10 Operator Emergency Bulletin Service
19.11 Operator Passthrough Service`
20.0 GENERAL RESPONSIBILITIES OF THE PARTIES
21.0 TERM AND TERMINATION
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
23.0 CANCELLATION CHARGES
24.0 NON-SEVERABILITY
25.0 INDEMNIFICATION
26.0 LIMITATION OF LIABILITY
27.0 PERFORMANCE STANDARDS
28.0 REGULATORY APPROVAL
29.0 MISCELLANEOUS
29.1 Authorization
29.2 Compliance
29.3 Compliance with the Communications Law Enforcement Act of 1994
29.4 Independent Contractor
29.5 Force Majeure
29.6 Confidentiality
29.7 Governing Law
29.8 Taxes
29.9 Non-Assignment
29.10 Non-Waiver
29.11 Disputed Amounts
29.12 Notices
29.13 Publicity and Use of Trademarks or Service Marks
29.14 Joint Work Product
29.15 No Third Party Beneficiaries; Disclaimer of Agency
-7-
<PAGE> 8
29.16 No License
29.17 Technology Upgrades
29.18 Survival
29.19 Scope of Agreement
29.20 Amendment
29.21 Entire Agreement
-8-
<PAGE> 9
LIST OF SCHEDULES AND EXHIBIT
SCHEDULES
Schedule 1.0 Certain Terms As Defined in the Act
Scheduled 8.2 BA Installation Intervals
Pricing Schedule
EXHIBIT
Exhibit A Network Element Bona Fide Request
-9-
<PAGE> 10
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
This Interconnection Agreement under Sections 251 and 252 of the
Telecommunications Act of 1996 ("Agreement"), is effective as of the 29th day of
October, 1997 (the "Effective Date"), by and between Teleport Communications
Boston ("TCG"), a Massachusetts partnership with offices at Two Teleport Drive,
Suite 300, Staten Island, NY 10311 and New England Telephone and Telegraph
Company, d/b/a Bell Atlantic - Massachusetts ("BA"), a New York corporation with
offices at 185 Franklin Street, Boston, Massachusetts.
WHEREAS, the Parties want to interconnect their networks at mutually agreed
upon points of interconnection to provide Telephone Exchange Services (as
defined below) and Exchange Access (as defined below) to their respective
Customers.
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
the Parties will interconnect their networks and provide other services as
required by the Act (as defined below) and additional services as set forth
herein.
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, TCG and BA hereby agree as follows:
1.0 DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
specified below in this Section 1.0. For convenience of reference only, the
definitions of certain terms that are As Defined in the Act (as defined below)
are set forth in Schedule 1.0. Schedule 1.0 sets forth the definitions of such
terms as of the date specified on such Schedule and neither Schedule 1.0 nor any
revision, amendment or supplement thereof intended to reflect any revised or
subsequent interpretation of any term that is set forth in the Act is intended
to be a part of or to affect the meaning or interpretation of this Agreement.
1.1 "Act" means the Communications Act of 1934 (47 U.S.C. 153(r)), as
amended by the Telecommunications Act of 1996, and as from time to time
interpreted in the duly authorized rules and regulations of the FCC or the
Department within its state of jurisdiction.
1.2 "ADSL" or "Asymmetrical Digital Subscriber Line" means a transmission
technology which transmits an asymmetrical digital signal using one of a variety
of line codes as specified in ANSI standards T1.413-1995-007R2.
1.3 "Affiliate" is As Defined in the Act.
1.4 "Agreement for Switched Access Meet Point Billing" means the Agreement
for Switched Access Meet Point Billing dated as of March 21, 1996 by and between
the Parties
1.5 "As Defined in the Act" means as specifically defined by the Act and as
from time to time interpreted in the duly authorized rules and regulations of
the FCC or the Department.
1.6 "As Described in the Act" means as described in or required by the Act
and as from time to time interpreted in the duly authorized rules and
regulations of the FCC or the Department.
1.7 "Automatic Number Identification" or "ANI" means a Feature Group D
signaling parameter which refers to the number transmitted through a network
identifying the billing number of the calling Party.
1.8 "Busy Line Verification/Busy Line Verification Interrupt Traffic" or
"BLV/BLVI Traffic" means an operator service call in which the caller inquires
as to the busy status of or requests an interruption of a call on another
Customer's Telephone Exchange Service line.
1.9 "Calling Party Number" or "CPN" is a Common Channel Interoffice
Signaling ("CCIS") parameter which refers to the number transmitted through a
network identifying the calling Party.
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1.10 "Central Office Switch" means a switch used to provide
Telecommunications Services, including, but not limited to:
(a) "End Office Switches" which are used to terminate Customer station
Links for the purpose of interconnection to each other and to trunks;
(b) "Tandem Office Switches" which are used to connect and switch trunk
circuits between and among other Central Office Switches; and
(c) "Combination End/Office Switches" which are used to terminate
Customer station Links for the purposes of interconnection to each other and to
trunks, and to connect and switch trunk circuits between and among the Central
Office Switches.
1.11 "CCS" means one hundred (100) call seconds.
1.12 "CLASS Features" means certain CCIS-based features available to
Customers including, but not limited to: Automatic Call Back; Call Trace; Caller
Identification; Call Return and future CCIS-based offerings.
1.13 "Collocation" means an arrangement whereby one Party's (the
"Collocating Party") facilities are terminated in its equipment necessary for
Interconnection or for access to Network Elements on an unbundled basis which
has been installed and maintained at the premises of a second Party (the
"Housing Party"). For purposes of Collocation, the "premises" of a Housing Party
is limited to the occupied structure or portion thereof in which such Housing
Party has the exclusive right of occupancy. Collocation will be "physical,"
unless physical collocation is not practical for technical reasons or because of
space limitations, in which case virtual collocation will be provided, subject
to DPU approval or mutual agreement. In "Physical Collocation," the Collocating
Party installs and maintains its own equipment in the Housing Party's premises.
1.14 "Common Channel Interoffice Signaling" or "CCIS" means the signaling
system, developed for use between switching systems with stored-program control,
in which all of the signaling information for one or more groups of trunks is
transmitted over a dedicated high-speed data link rather than on a per-trunk
basis and, unless otherwise agreed by the Parties, the CCIS used by the Parties
shall be SS7.
1.15 "Cross Connection" means a connection provided pursuant to Collocation
at the Digital Signal Cross Connect, Main Distribution Frame or other suitable
frame or panel between (i) the Collocating Party's equipment and (ii) the
equipment or facilities of the Housing Party.
1.16 "Customer" means a third-Party residence or business that subscribes
to Telecommunications Services provided by either of the Parties.
1.17 "Department" or "DPU" means the Massachusetts Department of Public
Utilities.
1.18 "Dialing Parity" is As Defined in the Act. As used in this Agreement,
Dialing Parity refers to both Local Dialing Parity and Toll Dialing Parity.
"Local Dialing Parity" means the ability of Telephone Exchange Service Customers
of a LEC to select a provider and make local calls without dialing extra digits.
"Toll Dialing Parity" means the ability of Telephone Exchange Service Customers
of a LEC to place toll calls (interLata or intraLata) which are routed to a toll
carrier (intraLATA or interLATA) of their selection without dialing access codes
or additional digits and with no unreasonable dialing delay.
1.19 "Digital Signal Level" means one of several transmission rates in the
time-division multiplex hierarchy.
1.20 "Digital Signal Level 0" or "DS0" means the 64 Kbps zero-level signal
in the time-division multiplex hierarchy.
1.21 "Digital Signal Level 1" or "DS1" means the 1.544 Mbps first-level
signal in the time-division multiplex hierarchy. In the time-division
multiplexing hierarchy of the telephone network, DS1 is the initial level of
multiplexing.
1.22 "Digital Signal Level 3" or "DS3" means the 44.736 Mbps third-level in
the time-division multiplex hierarchy. In the time-division multiplexing
hierarchy of the telephone network, DS3 is defined as the third level of
multiplexing.
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1.23 "Direct Customer Access Service" or "DCAS" is an electronic interface
system provided by BA to facilitate the ordering, provisioning and maintenance
of various interconnection arrangements.
1.24 "Exchange Message Record" or "EMR" means the standard used for
exchange of Telecommunications message information among Telecommunications
providers for billable, non-billable, sample, settlement and study data. EMR
format is contained in Bellcore Practice BR-010-200-010 CRIS Exchange Message
Record.
1.25 "Exchange Access" is As Defined in the Act.
1.26 "FCC" means the Federal Communications Commission.
1.27 "Fiber-Meet" means an Interconnection architecture method whereby the
Parties physically Interconnect their networks via an optical fiber interface
(as opposed to an electrical interface) at a mutually agreed upon location.
1.28 "High-Bit Rate Digital Subscriber Line" or "HDSL" means a transmission
technology which transmits up to a DS1-level signal, using any one of the
following line codes: 2 Binary / 1 Quartenary ("2B1Q"), Carrierless AM/PM,
Discrete Multitone ("DMT"), or 3 Binary / 1 Octel ("3B0').
1.29 "Information Service Traffic" means Local Traffic or IntraLATA Toll
Traffic which originates on a Telephone Exchange Service line and which is
addressed to an information service provided over a Party's information services
platform (e.g., 976).
1.30 "Integrated Digital Loop Carrier" means a subscriber loop carrier
system which integrates within the switch, at a DS1 level, twenty-four (24)
local Link transmission paths combined into a 1.544 Mbps digital signal.
1.31 "Interconnection" is As Described in the Act and refers to the
connection of a network, equipment, or facilities, of one carrier with the
network, equipment, or facilities of another for the purpose of transmission and
routing of Telephone Exchange Service traffic and Exchange Access traffic.
1.32 "Interexchange Carrier" or "IXC" means a carrier that provides,
directly or indirectly, interLATA or intraLATA Telephone Toll Services.
1.33 "Interim Telecommunications Number Portability" or "INP" is As
Described in the Act.
1.34 "InterLATA Service" is As Defined in the Act.
1.35 "Integrated Services Digital Network" or "ISDN" means a switched
network service that provides end-to-end digital connectivity for the
simultaneous transmission of voice and data. Basic Rate Interface-ISDN
("BRI-ISDN") provides for a digital transmission of two 64 Kbps bearer channels
and one 16 Kbps data channel ("2B+D").
1.36 "IntraLATA Toll Traffic" means those IntraLATA station calls that are
not defined as Local Traffic in this Agreement.
1.37 "Local Access and Transport Area" or "LATA" is As Defined in the Act.
1.38 "Local Exchange Carrier" or "LEC" is as defined in the Act.
1.39 "Local Link Transmission" or "Link" means the entire transmission path
which extends from the network interface/demarcation point at a Customer's
premises to the Main Distribution Frame or other designated frame or panel in a
Party's Wire Center which serves the Customer. Links are defined by the
electrical interface rather than the type of facility used.
1.40 "Local Traffic" means a call which is originated and terminated within
a given LATA in the Commonwealth of Massachusetts, as defined in DPU Tariff 10,
Section 6, except for those calls that are specified to be terminated through
switched access arrangements. IntraLATA calls originated on a 1+ presubscription
basis when available or a casual dialed (10XXX/101XXXX) basis are not considered
local traffic.
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1.41 "Losses" means any and all losses, costs (including court costs),
claims, damages (including fines, penalties, and criminal or civil judgments and
settlements), injuries, liabilities and expenses (including attorneys' fees).
1.42 "Main Distribution Frame" or "MDF" means the distribution frame of the
Party providing the Link used to interconnect cable pairs and line and trunk
equipment terminals on a switching system.
1.43 "Meet-Point Billing" means the process whereby each Party bills the
appropriate tariffed rate for its portion of a jointly provided Switched
Exchange Access Service as agreed to in the Agreement for Switched Access Meet
Point Billing.
1.44 "Network Element" is As Defined in the Act.
1.45 "Network Element Bona Fide Request" means the process described in
Exhibit A that prescribes the terms and conditions relating to a Party's request
that the other Party provide a Network Element not otherwise provided by the
terms of this Agreement.
1.46 "North American Numbering Plan" or "NANP" means the numbering plan
used in the United States, Canada, Bermuda, Puerto Rico and certain Caribbean
Islands. The NANP format is a 10-digit number that consists of a 3-digit NPA
code (commonly referred to as the area code), followed by a 3-digit NXX code and
4-digit line number.
1.47 "Number Portability" is As Defined in the Act.
1.48 "NXX" means the three-digit code which appears as the first three
digits of a seven digit telephone number.
1.49 "Party" means either BA or TCG, and "Parties" means BA and TCG.
1.50 "Port" means a termination on a Central Office Switch that permits
Customers to send or receive Telecommunications over the public switched
network, but does not include switch features or switching functionality.
1.51 "Point of Termination Bay" or "POT Bay" means the intermediate
distributing frame system which serves as the point of demarcation for
collocated interconnection.
1.52 "Rate Center" means the specific geographic point which has been
designated by a given LEC as being associated with a particular NPA-NXX code
which has been assigned to the LEC for its provision of Telephone Exchange
Service. The Rate Center is the finite geographic point identified by a specific
V&H coordinate, which is used by that LEC to measure, for billing purposes,
distance-sensitive transmission services associated with the specific Rate
Center. Rate Centers will be identical for each Party until such time as TCG is
permitted by an appropriate regulatory body or elects to create its own Rate
Centers within an area.
1.53 "Reciprocal Compensation" is As Described in the Act, and refers to
the payment arrangements that recover costs incurred for the transport and
termination of Telephone Exchange Service Traffic.
1.54 "Route Indexing" means the provision of Interim Number Portability
through the use of direct trunks provisioned between end offices of BA and TCG
over which inbound traffic to a ported number will be routed.
1.55 "Routing Point" means a location which a LEC has designated on its own
network as the homing (routing) point for inbound traffic to one or more of its
NPA-NXX codes. The Routing Point is also used to calculate mileage measurements
for the distance-sensitive transport element charges of Switched Exchange Access
Services. Pursuant to Bell Communications Research, Inc. ("Bellcore") Practice
BR 795-100-100 (the "Bellcore Practice"), the Routing Point (referred to as the
"Rating Point" in such Bellcore Practice) may be an End Office Switch location
or a "LEC Consortium Point of Interconnection." Pursuant to such Bellcore
Practice, each "LEC Consortium Point of Interconnection" shall be designated by
a common language location identifier ("CLLI") code with (x)KD in positions 9,
10, 11, where (x) may be any alphanumeric A-Z or 0-9. The Routing Point must be
located within the LATA in which the corresponding NPA-NXX is located. However,
Routing Points associated with each NPA-NXX need not be the same as the
corresponding Rate Center, nor must there be a unique and separate Routing Point
corresponding to each unique and separate Rate Center; provided only that the
Routing Point associated with a given NPA-NXX must be located in the same LATA
as the Rate Center associated with the NPA-NXX.
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1.56 "Service Control Point" or "SCP" means a component of the signaling
network that acts as a database to provide information to another component of
the signaling network (i.e., Service Switching Point or another SCP) for
processing or routing certain types of network calls. A query/response mechanism
is typically used in communicating with an SCP.
1.57 "Signaling Transfer Point" or "STP" means a component of the signaling
network that performs message routing functions and provides information for the
routing of messages between signaling network components. An STP transmits,
receives and processes CCIS messages.
1.58 "Single Bill/Multiple Tariff" shall mean that one bill is rendered to
the IXC from all LECs who are jointly providing access service. A single bill
consists of all rate elements applicable to access services billed on one
statement of charges under one billing account number using each Party's
appropriate access tariffs. The bill could be rendered by, or on behalf of,
either of the Parties.
1.59 "Switched Exchange Access Service" means the offering of transmission
or switching services to Telecommunications Carriers for the purpose of the
origination or termination of Telephone Toll Service. Switched Exchange Access
Services include: Feature Group A, Feature Group B, Feature Group D, 800/888
access, and 900 access and their successors or similar Switched Exchange Access
services.
1.60 "Synchronous Optical Network" or "SONET" means an optical interface
standard that allows inter-networking of transmission products from multiple
vendors. The base transmission rate is 51.84 Mbps ("OC-1/STS-1") and higher
rates are direct multiples of the base rate.
1.61 "Technically Feasible Point" is As Described in the Act.
1.62 "Telecommunications" is As Defined in the Act.
1.63 "Telecommunications Act" means the Telecommunications Act of 1996 and
any rules and regulations promulgated thereunder.
1.65 "Telecommunications Carrier" is As Defined in the Act.
1.66 "Telecommunications Service" is As Defined in the Act.
1.67 "Telephone Exchange Service" is As Defined in the Act.
1.69 "Telephone Toll Service" is As Defined in the Act.
1.69 "Wire Center" means an occupied structure or portion thereof in which
a Party has the exclusive right of occupancy and which serves as a Routing Point
for Switched Exchange Access Service.
2.0 INTERPRETATION AND CONSTRUCTION
All references to Sections, Exhibits and Schedules shall be deemed to be
references to Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. The headings of the Sections and the terms
defined in Schedule 1.0 are inserted for convenience of reference only and are
not intended to be a part of or to affect the meaning of this Agreement. Unless
the context shall otherwise require, any reference to any agreement, other
instrument (including BA or other third Party offerings, guides or practices),
statute, regulation, rule or tariff is to such agreement, instrument, statute,
regulation, rule or tariff as amended and supplemented from time to time (and,
in the case of a statute, regulation, rule or tariff, to any successor
provision).
3.0 SCOPE
This Agreement sets forth the terms and conditions under which TCG and BA
will interconnect their respective networks to enable TCG to provide
Telecommunications Services consistent with the rights and obligations set forth
in Section 251 of the Act. TCG represents that it is a provider of Telephone
Exchange Service to residential and business subscribers over its own Telephone
Exchange Service facilities or in combination with the resale of the
Telecommunications Services of other carriers.
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4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)
Subject to the terms and conditions of this Agreement, Interconnection of
the Parties' facilities and equipment pursuant to Section 4.0 for the
transmission and routing of Telephone Exchange Service traffic and Exchange
Access traffic shall be established on or before the corresponding
"Interconnection Activation Date" shown for each such LATA within the
Commonwealth of Massachusetts on Schedule 4.0. Schedule 4.0 may be revised and
supplemented from time to time upon the mutual agreement of the Parties to
reflect the Interconnection in the additional LATA in Massachusetts pursuant to
Section 4.5 by attaching one or more supplementary schedules to such schedule.
4.1 Scope
Section 4.0 describes the physical architecture for Interconnection of the
Parties' facilities and equipment for the transmission and routing of Telephone
Exchange Service Traffic and Exchange Access traffic pursuant to Section
251(c)(2) of the Act. Sections 5.0 and 6.0 prescribe the specific logical trunk
groups (and traffic routing parameters) which will be configured over the
physical connections described in this Section 4.0 related to the transmission
and routing of Telephone Exchange Service Traffic and Exchange Access traffic,
respectively. Other trunk groups, as described in this Agreement, may be
configured using this architecture.
4.2 Physical Interconnection of Networks
The Parties mutually agree that the following are possible methods
for interconnecting facilities:
1. Collocation using physical collocation used unless technical
feasibility or space limitations make that model impractical; or
2. via purchase of facilities from either Party by the other
Party;
3. upon mutual agreement as to technical feasibility,
interconnection on a mid-span basis; or
4. upon mutual agreement any other technically feasible basis
permitted by law.
Each Party ("Providing Party") shall provide to the other Party ("Collocation
Party"), upon request, Physical Collocation for the placement of the Collocation
Party's transport facilities and equipment, pursuant to the terms and conditions
of the Providing Party's applicable tariffs on file with the appropriate
regulatory agency and License Agreements, as necessary for Interconnection or
for access to unbundled Network Elements (pursuant to Section 9.0). Transport
Facilities may be purchased at the rates, terms and conditions set forth in each
Party's Intrastate Private Line or Interstate Access Services tariffs.
4.2.1 The Parties agree that the existing interconnection
architecture shall provide the model for network interconnection following the
execution of this Agreement. The Parties will cooperatively work to implement
either of the alternative models upon request of either Party or pursuant to the
Joint Grooming Plan and forecast under Section 5.3.1. TCG will establish a point
of interconnection at each and every access tandem where TCG desires to provide
connection to end-offices subtending those access tandems. Alternatively, TCG
may elect to interconnect directly to BA's End Offices for completion of
Telephone Exchange Service Traffic to BA end-users. BA will connect at each TCG
combination End Office Tandem serving as an Access Tandem in each LATA in BA's
operating territory within Massachusetts. Such interconnecting facilities will
conform at a minimum. to the telecommunications industry standard, Bellcore
Standard No. TR-NWT-0499. Signal Transfer Point, Signaling System 7 ("SS7")
connectivity will be used at each appropriate interconnection point. BA will
provide out-of-band signaling using Common Channel Signaling Access capability
where technically and economically feasible, in accordance with the technical
specifications set forth in the Bellcore Guidelines for SS-7 interconnection
(TR-TSV-000905). The Parties agree that their facilities shall provide the
necessary on-hook, off-hook answer and disconnect supervision and shall hand off
calling number ID when available and technically feasible. The Parties further
agree that in the event either Party interconnects through the purchase of
facilities and/or services from the other Party, the available tariff rates will
apply to the purchase of such facilities and/or services.
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4.2.2 The Parties mutually agree to establish trunk groups
sufficient in capacity to provide a grade of service, availability and service
quality which is comparable to that provided on interoffice trunk groups within
BA's network and which meets all appropriate and relevant industry-accepted
quality, reliability and availability standards. Notwithstanding the foregoing,
each Party may construct its network, including the interconnecting facilities,
to achieve optimum cost effectiveness and network efficiency.
4.3 Numbering Plans
The Parties agree to bill Telephone Exchange Service Calls made by
their respective Customers to NXX Codes served by another Party based on the V&H
rating points assigned to the NXX Codes of the other Party. The V&H rating
points of the originating Customer and the terminating Customer will determine
the rating of calls.
4.4 Technical Specifications
4.4.1 TCG and BA shall work cooperatively to install and maintain
a reliable network. TCG and BA shall exchange appropriate information (e.g.,
maintenance contact numbers, network information, information required to comply
with law enforcement and other security agencies of the Government and such
other information as the Parties shall mutually agree) to achieve this desired
reliability.
4.4.2 TCG and BA shall work cooperatively to apply sound network
management principles by invoking network management controls to alleviate or to
prevent congestion.
4.4.3 The publication "Bellcore Technical Publication
TR-INS-000342; High Capacity Digital Special Access Service, Transmission
Parameter Limits and Interface Combinations" describes the practices,
procedures, specifications and interfaces generally utilized by BA and is
referenced herein to assist the Parties in meeting their respective
Interconnection responsibilities related to Electrical/Optical Interfaces.
4.5 Interconnection in Additional LATA
4.5.1 If TCG determines to offer Telephone Exchange Services in
the other LATA in which BA also offers Telephone Exchange Services in
Massachusetts, TCG shall provide written notice to BA of the need to establish
Interconnection in such LATA pursuant to this Agreement.
4.5.2 The notice provided in Section 4.5.1 shall include (i) TCG's
switch location in the LATA; (ii) TCG's desired Network Interconnection Points
(NIP); (iii) TCG's requested Interconnection Activation Date; and (iv) a
non-binding forecast of trunking requirements.
4.5.3 Unless otherwise agreed by the Parties, the Interconnection
Activation Date in the new LATA shall be no more than the one hundred and
fiftieth (150th) calendar day following the day on which TCG delivered notice to
BA of the need to establish Interconnection pursuant to Section 4.5.1. Within
ten (10) business days of BA's receipt of the TCG's Notice, BA and TCG shall
confirm in writing the Network Interconnection Points, and Interconnection
Activation Date for the LATA.
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT
TO SECTION 251(c)(2)
5.1 Scope of Traffic
Section 5.0 prescribes parameters for trunk groups (the "Traffic Exchange
Trunks") to be effected over the Interconnections specified in Section 4.0 for
the transmission and routing of Local Traffic and IntraLATA Toll Traffic between
the Parties' respective Telephone Exchange Service Customers.
5.2 Switching System Hierarchy
Either Party may deploy End Office switches, Tandem switches, or
combination End Office Tandem switches as required to meet their respective
network design requirements.
5.3 Trunk Group Architecture and Traffic Routing
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The Parties shall jointly engineer and configure Traffic Exchange Trunks
over the physical Interconnection arrangements covered in Section 4.2 as
follows:
5.3.1 The Parties shall maintain the existing network
configuration pending the development and implementation of a mutually
acceptable Joint Grooming Plan.
5.3.2 Notwithstanding anything to the contrary in this Section
5.0, if the two-way traffic volumes between any two Central Office Switches at
any time exceeds the CCS busy hour equivalent of one DS1, the Parties shall
within sixty (60) days after such occurrence add trunks or establish new direct
trunk groups consistent with the grades of service and quality parameters set
forth in the Joint Grooming Plan; provided, however, nothing in this Section 5.3
shall require a Party to establish new direct trunk groups on or before the date
which is one hundred and twenty (120) days after the applicable Interconnection
Activation Date; provided, however, that if such traffic volume is exceeded
within such one hundred and twenty (120) day period, such Party shall establish
new direct trunk groups on the date which is the later of sixty (60) days after
such occurrence or one hundred and twenty-one (121) days after the
Interconnection Activation Date.
5.4 Signaling
5.4.1 Where available, CCIS signaling shall be used by the Parties
to set up calls between the Parties' Telephone Exchange Service networks. If
CCIS signaling is unavailable, Multi-Frequency ("MF") signaling shall be used by
the Parties. Each Party shall charge the other Party equal and reciprocal rates
for CCIS signaling in accordance with applicable tariffs. During the term of
this Agreement neither Party shall charge the other Party additional usage-
sensitive rates for SS7 queries made for Local Traffic.
5.4.2 The publication "Bellcore Special Report SR-TSV-002275, BOC
Notes on the LEC Networks - Signaling" describes the practices, procedures and
specifications generally utilized by BA for signaling purposes and is referenced
herein to assist the Parties in meeting their respective Interconnection
responsibilities related to signaling.
5.4.3 The Parties shall cooperate on the exchange of Transactional
Capabilities Application Part ("TCAP") messages to facilitate interoperability
of CCIS-based features between their respective networks, including all CLASS
features and functions on IntraLATA calls only, to the extent each Party offers
such features and functions to its Customers. All CCIS signaling parameters will
be provided including, calling Party number ("CPN"), originating line
information ("OLI"), calling Party category and charge number. The Parties will
provide each other with Destination Point Codes necessary to rout call
associated and non-call associated (eg.,TCAP) messages.
5.4.4 Each Party shall provide trunk groups where available that
are configured utilizing the B8ZS ESF protocol for 64 Kbps clear channel
transmission to allow for ISDN interoperability between the Parties' respective
networks.
5.5 Grades of Service
The Parties shall initially engineer and shall jointly monitor and enhance
all trunk groups consistent with the Joint Grooming Plan.
5.6 Measurement and Billing
5.6.1 For billing purposes, each Party shall pass Calling Party
Number ("CPN") information on each call carried over the Traffic Exchange
Trunks; provided that so long as the percentage of calls passed with CPN is
greater than ninety percent (90%), all calls exchanged without CPN information
shall be billed as either Local Traffic or IntraLATA Toll Traffic in direct
proportion to the minutes of use of calls exchanged with CPN information.
5.6.2 Measurement of billing minutes (except for originating
800/888 calls) shall be in actual conversation seconds. Measurement of billing
minutes for originating 800/888 calls shall be in accordance with applicable
tariffs (i.e., access minutes as defined in FCC No. 1 tariff will be used).
5.6.3 Where CPN is not available in a LATA for greater than ten
percent (10%) of the traffic, the Party sending the traffic shall provide
factors to determine the jurisdiction, as well as local vs. toll distinction, of
the traffic. Such factors shall be supported by call record details that will be
made available for review upon request.
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Where a Party is passing CPN but the receiving Party is not properly receiving
or recording the information, the Parties shall cooperatively work to correctly
identify the traffic, and establish a mutually agreeable mechanism that will
prevent improperly rated traffic. Notwithstanding this, if any improperly rated
traffic occurs, the Parties agree to reconcile it.
5.6.4 Notwithstanding the above, if either Party has technical
difficulty meeting the requirements of Section 5.6 the Parties agree to work
cooperatively to develop interim measurements and billing procedures for
determining traffic jurisdiction, directionality and the Tandem/End Office mix
for Traffic Exchange Trunks. The interim measurement and billing procedures
shall apply for a period not to exceed twelve (12) months unless a different
time period is mutually agreed to by the Parties.
5.7 Reciprocal Compensation Arrangements -- Section 251(b)(5)
5.7.1 Reciprocal Compensation only applies to the transport and
termination of Local Traffic billable by BA or TCG which a Telephone Exchange
Service Customer originates on BA's or TCG's network for termination on the
other Party's network within the same LATA except as provided in Section 13.6
below.
5.7.2 Except as provided in Section 5.7.3 below, the Parties shall
compensate each other for transport and termination of Local Traffic in an equal
and symmetrical manner as provided in the Pricing Schedule. No additional
charges, including port or transport charges, shall apply for the termination of
Local Traffic. When Local Traffic is terminated over the same trunks as other
traffic, any port or transport or other applicable access charges related to
such other traffic shall be prorated to be applied only to such other traffic.
5.7.3 As ordered by the Department in the Consolidated
Arbitrations, when BA terminates Local Traffic to TCG subscribers using TCG's
switch and the TCG switch serves a geographic area comparable to the area served
by the BA tandem switch, BA shall pay to TCG the tandem interconnection charge
set forth in the Pricing Schedule.
5.7.4 The Reciprocal Compensation arrangements set forth in this
Agreement are not applicable to Switched Exchange Access Service, cellular
traffic or to any other intraLATA calls originated on a third Party carrier's
network on a 1+ presubscribed basis or a casual dialed (10XXX or 101XXXX) basis.
All Switched Exchange Access Service and all IntraLATA Toll Traffic shall
continue to be governed by the terms and conditions of the applicable federal
and state tariffs.
5.7.5 Compensation for transport and termination of all traffic
which has been subject to performance of INP by one Party for the other Party
pursuant to Section 13.0 shall be as specified in Section 13.6.
5.7.6 When either Party delivers seven (7) or ten (10) digit
translated intraLATA 800/888 service to the other Party for termination, the
originating Party shall provide the terminating Party with billing records in
industry standard format (EMR) if required by the terminating Party. The
originating Party may bill the terminating Party for the delivery of the traffic
at local reciprocal compensation rates. The terminating Party may not bill the
originating Party reciprocal compensation under this Agreement. The Party that
is providing the 800/888 service shall pay the database inquiry charge per the
Pricing Schedule to the Party that performed the database inquiry.
5.8 Municipal Calling Service
The Parties shall work cooperatively to facilitate each Party's public
service obligations to provide its end user customers with toll free Municipal
Calling Service ("MCS") or similar services which treat certain toll calls as
local. Such cooperation shall include the sharing of certain account and toll
free municipal ("TFM") codes on a daily or other mutually agreeable basis and
working with other industry participants to satisfactorily resolve MCS related
measurement and billing issues associated with implementation of intraLATA
presubscription.
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO SECTION
251(c)(2)
6.1 Scope of Traffic
Section 6.0 prescribes parameters for certain trunk groups ("Access Toll
Connecting Trunks") to be established over the Interconnections specified in
Section 4.0 for the
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transmission and routing of Exchange Access traffic between the Parties'
Telephone Exchange Service Customers and Interexchange Carriers ("IXCs").
6.2 Trunk Group Architecture and Traffic Routing
6.2.1 The Parties shall jointly establish Access Toll Connecting
Trunks by which they will jointly provide tandem-transported Switched Exchange
Access Services to Interexchange Carriers to enable such Interexchange Carriers
to originate and terminate traffic from/to the Parties' Customers.
6.2.2 Access Toll Connecting Trunks shall be used solely for the
transmission and routing of Exchange Access to allow the Parties' Customers to
connect to or be connected to the interexchange trunks of any Interexchange
Carrier which is connected to either of the Parties' Access Tandem.
6.2.3 The Access Toll Connecting Trunks may be two-way trunks
connecting an End Office Switch utilized to provide Telephone Exchange Service
and Switched Exchange Access in a given LATA to an Access Tandem Switch utilized
to provide Exchange Access in such LATA.
6.2.4 For Meet Point Billing at TCG's option, TCG's End Office may
subtend BA's Access Tandem. In the event TCG elects this the option, TCG's End
Office switch (i.e., Routing Point) shall subtend the BA Access Tandem nearest
to such Routing Point, as measured in airline miles utilizing the V&H coordinate
method. If TCG establishes an Access Tandem in Massachusetts, BA may at its
option subtend such TCG Access Tandem for Meet Point Billing purposes.
Alternative configurations will be discussed as part of the Joint Grooming Plan.
6.3 Meet Point Billing Arrangements
6.3.1 For the purposes of this section, the Parties agree that
Tandem and subtending End Office arrangements shall be according to LERG with
respect to interconnection between the Parties for jointly-provided Switched
Exchange Access arrangements, except as mutually amended by the Parties. The
Parties agree that where they jointly provide Switched Access Service, they will
share revenues received for such services in the manner described in this
Section:
6.3.1.1 The Parties will use the New York Intrastate Access
Settlement Pool Inc. ("NYSP") as their vendor to bill the Switched Access
Exchange Service charges to the appropriate Interexchange carrier on behalf of
both Parties based on the respective Switched Exchange Access Service Tariff
rates of the Parties (single bill, multiple tariff), in accordance with the
existing agreement executed on March 21, 1996 between the Parties and NYSP which
is incorporated by reference herein. In the event that agreement is terminated
before the termination of this Agreement, the Parties agree that it shall be
renewed or another vendor shall be selected by the Parties to perform those
functions under a similar agreement in Massachusetts. The Parties will work
cooperatively to establish and maintain these billing arrangements. In the event
the NYSP or subsequent vendor cannot perform the billing functions the Party
providing the first point of tandem switching may perform the billing collection
and revenue distribution function on a timely basis.
6.3.1.2 In accordance with the March 21, 1996 agreement between
the Parties and the NYSP, the Parties will bear the charges of the NYSP to each
of the Parties in direct proportion to the revenues distributed by the NYSP to
each of except where one Party causes the NYSP to incur unique and directly
attributable costs for extraordinary activities, then that Party shall bear the
cost of those activities.
6.3.1.3 Retroactive adjustments such as jurisdictional factor
changes by the Switched Exchange Access Service customer, if applied, will be
passed through and the Parties will "true-up" revenues based on such
adjustments.
6.3.1.4 In the 128 LATA for conventionally routed Tandem
subtending access arrangements where there is one Tandem and the Tandem Party
switches directly to the End Office using its own facilities, the NYSP will
remit to the End Office Party seventy percent (70%) of all switched access
revenues that Party would have collected were it providing the entire switched
access service, net of NYSP fees. The NYSP will remit to the Tandem Party the
remainder of all switched access revenues collected, net of NYSP fees.
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6.3.1.5 In the 128 LATA for double Tandem routed traffic, where
the Tandem Party switches to the End Office Party's Tandem using its own
facilities, the revenue distribution is as noted above in Section 6.3.1.4,
except that the percentages shall be applied at ninety percent (90%) rather than
seventy percent (70%). However, if the Tandem Party requests a conventional
routing directly into the End Office Party's End Office, and the End Office
Party does not make a direct End Office connection available to the Tandem Party
within two (2) months of the request, the billing will occur as if the traffic
were conventionally routed and the Tandem Party was switching directly to the
End Office, as stated in the paragraph above.
6.3.1.6 Nothing in this section changes or otherwise modifies BA's
provision of switched carrier access pursuant to its applicable tariffs. These
arrangements shall apply only when TCG or BA provide alternative switched
carrier access services to interexchange carriers ("IXCs") for origination or
termination of calls between an IXC and either Parties' Customers.
6.3.2.1 For jointly provided wireless traffic, the Party receiving
the traffic directly from the wireless carrier shall bill that traffic at its
appropriate tariffed rates. That Party shall keep twenty five percent (25%) of
revenues collected and shall distribute the remaining seventy five percent (75%)
of the revenues to the End Office Party. The Parties agree to continue
negotiations with respect to this provision, with the intent of agreeing on
mutually acceptable revisions within 30 business days after the Effective Date.
6.3.2.2 Nothing in this section changes or otherwise modifies BA's
provision of wireless services pursuant to its applicable tariffs. These
arrangements shall apply only when TCG or BA provide alternative wireless
services to wireless carriers for origination or termination of calls between a
wireless carrier and either Parties' Customers.
6.3.3 The provisions of Sections 6.3.1.4, 6.3.1.5 and 6.3.2.1 are
contingent upon Switched Exchange Access Service charges as they exist as of the
time of execution of this Agreement. The Parties recognize that the FCC or the
DPU may change, revise, or otherwise modify Switched Exchange Access Service. In
the event that the DPU or the FCC modifies or changes the current Switch
Exchange Access Service or wireless rate structures, including but not limited
to redirecting the allocation of the recovery of various costs between rate
elements, the Parties will renegotiate revised Meet Point Billing Arrangements
to ensure a fair and reasonable allocation of revenues. Until such time as the
Parties agree upon revised Meet Point Billing Arrangements the provisions of
Sections 6.3.1.4, 6.3.1.5 and 6.3.2.1 will remain in effect subject to a true-up
to reflect the revised Meet Point Billing Arrangements.
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
7.1.1 Each Party shall route Information Services Traffic which
originates on its own network to the appropriate information services
platform(s) connected to the other Party's network. TCG and BA will jointly
establish a dedicated trunk group to the BA information services tandem switch.
This trunk group will be utilized to allow TCG to route Information Services
Traffic originated on its network to BA, and to allow TCG to receive Information
Services Traffic from BA for a trial of interim number portability arrangements
related to Information Services Traffic.
7.1.2 In Massachusetts, subscriber priced Information Services,
including but not limited to Interactive Information Network Service, shall be
available when the originating Party orders separate trunks to the terminating
Party for termination of such traffic only. The terminating Party will charge
the originating Party $.03 per minute of use for transport and switching. The
terminating Party will make available, upon request from the originating Party,
rating service at a charge of $.03 per message plus a $15,000 non-recurring
charge, provided that the originating Party provides the terminating Party with
call records free of charge. Under rating service the terminating Party will
rate calls placed by the Originating Party's Customers and terminating to
Information Provider services on the terminating Party's network, according to
the rates established by such Information Providers. The terminating Party will
then provide the rated call records to the originating Party. The terminating
Party will not bill and collect for such rated calls. Alternatively, at the
originating Party's option, it may purchase a rating table from the terminating
Party at the rate set forth in the Pricing Schedule. The originating Party is
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responsible for all payments due the Information Providers to whose programs
that Party's Customer places calls, and other obligations and relationships with
such Information Providers.
7.1.3 Nothing in this agreement shall restrict either Party from
offering to its Exchange Service Customer the ability to block the completion of
Information Services Traffic.
7.2 Tandem Transit Service ("Transit Service")
7.2.1 "Transit Service" means the delivery of certain traffic
between TCG and a LEC by BA over the Traffic Exchange Trunks. The following
traffic types will be delivered: (i) Local Traffic or IntraLATA Toll Traffic
originated from TCG to such LEC and (ii) Local Traffic or IntraLATA Toll Traffic
originated from such LEC and terminated to TCG.
7.2.2 Subject to Section 7.2.4, the Parties shall compensate each
other for Transit Service as follows:
(a) TCG shall pay BA for Local Traffic TCG originates over the
Transit Service at the rate specified in the Pricing
Schedule plus any additional charges or costs such
terminating LEC imposes or levies on BA for the delivery
or termination of such traffic, including any switched
access charges; and
(b) BA shall pay TCG for Local, InterLATA, or IntraLATA Toll
Traffic terminated to TCG from such LEC at the appropriate
reciprocal compensation rates described in Section 5.7,
InterLATA access rates, or (where BA delivers such traffic
pursuant to the Department's primary toll carrier plan or
other similar plan) at TCG's applicable switched access
rates or local termination rate, whichever is appropriate.
7.2.3 While the Parties agree that it is the responsibility of a
LEC to enter into arrangements to deliver Local Traffic to TCG, they acknowledge
that such arrangements are not currently in place and an interim arrangement is
necessary to ensure traffic completion. Accordingly, until the earlier of (i)
the date on which either Party has entered into an arrangement with such LEC to
deliver Local Traffic to TCG or (ii) one hundred and eighty (180) days after the
Interconnection Activation Date, BA will deliver and TCG will terminate Local
Traffic originated from such LEC without charge to one another.
7.2.4 BA expects that all networks involved in Transit Service
will deliver each call to each involved network with CCIS and the appropriate
Transactional Capabilities Application Part ("TCAP") message to facilitate full
interoperability of those services supported by BA as noted in Section 1.12 and
billing functions. In all cases, TCG is responsible to follow the Exchange
Message Record ("EMR") standard and exchange records with both BA and the
terminating LEC to facilitate the billing process to the originating network.
7.2.5 For purposes of this Section 7.2, BA agrees that it shall
make available to TCG, at TCG' s sole option, any transiting arrangement BA
offers to another LEC at the same rates, terms and conditions provided to such
other LEC.
7.3 Dedicated Transit Service
7.3.1 "Dedicated Transit Service" provides for the dedicated
connection between a TCG collocation arrangement established pursuant to
applicable tariffs and/or license agreements at a BA premises and a collocation
arrangement of a third Party carrier that maintains a collocation arrangement at
the same premises. Dedicated Transit Service shall be provided using a
cross-connection (dedicated connection) using suitable BA-provided cable or
transmission facilities or any other mutually agreed upon arrangement.
7.3.2 The carrier that requests the Dedicated Transit Service
shall be the customer of record for both ends of the service in terms of
ordering, provisioning, maintenance, and billing. Alternative arrangements may
be utilized if agreed upon by all three Parties.
7.4 911/E911 Arrangements
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7.4.1 Definition. 911 and E911 traffic refers to emergency calls
originated by dialing 9-1-1. Other emergency calls include calls routed to an
operator position by dialing 0-. The Parties agree to cooperate to ensure the
seamless operation of emergency call networks, including 911, E-911 and 0-
calls.
7.4.2 The Parties agree to establish unique Trunk Groups to
properly route E911 traffic where the end user subscriber has dialed 911. Calls
originating on TCG's network will be routed to the appropriate BA 911 Tandem
and/or selective router for routing to the PSAP ("PSAP") serving the end user.
This Trunk Group will be established between TCG's switching entity(ies) and
BA's 911 Tandems as a one-way CAMA MF trunk group. When SS7 connectivity is
available, the Parties agree to implement CCS trunking. The capacity of these
trunk groups will be determined pursuant to existing State, local and BA
guidelines. BA shall provide TCG with the following:
a) Processes and requirements for ordering trunks. TCG shall be
responsible for issuing E911 trunk group orders to BA.
b) Trunk group specifications. The Parties agree these trunks
will use either CAMA MF or SS7 signaling.
c) Tandem CLLI codes, circuit IDs.
d) Description of BA diversity for facility routing.
e) Maintenance requirements for this trunk group, including, but
not limited to contact points, escalation lists, including 24
by 7 availability, etc.
7.4.3 TCG will interconnect to the BA 911/E911 selective
router/911 tandems which serve the areas in which TCG provides exchange
services, for the provision of 911/E911 services and for access to all
sub-tending Public Safety Answering Points ("PSAPs"). BA will provide TCG with
the appropriate CLLI codes and specifications of the tandem serving area.
7.4.4 Path and route diverse interconnections for 911/E911 shall
be made at the Network Interconnection Points (NIPs), or other points as
necessary and mutually agreed.
7.4.5 BA will provide TCG with an electronic interface through
which TCG shall input and provide a daily update of 911/E911 database
information related to appropriate TCG Customers. BA will provide TCG with the
Master Street Address Guide ("MSAG") so that TCG can ensure the accuracy of the
data transfer. Additionally, BA shall assist TCG in identifying the appropriate
person in each municipality for the purpose of obtaining the ten-digit
Subscriber number of each PSAP. If electronic data entry is not available, BA,
as the operator of the Automatic Location Identifier (ALI) database, will
establish interim processes and procedures to receive and process TCG customer
information within twenty-four (24) hours. BA has provided TCG with the record
input format.
7.4.6 BA and TCG will use their best efforts to facilitate the
prompt, robust, reliable and efficient interconnection of TCG systems to the
911/E911 platforms.
7.4.7 BA and TCG will work cooperatively to arrange meetings with
PSAPs to answer any technical questions the PSAPs, or county or municipal
coordinators may have regarding the 911/E911 arrangements.
7.4.8 TCG will compensate BA for connections to its 911/E911
pursuant to the Pricing Schedule.
7.4.9 TCG and BA will comply with all applicable rules and
regulations pertaining to the provision of 911/E911 services in the Commonwealth
of Massachusetts.
7.4.10 BA agrees to furnish to TCG at a charge set forth in the
Pricing Schedule for a one (1) year subscription for the list of 10 digit
administrative numbers for the PSAPs in the Eastern Massachusetts LATA (LATA
128). TCG agrees to hold this information proprietary and will use the
information solely for the purpose of routing 0 minus for emergency calls from
the TCG Operator Services platform to the PSAPs. BA agrees to provide TCG with
updates to this information in accordance with the terms and conditions of the
Emergency Bulletin Service subscription.
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7.4.11 Master Street Address Guide. Based on the frequency of
updates, BA agrees to provide bi-annually free of charge to TCG the Master
Street Address Guide (MSAG) for the LATA in which TCG operates. The MSAG will be
provided in machine readable format (diskette or 9-track magnetic tape) on
January 2nd and July 1st of each year. The Parties further agree BA will provide
TCG with copies on a more frequent basis for a fee of $250.00 per LATA. The
Parties will cooperate to ensure the accuracy of the MSAG, and agree to work
together to resolve any error reports generated BA agrees to provide feedback to
municipal and PSAP representatives of errors discovered by TCG.
8.0 JOINT NETWORK CONFIGURATION AND GROOMING PLAN; AND INSTALLATION,
MAINTENANCE, TESTING AND REPAIR.
8.1 Joint Network configuration and Grooming Plan. Within six (6) months of
execution of this Agreement, TCG and BA shall jointly develop a grooming plan
(the "Joint Grooming Plan") which shall define and detail, inter alia,
(a) agreement on Physical Architecture
(b) standards to ensure that Interconnection trunk groups
experience a grade of service, availability and quality which
is comparable to that achieved on interoffice trunks within
BA's network and in accord with all appropriate relevant
industry-accepted quality, reliability and availability
standards;
(c) the respective duties and responsibilities of the Parties with
respect to the administration and maintenance of the trunk
groups, including but not limited to standards and procedures
for notification and discoveries of trunk disconnects;
(d) disaster recovery provision escalations;
(e) a mutually agreeable alternative routing plan; and
(f) such other matters as the Parties may agree.
8.2 Installation, Maintenance, Testing and Repair. Where facilities exist,
BA's standard intervals as set forth in Schedule 8.2 will be utilized in
connection with the establishment of all Interconnection trunking arrangements
between the Parties. TCG shall meet the same intervals for comparable
installations, maintenance, joint testing, and repair of its facilities and
services associated with or used in conjunction with Interconnection. If either
Party is unable to meet the intervals specified herein, that Party shall notify
the other and will negotiate additional intervals in good faith.
9.0 UNBUNDLED ACCESS -- SECTION 251(C)(3)
9.1 Local Link Transmission Types
Subject to Section 9.5, BA shall allow TCG to access the following Link
types (in addition to those Links available under applicable tariffs) unbundled
from local switching and local transport in accordance with the terms and
conditions set forth in this Section 9.0.
9.1.1 "2-Wire Analog Voice Grade Links" or "Analog 2W" which
support analog transmission of 300-3000 Hz, repeat link start, link reverse
battery, or ground start seizure and disconnect in one direction (toward the End
Office Switch), and repeat ringing in the other direction (toward the Customer).
Analog 2W include Links sufficient for the provision of PBX trunks, pay
telephone lines and electronic key system lines.
9.1.2 "4-Wire Analog Voice Grade Links" or "Analog 4W" which
support transmission of voice grade signals using separate transmit and receive
paths and terminate in a 4-wire electrical interface.
9.1.3 "2-Wire ISDN Digital Grade Links" or "BRI ISDN" (Premium
Link) which support digital transmission of two 64 Kbps bearer channels and one
16 Kbps data channel. BRI ISDN is a 2B+D Basic Rate Interface-Integrated
Services Digital Network ("BRI-ISDN") Link which will meet national ISDN
standards and conform to ANSI T1.601-1992 & T1E1.4 90- 004R3.
9.2 ADSL and HDSL
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The Parties acknowledge that ADSL is not currently deployed for
use in the BA network. If the issues surrounding deployment of ADSL in BA's
network are satisfactorily resolved and ADSL is deployed, BA shall allow TCG to
access ADSL Links unbundled from local switching and local transport in
accordance with the terms and conditions set forth in this Section 9.0.
9.2.1 "2-Wire ADSL-Compatible Link" or "ADSL 2W" is a transmission
path which facilitates the transmission of up to a 6 Mbps digital signal
downstream (toward the Customer) and up to a 640 Kpbs digital signal upstream
(away from the Customer) while simultaneously carrying an analog voice signal.
An ADSL-2W is provided over a 2-Wire non- loaded twisted copper pair provisioned
using revised resistance design guidelines and meeting ANSI Standard
T1.413-1995-007R2. An ADSL-2W terminates in a 2-wire electrical interface at the
Customer premises and at the BA Central Office frame. ADSL technology can only
be deployed over Links which extend less than 18 Kft. from BA's Central Office.
ADSL compatible Links are only available where existing copper facilities can
meet the ANSI T1.413-1995-007R2 specifications.
9.2.2 "2-Wire HDSL-Compatible Link" or "HDSL 2W" is a transmission
path which facilitates the transmission of a 768 Kbps digital signal over a
2-Wire non-loaded twisted copper pair meeting the specifications in ANSI T1E1
Committee Technical Report Number 28 / T1E1.4/92-002R3. HDSL compatible Links
are available only where existing copper facilities can meet the T1E1 Technical
Report Number 28 specifications.
9.2.3 "4-Wire HDSL-Compatible Link" or "HDSL 4W" is a transmission
path which facilitates the transmission of a 1.544 Mbps digital signal over two
2-Wire non-loaded twisted copper pairs meeting the specifications in ANSI T1E1
Committee Technical Report Number 28. HDSL compatible Links are available only
where existing copper facilities can meet the specifications.
9.2.4 Links will be offered on the terms and conditions specified
herein and on such other terms in applicable tariffs that are not inconsistent
with the terms and conditions set forth herein. BA shall make Links available to
TCG at the rates specified by the Department, as amended from time to time.
9.3 Port Types
BA shall make available to TCG unbundled Ports upon request under terms to
be negotiated by the parties and at rates that have been established by the
Department in the Consolidated Arbitrations, as those rates may be amended or
revised from time to time, or in accordance with the terms and conditions of and
at the rates specified in applicable tariffs.
9.4 Private Lines, Special Access and Switched Transport
BA shall provide unbundled private lines, special access and switched local
transport from the trunk side of its switches in accordance with the terms and
conditions of and at the rates specified in applicable tariffs.
9.5 Limitations on Unbundled Access
9.5.1 TCG may not cross-connect a BA-provided Link to a
BA-provided Port but instead shall purchase a network access line under
applicable tariffs.
9.5.2 BA shall only be required to provide Links and Ports where
such Links and Ports are available.
9.5.3 TCG shall access BA's unbundled Network Elements
specifically identified in this Agreement via Collocation in accordance with
Section 12.0 at the BA Wire Center where those elements exist and each Link or
Port shall be delivered to TCG's Collocation node by means of a Service Access
Charge at the rates set forth in Pricing Schedule.
9.5.4 BA shall provide TCG access to its unbundled Links at each
of BA's Wire Centers. In addition, if TCG requests one or more Links serviced by
Integrated Digital Link Carrier or Remote Switching technology deployed as a
Link concentrator, BA shall, where available, move the requested Link(s) to a
spare, existing physical Link at no charge to TCG. If, however, no spare
physical Link is available, BA shall within three (3) business days of TCG's
request notify TCG of the lack of available facilities. TCG may then at its
discretion make a Network Element Bona Fide Request to BA to provide the
unbundled Link through the demultiplexing of the integrated digitized Link(s).
TCG may
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also make a Network Element Bona Fide Request for access to unbundled Links at
the Link concentration site point. Notwithstanding anything to the contrary in
this Agreement, the provisioning intervals set forth in Section 9.7 shall not
apply to unbundled Links provided under this Section 9.5.4.
9.5.5 If TCG orders a Link type and the distance requested on such
Link exceeds the transmission characteristics as referenced in the corresponding
Technical Reference specified below, distance extensions may be required and
additional rates and charges shall apply as set forth on the Pricing Schedule.
Parties agree that full technical solutions may not be available for HDSL and
ADSL for these arrangements at the signing of this agreement, but will make a
good faith effort to implement such solutions.
Link Type Technical Reference/Limitation
Electronic Key Line 2.5 miles
ISDN Bellcore TA-NWT-000393
HDSL 2W T1E1 Technical Report Number 28
HDSL 4W T1E1 Technical Report Number 28
ADSL 2W ANSI T1.413-1995 Specification
9.6 Availability of Other Network Elements on an Unbundled Basis
9.6.1 BA shall, upon request of TCG, at any technically feasible
point provide to TCG access to its Network Elements on an unbundled basis for
the provision of TCG'S telecommunications Service. Any request by TCG for access
to a BA Network Element that is not already available shall be treated as a
Network Element Bona Fide Request. TCG shall provide BA access to its Network
Elements as mutually agreed by the Parties or as required by the Act, Department
or FCC.
9.6.2 A Network Element obtained by one Party from the other Party
under this Section 9.6 may be used in combination with the facilities of the
requesting Party only to provide a Telecommunications Service, including
obtaining billing and collection, transmission, and routing of the
Telecommunications Service.
9.6.3 Notwithstanding anything to the contrary in this Section
9.6, a Party shall not be required to provide a proprietary Network Element to
the other Party under this Section 9.6 except as required by the Act, Department
or FCC or by law.
9.7 Provisioning of Unbundled Links
The following coordination procedures shall apply for new unbundled Links
and the conversions of "live" Telephone Exchange Services to unbundled Links
(herein after referred to as "hot cuts"):
9.7.1 TCG shall request unbundled Links from BA by delivering to
BA a valid electronic transmittal Service Order using the BA electronic ordering
platform (as cooperatively designed and implemented to meet the minimum
requirements for information exchange needed to order and provision services to
certified local exchange carriers and enhanced to support industry standards as
developed for interconnection services) or another mutually agreed upon system.
Within 2 business days of BA's receipt of a Service Order, BA shall provide TCG
the firm order commitment ("FOC") date.
9.7.2 BA agrees to accept from TCG at the time the service request
is submitted for scheduled conversion of hot cut unbundled Link orders, a
desired date and time (the "Scheduled Conversion Time") in the "A.M." (12:01
midnight to 12:00 noon) or "P.M." (12:01 noon to 12:00 midnight) (as applicable,
the "Conversion Window") for the hot cut.
9.7.3 BA shall test for TCG dial tone at the POT Bay by testing
through the tie cable provisioned between the BA main distributing frame and the
TCG expanded interconnection node forty eight (48) hours prior to the Scheduled
Conversion Time.
9.7.4 Not less than one hour prior to the Scheduled Conversion
Time, either Party may contact the other Party and unilaterally designate a new
Scheduled Conversion Time (the "New Conversion Time"). If the New Conversion
Time is within the Conversion Window, no charges shall be assessed on or waived
by either Party. If, however, the New Conversion Time is outside of the
Conversion Window, the Party requesting such New Conversion Time shall be
subject to the following:
If BA requests the New Conversion Time, the applicable Service Order
Charge shall be waived; and
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If TCG requests the New Conversion Time, TCG shall be assessed a
Service Order Charge in addition to the Line Connection Charge that
will be incurred for the New Conversion Time.
9.7.5 Except as otherwise agreed by the Parties for a specific
conversion, such as large cutovers of 10 lines or more that have negotiated
intervals, the Parties agree that the time interval expected from disconnection
of BA's "live" Telephone Exchange Service to the connection of an unbundled
Network Element at the TCG Collocation node's POT Bay will be accomplished
within a window of time of sixty (60) minutes or less. If a conversion exceeds
the specified interval and such delay is caused solely by BA (and not by a
contributing Delaying Event, BA shall waive the applicable tariffed Service
Order Charge for such element. If TCG has ordered INP with the installation of a
Link, BA will coordinate the implementation of INP with the Link conversion
during the above stated intervals at no additional charge.
9.7.6 If TCG requests or approves a BA technician to perform
services in excess of or not otherwise contemplated by the Line Connection
charge, BA may charge TCG for any additional and reasonable labor charges to
perform such services.
9.7.7 If as the result of end user actions, (e.g., Customer not
ready ["CNR"]), BA cannot complete requested work activity when a technician has
been dispatched to the site, TCG will be assessed a non-recurring charge
associated with this visit. This charge will be the sum of the Service Order
Charge and Premises Visit Charge as specified in the D.P.U. Mass. No. 10 Part M
Section 1.3.2.
9.7.8 Until such time as the DPU approves a non-recurring
unbundled network element Service Order Charge(s), an interim non-recurring
Service Order Charge shall be assessed on a per link (or other unbundled network
element) basis. The interim Service Order Charge shall equal the Central Office
Line Connection Charge to install a business network access line, as specified
in DPU Mass. No. 10, Part M, Section 1.3.1.
9.8 Maintenance of Unbundled Network Elements
If (i) TCG reports to BA a Customer trouble, (ii) TCG requests a dispatch,
(iii) BA dispatches a technician, and (iv) such trouble was not caused by BA's
facilities or equipment in whole or in part, then TCG shall pay BA a trip charge
of $60.00 and $28.15 per quarter hour for time associated with said dispatch
beyond the first 1/2 hour. In addition this charge also applies when the end
user contact as designated by TCG is not available at the appointed time. TCG
accepts responsibility for initial trouble isolation and providing BA with
appropriate dispatch information based on their test results. If as the result
of TCG instructions, BA is erroneously requested to dispatch within a BA Central
Office or to a POT Bay ("dispatch in"), a charge of $100.00 per occurrence will
be assessed to TCG by BA.
9.9 Acknowledgments Related to Unbundled Network Elements
9.9.1 TCG acknowledges that BA's provision of unbundled Links
provides it with local loop transmission from the central office to the
customer's premises, unbundled from local switching or other services.
9.9.2 TCG acknowledges that BA's provision of unbundled switched
transport provides it with local transport from the trunk side of a wireline
local exchange carrier switch unbundled from switching or other services.
9.9.3 TCG acknowledges that BA's provision of unbundled line-side
Ports and unbundled trunk-side Ports makes available local switching unbundled
from transport, local loop transmission and other services.
9.9.4 TCG acknowledges that the Network Element Bona Fide Request
Process established pursuant to this Agreement satisfies the requirements of the
Act to provide unbundled network elements.
10.0 RESALE -- SECTIONS 251(C)(4) AND 251(B)(1)
10.1 Availability of Wholesale Rates for Resale
BA shall offer to TCG for resale at wholesale rates its local exchange
telecommunications services, as described in Section 251(c)(4) of the Act, at
the rates
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set forth in the Pricing Schedule, pending approval by the DPU of permanent
resale rates, pursuant to the terms and conditions of BA's applicable approved
tariffs.
10.2 Availability of Retail Rates for Resale
Each Party shall make available its Telecommunications Services for resale
at retail rates to the other Party in accordance with Section 251(b)(1) of the
Act in accordance with each Party's applicable approved tariffs.
10.3 Term and Volume Discounts
BA, in response to an TCG request, agrees to offer term and volume
discounts for resold retail services.
11.0 NOTICE OF CHANGES -- SECTION 251(C)(5)
If a Party makes a change in its network which it believes will materially
affect the inter-operability of its network with the other Party, the Party
making the change shall provide at least ninety (90) days advance written notice
of such change to the other Party.
12.0 COLLOCATION -- SECTION 251(C)(6)
12.1 BA shall provide to TCG Physical Collocation for its transport
facilities and equipment, pursuant to the terms and conditions of BA's
applicable tariffs on file with the appropriate regulatory agency, as necessary
for Interconnection (pursuant to Section 4.0) or for access to unbundled Network
Elements (pursuant to Section 9.0). BA may provide for Virtual Collocation if BA
demonstrates to the Department that Physical Collocation is not practical for
technical reasons or because of space limitations, as provided in Section
251(c)(6) of the Act. Upon request by TCG and to the extent technically feasible
and as space permits, BA shall provide collocation at additional locations for
placement of such equipment and alternative physical collocation arrangements.
12.2 A Collocation Party shall have no jurisdictional limits on the use of
its facilities services within those collocated spaces; provided however all
services and facilities ordered from the other Party for interconnection at the
collocated space must be ordered according to the appropriate jurisdiction as
specified in applicable tariffs.
12.3 Although not required to do so by Section 251(c)(6) of the Act, by
this Agreement, TCG agrees to provide to BA upon BA's Network Element Bona Fide
Request, Collocation of equipment for purposes of Interconnection (pursuant to
Section 4.0) on a non-discriminatory basis and at comparable rates, terms and
conditions BA provides to TCG. TCG shall provide such Collocation subject to
applicable tariffs or contracts.
12.4 The Collocating Party shall provide its own or third-Party leased
transport facilities and terminate those transport facilities in equipment
located in its Physical Collocation space at the Housing Party's premises as
described in applicable tariffs or contracts and purchase Cross Connection to
services or facilities as described in applicable tariffs or contracts.
12.5 By January 1, 1998, the Parties will mutually develop a process to
determine appropriate timeframes for the provision of collocation and the
corresponding service intervals and appropriate remedies for failure to meet
such intervals.
12.6 Prior to January 1, 1998, the Parties shall provide collocation in an
End Office within one hundred (100) business days of the receipt of an
acceptable complete and accurate application for collocation, a certificate of
insurance and a fifty (50) percent deposit of the collocation charges.
13.0 NUMBER PORTABILITY -- SECTION 251(B)(2)
13.1 Scope
13.1.1 The Parties shall provide Number Portability on a
reciprocal basis to each other to the extent technically feasible, and in
accordance with rules and regulations as from time to time prescribed by the FCC
and/or the Department.
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13.1.2 Until Number Portability is implemented by the industry
pursuant to regulations issued by the FCC or the Department, the Parties agree
to provide Interim Telecommunications Number Portability ("INP") to each other
through remote call forwarding, route indexing, and full NXX code migration at
the prices listed in the Pricing Schedule.
13.1.3 Once Number Portability is implemented pursuant to FCC or
Department regulation, either Party may withdraw, at any time and at its sole
discretion, its INP offerings, subject to advance notice to the other Party and
coordination to allow the seamless and transparent conversion of INP Customer
numbers to Number Portability. Upon implementation of Number Portability
pursuant to FCC regulation, both Parties agree to conform and provide such
Number Portability.
13.2 Procedures for Providing INP Through Remote Call Forwarding
TCG and BA will provide INP through Remote Call Forwarding as follows:
13.2.1 A Customer of one Party ("Party A") elects to become a
Customer of the other Party ("Party B"). The Customer elects to utilize the
original telephone number(s) corresponding to the Exchange Service(s) it
previously received from Party A, in conjunction with the Exchange Service(s) it
will now receive from Party B. Upon receipt of a signed letter of agency from
the Customer (and an associated service order) assigning the number to Party B,
Party A will implement an arrangement whereby all calls to the original
telephone number(s) will be forwarded to a new telephone number(s) designated by
Party B. Party A will route the forwarded traffic to Party B over the
appropriate Local/IntraLATA Trunks as if the call had originated on Party A's
network.
13.2.2 Party B will become the customer of record for the original
Party A telephone numbers subject to the INP arrangements. Party A shall use its
reasonable efforts to consolidate into as few billing statements as possible all
collect, calling card, and 3rd-number billed calls associated with those
numbers, with sub-account detail by retained number or Party B can have Party A
block such calls. At Party B's sole discretion, such billing statement shall be
delivered to Party B in an agreed-upon format via either electronic file
transfer, daily magnetic tape, or monthly magnetic tape.
13.2.3 Party A will update its Line Information Database ("LIDB")
listings for retained numbers, and restrict or cancel calling cards associated
with those forwarded numbers as directed by Party B.
13.2.4 Within two (2) business days of receiving notification from
the Customer, Party B shall notify Party A of the Customer's termination of
service with Party B, and shall further notify Party A as to that Customer's
instructions regarding its telephone number(s). Party A will reinstate service
to that Customer, cancel the INP arrangements for that Customer's telephone
number(s), or redirect the INP arrangement to another INP-participating-LEC
pursuant to the Customer's instructions at that time.
13.3 Procedures for Providing INP Through Route Indexing
Upon mutual agreement, BA will deploy a Route Index arrangement which
combines direct trunks, provisioned between BA's and TCG'S end offices, with
trunk side routing translations. Under this arrangement, inbound calls to a
ported number will be pointed at a route index that sends the call to a
dedicated trunk group, built as a direct final, for the sole purpose of
facilitating completion of calls to a ported number. BA will coordinate with TCG
to provide this solution in a mutually agreeable and administratively manageable
manner (e.g., NXX level) so as to minimize switch resource utilization for both
Parties.
13.4 Procedures for Providing INP Through Full NXX Code Migration
Where either Party has activated an entire NXX for a single Customer, or
activated a substantial portion of an NXX for a single Customer with the
remaining numbers in that NXX either reserved for future use or otherwise
unused, if such Customer chooses to receive service from the other Party, the
first Party shall cooperate with the second Party to have the entire NXX
reassigned in the LERG (and associated industry databases, routing tables, etc.)
to an End Office operated by the second Party. Such transfer will be
accomplished with appropriate coordination between the Parties and subject to
appropriate industry lead-times for movements of NXXs from one switch to
another.
13.5 Other Interim Number Portability Options
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TCG may also request direct inward dial trunks pursuant to applicable
tariffs. If information on the interim number portability is made available to
any Party it will be made available to TCG.
13.6 Receipt of Terminating Compensation on Traffic to INP'ed Numbers
The Parties agree that under INP terminating compensation on calls to
INP'ed numbers should be received by each Customer's chosen LEC as if each call
to the Customer had been originally addressed by the caller to a telephone
number bearing an NPA-NXX directly assigned to the Customer's chosen LEC. In
order to accomplish this objective where INP is employed, the Parties shall
utilize the process set forth in this Section 13.6 whereby terminating
compensation on calls subject to INP will be passed from the Party which
performs the INP (the "Performing Party") to the other Party for whose Customer
the INP is provided (the "Receiving Party").
13.6.1 The Parties shall individually and collectively track and
quantify INP traffic between their networks based on the CPN of each call by
identifying CPNs which are INP'ed numbers. The Receiving Party shall charge the
Performing Party for each minute of INP traffic at the INP Traffic Rate
specified in Section 13.6.3 in lieu of any other compensation charges for
terminating such traffic.
13.6.2 By the Interconnection Activation Date in each LATA, the
Parties shall jointly estimate for the prospective year, based on historic data
of all traffic in the LATA, the percentages of such traffic that if dialed to
telephone numbers bearing NPA-NXXs directly assigned to a Receiving Party (as
opposed to the INP'ed number) would have been subject to (i) Reciprocal
Compensation ("Reciprocal Local Traffic"), (ii) Reciprocal Compensation for
IntraLATA Toll Traffic ("Reciprocal IntraLATA Toll Traffic"), (iii) appropriate
intrastate Feature Group D ("FGD") charges pursuant to Section 6.3 ("Intra
Traffic"), (iv) interstate FGD charges pursuant to Section 6.3 ("Inter
Traffic"), or (v) handling as Local Traffic under transiting arrangements
between the Parties ("Transit Traffic"). On the date which is six (6) months
after the Interconnection Activation Date, and thereafter on each succeeding six
(6) month anniversary of such Interconnection Activation Date, the Parties shall
establish new INP traffic percentages to be applied in the prospective six (6)
month period, based on actual INP traffic percentages from the preceding six (6)
month period.
13.6.3 The INP Traffic Rate shall be equal to the sum of:
(Local Reciprocal Traffic percentage times the Local
Reciprocal Compensation Rate set forth in the Pricing
Schedule) plus (IntraLATA Toll Reciprocal Traffic percentage
times BA's effective intrastate FGD rates, less rates for
tandem switching and transport functions performed by the
Performing Party) plus (Interstate IntraLATA Traffic
percentage times BA's effective interstate FGD rates, less
rates for tandem switching and transport functions performed
by the Performing Party).
A rate of zero shall be applied to the Transit Traffic percentage.
14.0 NUMBER RESOURCES ASSIGNMENTS
14.1 The Parties agree that the North American Numbering Plan ("NANP")
Administrator for the state will provide all NANP Administrator functions to the
Parties in accordance with industry standards and guidelines, including the
Central Office Guidelines.
14.2 For as long as BA functions as the NANP Administrator, the Parties
agree that these services will be provided without charge.
14.3 The Parties will each be responsible for the electronic input of their
respective number assignment information into the BELLCORE-administered LERG
systems (BRADS and RDBS).
14.4 Codes will be assigned to rate center(s) as required the rules of the
DPU or FCC.
14.5 The Parties will maintain utilization and forecast of number resources
and file utilization reports as required by industry standards and fora.
14.6 The Parties will age and re-use numbers on a schedule as required by
industry practices.
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14.7 Nothing in this document can be construed to require either Party to
mirror the retail rate plans or structures of the other.
14.8 The Parties agree to engage in fair and equitable treatment of each
other in the assignment of NXX Codes such that the Parties are afforded the
opportunity to obtain available codes upon request
14.9 If either Party functions as the NANP Administrator, that Party agrees
to meet all industry guidelines regarding timing of assignment of codes.
14.10 The Parties shall cooperate to mutually perform VETS testing on all
NXXs opened by TCG in Massachusetts.
15.0 DIALING PARITY -- SECTION 251(B)(3)
BA shall provide Local Dialing Parity as required under Section 251(b)(3)
of the Act in the following manner: Telephone numbers are provided pursuant to
Section 14.0; Directory Assistance is provided pursuant to Section 19.2;
Directory Listings are provided pursuant to Section 19.1; and Operator Services
are provided pursuant to Section 19.2.4.
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16.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4)
Each Party shall provide the other Party access to its poles, ducts,
rights-of-way and conduits it owns or controls, to the extent permitted by law
and as required by Section 224 of the Act or Department Order, on terms,
conditions and prices comparable to those offered to any other entity pursuant
to the attached.
17.0 DATABASES AND SIGNALING
BA shall provide TCG with interfaces to access BA's databases, including
LIDB and 800/888, as well as DCAS or any other system that BA may subsequently
make available in Massachusetts for ordering and provisioning purposes, and
associated signaling necessary for the routing and completion of TCG's traffic
through the provision of SS7 under its applicable tariffs.
18.0 REFERRAL ANNOUNCEMENT
When a Customer changes its service provider from BA to TCG, or from TCG to
BA, and does not retain its original telephone number, the Party formerly
providing service to such Customer shall provide a referral announcement
("Referral Announcement") on the abandoned telephone number which provides
details on the Customer's new number. Referral Announcements shall be provided
reciprocally, free of charge to either the other Party or the Customer, for a
period of not less than four (4) months after the date the Customer changes its
telephone number in the case of business Customers and not less than sixty (60)
days after the date the Customer changes its telephone number in the case of
residential Customers. However, if either Party provides Referral Announcements
for a period different than the above respective periods when its Customers
change their telephone numbers, such Party shall provide the same level of
service to Customers of the other Party.
19.0 DIRECTORY SERVICES ARRANGEMENTS
BA will provide certain directory services to TCG as defined herein. In
this Section 19.0 of this Agreement, references to TCG Customer telephone
numbers means telephone numbers falling within NXX codes directly assigned to
TCG and to numbers which are retained by TCG's on the Customer's behalf pursuant
to Interim Telecommunications Number Portability arrangements described in
Section 13 of this Agreement.
19.1 Directory Listings and Directory Distributions
19.1.1 BA will include TCG's Customers telephone numbers in all of
its "White Pages" and "Yellow Pages" directory listings (including electronic
directories) and directory assistance databases associated with the areas in
which TCG provides services to such Customers, and will distribute such
directories to such Customers, in an identical and transparent to the manner in
which it provides those functions for its own Customers' telephone numbers.
19.1.2 BA will include all TCG NXX codes associated with the
geographic areas to which each directory pertains, along with BA's own NXX codes
in any maps or lists of such codes which are contained in the general reference
portions of the directories. TCG's NXX codes shall appear in such maps or lists
in the same manner as BA's codes NXX information.
19.1.3 TCG will provide BA with its directory listings and daily
updates to those listings (including new, changed, and deleted listings) in a
mutually agreed upon format at no charge.
19.1.4 BA will accord TCG's directory listing information the same
level of confidentiality which BA accords its own directory listing information.
19.1.5 BA shall provide TCG at no charge with (i) one basic single
line white and yellow page directory listing per business Customer number, or
one basic single line white page directory listing per residence Customer
number, (ii) directory distribution for TCG Customers, and (iii) listings of TCG
Customers in the directory assistance database.
19.1.6 BA will provide TCG with a report of all TCG Customer
listings ninety (90) days prior to directory publication in such form and format
as may be mutually
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agreed to by both Parties. Both Parties shall use their best efforts to ensure
the accurate listing of such information.
19.1.7 The Parties will work cooperatively to establish an
electronic interface for the submission of the TCG Customer information to
include the TCG Customer's telephone numbers in BA Directory listings and
directory customer database from one Party to the other, e.g., DCAS or a similar
system. The Parties agree to work within the national standards fora, such as
the Ordering and Billing Forum, to establish, approve and implement an industry
standard electronic interface.
19.1.8 The Parties agree to work cooperatively to implement
interim processes and procedures for submission of the required information
under this Section.
19.1.9 Commingled listings will appear in the appropriate
configuration for the particular directory (e.g., either interfiled or
sectionalize by locality).
19.1.10 Foreign Listings. The Party publishing the directories
agrees to afford the Customers of the other Party the ability to purchase a
listing in a foreign directory pursuant to applicable tariffs.
19.1.11 Yellow Page Maintenance
BA will work cooperatively with TCG so that Yellow Page
advertisements purchased by Customers who switch their service to TCG (including
Customers utilizing Interim Telephone Number Portability) are maintained without
interruption. BA will allow TCG Customers to purchase new yellow pages
advertisements without discrimination, under the identical rates, terms and
conditions that apply to BA's customers.
19.1.12 Information Pages
BA will include in the "Information Pages" or comparable section
of its White Pages Directories for the geographic areas served by TCG, telephone
numbers provided by TCG for TCG's installation, repair and customer service,
including appropriate identifying logo. Such listings shall appear in the manner
that such information appears for subscribers of BA and other LECs. BA shall not
charge TCG for inclusion of this information.
19.2 Directory Assistance ("DA") and Operator Services
Under this option, BA will provide Directory Assistance to TCG end users on
behalf of TCG.
BA will offer Directory Assistance ("DA") service to TCG's customers served
by TCG's own switch over separate trunk groups ordered or provided by TCG to the
BA TOPS switch(es) as specified by BA. Access to the BA DA platform from TCG's
local switch requires that TCG utilize Feature Group C ("FG-C") Modified
Operator Services Signaling. The Interoffice Transmission Facility ("IOF")
mileage rate for the facility will be based on airline mileage using V&H
coordinate methods from the TCG location to the nearest BA TOPS. Trunk
terminations at the TOPS switch(es) require TCG to purchase trunk ports at rates
specified in the Pricing Schedule. For each trunk group TCG must indicate the DA
option selected as set forth in 19.2.2 (a), (b) and (c) immediately following.
BA also provides TCG, using the unbundled local switching element, access to
this optional service either through dedicated IOF and trunk ports or on shared
operator service trunks between the end office in which they have unbundled
local switching ports and the TOPS switches. Additional per minute of use
("MOU") local switching charges will apply for all calls which interconnect from
the unbundled local switching ports to the BA TOPS as described in the Pricing
Schedule.
19.2.1 Directory Assistance
This option provides TCG end users access to Telephone Directory
Assistance operators via 411, 555-1212, or 1+ (NPA) 555-1212 dialing.
Rates for requests for Directory Assistance will be billed to TCG
and are set forth in the Pricing Schedule.
There are no Directory Assistance call allowances provided to TCG
or their end users.
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19.2.2 Directory Assistance with Branding
This service allows TCG to select only one of the three options as
follows:
*(a) TCG may provide BA with a TCG branded, introductory Directory
Assistance and Operator Services announcement which will be played for all TCG
end users completing DA or Operator Services calls over the trunk group to the
BA TOPS.
*(b) TCG may request BA branded announcement.
*(c) TCG may request an unbranded, generic announcement.
This message may be a maximum of eighteen (18) seconds and may be
recorded by TCG or, at TCG's request, by BA. A minimum of two (2) audio cassette
recordings of the TCG branding announcement must be forwarded to BA.
Rates for requests for Directory Assistance with branding will be
billed to TCG and are set forth in the Pricing Schedule.
19.3 Directory Assistance Call Completion ("DACC")
This option provides for automatic connection of a TCG end user calling BA
DA to the published telephone number requested.
After the BA DA operator provides the requested number, a recorded service
message will offer to connect the caller to that number for a specified
additional charge.
The caller can accept the offer for DACC by depressing a button (touch
tone) or responding by voice (dial), as instructed by the voice message.
The DACC charge will apply as set forth in the Pricing Schedule. In
addition, for calls originating from a facilities-based TCG switch or for calls
from TCG unbundled local switching line ports, there will be charges to
terminate the call from the TOPS tandem to the called party. These include the
per minute of use Unbundled Tandem Transport Charges ("UTTC") assessed for each
call transported between the TOPS tandem and the end office, the per minute of
use Tandem Transit Switching Charge ("TTSC") assessed for each call that
traverses a BA tandem switch, and the appropriate per minute of use charges for
reciprocal compensation ("UNRCC" or "UCRCC") depending on the terminating end
office switch, as set forth in the Pricing Schedule.
DACC is available to TCG residence and business customers and from
public telephones on a collect, bill to third number or calling card basis. The
charge appropriate to the billing option used will apply in addition to the DACC
charge.
DACC is available with all telephone numbers in the BA DA database
except:
- non-published telephone numbers
- interLATA numbers
- 700, 800 and 900 numbers
When a caller requests more than one number for Directory
Assistance, DACC is offered only for the first eligible listing that was
selected by the operator.
The DACC charge applies only to calls actually completed.
The DACC charge will be credited for completion of calls to the
wrong number, incomplete connections or calls with unsatisfactory transmission
as set forth in Section 19.4 following.
Rates for requests for DACC will be billed to TCG as set forth in the
Pricing Schedule.
19.4 Directory Assistance Credits
A credit allowance will apply to TCG for directory inaccessibility, wrong
numbers, cut-offs or poor transmission. When the TCG end user reports to the BA
directory assistance operator such a call and the number requested, the number
provided and the reason the number provided is incorrect, the number of calls
for which a credit will apply will be developed by the BA DA operator and
credited to TCG identifying the specific TCG end user to whom the credit
applies.
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19.5 Direct Access to Directory Assistance ("DADA")
Direct Access to Directory Assistance ("DADA") is a database service that
provides for access to BA listings by a TCG operator. The DADA database is a
physically distinct entity from the BA DA database, populated with identical
listing data, and updated from the same source on a daily basis.
TCG is required to arrange for Interconnection to the database. BA
will interconnect at any technically feasible point designated by TCG.
BA will provide TCG with a User Guide for training its agents.
Rates and Charges for DADA are set forth in the Pricing Schedule.
19.6 Inward Operator Services
Inward Operator Services enables the TCG end user or its operator service
provider to be connected to the BA Traffic Operation Position Systems ("TOPS")
office(s) for the purpose of providing operator services to their end users.
There are two types of Inward Operator Services:
(i) Busy Line Verification ("BLV"):
BLV is an option where, at the request of TCG's end user or its operator
service provider, a BA operator will attempt to determine the status of an
exchange service line (e.g., conversation in progress, available to receive a
call or out of service) and report to TCG's end user or its operator service
provider.
(ii) Busy Line Verification/Interrupt ("BLV/I")
BLV/I is an option where, at the request of TCG's end user or its operator
service provider, a BA operator determines and reports that a conversation is in
progress on an exchange service line and subsequently interrupts such
conversation to request that the conversation be terminated so that TCG's end
user can attempt to complete a call to the line.
Inward Operator Services are provided over trunk groups ordered by
TCG or its alternate operator service provider to the BA TOPS switch(es) as
specified by BA.
Inward Operator Services cannot be provided on ported telephone
numbers, telephone number which forward calls using Call Forwarding Variable
service features.
- BA will provide BLV and BLV/I for telephone numbers provided in
its operating territory.
- The BA operator will respond to one telephone number per call on
requests for BLV or BLV/I.
- BA will designate which TOPS switch(es) services which NXXs and
make such information available to TCG.
- TCG shall order Inward Operator Services as set forth in this
Section.
- TCG and its customer shall indemnify and save BA harmless against
all claims that may arise from either party to the interrupted call or
any other person.
Rates and Charges for Inward Operator Services are set forth in
the Pricing Schedule.
19.7 Operator Service ("OS")
Under this option, BA shall provide for the routing of Operator Services
calls dialed by TCG subscribers directly to either the TCG Operator Services
platform or to the BA Operator Services platform as specified by TCG.
BA will offer OS to TCG customers served by TCG switches over separate
trunk groups ordered or provided by TCG to the BA TOPS switch(es) as specified
by BA. Access to the BA OS platform from TCG's local switch requires that TCG
utilize Feature Group C Modified
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Operator Services Signaling. The Interoffice Transmission Facility mileage rate
for the facility will be based on airline mileage using V&H coordinate methods
from the TCG location to the nearest BA TOPS. Trunk terminations at the TOPS
switch(es) require TCG to purchase trunk ports at rates specified in the Pricing
Schedule. For each trunk group, TCG must indicate the branding option selected
as set forth in Sections 19.2.2 (a), (b), and (c) preceding. BA also provides
TCG, using the unbundled local switching element, access to this optional
service either through dedicated IOF and trunk ports or on shared operator
service trunks between the end office in which they have unbundled local
switching ports and the TOPS switches. Additional per minute of use (MOU) local
switching charges will apply for all calls which interconnect from the unbundled
local switching ports to the BA TOPS at rates set forth in the Pricing Schedule.
19.8 0+ Mechanized Operator Calls (Calling Card, Collect, Bill to Third
Number):
This option is available for TCG to provide their end user the ability,
through the mechanized BA operator interface, to complete calls via 0+ dialing
with alternate billing capabilities without live operator assistance. Alternate
billing call completions can be Calling Card, Collect or Bill to Third Number.
0+ Mechanized calls may be provided over the same DA trunk groups which
establish interconnection from the TCG switch or the trunk groups which provide
interconnection from the TCG unbundled local switching line ports to the BA
TOPS.
Rates for requests for 0+ Mechanized Calls will be billed to TCG and are
set forth in the Pricing Schedule. In addition, for calls originating from a
facilities-based TCG switch or for calls from TCG unbundled local switching line
ports, there will be charges to terminate the call from the TOPS tandem to the
called party. These include the per minute of use Unbundled Tandem Transport
Charges ("UTTC") assessed for each call transported between the TOPS tandem and
the end office, the per minute of use Tandem Transit Switching Charge ("TTSC")
assessed for each call that traverses a BA tandem switch, and the appropriate
per minute of use charges for reciprocal compensation ("UNRCC" or "UCRCC")
depending on the terminating end office switch, as set forth in the Pricing
Schedule.
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19.9 0- Operator Handled Calls (Calling Card, Collect, Bill to Third
Number)
This option is available for TCG to provide their end user, through the BA
operator, the ability to complete intraLATA calls via 0- dialing with alternate
billing capabilities and live operator assistance. Alternate billing call
completions can be Calling Card, Collect or Bill to Third Number, Station to
Station and Person to Person.
0- Operator Handled Calls may be provided over the same DA trunk groups
which establish interconnection from the TCG switch or the trunk groups which
provide interconnection from the TCG unbundled local switching line ports to the
BA TOPS.
Rates for requests for 0- Operator Handled Calls will be billed to TCG and
are set forth in the Pricing Schedule. In addition, for calls originating from a
facilities-based TCG switch or for calls from TCG unbundled local switching line
ports, there will be charges to terminate the call from the TOPS tandem to the
called party. These include the per minute of use Unbundled Tandem Transport
Charges ("UTTC") assessed for each call transported between the TOPS tandem and
the end office, the per minute of use Tandem Transit Switching Charge ("TTSC")
assessed for each call that traverses a BA tandem switch, and the appropriate
per minute of use charges for reciprocal compensation ("UNRCC" or "UCRCC")
depending on the terminating end office switch, as set forth in the Pricing
Schedule.
19.10 Operator Emergency Bulletin Service
This option provides TCG with emergency numbers of police, fire, ambulance
and Public Safety Answering Points (PSAP) in the BA serving area so that TCG
operators can connect callers directly to the proper emergency bureaus.
The BA Operator Emergency Bulletin Service lists the emergency,
police, fire, ambulance and PSAP telephone numbers by municipality and in
alphabetical order for each of the areas served by BA.
Operator Emergency Bulletin Service is available for use by TCG
operators for the sole purpose of assisting callers in reaching an emergency
bureau.
Operator Emergency Bulletin Service is a copy of BA's own
emergency bulletin. This agreement includes one annual copy of the bulletin plus
periodic updates during the year. Independent telephone companies emergency
numbers are not included.
Rates and charges for Operator Emergency Bulletin service are set
forth in the Pricing Schedule.
19.11 Operator Passthrough Service
This option provides TCG's end users with access to operators of their
Presubscribed Interexchange Carriers ("IC") for operator assisted call
completion. This option applies only when the Presubscribed IC provides Operator
Services for TCG's end users for calls originating from a particular LATA and is
capable of receiving calls passed through it by BA in that LATA.
BA will, when requested by TCG's end user, connect that end user to a
specified IC for operator call completion provided that IC offers operator
services in that end user's originating LATA and is capable of receiving calls
passed through to it by BA in that LATA.
If the IC does not provide Operator Services for TCG's end user, at the
option of the IC, BA will provide TCG's end user with access to an IC designated
Operator Services Provider or to a BA provided announcement which will direct
TCG's end user to contact their Presubscribed IC for dialing instructions.
The Operator Passthrough charge is applied on an operator work
second basis, and rated using the 0-Operator Handled calls in the Pricing
Schedule.
TCG will be assessed this charge on calls that are passed through
to either the Presubscribed IC's operator, or a BA provided recording indicating
that the IC does not provide service in that area.
Rates and charges applied to Operator Passthrough Service are set
forth in the Pricing Schedule.
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20.0 GENERAL RESPONSIBILITIES OF THE PARTIES
20.1 BA and TCG shall use their best efforts to comply with the
Implementation Schedule.
20.2 The Parties shall exchange technical descriptions and forecasts of
their Interconnection and traffic requirements in sufficient detail necessary to
establish the Interconnections required to assure traffic completion to and from
all Customers in their respective designated service areas.
20.3 Thirty (30) days after the Effective Date and each quarter during the
term of this Agreement, each Party shall provide the other Party with a rolling,
six (6) calendar month, non- binding forecast of its traffic and volume
requirements for the services and Network Elements provided under this Agreement
in the form and in such detail as agreed by the Parties. Notwithstanding Section
28.6.1, the Parties agree that each forecast provided under this Section 20.3
shall be deemed "Proprietary Information" under Section 28.6.
20.4 Any Party that is required pursuant to this Agreement to provide a
forecast (the "Forecast Provider") or the Party that is entitled pursuant to
this Agreement to receive a forecast (the "Forecast Recipient") with respect to
traffic and volume requirements for the services and Network Elements provided
under this Agreement may request in addition to non-binding forecasts required
by Section 20.3 that the other Party enters into negotiations to establish a
forecast (a "Binding Forecast") that commits such Forecast Provider to purchase,
and such Forecast Recipient to provide, a specified volume to be utilized as set
forth in such Binding Forecast. The Forecast Provider and Forecast Recipient
shall negotiate the terms of such Binding Forecast in good faith and shall
include in such Binding Forecast provisions regarding price, quantity, liability
for failure to perform under a Binding Forecast and any other terms desired by
such Forecast Provider and Forecast Recipient. Notwithstanding Section 28.6.1,
the Parties agree that each forecast provided under this Section 20.4 shall be
deemed "Proprietary Information" under Section 28.6.
20.5 Each Party is individually responsible to provide facilities within
its network which are necessary for routing, transporting, measuring, and
billing traffic from the other Party's network and for delivering such traffic
to the other Party's network in the standard format compatible with BA's network
and to terminate the traffic it receives in that standard format to the proper
address on its network. Such facility shall be designed based upon the
description and forecasts provided under Sections 20.2 and 20.3 above. The
Parties are each solely responsible for participation in and compliance with
national network plans, including The National Network Security Plan and The
Emergency Preparedness Plan.
20.6 Neither Party shall use any service related to or using any of the
Services provided in this Agreement in any manner that interferes with other
persons in the use of their service, prevents other persons from using their
service, or otherwise impairs the quality of service to other carriers or to
either Party's Customers, and either Party may discontinue or refuse service if
the other Party violates this provision. Upon such violation, either Party shall
provide the other Party notice, if practicable, at the earliest practicable
time.
20.7 Each Party is solely responsible for the services it provides to its
Customers and to other Telecommunications Carriers.
20.8 The Parties shall work cooperatively to minimize fraud associated with
third-number billed calls, calling card calls, and any other services related to
this Agreement.
20.9 Each Party is responsible for administering NXX codes assigned to it.
20.10 Each Party is responsible for obtaining Local Exchange Routing Guide
("LERG") listings of CLLI codes assigned to its switches.
20.11 Each Party shall use the LERG published by Bellcore or its successor
for obtaining routing information and shall provide all required information to
Bellcore for maintaining the LERG in a timely manner.
20.12 Each Party shall program and update its own Central Office Switches
and End Office switches and network systems to recognize and route traffic to
and from the other
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Party's assigned NXX codes. Except as mutually agreed or as otherwise expressly
defined in this Agreement, neither Party shall impose any fees or charges on the
other Party for such activities.
20.13 At all times during the term of this Agreement, each Party shall keep
and maintain in force at each Party's expense all insurance required by law
(e.g., workers' compensation insurance) as well as general liability insurance
for personal injury or death to any one person, property damage resulting from
any one incident, automobile liability with coverage for bodily injury for
property damage. Upon request from the other Party, each Party shall provide to
the other Party evidence of such insurance (which may be provided through a
program of self insurance).
20.14 End User Repair Calls. The Parties will employ the following
procedures for handling misdirected repair calls:
20.14.1 In answering repair calls, neither Party shall make disparaging
remarks about each other, nor shall they use these repair calls as the basis for
internal referrals or to solicit customers to market services. Either Party will
respond with factual information in answering customer questions.
20.14.2 Each Party will notify its customers as to the correct telephone
numbers to call in order to access its repair bureaus.
20.14.3 To the extent possible, where the correct local exchange carrier
can be determined, misdirected repair calls to one Party will be immediately
referred to the other Party, as appropriate in a courteous manner, at no charge.
20.14.4 The Parties will provide their respective repair contact numbers to
one another on a reciprocal basis.
21.0 TERM AND TERMINATION
21.1 The initial term of this Agreement (the "Term") shall expire on
October 20, 2000. Absent the receipt by one Party of written notice from the
other Party at least sixty (60) days prior to the expiration of the Term to the
effect that such Party intends to terminate this Agreement with or without
cause, this Agreement shall automatically renew and remain in full force and
effect on and after the expiration of the Term.
21.1.1 If pursuant to Section 21.1 the Agreement continues in full
force and effect after the expiration of the Term, either Party may terminate
the Agreement ninety (90) days after delivering written notice to the other
Party of the intention to terminate this Agreement. Neither Party shall have any
liability to the other Party for termination of this Agreement pursuant to this
Section 21.1 other than to pay to the other Party any amounts under this
Agreement.
21.2 Payment of all amounts owed under this Agreement and handling of
disputed amounts will be resolved in a cooperative manner pursuant to existing
Interconnection Agreement in use between the Parties in New York including but
not limited to all remedies for non-payment.
21.3 Upon termination or expiration of this Agreement in accordance with
this Section 21.0:
(a) each Party shall comply immediately with its obligations set forth
in Section 28.6.3;
(b) each Party shall promptly pay all amounts (including any late
payment charges) owed under this Agreement;
(c) each Party's indemnification obligations shall survive termination
or expiration of this Agreement.
(d) each Party shall continue to perform its obligations and
provide the services described herein until such time as a survivor Agreement
between the Parties is entered into, provided, however, that if the Parties are
unable to reach agreement within six (6) months after the termination or
expiration of this Agreement, either Party has the right to submit this matter
to the Commission for resolution. Until a survivor Agreement is reached or the
Commission resolves this matter, whichever is sooner, the
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terms, conditions, rates and charges stated herein will continue to apply,
subject to a true-up based on the Commission action, if any.
21.4 No remedy set forth in this Agreement is intended to be exclusive and
each and every remedy shall be cumulative and in addition to any other rights or
remedies now or hereafter existing under applicable law or otherwise.
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES,
FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT AND
THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
A PARTICULAR PURPOSE.
23.0 CANCELLATION CHARGES
Except as provided in Sections 9.7.4 and 20.4 and pursuant to a Network
Element Bona Fide Request, or as otherwise provided in any applicable tariff or
contract referenced herein, no cancellation charges shall apply.
24.0 NON-SEVERABILITY
24.1 The services, arrangements, Interconnection, Network Elements, terms
and conditions of this Agreement were mutually negotiated by the Parties as a
total arrangement and are intended to be non-severable, subject only to Section
28.14 of this Agreement.
24.2 Nothing in this Agreement shall be construed as requiring or
permitting either Party to contravene any mandatory requirement of federal or
state law, or any regulations or orders adopted pursuant to such law.
25.0 INDEMNIFICATION
25.1 Each Party (the "Indemnifying Party") shall indemnify and hold
harmless the other Party ("Indemnified Party") from and against loss, cost,
claim liability, damage, and expense (including reasonable attorney's fees) to
third Parties for:
(1) damage to tangible personal property or for personal injury
proximately caused by the negligence or willful misconduct of the Indemnifying
Party, its employees, agents or contractors; and
(2) claims for libel, slander, infringement of copyright arising from
the material transmitted over the Indemnified Party's facilities arising from
the Indemnifying Party's own communications or the communications of such
Indemnifying Party's Customers; and
(3) claims for infringement of patents arising from combining the
Indemnified Party's facilities or services with, or the using of the Indemnified
Party's services or facilities in connection with, facilities of the
Indemnifying Party.
Notwithstanding this indemnification provision or any other provision in
the Agreement, neither Party, nor its parent, subsidiaries, affiliates, agents,
servants, or employees shall be liable to the other for "Consequential Damages"
as that term is described in Section 26.3 below.
25.2 The Indemnified Party will notify the Indemnifying Party promptly in
writing of any claims, lawsuits, or demands by third Parties for which the
Indemnified Party alleges that the Indemnifying Party is responsible under this
Section, and, if requested by the Indemnifying Party, will tender the defense of
such claim, lawsuit or demand.
(1) In the event the Indemnifying Party does not promptly assume or
diligently pursue the defense of the tendered action, then the Indemnified Party
may proceed to defend or settle said action and the Indemnifying Party shall
hold harmless the Indemnified Party from any loss, cost liability, damage and
expense.
(2) In the event the Party otherwise entitled to indemnification from
the other elects to decline such indemnification, then the Party making such an
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election may, at its own expense, assume defense and settlement of the claim,
lawsuit or demand.
(3) The Parties will cooperate in every reasonable manner with the
defense or settlement of any claim, demand, or lawsuit.
26.0 LIMITATION OF LIABILITY
26.1 No liability shall attach to either Party, its parents, subsidiaries,
affiliates, agents, servants or employees for damages arising from errors,
mistakes, omissions, interruptions, or delays in the course of establishing,
furnishing, rearranging, moving, terminating, changing, or providing or failing
to provide services or facilities (including the obtaining or furnishing of
information with respect thereof or with respect to users of the services or
facilities) in the absence of gross negligence or willful misconduct.
26.2 Except as otherwise provided in Section 25.0, no Party shall be liable
to the other Party for any Loss, defect or equipment failure caused by the
conduct of the other Party, the other Party's agents, servants, contractors or
others acting in aid or concert with the other Party, except for gross
negligence or willful misconduct.
26.3 In no event shall either Party have any liability whatsoever to the
other Party for any indirect, special, consequential, incidental or punitive
damages, including but not limited to loss of anticipated profits or revenue or
other economic loss in connection with or arising from anything said, omitted or
done hereunder (collectively, "Consequential Damages"), even if the other Party
has been advised of the possibility of such damages.
27.0 PERFORMANCE STANDARDS
The Parties hereby agree that the performance standards and remedies
approved by the Department in the Consolidated Arbitrations, D.P.U. 96-73/74,
96-75, 96-80/81, 96-83 and 96-94 shall be incorporated by reference into this
Agreement and shall govern the provision of services hereunder, as applicable.
28.0 REGULATORY APPROVAL
The Parties understand and agree that this Agreement will be filed with the
Department and may thereafter be filed with the FCC. The Parties covenant and
agree that this Agreement is satisfactory to them as an agreement under Section
251 of the Act. Each Party covenants and agrees to fully support approval of
this Agreement by the Department or the FCC under Section 252 of the Act without
modification. The Parties, however, reserve the right to seek regulatory relief
and otherwise seek redress from each other regarding performance and
implementation of this Agreement. In the event the Department or FCC rejects
this Agreement in whole or in part, the Parties agree to meet and negotiate in
good faith to arrive at a mutually acceptable modification of the rejected
portion(s).
This Agreement shall be subject to change, modification or cancellation
based on any significant changes in FCC or state regulatory commission rules
which may impact the provision of service under this Agreement, or the rights
and obligations of the Parties under the Act. In the event such a modification
or cancellation is required or desired by a Party, the Parties agree to meet and
negotiate in good faith to arrive at mutually acceptable modifications or
cancellation of the Agreement; provided that such modified or cancelled
portion(s) shall not affect the validity of the remainder of this Agreement, if
any.
29.0 MISCELLANEOUS
29.1 Authorization.
29.1.1 New England Telephone and Telegraph Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York and has full power and authority to execute and deliver
this Agreement and to perform its obligations hereunder, subject to necessary
regulatory approval.
29.1.2 TCG is a partnership duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts and has
full power and
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authority to execute and deliver this Agreement and to perform its obligations
hereunder, subject to necessary regulatory approval.
29.2 Compliance. Each Party shall comply with all applicable federal,
state, and local laws, rules, and regulations applicable to its performance
under this Agreement.
29.3 Compliance with the Communications Assistance for Law Enforcement Act
of 1994 ("CALEA"). Each Party represents and warrants that any equipment,
facilities or services provided to the other Party under this Agreement comply
with CALEA. Each Party shall indemnify and hold the other Party harmless from
any and all penalties imposed upon the other Party for such noncompliance and
shall at the non-compliant Party's sole cost and expense, modify or replace any
equipment, facilities or services provided to the other Party under this
Agreement to ensure that such equipment, facilities and services fully comply
with CALEA.
29.4 Independent Contractors. Neither this Agreement, nor any actions taken
by BA or TCG in compliance with this Agreement, shall be deemed to create an
agency or joint venture relationship between TCG and BA, or any relationship
other than that of purchaser and seller of services.
Neither this Agreement, nor any actions taken by BA or TCG in
compliance with this Agreement, shall create a contractual, agency, or any other
type of relationship or third Party liability between BA and TCG's end users or
others.
29.5 Force Majeure. Neither Party shall be liable for any delay or failure
in performance of any part of this Agreement from any cause beyond its control
and without its fault or negligence including, without limitation, acts of
nature, acts of civil or military authority, government regulations, embargoes,
epidemics, terrorist acts, riots, insurrections, fires, explosions, earthquakes,
nuclear accidents, floods, work stoppages, equipment failure, power blackouts,
volcanic action, other major environmental disturbances, unusually severe
weather conditions, inability to secure products or services of other persons or
transportation facilities or acts or omissions of transportation carriers
(collectively, a "Force Majeure Event").
If any force majeure condition occurs, the Party delayed or unable
to perform shall give immediate notice to the other Party and shall take all
reasonable steps to correct the force majeure condition. During the pendency of
the Force Majeure, the duties of the Parties under this Agreement affected by
the Force Majeure condition shall be abated and shall resume without liability
thereafter.
29.6 Confidentiality.
29.6.1 Any information such as specifications, drawings, sketches,
business information, forecasts, models, samples, data, computer programs and
other software and documentation of one Party (a "Disclosing Party") that is
furnished or made available or otherwise disclosed to the other Party or any of
its employees, contractors, agents or Affiliates (its "Representatives" and with
a Party, a "Receiving Party") pursuant to this Agreement ("Proprietary
Information") shall be deemed the property of the Disclosing Party. Proprietary
Information, if written, shall be marked "Confidential" or "Proprietary" or by
other similar notice, and, if oral or visual, shall be confirmed in writing as
confidential by the Disclosing Party to the Receiving Party within ten (10) days
after disclosure. Unless Proprietary Information was previously known by the
Receiving Party free of any obligation to keep it confidential, or has been or
is subsequently made public by an act not attributable to the Receiving Party,
or is explicitly agreed in writing not to be regarded as confidential, it (i)
shall be held in confidence by each Receiving Party; (ii) shall be disclosed to
only those persons who have a need for it in connection with the provision of
services required to fulfill this Agreement and shall be used only for such
purposes; and (iii) may be used for other purposes only upon such terms and
conditions as may be mutually agreed to in advance of use in writing by the
Parties. Notwithstanding the foregoing sentence, a Receiving Party shall be
entitled to disclose or provide Proprietary Information as required by any
governmental authority or applicable law only in accordance with Section 29.6.2.
29.6.2 If any Receiving Party is required by any governmental
authority or by applicable law to disclose any Proprietary Information, then
such Receiving Party shall provide the Disclosing Party with written notice of
such requirement as soon as possible and prior to such disclosure. The
Disclosing Party may then either seek appropriate protective relief from all or
part of such requirement or, if it fails to
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successfully do so, it shall be deemed to have waived the Receiving Party's
compliance with Section 29.6 with respect to all or part of such requirement.
The Receiving Party shall use all commercially reasonable efforts to cooperate
with the Disclosing Party in attempting to obtain any protective relief which
such Disclosing Party chooses to obtain.
29.6.3 In the event of the expiration or termination of this
Agreement for any reason whatsoever, each Party shall return to the other Party
or destroy all Proprietary Information and other documents, work papers and
other material (including all copies thereof) obtained from the other Party in
connection with this Agreement and shall use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act, omission or fault of such
Party, in any manner making it available to the general public.
29.7 Governing Law. This Agreement is subject to the Act, and the effective
rules and regulations promulgated pursuant to the Act, and any other applicable
federal law, as well as the rules of the Commission. In all other respects, this
Agreement shall be governed by the domestic laws of the Commonwealth of
Massachusetts without reference to conflict of laws provisions.
29.8 Taxes. Each Party purchasing services hereunder shall pay or otherwise
be responsible for all federal, state, or local sales, use, excise, gross
receipts, transaction or similar taxes, fees or surcharges levied against or
upon such purchasing Party (or the providing Party when such providing Party is
permitted to pass along to the purchasing Party such taxes, fees or surcharges),
except for any tax on either Party's corporate existence, status or income.
Whenever possible, these amounts shall be billed as a separate item on the
invoice. To the extent a sale is claimed to be for resale tax exemption, the
purchasing Party shall furnish the providing Party a proper resale tax exemption
certificate as authorized or required by statute or regulation by the
jurisdiction providing said resale tax exemption. Failure to timely provide said
resale tax exemption certificate will result in no exemption being available to
the purchasing Party.
29.9 Non-Assignment. This Agreement shall be binding upon every subsidiary
and affiliate of either Party that is engaged in providing telephone exchange
and exchange access services in any territory within which BA is an Incumbent
Local Exchange Carrier as of the date of this Agreement (the "BA Territory"),
and shall continue to be binding upon all such entities regardless of any
subsequent change in their ownership. Each Party covenants that, if it sells or
otherwise transfers to a third Party its telephone exchange and exchange access
network facilities within the BA Territory, or any portion thereof, to a third
Party, it will require as a condition of such transfer that the transferee agree
to be bound by this Agreement with respect to services provided over the
transferred facilities. Except as provided in this paragraph, neither Party may
assign or transfer (whether by operation of law or otherwise) this Agreement (or
any rights or obligations hereunder) to a third Party without the prior written
consent of the other Party which consent will not be unreasonably withheld;
provided that either Party may assign this Agreement to a corporate Affiliate or
an entity under its common control or an entity acquiring all or substantially
all of its assets or equity by providing prior written notice to the other Party
of such assignment or transfer. Any attempted assignment or transfer that is not
permitted is void ab initio. Without limiting the generality of the foregoing,
this Agreement shall be binding upon and shall inure to the benefit of the
Parties' respective successors and assigns.
29.10 Non-Waiver. Failure of either Party to insist on performance of any
term or condition of this Agreement or to exercise any right or privilege
hereunder shall not be construed as a continuing or future waiver of such term,
condition, right or privilege.
29.11 Disputed Amounts.
29.11.1 If any portion of an amount due to a Party (the "Billing
Party") under this Agreement is subject to a bona fide dispute between the
Parties, the Party billed (the "Non-Paying Party") shall within thirty (30) days
of its receipt of the invoice containing such disputed amount give notice to the
Billing Party of the amounts it disputes ("Disputed Amounts") and include in
such notice the specific details and reasons for disputing each item. The
Non-Paying Party shall pay when due (i) all undisputed amounts to the Billing
Party and (ii) all Disputed Amounts into an interest bearing escrow account with
a third Party escrow agent mutually agreed upon by the Parties.
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29.11.2 If the Parties are unable to resolve the issues related to
the Disputed Amounts in the normal course of business within ninety (90) days
after delivery to the Billing Party of notice of the Disputed Amounts, each of
the Parties shall appoint a designated representative who has authority to
settle the dispute and who is at a higher level of management than the persons
with direct responsibility for administration of this Agreement. The designated
representatives shall meet as often as they reasonably deem necessary in order
to discuss the dispute and negotiate in good faith in an effort to resolve such
dispute. The specific format for such discussions will be left to the discretion
of the designated representatives, however all reasonable requests for relevant
information made by one Party to the other Party shall be honored.
29.11.3 If the Parties are unable to resolve issues related to the
Disputed Amounts within forty-five (45) days after the Parties' appointment of
designated representatives pursuant to Section 29.11.2, then either Party may
file a complaint with the Department to resolve such issues or proceed with any
other remedy pursuant to law or equity. The Department may direct release of any
or all funds (including any accrued interest) in the escrow account, plus
applicable late fees, to be paid to either Party.
29.11.4 The Parties agree that all negotiations pursuant to this
Section 29.11 shall remain confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence. Any undisputed amounts not paid when due shall accrue
interest from the date such amounts were due at the lesser of (i) one and
one-half percent (1-1/2%) per month or (ii) the highest rate of interest that
may be charged under applicable law.
29.12 Notices. Notices given by one Party to the other Party under this
Agreement shall be in writing and shall be (i) delivered personally, (ii)
delivered by express delivery service, (iii) mailed, certified mail or first
class U.S. mail postage prepaid, return receipt requested or (iv) delivered by
telecopy to the following addresses of the Parties:
To TCG:
Teleport Communications Boston
Two Teleport Drive
Staten Island, New York 10311
Attn: Vice President, Carrier Relations
Facsimile: (718) 355-2147
with a copy to:
Teleport Communications Boston
Two Teleport Drive
Staten Island, New York 10311
Attn: General Counsel
To BA:
Bell Atlantic Corporation
1095 Avenue of Americas
40th Floor
New York NY 10036
Att'n: President - Telecom Industry Services
Facsimile: (212) 597-2585
or to such other address as either Party shall designate by proper notice.
Notices will be deemed given as of the earlier of (i) the date of actual
receipt, (ii) the next business day when notice is sent via express mail or
personal delivery, (iii) three (3) days after mailing in the case of first class
or certified U.S. mail or (iv) on the date set forth on the confirmation in the
case of telecopy.
29.13 Publicity and Use of Trademarks or Service Marks. Neither Party nor
its subcontractors or agents shall use the other Party's trademarks, service
marks, logos or other proprietary trade dress in any advertising, press
releases, publicity matters or other promotional materials without such Party's
prior written consent.
29.14 Joint Work Product. This Agreement is the joint work product of
the Parties and has been negotiated by the Parties and their respective counsel
and shall be fairly
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interpreted in accordance with its terms and, in the event of any ambiguities,
no inferences shall be drawn against either Party.
29.15 No Third Party Beneficiaries; Disclaimer of Agency. This Agreement is
for the sole benefit of the Parties and their permitted assigns, and nothing
herein express or implied shall create or be construed to create any third-Party
beneficiary rights hereunder. Except for provisions herein expressly authorizing
a Party to act for another, nothing in this Agreement shall constitute a Party
as a legal representative or agent of the other Party, nor shall a Party have
the right or authority to assume, create or incur any liability or any
obligation of any kind, express or implied, against or in the name of or on
behalf of the other Party unless otherwise expressly permitted by such other
Party. Except as otherwise expressly provided in this Agreement, no Party
undertakes to perform any obligation of the other Party, whether regulatory or
contractual, or to assume any responsibility for the management of the other
Party's business.
29.16 No License. No license under patents, copyrights or any other
intellectual property right (other than the limited license to use consistent
with the terms, conditions and restrictions of this Agreement) is granted by
either Party or shall be implied or arise by estoppel with respect to any
transactions contemplated under this Agreement.
29.17 Technology Upgrades. Nothing in this Agreement shall limit either
Parties' ability to upgrade its network through the incorporation of new
equipment, new software or otherwise. BA shall provide TCG written notice at
least ninety (90) days prior to the incorporation of any such upgrades in BA's
network which will materially impact TCG's service. TCG shall be solely
responsible for the cost and effort of accommodating such changes in its own
network.
29.18 Survival. The Parties' obligations under this Agreement which by
their nature are intended to continue beyond the termination or expiration of
this Agreement shall survive the termination or expiration of this Agreement,
including without limitation, Sections 21.4, 22.0, 23.0, 25.0, 26.0, 29.3, 29.6,
29.11, 29.13 and 29.17.
29.19 Scope of Agreement. This Agreement is intended to describe and enable
specific Interconnection and access to unbundled Network Elements and
compensation arrangements between the Parties. This Agreement does not obligate
either Party to provide arrangements not specifically provided for herein.
29.20 Amendment. TCG and BA may mutually agree to amend this Agreement in
writing. Since it is possible that amendments to this Agreement may be needed to
fully satisfy the purposes and objective of this Agreement, the Parties agree to
work cooperatively, promptly, and in good faith to negotiate and implement any
such amendments to this Agreement.
29.21 Entire Agreement. The terms contained in this Agreement and any
Schedules, Exhibits, tariffs and other documents or instruments referred to
herein are hereby incorporated into this Agreement by reference as if set forth
fully herein and, constitute the entire agreement between the Parties with
respect to the subject matter hereof, superseding all prior understandings,
proposals and other communications, oral or written. Neither Party shall be
bound by any preprinted terms additional to or different from those in this
Agreement that may appear subsequently in the other Party's form documents,
purchase orders, quotations, acknowledgments, invoices or other communications.
This Agreement may only be modified by a writing signed by an officer of each
Party.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of this 29th day of October, 1997.
TELEPORT COMMUNICATIONS BOSTON BELL ATLANTIC - MASSACHUSETTS
By: /s/ STAUNTON OPPENHEIMER By: /s/ JACOB J. GOLDBERG
Printed: Staunton Oppenheimer Printed: Jacob J. Goldberg
Title: General Manager Title: President - Telecom
Industry Services
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SCHEDULE 1.0
CERTAIN TERMS AS DEFINED IN THE ACT
"Affiliate" means a person that (directly or indirectly) owns or controls, is
owned or controlled by, or is under common ownership or control with, another
person. For purposes of this paragraph, the term "own" means to own an equity
interest (or the equivalent thereof) of more than ten percent (10%).
"Dialing Parity" means that a person that is not an Affiliate of a LEC is able
to provide Telecommunications Services in such a manner that Customers have the
ability to route automatically, without the use of any access code, their
Telecommunications to the Telecommunications Services provider of the Customer's
designation from among two (2) or more Telecommunications Services providers
(including such LEC).
"Exchange Access" means the offering of access to Telephone Exchange Services or
facilities for the purpose of the origination or termination of Telephone Toll
Services.
"InterLATA Service" means Telecommunications between a point located in a local
access and transport area and a point located outside such area.
"Local Access and Transport Area" or "LATA" means a contiguous geographic area:
(a) established before the date of enactment of the Act by a Bell operating
company such that no Exchange Area includes points within more than one (1)
metropolitan statistical area, consolidated metropolitan statistical area, or
State, except as expressly permitted under the AT&T Consent Decree; or (b)
established or modified by a Bell operating company after such date of enactment
and approved by the FCC.
"Local Exchange Carrier" means any person that is engaged in the provision of
Telephone Exchange Service or Exchange Access. Such term does not include a
person insofar as such person is engaged in the provision of a commercial mobile
service under Section 332(c) of the Act, except to the extent that the FCC finds
that such service should be included in the definition of such term.
"Network Element" means a facility or equipment used in the provision of a
Telecommunications Service. Such term also includes features, functions, and
capabilities that are provided by means of such facility or equipment, including
subscriber numbers, databases, signaling systems, and information sufficient for
billing and collection or used in the transmission, routing, or other provision
of a Telecommunications Service.
"Number Portability" means the ability of users of telecommunications services
to retain, at the same location, existing telecommunications numbers without
impairment of quality, reliability, or convenience when switching from one
telecommunications carrier to another.
"Telecommunications" means the transmission, between or among points specified
by the user, of information of the user's choosing, without change in the form
or content of the information as sent and received.
"Telecommunications Carrier" means any provider of Telecommunications Services,
except that such term does not include aggregators of Telecommunications
Services (as defined in Section 226 of the Communications Act).
"Telecommunications Service" means the offering of Telecommunications for a fee
directly to the public, or to such classes of users as to be effectively
available directly to the public, regardless of the facilities used.
"Telephone Exchange Service" means (a) service within a telephone exchange
within a connected system of telephone exchanges within the same exchange area
operated to furnish subscribers intercommunicating service of the character
ordinarily furnished by a single exchange, and which is covered by the exchange
service charge, or (b) comparable service provided through a system of switches,
transmission equipment, or other facilities (or combination thereof) by which a
subscriber can originate and terminate a telecommunications service.
"Telephone Toll Service" means telephone service between stations in different
exchange areas for which there is made a separate charge not included in
contracts with subscribers for exchange service.
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<PAGE> 47
PRICING SCHEDULE
I. Reciprocal Compensation
(A) Time of Day Definitions
From To, but not
including
Peak:
Monday - Friday: 9:00 am 9:00 pm
Off-Peak:
Monday - Friday: 9:00 pm 9:00 am
Saturday & Sunday All Day
(B) Rates
(1) Base Rates - Per Minute of Use
Local Switching Metro $.001703
Trunk Port Per MOU Urban $.001820
(Peak) Suburban $.002090
Rural $.002093
Local Switching Metro $.000379
Trunk Port Per MOU Urban $.000404
(Off Peak) Suburban $.000464
Rural $.000465
Local Switching Metro $.004647
Usage Per MOU Urban $.007401
(Peak) Suburban $.009549
Rural $.014277
Local Switching Metro $.001872
Uage Per MOU Urban $.003516
(Off Peak) Suburban $.005282
Rural $.008186
Tandem Switching All Zones $ $13.75
Digital Trunk Port
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<PAGE> 48
Tandem Common Trunk ports All Zones
Per MOU Peak $.003528
Off Peak $.000784
Tandem Usage per MOU All Zones
Peak $.001586
Off Peak $.001134
Common Transport (Shared IOF) All Zones
Peak $.001780
Off-Peak $.000400
(2) Optional Flat Rate Compensation
The following optional flat rate charges may be
selected by TCG when local usage is handed off to BA at a tandem. The cost
elements are applicable by LATA.
Element Eastern LATA Western LATA
Tandem Switch $423.36 $423.36
Digital Trunk Port
Tandem Switching $190.32 $190.32
Usage
Tandem Switching $423.36 $423.36
Digital Truck Port
Common Transport $213.60 $213.60
Local Switching Digital $234.96 $242.64
Local Switching Usage $1,021.56 $1,221.96
(3) The Minute of Use and Flat Rates set forth above are rates set by
the Department in the Consolidated Arbitrations and may be amended or revised
from time to time as specified by the Department. The Parties agree to negotiate
appropriate optional flat rates to apply when local usage is handed off to BA at
an end office, with the intent of agreeing on mutually acceptable revisions no
later than 30 business days after the Effective Date.
(C) Formula for determining reciprocal compensation
Reciprocal compensation is a function of the point of interconnection. As a
facilities based provider. TCG may interconnect at either the end office (Meet
Point A) or through an access tandem (Meet Point B). The following formulas
reflect the appropriate rate components. In addition, Meet Point B can be
purchased under TCG's flat rate option.
(1) When interconnecting at an end office: Meet Point A rates apply
Meet Point A = Local Switching Trunk Port per MOU
+ Local Switching Usage per MOU
= Meet Point A
(2) When interconnecting at an access tandem: Meet Point B
rates apply
Meet Point B = Meet Point A
+ Common Transport (Shared IOF)
+ Tandem Common Trunk Port
+ Tandem Common Trunk Port
+ Tandem Usage
= Meet Point B
II. Information Services Billing and Collection
Fee = $.05 per message
-48-
<PAGE> 49
Rating Tables subscription = $1,500 per month
BLV/BLVI ARE ADDRESSED IN SECTION IX BELOW
III. Transit Service
(A) Transit Service
Transit service equates to 1 tandem switch usage element plus
2 tandem trunk port elements
Peak Off-Peak
Tandem Switch Usage $.001586 $.001134
Tandem Trunk Port $.003528 $.000784
Tandem Trunk Port $.003528 $.000784
TRANSIT SERVICE $.008642 $.002702
-49-
<PAGE> 50
(B) Dedicated Transiting Service
Rate = twice the applicable charge for a collocated channel
termination.
IV. Interim Telecommunications Number Portability
(A) Monthly Recurring Charges
The parties shall pay to each other for ported telephone numbers the amounts
determined in accordance with the Rochester Plan formula as referenced in the
Department's Phase 3 Order in the Consolidated Arbitrations. Terminating IXC
access charges shall be shared between BA and TCG pursuant to meet-point billing
arrangements between the Parties using special estimated studies until such time
as actual meet-point billing records are available.
B. Non-recurring charge
Rate = $20 per ported number
Non-recurring charges only apply when interim number portability is
ordered separately from an unbundled link.
V. IntraLATA 800
Reciprocal Compensation(refer to I above).
Compensation for records exchanged = $.0115 per record
800 Database inquiry = per database inquiry pursuant to each Party's
applicable tariff.
VI. Unbundled Links
A. Monthly Rates
1. 2 Wire Analog Switched Voice Grade Link -- Metro $ 7.54
Urban $14.11
Suburban $16.12
Rural $20.04
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<PAGE> 51
2. 4 Wire Analog Switched Voice Grade Link-- Metro $30.97
Urban $43.40
Suburban $46.95
Rural $52.39
3. 2 Wire Link Conditioned for Digital Metro = $ 19.87
Urban = $ 27.24
Suburban = $ 29.38
Rural = $ 32.84
4. 4 Wire Link Conditioned for Digital Metro = $ 76.11
Urban = $ 98.05
Suburban = $102.64
Rural = $147.05
5. ISDN Premium Link = Price determined on an Individual Case Basis
upon request
B. Monthly Rates -- Service Access Charge
1. DS1, per termination $ 1.81
2. DS3, per termination $29.04
3. OC-3, per termination $20.91
4. OC-12, per termination $20.91
5. DS0, per termination $ 0.54
VII. 911/E911 Interconnection
BA will bill Basic 911 traffic at the same rates it bills other local
traffic from TCG. For E911 service, TCG will pay a monthly rate based on the
number of TCG telephone numbers in the E911 database. The monthly rate will be
based on the BA E911 costs in Massachusetts as reported to the Department each
April and will be calculated by dividing the total E911 costs for Residence by
the total number of Residence telephone numbers in the data bases added to the
total E911 costs for Business divided by the total number of Business telephone
numbers in the data base. The total annual costs for Residence and Business will
be divided by 12 to develop the total monthly cost for Residence and Business.
The monthly bill to TCG will be calculated by multiplying the number of
Residence TCG telephone numbers contained in the E911 data base times the
monthly rate per telephone number for Residence plus the number of business TCG
telephone numbers in the E911 data base times the monthly rate per telephone
number for Business.
VIII. Wholesale Discounts
(A). Month- to- month discounts
Resale with Operator Services and Directory Assistance 24.99%
Resale without Operator Services and Directory Assistance 29.47%
(B) The discounts set forth above are discounts set by the Department
in the Consolidated Arbitrations and may be amended or revised from time to time
as specified by the Department.
IX. Directory Assistance and Operator Services
(A) Directory Assistance Service
(1) Directory Assistance Service Rate
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<PAGE> 52
<TABLE>
<S> <C>
DA BA Branding
Per request for one telephone number $0.309413
DA TCG Branding
Per request for one telephone number $0.309413
DA Unbranded
Per request for one telephone number $0.258784
Branding Surcharge, per call $0.050629
(2) Directory Assistance Call Completion (DACC) [NOTE 1]
Branded DA
Per request for one telephone number
Plus call completion $0.424469
Unbranded DA,
Per request for one telephone number
Plus call completion $0.373840
DACC Surcharge, per call $0.115056
(B) Inward Operator Services
Busy Line Verification (BLV), per second $0.032624
Busy Line Verification with Interrupt (BLVI)
Per second $0.032624
Branding Surcharge, per request $0.050629
(C) 0+/Mechanized Operator Calls [NOTE 1]
(1) Calling Card, per request $0.096659
(2) Collect, per request $0.098626
(3) Third Number, per request $0.098626
(4) Branding surcharge per call $0.050629
(D) 0-/Operator Handled Calls [NOTE 1]
(1) 0-/Operator Handled Calls, per second $0.012817
(2) Branding surcharge, Per call $0.050629
(E) Operator Emergency Bulletin Service
Per State Bulletin, per year $17.80
(F) TOPS Trunk Ports
(1) TOPS Trunk Port (Dedicated)
One time, Nonrecurring charge $147.87
DS1 Port, Per month $348.72
Service Access Charge, Per TOPS port, per month $ 1.81
</TABLE>
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<PAGE> 53
(2) IOF mileage for Dedicated Trunk Transport
One time, Nonrecurring charges
Service Order, per Order $ 25.74
Manual Surcharge, per Order $TBD
Provisioning, per DS1 $445.24
DS1 Interoffice Mileage,
Fixed Charge per DS1, per month $126.35
Mileage Charge, Per mile, per month $ 0.73
(G) Local Switching/Trunk port
Local Switching Metro $.001703
Trunk Port Per MOU Urban $.001820
(Peak) Suburban $.002090
Rural $.002093
Local Switching Metro $.000379
Trunk Port Per MOU Urban $.000404
(Off Peak) Suburban $.000464
Rural $.000465
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<PAGE> 54
(H) Local Switching/Usage
Local Switching Metro $.004647
Usage Per MOU Urban $.007401
(Peak) Suburban $.009549
Rural $.014277
Local Switching Metro $.001872
Uage Per MOU Urban $.003516
(Off Peak) Suburban $.005282
Rural $.008186
(I) Unbundled Tandem Transport Charges (UTTC)
Per MOU, Peak $0.001780
Per MOU, Off peak $0.000400
(J) Tandem Transit Service Charge (TTSC)
The TTSC is set forth in section III(A) of this Pricing Schedule
(K) Reciprocal Compensation/Meet Point A Arrangement
<TABLE>
<CAPTION>
(1) Metro Zone Peak Off-Peak
---- --------
<S> <C> <C> <C>
Local Switch Uage
Per MOU $0.004647 $0.001872
Local Digital Trunk Port (Shared)
Per MOU $0.001703 $0.000379
Total Meet Point A Arrangement
Per MOU $0.006350 $0.002251
(2) Urban Zone
Local Switch Uage
Per MOU $0.007401 $0.003516
Local Digital Trunk Port (Shared) $0.001820 $0.000404
Per MOU
Total Meet Point A Arrangement
Per MOU $0.009221 $0.003920
(3) Suburban Zone
Local Switch Uage
Per MOU $0.009549 $0.005282
Local Digital Trunk Port (Shared) $0.002090 $0.000464
Per MOU
Total Meet Point A Arrangement
Per MOU $0.011639 $0.005746
(4) Rural Zone
Local Switch Uage
Per MOU $0.014277 $0.008186
Local Digital Trunk Port (Shared)
Per MOU $0.002093 $0.000465
Total Meet Point A Arrangement
Per MOU $0.016370 $0.008651
</TABLE>
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<PAGE> 55
NOTE 1 -- For all Directory Assistance and Operator Services Call Completions,
the appropriate local switch usage charges and composite rates (UTTC, TTSC, and
Reciprocal Compensation) shall apply.
-55-
<PAGE> 56
SCHEDULE 8.2 BA INTERVALS FOR INSTALLATION
Service Order Standard Intervals
- --------------------------------
Number of Standard Interval
DSI Trunks (Business Days)
---------- ---------------
Establishment of New Trunk Groups 1-10 60
over 10 negotiated
Additions to Existent Trunk Groups 1-4 30
over 4 negotiated
-56-
<PAGE> 57
EXHIBIT A
NETWORK ELEMENT BONA FIDE REQUEST
1. Each Party shall promptly consider and analyze access to a new unbundled
Network Element with the submission of a Network Element Bona Fide Request
hereunder. The Network Element Bona Fide Request process set forth herein does
not apply to those services requested pursuant to Report & Order and Notice of
Proposed Rulemaking 91-141 (rel. Oct. 19, 1992) P. 259 and n.603 or subsequent
orders.
2. A Network Element Bona Fide Request shall be submitted in writing and
shall include a technical description of each requested Network Element.
3. The requesting Party may cancel a Network Element Bona Fide Request at
any time, but shall pay the other Party's reasonable and demonstrable costs of
processing and/or implementing the Network Element Bona Fide Request up to the
date of cancellation.
4. Within ten (10) business days of its receipt, the receiving Party shall
acknowledge receipt of the Network Element Bona Fide Request.
5. Except under extraordinary circumstances, within thirty (30) days of its
receipt of a Network Element Bona Fide Request, the receiving Party shall
provide to the requesting Party a preliminary analysis of such Network Element
Bona Fide Request. The preliminary analysis shall confirm that the receiving
Party will offer access to the Network Element or will provide a detailed
explanation that access to the Network Element is not technically feasible
and/or that the request does not qualify as a Network Element that is required
to be provided under the Act.
6. If the receiving Party determines that the Network Element Bona Fide
Request is technically feasible and otherwise qualifies under the Act, it shall
promptly proceed with developing the Network Element Bona Fide Request upon
receipt of written authorization from the requesting Party. When it receives
such authorization, the receiving Party shall promptly develop the requested
services, determine their availability, calculate the applicable prices and
establish installation intervals.
7. Unless the Parties otherwise agree, the Network Element Requested must
be priced in accordance with Section 252(d)(1) of the Act.
8. As soon as feasible, but not more than ninety (90) days after its
receipt of authorization to proceed with developing the Network Element Bona
Fide Request, the receiving Party shall provide to the requesting Party a
Network Element Bona Fide Request quote which will include, at a minimum, a
description of each Network Element, the availability, the applicable rates and
the installation intervals.
9. Within thirty (30) days of its receipt of the Network Element Bona Fide
Request. quote, the requesting Party must either confirm its order for the
Network Element Bona Fide Request pursuant to the Network Element Bona Fide
Request quote or seek arbitration by the Commission pursuant to Section 252 of
the Act.
10. If a Party to a Network Element Bona Fide Request believes that the
other Party is not requesting, negotiating or processing the Network Element
Bona Fide Request in good faith, or disputes a determination, or price or cost
quote, or is failing to act in accordance with Section 251 of the Act, such
Party may seek mediation or arbitration by the Commission pursuant to Section
252 of the Act.
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<PAGE> 1
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
EXHIBIT 10.9
CHASE EQUIPMENT LEASING, INC. One Chase Square
Rochester, New York 14643
MASTER LEASE AGREEMENT
This Master Lease Agreement ("Agreement") is made as of August 8, 1997, between
CHASE EQUIPMENT LEASING, INC., having its principal place of business at One
Chase Square, Rochester, New York 14643 ("Lessor") and NETWORK PLUS, INC., a
Corporation having its principal place of business at 234 Copeland Street,
Quincy, MA. 02169 ("Lessee").
1. LEASE: Subject to the terms and conditions contained herein, Lessor hereby
leases to Lessee and Lessee shall lease from Lessor, various items of
personal property (collectively the "Equipment" or individually an "Item")
described in one or more Equipment Schedules to be executed substantially
in the form attached hereto. The terms "Equipment" and "Item" include, as
applicable, any associated software systems and programming. Each Equipment
Schedule incorporates the terms and conditions of this Agreement, and shall
constitute a separate, distinct and independent lease and contractual
relationship between Lessor and Lessee. The term "Lease" shall mean the
applicable Equipment Schedule which incorporates the terms and conditions
of this Agreement. The term "Subsidiary" means any corporation, the
majority of the shares of voting stock of which at any time outstanding is,
owned directly or indirectly by Lessee or by one or more of its other
subsidiaries or by Lessee in conjunction with one or more of its other
subsidiaries. By execution of this Agreement, the parties hereto agree to
the terms and conditions pursuant to which Equipment may be leased from
time to time by Lessor to Lessee.
2. TERMS AND RENTAL PAYMENTS: The term of this Agreement shall commence on
the date set forth above and shall continue in effect thereafter so long as
any Lease remains in effect. The term of each Equipment Schedule as to all
or any Item of Equipment designated on any Equipment Schedule shall
commence on the date on which the Lessee executes a Certificate of
Acceptance for such Equipment (the "Acceptance Date") and shall continue
for a period ending that number of months from the date the first periodic
rental payment is due as specified on the applicable Equipment Schedule.
Rent shall be specified and payable in accordance with the terms as set
forth in the Equipment Schedule. All payments shall be made at the office
of Lessor at One Chase Square, Rochester, New York 14643 or as otherwise
directed by Lessor in writing.
If Lessee fails to pay any periodic rent payment or other sum to be paid to
Lessor after [**] days of the due date, then Lessee shall pay a late charge
of [**] per dollar on, and in addition to, the amount of such payment but
not exceeding the maximum amount, if any, permitted by law ("Late Charge").
3. NET LEASE: This Lease is a net lease. Lessee's obligation to pay all rent
and any other amounts due hereunder shall be absolute and unconditional
and, except as expressly provided, shall not be subject to any abatement,
deferment, reduction, defense, counterclaim, set-off, or recoupment,
including, but not limited to, for example, (i) any existing or future
claims of whatever kind or nature against Lessor or the manufacturers) or
suppliers) of the Equipment or (ii) termination of Lessee's right of
possession and/or the taking of possession of the Equipment thereof by or
through Lessor in accordance with this Lease. Except as expressly provided
herein, this Lease shall not terminate for any reason, including, but not
limited to, any defect in the Equipment or Lessor's title thereto or any
destruction or loss of use of any Item of Equipment.
1
<PAGE> 2
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
4. LOCATION AND USE OF EQUIPMENT: Lessee shall be solely responsible to
install the Equipment or have it installed, to inspect the Equipment during
installation, upon completion of installation to test the Equipment and to
accept it pursuant to the terms of this Lease. The full risk of loss
arising out of or in connection with delays, partial performance or
nonperformance by supplier(s) shall be on Lessee, and Lessor shall not be
liable for specific performance of this Lease or for damages if, for any
reason, any supplier delays or fails to fill or improperly fills an order.
During the term of this Lease, the Equipment shall be located at the
address specified in the Equipment Schedule and shall not be removed from
that address without the prior written consent of Lessor. Lessee covenants
and warrants that during the period that any Equipment is leased to Lessee,
or its successors or assigns, the Equipment will at all times be used and
operated in compliance with the laws of the jurisdictions in which it is
located, and in compliance with all acts, rules, regulations, and orders of
any commission, board or other legislative, administrative, or judicial
body or officer having power to regulate or supervise the use or operation
of the Equipment. Lessee shall not install or use the Equipment in such
manner or in such circumstances that any part of the Equipment is deemed to
be an accession to other personal property or deemed to be real property or
a fixture thereon.
5. ERRORS IN ESTIMATED COST: As used herein, "Total Cost" means the cost to
Lessor of purchasing and delivering the Equipment to Lessee, including
taxes and transportation and other charges. The amount of each rental
payment set forth on the Equipment Schedule is based on the Total Cost
initially set forth which is an estimate, and each shall be adjusted
proportionally if the actual cost of the Equipment differs from said
estimate. Lessee hereby authorizes Lessor to correct the figures set forth
on the Equipment Schedule(s) when the actual cost is known, and to add to
the amount of each rental payment any sales, use or other tax that may be
imposed on or measured by rental payments. If the actual cost of the
Equipment differs from the estimated cost by more than [**] however, either
party at its option may terminate the Lease with respect to the Equipment
as to subsequent obligations by giving written notice to the other party
within fifteen (15) days after receiving notice of the actual cost or the
corrected rentals and Lessee shall reimburse and indemnify Lessor for any
existing obligation and/or expenses incurred by Lessor such as but not
limited to, open purchase orders and progress payments made to supplier(s).
6. INSPECTION: Lessee shall, whenever requested, advise Lessor of the exact
location and condition of the Equipment and shall give Lessor immediate
notice of any attachment or other judicial processes, liens or encumbrances
affecting the Equipment and indemnify and save Lessor harmless from any
loss or damage caused thereby. Lessor may for the purpose of inspection, at
all reasonable business hours, enter any building or place where the
Equipment is located. Lessor shall be entitled to review Lessee's
maintenance records relating to the Equipment.
7. PRESERVATION OF LESSEE'S EXISTENCE AND BUSINESS:
(a) Lessee will preserve and keep in full force and effect Lessee's
existence, rights, licenses and franchises and those of any Subsidiaries,
necessary and material to Lessee's and Subsidiaries' operations taken as a
whole.
(b) Lessee will not make or permit to be made any material change in the
character of Lessee's business or operations.
8. FINANCIAL INFORMATION AND REPORTING:
(a) Lessee shall annually, within ninety (90) days after the close of
Lessee's fiscal year, furnish to Lessor, financial statements of Lessee
(including a balance sheet as of the close of such year and statements of
income, changes in financial condition and shareholder's equity for such
year) prepared in accordance with generally accepted accounting principles
and certified by Lessee's
2
<PAGE> 3
independent public accountants. Lessee shall also provide quarterly
financial statements of Lessee similarly prepared for each of the first
three quarters of each fiscal year, which shall be certified (subject to
normal year-end adjustments) by Lessee's chief financial officer and
furnished to Lessor within sixty (60) days following the end of the
quarter.
(b) Lessee will furnish Lessor with any and all information regarding
Lessee's business, condition or operations, financial or otherwise which
Lessee furnishes to any other creditor. This information shall be furnished
to Lessor at the same time it is furnished to that creditor.
(c) Lessee will immediately furnish Lessor with such further information
regarding Lessee's business, condition, property, assets or operations,
financial or otherwise, as Lessor may from time to time reasonably request,
all prepared in form and detail satisfactory to Lessor.
(d) Lessee will at all times maintain true and complete records and books
of account including, without limiting the generality of the foregoing,
appropriate reserves for possible losses and liabilities, all in accordance
with generally accepted accounting principles consistently applied.
(e) Lessee shall permit, and cause any Subsidiary to permit,
representatives of Lessor (i) to visit and inspect any of the properties of
Lessee or any Subsidiary (ii) to examine its or their corporate or
partnership books and records, (iii) to make extracts or copies of such
books and records, and (iv) to discuss its or their affairs, finances and
accounts with its or their officers or partners, as applicable. The
foregoing may be done at any time within regular business hours.
(f) Lessee will promptly notify Lessor in writing of the commencement of
any litigation to which Lessee or any of its affiliates may be a party
(except for litigation in which Lessee's (or the affiliate's) contingent
liability is fully covered by insurance) which, if decided adversely to
Lessee would adversely affect or impair the title of Lessor to the
Equipment or which, if decided adversely to Lessee would materially
adversely affect the business operations or financial condition of Lessee.
In addition, Lessee will immediately notify Lessor, in writing, of any
judgment against Lessee if such judgment would have the effect described in
the preceding sentence.
9. PAYMENT OF TAXES, DEBTS AND OBLIGATIONS:
(a) Lessee shall pay all taxes, assessments, fees, charges, penalties and
fines imposed upon the Equipment and/or arising out of the lease, use,
possession or operation thereof and whether levied or assessed against
Lessee or against Lessor. All taxes, fees and similar charges imposed on
the ownership, possession or use of the Equipment during the term of this
Lease shall be paid by Lessee. In case of failure of Lessee to pay said
taxes, fees and similar charges, Lessor may pay the same, and the amount
thereof shall be payable by Lessee as additional rent with the next rental
payment. (b) Lessee will cause to be paid and discharged all its
obligations when due and all lawful taxes, assessments and governmental
charges or levies imposed upon Lessee or any Subsidiary, or upon any
property, real, personal or mixed, belonging to Lessee or any Subsidiaries,
or upon any part thereof, before the same shall become in default, as well
as all lawful claims for labor, materials and supplies which, if unpaid,
might become a lien or charge upon the property or any part of it.
Notwithstanding the previous sentence, neither Lessee nor any Subsidiary
shall be required to cause to be paid and discharged any obligation, tax,
assessment, charge, levy or claim so long as its validity is contested in
the normal course of business and in good faith by appropriate and timely
proceedings and Lessee or any Subsidiary, as the case may be, sets aside on
its books adequate reserves with respect to each tax, assessment, charge,
levy or claim so contested, nor shall Lessee nor any Subsidiary be required
to pay or discharge any trade Indebtedness which is not past its stated due
date by more than thirty (30) days.
10. MAINTENANCE: Lessee shall enter into and maintain in force throughout the
term of this Lease a maintenance agreement with the equipment
manufacturers), or such other qualified maintenance organization as Lessee
may select, covering maintenance of the Equipment. Lessee will cause the
Equipment to be kept in good working order, repair and maintenance in
accordance with the provisions of each maintenance agreement and will make
all necessary adjustments and repairs to the Equipment. Any parts installed
or replacements made by Lessee to any Item pursuant to
3
<PAGE> 4
Lessee's obligation to maintain the Equipment shall be considered
accessions and title thereto shall immediately vest in Lessor. Each
manufacturer or service organization is hereby authorized to accept the
directions of Lessee with respect thereto. Lessee shall allow the
manufacturer(s) or service organization full and free access to the
Equipment. All maintenance and service charges, whether under a maintenance
agreement or otherwise, shall be borne by Lessee, including the expenses,
if any, of a manufacturer's or service organization's customer engineer
charged in connection with maintenance and repair services. Lessee
covenants that the Equipment will at all times be used and operated in
accordance with each manufacturer's instructions and in compliance with any
restriction contained in each manufacturer's warranties regarding the
Equipment.
11. ALTERATIONS AND ATTACHMENTS: Upon prior written notice to Lessor, Lessee
may, at its own expense, make alterations in or add attachments to the
Equipment provided any alteration or attachment shall not interfere with
the normal operation of the Equipment. The manufacturer may incorporate
engineering changes or make temporary alterations to the Equipment upon
request by Lessee. All such alterations and attachments, unless Lessor
shall otherwise agree in writing, shall be removed by Lessee and the
Equipment restored to its original condition, reasonable wear and tear
excepted, upon termination of this Lease. If the alteration or attachment
interferes with the normal and satisfactory operation or maintenance of the
Equipment in a manner as to increase the cost of maintenance of the
Equipment, or create a safety hazard, Lessee shall promptly remove the
alteration or attachment and restore the Equipment to its normal condition.
12. INSURANCE; NOTICE OF ACCIDENT:
(a) At its sole expense, Lessee shall secure and maintain in full force and
effect throughout the term of all Equipment Schedules and any extensions or
renewals thereof, insurance against all risks including, but not limited
to, theft, damage, or destruction of the Equipment in an amount equal to
the aggregate Total Cost of all Equipment Schedules written in the broadest
form available on usual commercial terms and with carriers acceptable to
Lessor. Lessee shall also maintain public liability insurance satisfactory
to Lessor and with at least the minimum limits as set forth in the
Equipment Schedule.
(b) Upon execution of the Certificate of Acceptance, Lessee shall deliver
the policy or policies or duplicates or certificates thereof, to Lessor.
Lessee shall maintain a loss payable endorsement on all such policies in
favor of Lessor and its successors and assigns and shall afford to Lessor
and its successors and assigns such additional protection as Lessor and its
successors and assigns shall reasonably require. All such insurance
policies shall name Lessor, its successors and assigns, as additional
insureds and expressly provide that any obligations imposed upon the
insureds (including, without limitation, the obligation to pay premiums)
shall be the obligation solely of Lessee and not the obligations of Lessor,
its successors and assigns. Each policy shall expressly provide that (1)
the insurance as to Lessor and its successors and assigns shall not be
invalidated by any act, omission or neglect of Lessee, (2) the same may not
be canceled, modified or allowed to lapse (for failure to renew or
otherwise) without at least thirty (30) days prior written notice to Lessor
or its successors and assigns, and (3) the insurance shall be primary,
without right or contribution of any other insurance carried by or on
behalf of Lessor with respect to its interests.
In the event that any policies insuring against liability risks described
above shall now or hereafter provide coverage on a "claims made" basis,
Lessee shall continue to maintain such policies in effect for a period of
not less than three years after the expiration of the Lease term of any
Equipment Schedule.
(c) Lessor and its successors and assigns may apply the proceeds of
insurance to replace or repair the Equipment and/or to satisfy Lessee's
obligations hereunder, as determined in Lessor's sole discretion. If Lessee
fails to pay when due any insurance premium for any policy written
hereunder, then Lessor may make such premium payment and add the amount
thereof to the next
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rent payment, and such premium amounts shall become rent. Lessee appoints
Lessor as Lessee's attorney-in-fact to make any claim for, to receive
payment for and to execute and endorse any documents, checks or other
instruments in payment for loss, theft or damage under any such insurance
policy. Lessor shall be under no duty to ascertain the existence of any
insurance coverage or to examine any certificate of insurance or other
evidence of insurance coverage or to advise Lessee in the event the
insurance coverage does not comply with the requirements of this Agreement.
Lessee will promptly notify the appropriate insurer, Lessor and any
assignee, of an accident or occurrence which may become the basis of a
claim against the insured. In connection with any claim against Lessor
and/or Lessee arising out of the ownership, operation, maintenance and use
of the Equipment, Lessee agrees to cooperate with Lessor in defending
against such claims, including making Lessee's employees available to
Lessor without charge.
(d) Lessee will maintain, and cause any Subsidiaries to maintain, insurance
from duly licensed and responsible insurers on all property of Lessee and
any Subsidiaries to its full insurable value, except to the extent limited
by applicable insurance law. This insurance shall be against risks of fire
and all other risks as fall within "extended coverage" as that term is
generally understood in the insurance industry. Lessee shall also maintain,
and cause any Subsidiaries to maintain, additional insurance in such
amounts and against such risks, including, without limitation, product
liability, personal injury, property damage, and workers' compensation, as
is usually carried by owners of similar businesses of similar size and
profits or as Lessor may reasonably require.
13. INDEMNIFICATION: To the fullest extent permitted by law, Lessor, its
officers, employees, agents, successors and assigns, shall not be liable to
Lessee for, and Lessee shall indemnify and hold Lessor, its officers,
employees, agents, successors and assigns, harmless with respect to any
third-party from any liability (including liability for Lessee negligence),
claim, loss, damage or expense (including litigation expense) of any kind
or nature arising out of this Lease, or the transactions contemplated in
this Lease, including, but not limited to: (a) the inadequacy of any Item
of Equipment for any purpose; (b) any deficiency or defect in any Item of
Equipment; (c) the use or performance or maintenance of any Item of
Equipment; (d) any interruption or loss of service, use or performance of
any Item of Equipment; or (e) any loss of business or other consequential
damage whether or not resulting from any of the foregoing. IN PARTICULAR,
LESSOR AND ITS SUCCESSORS AND ASSIGNS SHALL NOT BE LIABLE FOR INJURIES TO
PERSONS OR DAMAGE TO ANY ITEM OF EQUIPMENT OR OTHER PROPERTY UNDER ANY
THEORY OF STRICT LIABILITY, AND LESSEE SHALL INDEMNIFY AND SAVE LESSOR AND
ITS SUCCESSORS AND ASSIGNS HARMLESS FROM ANY SUCH LIABILITY AND ALL COSTS
AND EXPENSES IN DEFENDING THE SAME. This obligation to indemnify shall
apply from the date of the execution of the Equipment Schedule out of which
the claim arises, notwithstanding that the lease term may not have
commenced. All of Lessor's and its successors and assigns rights under this
section shall survive the termination of this Lease. However, Lessee shall
not be required to indemnify Lessor or its successors or assigns for claims
arising from events which occur after the Equipment has been redelivered to
Lessor, its successors or assigns.
14. RISK OF LOSS:
(a) Lessee hereby assumes and shall bear the entire risk of loss, theft,
damage and destruction of the Equipment, whether partial or complete, from
any cause whatsoever. No loss, theft, damage or destruction of Equipment
shall relieve Lessee of the obligation to pay rent or any other obligation
of this Lease, and, except as provided below, this Lease shall remain in
full force and effect. Lessee shall promptly notify Lessor in writing of
any such loss, theft, damage or destruction of the Equipment. Lessor shall
not be liable to Lessee for any loss, damage or expense of any kind or
nature, caused directly or indirectly by any Item of Equipment or by the
use, maintenance, repair, failure, destruction or damage of any Equipment.
(b) In the event of damage of any kind whatsoever to the Equipment (unless
the same is damaged
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[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
beyond repair), Lessee, at the option of Lessor, shall at Lessee's expense
(i) place the same in good repair, condition and working order, or (ii)
replace the same with like Equipment of the same or a later model, and in
good repair, condition and working order and provide Lessor good and valid
title thereto.
(c) In the event that the Equipment is lost, stolen, destroyed or damage
beyond repair (any such event is referred to as an "Event of Loss"),
Lessee, at the option of Lessor, shall (i) at Lessee's expense replace the
same with like Equipment of the same or a later model, in good repair,
condition and working order and provide Lessor good and valid title thereto
or (ii) pay to Lessor an amount equal to the unpaid balance of the rent and
any other sums then due or past due, plus the Stipulated Loss Value
attributable to the Equipment (as set forth on Attachment I to the
Equipment Schedule) calculated on the rental payment date immediately
preceding the date of the loss (this option (ii) shall only be applicable
if a Stipulated Loss Value table is referenced in the Equipment Schedule),
or (iii) pay to Lessor an amount equal to the unpaid balance of the rent
and any other sums then due, plus the balance of any remaining rents
(discounted at the rate of [**] percent per annum) attributable to the
Equipment during the term and extension thereof, if any, of this Lease.
Upon such payment Lessee's obligation to pay further rent for such
Equipment shall cease, and Lessee thereupon shall become entitled to the
Equipment paid for "as-is-where-is", without recourse or warranty, express
or implied, with respect to any matter whatsoever.
(d) To the extent of Lessee's expense actually incurred to repair or
replace the Equipment or of Lessee's payment to Lessor for the loss, theft,
damage or destruction of any Item of Equipment, Lessee shall then be
entitled to receive from Lessor any insurance or recovery received by
Lessor in connection with such loss, theft, damage or destruction, and any
amount of insurance or recovery received by Lessor in excess of Lessee's
expenses actually incurred or paid to Lessor shall belong to Lessor. Lessor
shall not be obligated to deliver to Lessee any insurance or recovery
received by Lessor in connection with any loss, theft, damage or
destruction until Lessee has provided Lessor with such documents as Lessor
shall deem necessary or desirable for purposes of evidencing that the
Equipment has been repaired or replaced in accordance with this Section 14.
15. OWNERSHIP OF EQUIPMENT: The Equipment shall at all times remain personal
property, and title thereto shall remain solely in Lessor. The Equipment
may be removed by Lessor at any time after termination of this Lease.
Lessee shall affix tags, decals or plates to the Equipment indicating
Lessor's ownership, which type of tag, decal or plate and location may be
specified by Lessor, and Lessee shall not permit their removal or
concealment. Lessee shall cause each Item of Equipment to be kept numbered
with the serial number specified in the Certificate of Acceptance. Lessee
shall, at its own expense, protect and defend Lessor's title in the
Equipment against all claims and liens of Lessee's creditors and keep the
Equipment free and clear of all claims, liens and encumbrances except those
resulting from the agreements or acts of Lessor. At Lessor's request Lessee
shall obtain and record such instruments and take such steps as may be
necessary to prevent any entity from acquiring any rights in the Equipment
by reason of the Equipment being claimed as or deemed as real property.
In the event this Agreement or any Equipment Schedule thereto shall be
adjudged or determined not to be a Lease, then Lessor's retention of title
to the Equipment shall be construed to be, and Lessee does hereby grant to
Lessor, a security interest in the Equipment, insurance covering the
Equipment and all of the proceeds of the foregoing.
16. ASSIGNMENT: Neither this Lease nor Lessee's rights hereunder shall be
assignable in whole or in part by Lessee except with Lessor's prior written
consent, and the provisions hereof shall bind any permitted successors and
assigns of Lessee. Lessor shall have the right to assign this Lease or any
part thereof. If Lessor assigns the rentals reserved herein or all or any
of Lessor's other rights hereunder, or amounts equal thereto, the right of
the Assignee to receive the rentals as well as any other right of the
Assignee shall not be subject to any defense, setoff, counterclaim, or
recoupment
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<PAGE> 7
which may arise out of any breach or obligation of Lessor in connection
herewith or by reason of any other indebtedness or liability at any time
owing by Lessor to Lessee. All rentals due hereunder shall be payable to
the Assignee by Lessee whether or not this Lease is terminated by operation
of law or otherwise, including without limitation, termination arising out
of bankruptcy, reorganization or similar proceedings involving Lessor. On
receipt of notification of such assignment, Lessee, subject to its rights
hereunder, shall become the pledgeholder of the Equipment for and on behalf
of the Assignee and will relinquish possession thereof only to the Assignee
or pursuant to its written order. Lessee, on receiving notice of any such
assignment, shall abide thereby and make payment as may therein be
directed. Following any such assignment the term "Lessor" shall be deemed
to include or refer to Lessor's Assignee, provided that no such Assignee
shall be deemed to assume any obligation or duty imposed upon Lessor
hereunder, and Lessee shall look only to Lessor for performance thereof.
Lessee is further directed that after assignment of a Lease only Assignee
shall have the right or power to compromise, settle, extend or otherwise
negotiate the terms of payment under that Lease.
17. SECURITY INTEREST: Where appropriate, Lessor shall file all necessary
documents, including UCC financing statements, in connection with this
Lease so as to perfect Lessor's security interest under the Lease. Lessee
shall execute and deliver to Lessor such documents (including UCC financing
statements) as Lessor shall deem necessary or desirable for purposes of
evidencing, protecting or recording the rights and interest of Lessor in
the Equipment or this Lease and in furtherance of the performance of the
terms and conditions of this Lease. All reasonable expenses (including UCC
search and filing fees) related thereto shall be paid by Lessee. Lessee
hereby irrevocably appoints Lessor as its lawful attorney and agent to
execute UCC financing statements on Lessee's behalf and hereby authorizes
Lessor to file, at Lessee's expense, such UCC financing statements in any
appropriate public office.
18. DISPOSITION: At the expiration or termination of this Lease by lapse of
time, or otherwise, Lessee shall return the Equipment to Lessor or its
designee at a location designated by Lessor within New York State, with
transportation charges (including in-transit insurance), prepaid by Lessee,
in the same condition as when received by Lessee, ordinary wear and tear
alone excepted, and free of any lien created or suffered by Lessee. To the
extent the Lease does not terminate at the end of the Lease term thereof,
or the Equipment is not returned to Lessor or its designee, and other
rental amounts are not specified therein or mutually agreed to in writing,
then the same amount of rent shall continue to be due and payable by Lessee
until the Equipment is returned to Lessor or its designee. Lessee shall
remain responsible to maintain in full force and effect insurance in
accordance with paragraph 12 of this Agreement.
19. EVENTS OF DEFAULT AND LESSOR'S REMEDIES:
(a) Each of the following events shall constitute an event of default
("Event of Default") hereunder: (i) Lessee fails to pay any rent or other
amount due hereunder within ten (10) days after the same is due and
payable; or (ii) Lessee fails to perform any other obligation or observe
any condition of this Lease required to be performed or observed by Lessee;
or (iii) any representation, warranty or statement made in writing to
Lessor by Lessee (or any guarantor of Lessee's obligations under this
Agreement) in connection with the transactions contemplated under this
Lease shall have been false in any material respect when made; or (iv)
Lessee attempts to sell, transfer, encumber, part with possession of,
assign or sublet (except as expressly permitted by the provisions hereof)
any Item of Equipment; or (v) Lessee fails to insure (pursuant to Section
12 hereof) any Item of Equipment; or (vi) Lessee fails to deliver to Lessor
any documents required by Lessor under the Lease; or (vii) Lessee (or any
guarantor of Lessee's obligations under this Agreement) is in default under
any other agreement with Lessor or any of its affiliates; or (viii) Lessee
ceases doing business as a going concern; or (ix) Lessee (or any guarantor
of Lessee's obligations under this Agreement) shall consolidate with or
merge into any other entity, or convey, transfer or lease substantially all
of its
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[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
assets to any other entity; or (x) the corporate existence of Lessee (or
any guarantor of Lessee's obligations under this Agreement) shall
terminate; or (xi) any of Lessee's issued and outstanding shares of capital
stock are sold, assigned, pledged, transferred, exchanged in a corporate
reorganization or otherwise disposed of or new shares of such stock are
issued and such sale, assignment, pledge, transfer, exchange, issuance or
other disposition results in vesting the "control" of such corporation in a
person (or persons) not presently having control and not approved by Lessor
in writing prior to such vesting (except for involuntary transfers of such
stock by operation of law). "Control" shall be deemed vested in the person
or persons owning more than fifty percent (50%) of the number of issued and
outstanding shares of such stock, however designated, or holding more than
fifty percent (50%) of the voting power for the election of members of the
Board of Directors of the Lessee; or (xii) Lessee (a) incurs any
accumulated funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974, as amended from time to time and
the regulations thereunder, equal to 5% of Consolidated Tangible Net Worth
of Lessee or (b) incurs any liability of comparable size to the Pension
Benefit Guaranty Corporation; or (xiii) Lessee or any subsidiary fails to
comply with the provisions of the Fair Labor Standards Act of 1938, as
amended; or (xiv) Lessee is, or permits any subsidiary to be, in violation
of any law or regulation, order, writ, injunction or decree of any court or
governmental instrumentality or in breach of any agreement or instrument to
which Lessee or any Subsidiary is subject or in default thereunder; or (xv)
Lessee (or any guarantor of Lessee's obligations under this Agreement)
applies for or consents to the appointment of a receiver, trustee,
assignee, custodian or liquidator of its business or any substantial part
of its property; or (xvi) Lessee (or any guarantor of Lessee's obligations
under this Agreement) fails to pay its debts generally as they become due;
or (xvii) Lessee (or any guarantor of Lessee's obligations under this
Agreement) makes a general assignment for the benefit of creditors; or
(xviii) Lessee (or any guarantor of Lessee's obligations under this
Agreement) fails within sixty (60) days to lift any execution, garnishment
or attachment of such consequences as will impair its ability to carry on
its operations under this Lease; or (xix) Lessee (or any guarantor of
Lessee's obligations under this Agreement) commences (as the debtor) a case
in bankruptcy (including a petition for reorganization or arrangement)
under the United States Bankruptcy Code or a proceeding under any state or
federal insolvency law; or (xx) a case in bankruptcy or any other
proceeding (including a petition for reorganization or arrangement) under
the United States Bankruptcy Code or any case or proceeding under any other
insolvency law shall be commenced against Lessee (or any guarantor of
Lessee's obligations under this Agreement) (as the debtor) involuntarily or
a decree or order for relief against Lessee (or any guarantor of Lessee's
obligations under this Agreement) (as the debtor) shall be entered in any
court of competent jurisdiction, and such case, proceeding or decree or
order is not dismissed within forty (40) days after such commencement or
entry, or Lessee (or any guarantor of Lessee's obligations under this
agreement) shall consent to or admit the material allegations against it in
any such case or proceeding; or (xxi) a trustee, assignee, receiver,
custodian or agent (however named) is appointed or authorized to take
charge of any substantial part of Lessee's (or any guarantor of Lessee's
obligations under this Agreement) property.
(b) Upon the occurrence of any Event of Default, Lessor may declare the
Lessee in default. At its option, Lessor may declare a default in all
Leases and any other agreement between Lessor, or any affiliate of Lessor,
and Lessee except as specifically exempted therefrom by Lessor in such
declaration. In the case of an Event of Default, Lessor or its agents shall
have the right, at their option, to exercise any or all of the rights and
remedies available to a secured party under the Uniform Commercial Code
and, in addition, to do any or all of the following: (i) to declare
immediately due and payable without notice or demand to Lessee an amount
equal to the balance of unpaid rent and any other sums then due plus the
balance of the rent and any other sums to become due (discounted at the
rate of [**] percent per annum) during the term and extension thereof, if
any, of this Lease; and/or (ii) to sue for and recover from Lessee an
amount equal to the unpaid balance of rent and any other sums then due plus
the balance of rents and any other sums to become due (discounted at the
rate of [**] percent per annum) during the term and extension thereof, if
any, of
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[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
this Lease (hereinafter "Unpaid Rent"); and/or (iii) to take possession of
any or all Item(s) of Equipment without demand or notice wherever the same
may be located without any court order or other process of law. Upon taking
possession of any or all Item(s) of Equipment, Lessor at its option may (i)
lease the repossessed Equipment to any third party on such terms and
conditions as Lessor may determine, or (ii) sell the Equipment or any part
thereof at public auction or at private sale. In the event Lessor re-lets
the repossessed Equipment, then Lessor shall credit against the Unpaid Rent
the present value of the aggregate of the rent to be received from the
re-lease during the remaining term of the applicable Equipment Schedules
(discounted at a rate equal to the sum of the prime interest rate in effect
at The Chase Manhattan Bank, on the date such re-lease is entered into
[**]). In the event Lessor sells the repossessed Equipment, then Lessor
shall credit all amounts received from the sale, less expenses incurred in
connection therewith, to the Unpaid Rent due. Lessee hereby agrees to
peaceably deliver the Equipment to Lessor upon demand after an Event of
Default is declared by Lessor; Lessee waives any and all damages occasioned
by such taking possession. Any such taking of possession shall not
constitute a termination of this Lease and shall not relieve Lessee of its
original obligation hereunder unless Lessor expressly so notifies Lessee in
writing.
(c) Should any proceeding be instituted by Lessor to recover any monies due
and/or to become due hereunder and/or for the possession of the Equipment,
Lessee shall pay a reasonable sum as attorney's fees and collection agency
fees, court costs and repossession expenses.
The exercise, or the beginning of exercise by the Lessor of any one or more
of such remedies described above shall not constitute the exclusive
election of such remedies and shall not preclude the simultaneous or later
exercise by Lessor of any or all of such other remedies.
20. LESSEE'S AND LESSOR'S WARRANTIES: (a) Lessee hereby warrants and represents
to Lessor, its successors and assigns that: (i) Lessee's execution and
performance of this Lease has been duly authorized by all necessary
corporate action and is not now and will not be in conflict with Lessee's
charter or by-laws, or with any indenture, contract or agreement by which
it is bound, or with any statute, judgment, decree, rule or regulation
binding upon it; (ii) no consent or approval of any trustee or holder of
any indebtedness or obligation of Lessee, and no consent or approval of any
governmental authority, is necessary for Lessee's execution or performance
of this Lease; (iii) there is no litigation or other proceeding pending, or
to the best of the Lessee's knowledge, threatened against or affecting
Lessee which, if decided adversely to Lessee would adversely affect or
impair the title of Lessor to the Equipment or which, if decided adversely
to Lessee would materially adversely affect the business operations or
financial condition of Lessee; (iv) all balance sheets, statements of
profit and loss and other financial data that have been delivered to Lessor
with respect to Lessee are complete and correct in all material respects,
fairly present the financial condition of the Lessee on the dates for
which, and the results of its operations for the periods for which, the
same have been furnished and have been prepared in accordance with
generally accepted accounting principles consistently applied; (v) there
has been no material adverse change in the condition of Lessee, financial
or otherwise, since the date of the most recent financial statements
delivered to Lessor; (vi) this Lease is valid and binding and enforceable
against Lessee in accordance with its terms, subject to enforcement
limitations imposed by rules of equity or by bankruptcy or similar laws.
Upon Lessor's request, Lessee shall submit to Lessor an opinion of Lessee's
counsel that the above warranties and representations are true.
(b) Lessor hereby warrants and represents to Lessee, its successors and
assigns that: (i) Lessor's execution and performance of this Lease has been
duly authorized by all necessary corporate action and is not now and will
not be in conflict with Lessor's charter and by-laws, or with any
indenture, contract or agreement by which it is bound, or with any statute,
judgment, decree, rule or regulation binding upon it; (ii) no consent or
approval of any trustee or holder of any indebtedness or obligation of
Lessor, and no consent or approval of any governmental authority, is
necessary for Lessor's execution or performance of this Lease; and (iii)
this Lease is valid and binding and
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enforceable against Lessor in accordance with its terms, subject to
enforcement limitations imposed by rules of equity or by bankruptcy or
similar laws.
21. JOINT AND SEVERAL LIABILITY; AUTHORITY TO SIGN; SUBSIDIARIES; PURCHASE OF
EQUIPMENT: If more than one party executes this Lease as Lessee, each such
party shall be jointly and severally bound by the terms and provisions of
this Lease. Any person who signs as an officer or agent for a corporation,
partnership or other entity warrants that he has authority from such
corporation, partnership or other entity to enter into this Lease on its
behalf. Each Item of Equipment delivered pursuant to this Lease by Lessor
to a Subsidiary of Lessee or to any entity or person designated by Lessee,
whether at the request of Lessee or such Subsidiary, entity or person shall
be Equipment for all purposes of this Lease, and Lessee shall be and remain
primarily liable for its obligations under this Lease with respect to such
Equipment. Lessor shall not be obligated to purchase and deliver any Item
of Equipment unless Lessor has executed an Equipment Schedule covering the
Equipment.
22. MODIFICATION: No change, modification, or alteration of, and no additions
to, the terms of this Lease shall be effective or binding on Lessor unless
the same is in writing and signed by Lessor (except if the Lease term is
automatically extended per Section 18 hereof). In the event of conflict
between the terms of this Lease and the Equipment Schedule, the Equipment
Schedule shall govern.
23. NOTICES:
(a) Lessee will immediately notify Lessor in writing with full details if
(i) any event occurs or any condition exists which constitutes, or which
but for a requirement of lapse of time or notice or both would constitute,
an Event of Default under Part 19, or which might materially and adversely
affect the financial condition or operations of Lessee or of any Subsidiary
or (ii) any representation or warranty made in the Master Lease Agreement
or in any writing related to it may for any reason cease in any material
respect to be true and complete.
(b) All notices relating to this Lease, shall be in writing and shall be
deemed given when delivered or when deposited in the U.S. mail, certified,
postage prepaid and addressed with the Ml name and address of the
appropriate party set forth above, or to such other address as may have
been furnished by written notice from the party to whom notice is sent.
24. TIME OF ESSENCE; ENTIRE AGREEMENT; WAIVER; SURVIVAL OF TERMS: Time is of
the essence of this Lease. This Lease constitutes the entire agreement
between the parties and shall be binding upon the parties and their
respective successors or assigns, and shall only be amended by a written
instrument signed by Lessor and Lessee. Any waiver of the performance of
any of the terms, conditions or covenants hereof by either party shall not
be construed as thereafter waiving any such terms, conditions or covenants,
but the same shall remain in full force and effect, as if no such waiver
has occurred. Lessee's obligations and liabilities under this Lease shall
not be affected by the expiration or earlier termination of this Lease.
25. APPLICABLE LAW: This Lease shall be governed by and in accordance with the
laws of the State of New York. At Lessor's option, any action or proceeding
relating directly or indirectly to this Lease shall be tried in a court of
competent jurisdiction located in the State of New York. Lessee hereby
consents to jurisdiction of any court of competent jurisdiction chosen by
Lessor. This Lease shall be deemed to have been made in the State of New
York, regardless of the order in which it was executed.
26. HEADINGS: The headings of each numbered paragraph are for reference only
and constitute no part of this Lease.
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27. ACKNOWLEDGMENTS AND WARRANTIES: Lessee acknowledges that it has selected
both (a) the Equipment and (b) the manufacturer and/or supplier from whom
Lessor is to purchase it.
LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER,
INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE, AND, AS TO LESSEE, LESSOR LEASES THE EQUIPMENT
AS IS. NO DEFECT OR UNFITNESS OF THE EQUIPMENT SHALL RELIEVE LESSEE OF THE
OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION UNDER THIS LEASE. LESSOR
WARRANTS TO LESSEE THAT, SO LONG AS NO EVENT OF DEFAULT HAS OCCURRED AND IS
CONTINUING, LESSOR WILL NOT INTERFERE WITH THE LESSEE'S USE AND POSSESSION
OF THE EQUIPMENT.
If the Equipment is unsatisfactory for any reason, Lessee shall make any
claim on account thereof solely against the manufacturer or supplier.
Lessor hereby agrees to assign to Lessee, solely for the purpose of making
and prosecuting any such claim, all of the rights which Lessor has against
such manufacturer or supplier for breach of warranty or other
representation respecting the Equipment to the extent the same are
assignable.
28. LESSOR'S RIGHT TO CURE: Upon Lessee's failure to perform any of its duties
under a Lease, Lessor may, but shall not be obligated to, perform any or
all such duties, and Lessee shall pay an amount equal to the expenses
thereof to Lessor forthwith upon demand by Lessor. No such performance of
any or all such duties by Lessor shall be deemed to cure any Event of
Default of Lessee.
29. ADDITIONAL ASSURANCES: If Lessor shall request, Lessee shall execute and
deliver to Lessor such documents as Lessor shall reasonably deem necessary
or desirable.
Lessee hereby authorizes Lessor to make corrections, if necessary, to the
description of Equipment, quantities, model numbers, and/or serial numbers,
on the Equipment Schedule, Certificate of Acceptance, UCC- 1 financing
statements covering the Equipment and all other related documents. Lessor
will provide Lessee with a copy of the corrected Equipment Schedule.
30. MODIFICATIONS/ADDITIONAL PROVISIONS: See attached Addendum, if there are
any modifications or additions hereto.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE DULY EXECUTED
AS OF THE DATE FIRST ABOVE WRITTEN.
CHASE EQUIPMENT LEASING, INC. LESSEE: NETWORK PLUS, INC.
BY: /s/ Janice M. SCHAWILLIE BY: /s/ STEVEN SHAPIRO
Janice M. Schawillie Steven Shapiro
TITLE: CONTRACT ADMINISTRATOR TITLE: Chief Financial Officer
(REV.2/93)
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[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
AMENDMENT
TO
MASTER LEASE AGREEMENT DATED AUGUST 8,1997 BETWEEN CHASE EQUIPMENT LEASING, INC.
("LESSOR") AND NETWORK PLUS, INC. ("LESSEE").
The following modifications are hereby incorporated in and made a part of the
above referenced Master Lease Agreement effective as of the date first written
above. Capitalized terms used herein shall have the meaning attributable to them
in GAAP (Generally Accepted Accounting Principles)
Lessee and Lessor hereby agree as follows:
Section 19, EVENTS OF DEFAULT AND LESSOR'S REMEDIES: In part (a), subsection
(vii), add the following after the word affiliates "or with Fleet Bank".
Additionally, insert as new events of defaults in Part (a) as separate
subsections beginning after subsection (xxi): ;or (xxii) No two consecutive
quarterly losses, commencing with periods after the December 31, 1997 fiscal
quarter- or (xxiii) The ratio of Consolidated Total Liabilities to
Consolidated Net Worth shall not exceed [**] until such time as the
"Warrants" (Tel-Save) are exercised; at such time the ratio shall not exceed
[**].
12
<PAGE> 13
EQUIPMENT SCHEDULE NO. 1
to Master Lease Agreement dated as of AUGUST 8, 1997
This is Counterpart NO. ONE of TWO serially numbered, manually executed
counterparts. To the extent that this document constitutes chattel paper under
the Uniform Commercial Code, no security interest in this document may be
created through transfer and possession of any counterpart other than
Counterpart No. ONE.
This Equipment Schedule is made as of AUGUST 8, 1997, between, CHASE EQUIPMENT
LEASING INC. ("Lessor") having its principal place of business at One Chase
Square, Rochester, New York 14643 and NETWORK PLUS, INC. ("Lessee") having its
principal place of business at 234 COPELAND STREET, QUINCY, MA 02169.
1. LEASE. Subject to the terms and conditions set forth in this Equipment
Schedule, Lessor hereby leases to Lessee and Lessee leases from Lessor the items
of personal property (collectively the "Equipment" or individually an "Item")
described in Section 2. Capitalized terms used herein shall have the meanings
attributed to them in this Equipment Schedule or in the Master Lease Agreement
incorporated herein.
2. DESCRIPTION OF EQUIPMENT AND TOTAL COST.
Computer equipment as further described on the attached Schedule of Leased
Equipment.
TOTAL COST
$1,521,442.00
3. SUPPLIER(s).
COMPUTER SALES INTERNATIONAL, INC.
4. LOCATION OF ITEMS OF EQUIPMENT: (If other than Lessee's address as set
forth above)
5. RENT. (includes Partial Rent and Periodic Rent)
(a) Partial Rent = Amount of rent, if any, from (a) $3,664.65
Acceptance Date to but excluding the date of the first
Periodic Rental Payment calculated by multiplying
1/30th of the Periodic Rental Payment by such number of
days elapsed. Such Partial Rent is due on the date of
the first Periodic Rental Payment. All Periodic Rental
Payments shall be due on the first day of the month
unless otherwise specified below.
(b) Periodic Rental Term (b) Thirty-six months
(c) Periodic Rental Payment (subject to change;
see Section 9 below) (c) $45,902.19
(d) Date of first Periodic Rental Payment (d) OCTOBER 1, 1997
(e) Number of Periodic Rental Payment Periods (e) 36 monthly
13
<PAGE> 14
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
(f) Sales Tax: Each Periodic Rental Payment is subject to sales tax of 5% per
payment or such other percentages or amounts as may from time to time be in
effect.
6. TERMS. The terms and conditions of the above referenced Master Lease
Agreement are incorporated in this Equipment Schedule and made a part of
this Lease. This Equipment Schedule constitutes a separate Lease, evidenced
by the executed copies hereof.
7. THE EQUIPMENT. Lessor, at the express request of Lessee, has ordered or
shall order the Equipment set forth in this Equipment Schedule from
supplier(s) selected solely by Lessee. Lessor has made no representations
or recommendations regarding Lessee's choice of supplier(s). Lessee
negotiated the style, quality, price, delivery date(s) and all other terms
relating to the Equipment directly with the suppliers) and without Lessor's
assistance or participation.
8. INSURANCE. Lessee shall maintain insurance as provided in Section 12 of the
Master Lease Agreement. The required public liability policy shall have
limits of at least [**], bodily injury and property damage combined.
9. RENT ADJUSTMENT. The Periodic Rental Payment as indicated above is indexed
to a representative 36 month Treasury Note = [**] and based on a lease
factor = [**]. If, when the Lessee executes and delivers to Lessor the
Certificate of Acceptance as to the date of its acceptance of the Equipment
("Date of Acceptance"), there has been a change in the 36 Month Treasury
Note rate, then Lessor shall adjust the lease rate factor (either up or
down) by an adjustment factor = [**] for every basis point change in the
[**] rate. Lessee shall confirm its acceptance of the change by inserting
the new Periodic Rental Payment on the Certificate of Acceptance.
10. ADDITIONAL PROVISIONS:
RIDER I - TAX INDEMNIFICATION
RIDER 11 - OPTIONS AT LEASE MATURITY
ATTACHMENT 1 - STIPULATED LOSS VALUES
IN WITNESS WHEREOF, the parties have caused this Equipment Schedule to be duly
executed as of the date first above written.
CHASE EQUIPMENT LEASING, INC. LESSEE: NETWORK PLUS,
INC.
14
<PAGE> 15
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
CHASE EQUIPMENT LEASING, INC. (LESSOR) PAGE 1
ONE CHASE SQUARE
ROCHESTER, NEW YORK 14643
SCHEDULE OF LEASED EQUIPMENT
TO
EQUIPMENT SCHEDULE NO. 1 DATED AUGUST 8,1997 UNDER MASTER LEASE AGREEMENT DATED
AUGUST 8,1997, BETWEEN NETWORK PLUS, INC. AS LESSEE AND CHASE EQUIPMENT LEASING,
INC. AS LESSOR.
QTY MANUFACTURERS MODEL AND DESCRIPTION SERIAL NUMBER COST
3 DIGITAL ALPHA SERVER 4100/UNTX CLUSTER 5/466 MHZ [**]
CPU 4 MB CACHE, I GB MEMORY
2 DIGITAL ALPHA SERVER 4100 5/466 MHZ CPU, 4 MB [**]
CACHE, I GB MEMORY (DEVELOPMENTAL SERVERS)
1 IMPLEMENTATION SERVICES [**]
1 EMC SYMMETRIX 3430 [**]
1 PRIORIS ZX 6200 NP/2 BASE SYSTEM (ADSM SERVER) [**]
1 ATL 4/52 TAPE LIBRARY [**]
1 ADSM SOFTWARE [**]
1 ADSM SERVICES [**]
1 SQL BACKTRACK [**]
2 PRIORIS ZX 6200 MP/2 BASE SYSTEM (NETWARE SERVERS) [**]
SUBTOTAL [**]
LESS: BERKSHIRE DISCOUNT ([**])
SUBTOTAL [**]
1 OPEN SYMMETRIX MANAGER [**]
9 SQL [**]
1 PRIORIS ZX 6200 MP/2 BASE SYSTEM (BACKUP SERVER) [**]
1 NETWORK COMPONENTS [**]
1 CISCO CATALYST 5500 [**]
2 EMC SYMMETRIX DISK PACKS [**]
1 BEST POWER FE 7000 UPS [**]
TOTAL COST: $1,521,442.00
TOGETHER WITH ALL PARTS, FITTINGS, CABLES, ACCESSORIES, ATTACHMENTS, FIXTURES,
RENEWALS, IMPROVEMENTS, SUBSTITUTIONS, AND REPLACEMENTS TO THE EQUIPMENT,
WHETHER NOW OWNED OR HEREAFTER ACQUIRED, AND TOGETHER WITH ALL RENTS, PROCEEDS,
INCOME AND PROFITS DERIVED THEREFROM.
15
<PAGE> 16
RIDER 1
TAX INDEMNIFICATION
This Rider is appended to and made part of Equipment Schedule No. 1,
dated AUGUST 8, 1997 (the "Lease"), between Chase Equipment Leasing, Inc.
("Lessor") and NETWORK PLUS, INC. ("Lessee").
This Lease has been entered into on the basis that Lessor shall be
entitled to such deductions, credits and other tax benefits as are provided by
federal, state and local law to an owner of property ("Tax Benefits") including,
without limitation Modified Accelerated Cost Recovery deductions on the
Equipment allowed under Section 168 of the Internal Revenue Code of 1986, as
amended (the "Code") for "5 year property".
If Lessor shall lose, shall not have or shall lose the right to claim,
or if there shall be disallowed or recaptured with respect to Lessor, all or any
portion of the Tax Benefits as are provided to an owner of property with respect
to any Equipment ("Loss") then on the next succeeding rental payment date after
written notice to Lessee by Lessor that a Loss has occurred, or if there be no
such date, thirty days following such notice, Lessee shall pay Lessor an amount
which, in the reasonable opinion of Lessor and after deduction of all taxes
required to be paid by Lessor with respect to the receipt of such amount, will
cause the Lessor's net after-tax return over the term of the Lease in respect of
such Equipment to equal the net after-tax return that would have been available
if Lessor had been entitled to the utilization of all of the Tax Benefits.
For purposes of this Rider, a Loss shall occur upon the earliest of (i)
the happening of any event (such as disposition or change in use of any
Equipment) which may cause such Loss, (ii) the payment by Lessor to the Internal
Revenue Service of the tax increase resulting from such Loss, or (iii) the
adjustment of the tax return of Lessor to reflect such Loss. Lessor shall not be
entitled to a payment under this Rider on account of any Loss due solely to one
or more of the following events: (aa) a failure of Lessor to claim timely or
properly the Tax Benefits for the Equipment in the tax return of the Lessor;
(bb) a disqualifying change in the nature of the Lessor's business or
liquidation thereof; (cc) a Foreclosure by any person holding through Lessor of
a lien on the Equipment, which foreclosure results solely from an act of Lessor;
or (dd) the failure of Lessor to have sufficient taxable income or tax liability
to utilize such Tax Benefits.
All of the Lessor's rights and privileges arising from the indemnities
contained in this Rider shall survive the expiration or other termination of
this Lease.
For the purposes of this Rider the term "Lessor" shall include any
affiliated group (within the meaning of Section 1504 of the Code) of which
Lessor is a member for any year in which a consolidated income tax return is
filed for such affiliated group.
IN WITNESS WHEREOF, the parties have executed this Rider.
CHASE EQUIPMENT LEASING, INC. LESSEE: NETWORK PLUS INC.
16
<PAGE> 17
RIDER II
TO EQUIPMENT SCHEDULE NO. 1- (THE "LEASE) UNDER
MASTER LEASE AGREEMENT DATED: AUGUST 8,1997
BETWEEN
CHASE EQUIPMENT LEASING, INC. ("LESSOR")
AND
NETWORK PLUS, INC., ("LESSEE")
OPTIONS AT LEASE MATURITY
The following provisions are hereby agreed upon and made a part of the
above-referenced Lease. Capitalized terms used herein but not defined shall have
the meanings attributable to them in the Equipment Schedule or the Master Lease
Agreement incorporated thereunder. Provided LESSEE has faithfully performed and
carried out the terms and conditions of the Lease, on it's part to be kept and
performed, and no Event of Default shall have occurred and be continuing, LESSEE
may:
1. PURCHASE. Notwithstanding any provision contained in the Lease to
the contrary, at the expiration of the Periodic Rental Term hereof, at its
option, LESSEE may purchase from LESSOR, and LESSOR shall sell to LESSEE, not
less than all of the Equipment described on Equipment Schedule No. I to Master
Lease Agreement dated AUGUST 8, 1997 "as-is, whereis," without recourse or
warranty expressed or implied, for a cash consideration ("Purchase Price") equal
to the sum of the then Fair Market Value of the Equipment determined as
hereinafter provided, not to exceed 10% of the original cost of the Equipment,
plus any sales or use taxes, and other taxes (except taxes measured by the
income of LESSOR), fees or charges applicable to the sale and delivery of the
Equipment.
a. NOTICE. LESSEE shall exercise option by giving LESSOR written
notice, at least ninety (90) days prior to the expiration of the
Periodic Rental Term, of LESSEE's intent to purchase the Equipment.
b. Fair MARKET VALUE. The "Fair Market Value" of the Equipment shall
be an amount mutually agreed upon by LESSOR and LESSEE; provided that if
LESSOR and LESSEE are unable to agree upon the Fair Market Value of the
Equipment, or Items thereof, within 30 days after receipt by LESSOR of
LESSEE's notice of election to exercise this purchase option, the Fair
Market Value shall be determined by an appraiser selected by mutual
agreement of the LESSOR and LESSEE. The fees and costs of the appraisal
shall be shared equally by LESSOR and LESSEE.
c. PAYMENT. LESSEE shall pay to LESSOR the Purchase Price in full on
or before the expiration of the Periodic Rental Term of the Lease.
d. TITLE. All of LESSOR's rights, title and interest to and in the
Equipment shall pass to LESSEE upon receipt by LESSOR of the Purchase
Price in full.
e. OTHER TERMS AND CONDITIONS. If LESSEE has exercised its option to
purchase the Equipment and if the Purchase Price in full is not received
by LESSOR on or before the expiration of the Periodic Rental Term,
LESSEE hereby agrees to be bound by and to carry out each of the terms
and conditions of the Lease, including, but not limited to, the payment
of rent, assumption of risk of loss, maintenance of insurance and
maintenance of the Equipment, until such time as LESSOR receives the
Purchase Price in full. The amount of rent to be paid by LESSEE shall be
pro-rated to the date upon which the Purchase Price is received by
LESSOR in full.
OR
2. RENEWAL. At its option, LESSEE may renew the Lease, for not less than
all of the Equipment, annually for a monthly rental payment based on the Fair
Market Value of the Equipment and the prevailing rates charged by the LESSOR.
All other terms and conditions of the Lease shall remain in effect.
LESSOR: CHASE EQUIPMENT LEASING, INC. LESSEE: NETWORK PLUS. INC.
17
<PAGE> 18
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
ATTACHMENT 1
STIPULATED LOSS VALUE TABLE
TO
EQUIPMENT SCHEDULE NO. 1 DATED AUGUST 8,1997
BETWEEN CHASE EQUIPMENT LEASING, INC. (LESSOR)
AND NETWORK PLUS, INC. (LESSEE)
STIPULATED LOSS VALUE: The Stipulated Loss Value of the Vehicle(s)
shall be an amount equal to the Total Cost of the Vehicle(s)
multiplied by the applicable percentage set forth below, plus any
previously unpaid Rent or other sums due on or before the date of
payment to Chase Equipment Leasing, Inc. Such Stipulated Loss Value
payment is due on or before the first day of the month following
the Event of Loss. (The Percentage Loss Value next to the
corresponding Payment No. does not include the monthly rental for
that period).
PERCENTAGE PERCENTAGE
PAYMENT NO. LOSS VALUE PAYMENT NO. LOSS VALUE
----------- ---------- ----------- ----------
1 [**] 19 [**]
2 [**] 20 [**]
3 [**] 21 [**]
4 [**] 22 [**]
5 [**] 23 [**]
6 [**] 24 [**]
7 [**] 25 [**]
8 [**] 26 [**]
9 [**] 27 [**]
10 [**] 28 [**]
11 [**] 29 [**]
12 [**] 30 [**]
13 [**] 31 [**]
14 [**] 32 [**]
15 [**] 33 [**]
16 [**] 34 [**]
17 [**] 35 [**]
18 [**] 36 [**]
18
<PAGE> 19
CERTIFICATE OF ACCEPTANCE
Under Equipment Schedule No. 1 dated as of August 8, 1997 (the "Lease"), between
CHASE EQUIPMENT LEASING, INC. (the "Lessor") and NETWORK PLUS, INC. (the
"Lessee"),
1. ITEMS OF EQUIPMENT, The Lessee hereby certifies and warrants to Lessor that
the following Items of Equipment have been delivered to the location indicated
on the Equipment Schedule, tested and inspected by the Lessee, or Lessee has had
a reasonable opportunity to do so, found to BE in good order and accepted as
Items of Equipment under the Lease, all as of the date indicated below. Lessee
approves full payment thereof by Lessor to supplier(s). To the extent not
available upon Lessee's execution of the Equipment Schedule, Lessee hereby
authorizes Lessor to insert serial numbers of the Equipment on this Certificate
of Acceptance, the Equipment Schedule, UCC-1 financing statements covering such
Equipment and all other related documents, when made available by the
suppliers).
(a) DATE OF ACCEPTANCE: 8/12, 1997
(b) DESCRIPTION OF EQUIPMENT AND LESSOR'S COST:
Computer equipment as further described on the attached Schedule of Leased
Equipment.
PERIODIC RENTAL PAYMENT: $45,902.19 TOTAL COST $1,521,442.00
2. REPRESENTATIONS BY THE LESSEE, The Lessee hereby represents and warrants to
Lessor that (i) no Event of Default or event which, with the giving of notice or
the lapse of time or both, would become such an Event of Default under the Lease
has occurred and is continuing, and (ii) the Lessee has obtained, and there are
in full force and effect, all insurance policies with respect to the Equipment
and public liability required to be obtained under the terms of the Lease.
3. SHOULD LESSEE HEREAFTER DISCOVER ANY DEFECT, UNFITNESS OR FAILURE OF
PERFORMANCE OF EQUIPMENT (INCLUDING) WITHOUT LIMITATION, SOFT ' WARE SYSTEMS AND
PROGRAMMING), LESSEE'S OBLIGATIONS TO LESSOR, INCLUDING THE OBLIGATION TO PAY
RENTS WHEN DUE, REMAIN IN EFFECT AS MORE FULLY STATED IN THE TERMS AND
CONDITIONS OF THE LEASE. IN SUCH EVENT, LESSEE'S EXCLUSIVE RECOURSE SHALL BE
AGAINST THE MANUFACTURER, SUPPLIER, PROGRAMMER AND/OR SERVICING AGENT FOR THE
EQUIPMENT, AS IN LESSEES JUDGMENT APPEARS APPROPRIATE.
LESSEE: NETWORK PLUS, INC.
19
<PAGE> 20
EQUIPMENT SCHEDULE NO. 2
to Master Lease Agreement dated as of AUGUST 8, 1997
This is Counterpart NO.ONE of TWO serially numbered, manually executed
counterparts. To the extent that this document constitutes chattel paper under
the Uniform-n Commercial Code, no security interest in this document may be
created through transfer and possession of any counterpart other than
Counterpart No. ONE.
This Equipment Schedule is made as of OCTOBER 21,1997, between, CHASE EQUIPMENT
LEASING, INC. ("Lessor") having its principal place of business at One Chase
Square, Rochester, New York 14643 and NETWORK PLUS, INC. ("Lessee") having its
principal place of business at 234 COPELAND STREET, QUINCY, MA 02169.
1. LEASE. Subject to the terms and conditions set forth in this Equipment
Schedule, Lessor hereby leases to Lessee and Lessee leases from Lessor the items
of personal property (collectively the "Equipment" or individually an "Item")
described in Section 2. Capitalized terms used herein shall have the meanings
attributed to them in this Equipment Schedule or in the Master Lease Agreement
incorporated herein.
2. DESCRIPTION OF EQUIPMENT AND TOTAL COST.
Telephone switching equipment as further described on the attached Schedule
of Leased Equipment.
TOTAL COST $3,450,000.00
3. SUPPLIER(s).
SALE LEASEBACK
4. LOCATION OF ITEMS OF EQUIPMENT: (If other than Lessee's address as set
forth above)
234 COPELAND STREET, QUINCY, MA 02169, & I
SOUTH AVENUE, SUITE 204, ORLANDO, FL
5. RENT. (includes Partial Rent and Periodic Rent)
(a) Partial Rent = Amount of rent, if any, from
Acceptance Date to but excluding (a) $5,924.52
the date of the first Periodic Rental Payment
calculated by multiplying 1/30th of the Periodic Rental
Payment by such number of days elapsed. Such Partial
Rent is due on the date of the first Periodic Rental
Payment. All Periodic Rental Payments shall be due on
the first day of the month unless otherwise specified
below.
(b) Periodic Rental Term (b) Sixty months
(c) Periodic Rental Payment (subject to change;
see Section 9 below) (c) 68,020.22
(d) Date of first Periodic Rental Payment (d) DECEMBER 1, 1997
(e) Number of Periodic Rental Payment Periods (e) 60 monthly
(f) Sales Tax: Each Periodic Rental Payment is subject to sales tax of *% or
$ per payment or such other percentages or amounts as may from time to time
be in effect.
MASSACHUSETTS 5%
20
<PAGE> 21
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
FLORIDA 6%
6. TERMS The terms and conditions of the above referenced Master Lease
Agreement are incorporated in this Equipment Schedule and made a part of this
Lease. This Equipment Schedule constitutes a separate Lease, evidenced by the
executed copies hereof.
7. THE EQUIPMENT. Lessor, at the express request of Lessee, has ordered or
shall order the Equipment set forth in this Equipment Schedule from suppliers)
selected solely by Lessee. Lessor has made no representations or recommendations
regarding Lessee's choice of suppliers). Lessee negotiated the style, quality,
price, delivery date(s) and all other terms relating to the Equipment directly
with the suppliers) and without Lessor's assistance or participation.
8. INSURANCE. Lessee shall maintain insurance as provided in Section 12 of the
Master Lease Agreement. The required public liability policy shall have limits
of at least [**], bodily injury and property damage combined.
9. RENT ADJUSTMENT. The Periodic Rental Payment as indicated above is indexed
to a representative 60 month Treasury Note = [**] and based on a lease factor =
[**]. If, when the Lessee executes and delivers to Lessor the Certificate of
Acceptance as to the date of its acceptance of the Equipment ("Date of
Acceptance"), there has been a change in the 60 Month Treasury Note rate, then
Lessor shall adjust the lease rate factor (either up or down) by an adjustment
factor = [**] for every basis point change in the [**] RATE. LESSEE SHALL
CONFIRM ITS ACCEPTANCE OF THE CHANGE BY INSERTING THE NEW PERIODIC RENTAL
PAYMENT ON THE CERTIFICATE OF ACCEPTANCE.
10. ADDITIONAL PROVISIONS:
RIDER I - TAX INDEMNIFICATION
RIDER 11 - OPTIONS AT LEASE MATURITY
ATTACHMENT 1 - STIPULATED LOSS VALUES
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS EQUIPMENT SCHEDULE TO BE DULY
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN.
CHASE EQUIPMENT LEASING, INC. LESSEE: NETWORK PLUS, INC.
21
<PAGE> 22
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
CHASE EQUIPMENT LEASING, INC. (LESSOR)
Page 1
ONE CHASE SQUARE
ROCHESTER, NEW YORK 14643
SCHEDULE OF LEASED EQUIPMENT
TO
EQUIPMENT SCHEDULE NO. 2 DATED October 21,1997 UNDER MASTER LEASE AGREEMENT
DATED August 8,1997, BETWEEN NETWORK PLUS, INC. AS LESSEE AND CHASE EQUIPMENT
LEASING, INC. AS LESSOR.
QTY MANUFACTURERS MODEL AND DESCRIPTION SERIAL NUMBER COST
LOCATION: 234 COPELAND STREET
QUINCY, MA 02169
DMS 250
1 SWITCHING EQUIPMENT [**]
1 SWITCHING EQUIPMENT [**]
1 SWITCHING EQUIPMENT [**]
1 SWITCHING EQUIPMENT [**]
SUBTOTAL [**]
LESS ([**])
SUBTOTAL [**]
DMS 250/300 UPGRADE
1 DMS 250/300 CONVERSION [**]
1 DMS 250/300 CONVERSION [**]
1 DMS 250/300 CONVERSION [**]
1 DMS 250/300 CONVERSION [**]
SUBTOTAL [**]
INTERNATIONAL UPGRADE
1 EQUIPMENT UPGRADE FOR QUINCY [**]
SWITCH(AMERICAN INTERNATIONAL PHONE)
1 INTERNATIONAL UPGRADE [**]
SUBTOTAL [**]
LOCATION SUBTOTAL [**]
LOCATION: 1 SOUTH ORANGE AVE., SUITE 204
ORLANDO, FL 32801
DMS 250
1 SWITCHING EQUIPMENT NORTHERN TELECOM [**]
1 FLORDIA SWITCHING EQUIPMENT(NORTEL) [**]
SWITCHING EQUIPMENT (NORTHERN TELECOM) [**]
1 SWITCHING EQUIPMENT (NORTHERN TELECOM) [**]
SUBTOTAL [**]
LOCATION SUBTOTAL [**]
TOTAL COST $3,450,000.00
22
<PAGE> 23
Together with all parts, fittings, cables, accessories, attachments, fixtures,
renewals, improvements, substitutions, and replacements to the Equipment,
whether now owned or hereafter acquired, and together with all rents, proceeds,
income and profits derived therefrom.
23
<PAGE> 24
RIDER I
TAX INDEMNIFICATION
This Rider is appended to and made part of Equipment Schedule No.2,
dated OCTOBER 21, 1997(the "Lease"), between Chase Equipment Leasing, Inc.
("Lessor") and NETWORK PLUS, INC. ("Lessee").
This Lease has been entered into on the basis that Lessor shall be
entitled to such deductions, credits and other tax benefits as are provided by
federal, state and local law to an owner of property ("Tax Benefits") including,
without limitation Modified Accelerated Cost Recovery deductions on the
Equipment allowed under Section 168 of the Internal Revenue Code of 1986, as
amended (the "Code") for "5 year property".
If Lessor shall lose, shall not have or shall lose the right to claim,
or if there shall be disallowed or recaptured with respect to Lessor, all or any
portion of the Tax Benefits as are provided to an owner of property with respect
to any Equipment ("Loss") then on the next succeeding rental payment date after
written notice to Lessee by Lessor that a Loss has occurred, or if there be no
such date, thirty days following such notice, Lessee shall pay Lessor an amount
which, in the reasonable opinion of Lessor and after deduction of all taxes
required to be paid by Lessor with respect to the receipt of such amount, will
cause the Lessor's net after-tax return over the term of the Lease in respect of
such Equipment to equal the net after-tax return that would have been available
if Lessor had been entitled to the utilization of all of the Tax .Benefits.
For purposes of this Rider, a Loss shall occur upon the earliest of (i)
the happening of any event (such as disposition or change in use of any
Equipment) which may cause such Loss, (ii) the payment by Lessor to the Internal
Revenue Service of the tax increase resulting from such Loss, or (iii) the
adjustment of the tax return of Lessor to reflect such Loss. Lessor shall not be
entitled to a payment under this Rider on account of any Loss due solely to one
or more of the following events: (aa) a failure of Lessor to claim timely or
properly the Tax Benefits for the Equipment in the tax return of the Lessor;
(bb) a disqualifying change in the nature of the Lessor's business or
liquidation thereof, (cc) a foreclosure by any person holding through Lessor of
a lien on the Equipment, which foreclosure results solely from an act of Lessor;
or (dd) the failure of Lessor to have sufficient taxable income or tax liability
to utilize such Tax Benefits.
All of the Lessor's rights and privileges arising from the indemnities
contained in this Rider shall survive the expiration or other termination of
this Lease.
For the purposes of this Rider the term "Lessor" shall include any
affiliated group (within the meaning of Section 1504 of the Code) of which
Lessor is a member for any year in which a consolidated income tax return is
filed for such affiliated group.
IN WITNESS WHEREOF, the parties have executed this Rider.
CHASE EQUIPMENT LEASING, INC. LESSEE: NETWORK PLUS, INC.
24
<PAGE> 25
RIDER II
TO EQUIPMENT SCHEDULE NO. 2 (THE "LEASE") UNDER
MASTER LEASE AGREEMENT DATED: AUGUST 8, 1997
BETWEEN
CHASE EQUIPMENT LEASING, INC. ("LESSOR")
AND
NETWORK PLUS, INC. ("LESSEE")
OPTIONS AT LEASE MATURITY
The following provisions are hereby agreed upon and made a part of the
above-referenced Lease. Capitalized terms used herein but not defined shall have
the meanings attributable to them in the Equipment Schedule or the Master Lease
Agreement incorporated thereunder. Provided LESSEE has faithfully performed and
carried out the terms and conditions of the Lease, on it's part to be kept and
performed, and no Event of Default shall have occurred and be continuing, LESSEE
may:
1 PURCHASE. Notwithstanding any provision contained in the Lease to the
contrary, at the expiration of the Periodic Rental Term hereof, at its option,
LESSEE may purchase from LESSOR, and LESSOR shall sell to LESSEE, not less than
all of the Equipment described on Equipment Schedule No. 2 to Master Lease
Agreement dated AUGUST 8, 1997 "as-is, where-is," without recourse or warranty
expressed or implied, for a cash consideration ("Purchase Price") equal to the
sum of the then Fair Market Value of the Equipment determined as hereinafter
provided, not to exceed 12% of the original cost of the Equipment, plus any
sales or use taxes, and other taxes (except taxes measured by the income of
LESSOR), fees or charges applicable to the sale and delivery of the Equipment.
a. NOTICE. LESSEE shall exercise option by giving LESSOR written
notice, at least ninety (90) days prior to the expiration of the
Periodic Rental Term, of LESSEE's intent to purchase the Equipment.
b. FAIR MARKET VALUE. The 'Fair Market Value" of the Equipment shall
be an amount mutually agreed upon by LESSOR and LESSEE; provided that if
LESSOR and LESSEE are unable to agree upon the Fair Market Value of the
Equipment or Items thereof, within 30 days after receipt by LESSOR of
LESSEE's notice of election to exercise this purchase option, the Fair
Market Value shall be determined by an appraiser selected by mutual
agreement of the LESSOR and LESSEE. The fees and costs of the appraisal
shall be shared equally by LESSOR and LESSEE.
c. PAYMENT. LESSEE shall pay to LESSOR the Purchase Price in full on
or before the expiration of the Periodic Rental Term of the Lease.
d. TITLE. All of LESSOR's rights, title and interest to and in the
Equipment shall pass to LESSEE upon receipt by LESSOR of the Purchase
Price in full.
e. OTHER TERMS AND CONDITIONS. If LESSEE has exercised its option to
purchase the Equipment and if the Purchase Price in full is not received
by LESSOR on or before the expiration of the Periodic Rental Term,
LESSEE hereby agrees to be bound by and to carry out each of the terms
and conditions of the Lease, including, but not limited to, the payment
of rent, assumption of risk of loss, maintenance of insurance and
maintenance of the Equipment, until such time as LESSOR receives the
Purchase Price in full. The amount of rent to be paid by LESSEE shall be
prorated to the date upon which the Purchase Price is received by LESSOR
in full.
OR
2. RENEW At its option, LESSEE may renew the Lease, for not less than
all of the Equipment, annually for a monthly rental payment based on the Fair
Market Value of the Equipment and the prevailing rates charged by the LESSOR.
All other terms and conditions of the Lease shall remain in effect.
LESSOR. CHASE EQUIPMENT LEASING, INC. LESSEE: NETWORK PLUS, INC.
25
<PAGE> 26
[Header]
Confidential materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
ATTACHMENT 1
STIPULATED LOSS VALUES
UNDER
EQUIPMENT SCHEDULE NO 2 DATED OCTOBER 21,1997
BETWEEN CHASE EQUIPMENT LEASING, INC. AND NETWORK PLUS, INC.
STIPULATED LOSS VALUE: The Stipulated Loss Value of the Equipment or any Item
thereof shall be an amount equal to the Cost of the Equipment or Item multiplied
by the applicable percentage set forth below, plus any previously unpaid Rent or
other sums due on or before the date of payment to Chase Equipment Leasing, Inc.
Such Stipulated Loss Value payment is due on or before the first day of the
month following the Event of Loss. (The Percentage Loss Value next to the
corresponding Pmt. No. does not include the monthly rental for that period).
PERCENTAGE PERCENTAGE
PMT NO. LOSS VALUE PMT NO. LOSS VALUE
- ------- ---------- ------- ----------
1 [**] 31 [**]
2 [**] 32 [**]
3 [**] 33 [**]
4 [**] 34 [**]
5 [**] 35 [**]
6 [**] 36 [**]
7 [**] 37 [**]
8 [**] 38 [**]
9 [**] 39 [**]
10 [**] 40 [**]
11 [**] 41 [**]
12 [**] 42 [**]
13 [**] 43 [**]
14 [**] 44 [**]
15 [**] 45 [**]
16 [**] 46 [**]
17 [**] 47 [**]
18 [**] 48 [**]
19 [**] 49 [**]
20 [**] 50 [**]
21 [**] 51 [**]
22 [**] 52 [**]
23 [**] 53 [**]
24 [**] 54 [**]
25 [**] 55 [**]
26 [**] 56 [**]
27 [**] 57 [**]
28 [**] 68 [**]
29 [**] 59 [**]
30 [**] 60 [**]
26
<PAGE> 27
CERTIFICATE OF ACCEPTANCE
Under Equipment Schedule No. 2 dated as of October 21, 1997 (the "Lease"),
between CHASE EQUIPMENT LEASING, INC. (the "Lessor") and NETWORK PLUS, INC. (the
"Lessee").
1. ITEMS OF EQUIPMENT. The Lessee hereby certifies and warrants to Lessor that
the following Items of Equipment have been delivered to the location indicated
on the Equipment Schedule, tested and inspected by the Lessee, or Lessee has had
a reasonable opportunity to do so, found to be in good order and accepted as
Items of Equipment under the Lease, all as of the date indicated below. Lessee
approves full payment thereof by Lessor to supplier(s). To the extent not
available upon Lessee's execution of the Equipment Schedule, Lessee hereby
authorizes Lessor to insert serial numbers of the Equipment on this Certificate
of Acceptance, the Equipment Schedule, UCC- 1 financing statements covering such
Equipment and all other related documents, when made available by the
supplier(s).
(a) DATE OF ACCEPTANCE: 10/21 1997
(b) DESCRIPTION OF EQUIPMENT AND LESSOR'S COST!:
Telephone switching equipment as further described on the attached Schedule
of Leased Equipment.
PERIODIC RENTAL PAYMENT: $68,100.93 TOTAL COST $3,450,000.00
2. REPRESENTATIONS BY THE LESSEE The Lessee hereby represents and warrants to
Lessor that (i) no Event of Default or event which, with the giving of notice or
the lapse of time or both, would become such an Event of Default under the Lease
has occurred and is continuing, and (ii) the Lessee has obtained, and there are
in full force and effect, all insurance policies with respect to the Equipment
and public liability required to be obtained under the terms of the Lease.
3. SHOULD LESSEE HEREAFTER DISCOVER ANY DEFECT, UNFITNESS OR FAILURE OF
PERFORMANCE OF EQUIPMENT (INCLUDING WITHOUT LIMITATION, SOFTWARE SYSTEMS AND
PROGRAMMING), LESSEE'S OBLIGATIONS TO LESSOR,, INCLUDING THE OBLIGATION TO PAY
RENTS WHEN DUE, REMAIN IN EFFECT AS MORE FULLY STATED IN THE TERMS AND
CONDITIONS OF THE LEASE. IN SUCH EVENT, LESSEE'S EXCLUSIVE RECOURSE SHALL BE
AGAINST THE MANUFACTURER, SUPPLIER, PROGRAMMER AND/OR SERVICING AGENT FOR THE
EQUIPMENT AS IN LESSEE'S JUDGMENT APPEARS APPROPRIATE.
LESSEE: NETWORK PLUS, INC.
27
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Network Plus Corp. included in the prospectus dated September 29, 1998, of our
report dated June 24, 1998, except for the information presented in notes 12 and
15, for which the dates are July 15, 1998 and September 3, 1998, respectively,
on our audits of the financial statements of Network Plus, Inc., a wholly-owned
subsidiary of Network Plus Corp., as of December 31, 1997 and 1996, and for each
of the three years in the period ended December 31, 1997, which report is
included in this prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 28, 1998
<PAGE> 1
EXHIBIT 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON
, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
NETWORK PLUS CORP.
234 COPELAND STREET
QUINCY, MA 02169
LETTER OF TRANSMITTAL
FOR 13.5% SERIES A CUMULATIVE PREFERRED
STOCK DUE 2009
Exchange Agent:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street
46th Floor
New York, NY 10005
Attention: Exchange Department
By Facsimile:
718-234-5001
Confirm by telephone:
800-937-5449
718-921-8200
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the certificate number(s) of the Original Preferred
Shares of which you are the holder. If the space provided in Box 1 is
inadequate, list the certificate numbers of the Original Preferred Shares on a
separate SIGNED schedule and affix that schedule to this Letter.
<PAGE> 2
BOX 1
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
- ------------------------------------------------------------------------------------------------------------------------
NUMBER
NUMBER OF ORIGINAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE OF ORIGINAL PREFERRED SHARES
(PLEASE FILL IN IF BLANK) NUMBER(S)(1) PREFERRED SHARES TENDERED(2)
- ------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
TOTALS:
- ------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed if Original Preferred Shares are being tendered by book-entry transfer.
(2) Unless otherwise indicated, all of the Original Preferred Shares represented by a certificate or Book-Entry
Confirmation delivered to the Exchange Agent will be deemed to have been tendered.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The undersigned acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Network Plus Corp., a Delaware
corporation (the "Company"), and this Letter of Transmittal for 13.5% Series A
Cumulative Preferred Stock Due 2009 which may be amended from time to time (this
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange, for each share of its outstanding 13.5% Series A Cumulative
Preferred Stock Due 2009 issued and sold in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Original
Preferred Shares"), one share of 13.5% Series A1 Cumulative Preferred Stock Due
2009 (the "New Preferred Shares").
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Original Preferred Shares who wish to tender their Original
Preferred Shares must, prior to the Expiration Date (1) complete, sign, date and
mail or otherwise deliver this Letter to the Exchange Agent, in person or to the
address set forth above; and (2) tender his or her Original Preferred Shares or,
if a tender of Original Preferred Shares is to be made by book-entry transfer to
the account maintained by the Exchange Agent at The Depository Trust Company
(the "Book-Entry Transfer Facility"), confirm such book-entry transfer (a
"Book-Entry Confirmation"), in each case in accordance with the procedures for
tendering described in the Instructions to this Letter. Holders of Original
Preferred Shares whose certificates are not immediately available, or who are
unable to deliver their certificates or Book-Entry Confirmation and all other
documents required by this Letter to be delivered to the Exchange Agent on or
prior to the Expiration Date, must tender their Original Preferred Shares
according to the guaranteed delivery procedures set forth under the caption "The
Exchange Offer -- How to Tender" in the Prospectus. (See Instruction 1).
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above, or the Company, 234 Copeland Street, Quincy, MA 02169,
Attention: Chief Financial Officer (telephone: (617) 786-4000).
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Company the number of Original Preferred Shares
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Original Preferred Shares tendered with this Letter, the undersigned
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to the Original Preferred Shares tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Original
Preferred Shares, with full power of substitution, to (a) deliver certificates
for such Original Preferred Shares; (b) deliver Original Preferred Shares and
all accompanying evidence of transfer and authenticity to or upon the order of
the Company upon receipt by the Exchange Agent, as the undersigned's agent, of
the New Preferred Shares to which the undersigned is entitled upon the
acceptance by the Company of the Original Preferred Shares tendered under the
2
<PAGE> 3
Exchange Offer; and (c) receive all benefits and otherwise exercise all rights
of beneficial ownership of the Original Preferred Shares, all in accordance with
the terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Original
Preferred Shares tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The undersigned will,
upon request, execute and deliver any additional documents deemed by the Company
to be necessary or desirable to complete the assignment and transfer of the
Original Preferred Shares tendered.
The undersigned agrees that acceptance of any tendered Original Preferred
Shares by the Company and the issuance of New Preferred Shares in exchange
therefor shall constitute performance in full by the Company of its obligations
under the Registration Agreement (as defined in the Prospectus) and that, upon
the issuance of the New Preferred Shares, the Company will have no further
obligations or liabilities thereunder (except in certain limited circumstances).
By tendering Original Preferred Shares, the undersigned certifies (a) that it is
not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, that it is not a broker-dealer that owns Original Preferred
Shares acquired directly from the Company or an affiliate of the Company, that
it is acquiring the New Preferred Shares in the ordinary course of the
undersigned's business and that the undersigned is not engaged in, and does not
intend to engage in, a distribution of New Preferred Shares or (b) that it is an
"affiliate" (as so defined) of the Company or of the initial purchasers in the
offering of the Original Preferred Shares, and that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer that will
receive New Preferred Shares for its own account in exchange for Original
Preferred Shares that were acquired as a result of market-making activities or
other trading activities, it will deliver a prospectus in connection with any
resale of such New Preferred Shares. By so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned understands that the Company may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver New Preferred Shares (and, if applicable, a
certificate for any Original Preferred Shares not tendered but represented by a
certificate also encompassing Original Preferred Shares which are tendered) to
the undersigned at the address set forth in Box 1.
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict between
the terms of the Prospectus and this Letter, the Prospectus shall prevail.
3
<PAGE> 4
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED ORIGINAL PREFERRED SHARES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ___________________________________________
Account Number: __________________________________________________________
Transaction Code Number: _________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED ORIGINAL PREFERRED SHARES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): __________________________________________
Date of Execution of Notice of Guaranteed Delivery: ______________________
Window Ticket Number (if available): _____________________________________
Name of Institution which Guaranteed Delivery: ___________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ____________________________________________________________________
Address: _________________________________________________________________
- --------------------------------------------------------------------------------
4
<PAGE> 5
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
- --------------------------------------------------------------------------------
PLEASE SIGN HERE WHETHER OR NOT ORIGINAL PREFERRED SHARES ARE BEING
PHYSICALLY TENDERED HEREBY
X ______________________________________________________ _________________
X ______________________________________________________ _________________
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number: ___________________________________________
This box must be signed by registered holder(s) of Original Preferred
Shares as their name(s) appear(s) on certificate(s) for Original Preferred
Shares, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Letter. If signature is by
a trustee, executor, administrator, guardian, officer or other person
acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. (See Instruction 3)
Name(s): __________________________________________________________________
___________________________________________________________________________
(Please Print)
Capacity: _________________________________________________________________
Address: __________________________________________________________________
___________________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution: (If required by
Instruction 3)
___________________________________________________________________________
(Authorized Signature)
___________________________________________________________________________
(Title)
___________________________________________________________________________
(Name of Firm)
- --------------------------------------------------------------------------------
5
<PAGE> 6
<TABLE>
<S> <C> <C>
BOX 3
- -----------------------------------------------------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
_____________________________________________________________________________________________________________________________
PAYOR'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
_____________________________________________________________________________________________________________________________
SUBSTITUTE PART 1 -- Please provide your TIN in the box at right _________________________________
FORM W-9 and certify by signing and dating below. Social Security Number(s)
OR
DEPARTMENT OF THE
TREASURY INTERNAL _________________________________
REVENUE SERVICE Employer Identification
Number
__________________________________________________________________________________________
PAYOR'S REQUEST FOR PART 2 -- Check the Box if you are not subject to
TAXPAYER IDENTIFICATION back-up withholding because (1) you have not been PART 3 --
NUMBER (TIN) notified by the Internal Revenue Service that you are Check if
subject to back-up withholding as a result of failure Awaiting TIN
to report all interest or dividends, or (2) the
Internal Revenue Service has notified you that you [ ]
are no longer subject to back-up withholding, or (3)
you are exempt from back-up withholding. [ ]
__________________________________________________________________________________________
CERTIFICATION -- Under the penalties of perjury, I certify that the information provided
on this Form is true, correct and complete.
_____________________________________________________________________________________________________________________________
Signature ______________________________________________________________________________ Date ____________________ , 1998
_____________________________________________________________________________________________________________________________
Name (Please Print)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
BOX 4 BOX 5
- -------------------------------------------- --------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates To be completed ONLY if certificates
for Original Preferred Shares not for Original Preferred Shares not
exchanged, or for New Preferred Shares, exchanged, or for New Preferred Shares,
are to be issued in the name of someone are to be sent to someone other than the
other than the person whose signature person whose signature appears in Box 2 or
appears in Box 2, or if Original Preferred to an address other than that shown in
Shares delivered by book-entry transfer Box 1.
which are not accepted for exchange are to
be returned by credit to an account Deliver:
maintained at the Book-Entry Transfer (check appropriate boxes)
Facility other than the account indicated
above. [ ] Original Preferred Shares not tendered
[ ] New Preferred Shares, to:
Issue and deliver:
(check appropriate boxes)
Name _____________________________________
[ ] Original Preferred Shares not tendered (PLEASE PRINT)
[ ] New Preferred Shares, to:
Name _____________________________________ Address __________________________________
(PLEASE PRINT)
__________________________________________
Address __________________________________ (INCLUDING ZIP CODE)
__________________________________________
(INCLUDING ZIP CODE)
Please complete the Substitute Form W-9
at Box 3
Tax I.D. or Social Security
Number: __________________________________
- -------------------------------------------- --------------------------------------------
</TABLE>
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original
Preferred Shares or a Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed copy of this Letter and any other documents
required by this Letter, must be received by the Exchange Agent at its address
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Original Preferred Shares or a Book-Entry
Confirmation, as the case may be, and any other required documents is at the
election and risk of the tendering holder, but except as otherwise provided
below, the delivery will be deemed made when actually received by the Exchange
Agent. If delivery is by mail, the use of registered mail with return receipt
requested, properly insured, is suggested.
Holders whose Original Preferred Shares are not immediately available or
who cannot deliver their Original Preferred Shares or a Book-Entry Confirmation,
as the case may be, and all other required documents to the Exchange Agent on or
before the Expiration Date may tender their Original Preferred Shares pursuant
to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to
such procedure (i) tender must be made by or through an Eligible Institution (as
defined in the Prospectus under the caption "The Exchange Offer"); (ii) prior to
the Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by telegram, telex, facsimile transmission, mail or hand delivery) (x) setting
forth the name and address of the holder, the description of the Original
Preferred Shares and number of Original Preferred Shares tendered, (y) stating
that the tender is being made thereby and (z) guaranteeing that, within three
New York Stock Exchange trading days after the date of execution of such Notice
of Guaranteed Delivery, this Letter together with the certificates representing
the Original Preferred Shares or a Book-Entry Confirmation, as the case may be,
and any other documents required by this Letter will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) the certificates for all
tendered Original Preferred Shares or a Book-Entry Confirmation, as the case may
be, as well as all other documents required by this Letter, must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in the
Prospectus under the caption "The Exchange Offer -- How to Tender."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Preferred Shares will
be determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders that are not in
proper form or the acceptance of which, in the opinion of the Company's counsel,
would be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Original Preferred
Shares. All tendering holders, by execution of this Letter, waive any right to
receive notice of acceptance of their Original Preferred Shares.
Neither the Company, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If fewer than all of the Original
Preferred Shares evidenced by a submitted certificate or by a Book-Entry
Confirmation are tendered, the tendering holder must fill in the number tendered
in the fourth column of Box 1 above. All of the Original Preferred Shares
represented by a certificate or by a Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
A certificate for Original Preferred Shares not tendered will be sent to the
holder, unless otherwise provided in Box 5, as soon as practicable after the
Expiration Date, in the event that fewer than all of the Original Preferred
Shares represented by a submitted certificate are tendered (or, in the case of
Original Preferred Shares tendered by book-entry transfer, such non-exchanged
Original Preferred Shares will be credited to an account maintained by the
holder with the Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Original Preferred Shares, a notice of withdrawal must (i) be received
by the Exchange Agent before the Company notifies the Exchange Agent that it has
accepted the tender of Original Preferred Shares pursuant to the Exchange Offer;
(ii) specify the name of the person who tendered the Original Preferred Shares;
(iii) contain a description of the Original Preferred Shares to be withdrawn,
the certificate numbers shown on the particular certificates evidencing such
Original Preferred Shares and the number of Original Preferred Shares
represented
8
<PAGE> 9
by such certificates; and (iv) be signed by the holder in the same manner as the
original signature on this Letter (including any required signature guarantee).
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If
this Letter is signed by the holder(s) of Original Preferred Shares tendered
hereby, the signature must correspond with the name(s) as written on the face of
the certificate(s) for such Original Preferred Shares, without alteration,
enlargement or any change whatsoever.
If any of the Original Preferred Shares tendered hereby are owned by two or
more joint owners, all owners must sign this Letter. If any tendered Original
Preferred Shares are held in different names on several certificates, it will be
necessary to complete, sign and submit as many separate copies of this Letter as
there are names in which certificates are held.
If this Letter is signed by the holder of record and (i) all of the
holder's Original Preferred Shares are tendered; and/or (ii) untendered Original
Preferred Shares, if any, are to be issued to the holder of record, then the
holder of record need not endorse any certificates for tendered Original
Preferred Shares, nor provide a separate bond power. If any other case, the
holder of record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to the
Company of their authority to so act must be submitted, unless waived by the
Company.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Original Preferred Shares are tendered (i) by a holder who has not
completed the Box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter; or (ii) for the account of an Eligible
Institution. In the event that the signatures in this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by an eligible guarantor institution which is a member of The Securities
Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges
Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program
(SEMP) (collectively, "Eligible Institutions"). If Original Preferred Shares are
registered in the name of a person other than the signer of this Letter, the
Original Preferred Shares surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company, in its sole discretion, duly
executed by the registered holder with the signature thereon guaranteed by an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the New
Preferred Shares or certificates for Original Preferred Shares not exchanged are
to be issued or sent, if different from the name and address of the person
signing this Letter. In the case of issuance in a different name, the tax
identification number of the person named must also be indicated. Holders
tendering Original Preferred Shares by book-entry transfer may request that
Original Preferred Shares not exchanged be credited to such account maintained
at the Book-Entry Transfer Facility as such holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Original Preferred Shares are accepted for exchange must
provide the Exchange Agent (as payor) with his or her correct and properly
certified taxpayer identification number ("TIN"), which, in the case of a holder
who is an individual, is his or her social security number. If the Exchange
Agent is not provided with the correct TIN, the holder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, delivery to the
holder of the New Preferred Shares pursuant to the Exchange Offer may be subject
to back-up withholding. (If withholding results in overpayment of taxes, a
refund or credit may be obtained.) Exempt holders (including, among others,
substantially all corporations and nonresident aliens) are not subject to these
back-up withholding and reporting requirements. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
Under federal income tax laws, payments that may be made by the Company on
account of New Preferred Shares issued pursuant to the Exchange Offer may be
subject to back-up withholding at a rate of 31%. In order to avoid being subject
to back-up withholding, each tendering holder must provide his or her correct
TIN by completing the "Substitute Form W-9" referred to above, certifying that
the TIN provided is the holder's correct TIN(or that the holder is awaiting a
TIN) and that (i) the holder has not been notified by the Internal Revenue
Service that he or she is subject to back-up withholding as a result of failure
to report all interest or dividends; or (ii) the Internal Revenue Service has
notified the holder that he or she is no longer subject to back-up withholding;
or (iii) such holder is exempt from back-up
9
<PAGE> 10
withholding. If the Original Preferred Shares are in more than one name or are
not in the name of the actual owner, consult the enclosed Guidelines for
information on which TIN to report.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Original Preferred Shares to it or its order
pursuant to the Exchange Offer. If, however, the New Preferred Shares or
certificates for Original Preferred Shares not exchanged are to be delivered to,
or are to be issued in the name of, any person other than the record holder, or
if tendered certificates are recorded in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed by any reason other
than the transfer of Original Preferred Shares to the Company or its order
pursuant to the Exchange Offer, then the amount of such transfer taxes (whether
imposed on the record holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of taxes or exemption from
taxes is not submitted with this Letter, the amount of transfer taxes will be
billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend
or waive any of the specified conditions in the Exchange Offer in the case of
any Original Preferred Shares tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Original Preferred Shares have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: This Letter (together with certificates representing tendered
Original Preferred Shares or a Book-Entry Confirmation and all other required
documents) must be received by the Exchange Agent on or before the Expiration
Date (as defined in the Prospectus).
10
<PAGE> 11
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. If you are a resident alien and you do not have and
are not eligible to get a social security number, you should obtain from the IRS
an "individual taxpayer identification number" (ITIN) and provide that ITIN. The
table below will help determine the number to give the payer.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------- ------------------------------------------------------------
GIVE THE GIVE THE EMPLOYER
SOCIAL SECURITY IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF-- FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------------------------- ------------------------------------------------------------
1. An individual's account The individual 7. Corporate account The corporation
2. Two or more individuals The actual owner of the 8. Religious, charitable, or The organization
(joint account) account or, if combined educational organization
funds, the first account
individual on the 9. Partnership account The partnership
account(1) 10. Association, club, or other The organization
3. Custodian account of a The minor(2) tax-exempt organization
minor (Uniform Gift to 11. A broker or registered The broker or nominee
Minors Act) nominee
4. a. The usual revocable The grantor- trustee(1) 12. Account with the Department The public entity
savings trust account of Agriculture in the name
(grantor is also of a public entity (such as
trustee) a State or local
b. So-called trust account The actual owner(1) government, school
that is not a legal or district, or person) that
valid trust under state receives agricultural
law program payments
5. Sole proprietorship account The owner(4)
6. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or
trustee unless the legal
entity itself is not
designated in the
account title.)(5)
- --------------------------------------------------------------- ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number.
(4) Show the name of the owner. You may, in addition, enter your business or "doing business as" name. You may use either
your social security number or, if you have one, your employer identification number, but the IRS prefers that you use
your social security number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name
listed.
</TABLE>
<PAGE> 12
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number, obtain Form SS-5.
Application for a Social Security Number Card, or Form SS-4, Application for
Employer Identification Number, at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number. In this
event, check the box in Part 3 of the Substitute Form W-9.
PAYEES EXEMPT FOR BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL interest and
dividend payments and broker transactions include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(1), or an individual
retirement plan, or a custodial account under section 403(b)(7) that
satisfies the requirements of section 401(f)(2).
- The United States or any agency or instrumentality thereof.
- A State, District of Columbia, a possession of the United States, or any
political subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S.,
the District of Columbia, or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
Exempt payees described above should complete the Substitute Form W-9 to avoid
possible erroneous backup withholding. IF YOU ARE AN EXEMPT PAYEE, FURNISH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER IN PART 1, WRITE "EXEMPT" IN PART 1 SIGN
AND DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see the regulations under sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050D and 6050N.
PRIVACY ACT NOTICE.-- Section 6019 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to IRS. IRS uses the numbers for
identification purposes and to help verify the accuracy of tax returns. Payers
must be given the numbers whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless you failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FAILURE INFORMATION WITH RESPECT TO WITHHOLDING--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
EXHIBIT 99.2
NETWORK PLUS CORP.
EXCHANGE OFFER
TO HOLDERS OF ITS
13.5% SERIES A CUMULATIVE PREFERRED STOCK DUE 2009
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated , 1998 (the
"Prospectus") of Network Plus Corp. (the "Company") under "The Exchange
Offer -- How to Tender" and in the Letter of Transmittal (the "Letter of
Transmittal") relating to the offer (the "Exchange Offer") by the Company to
exchange up to 40,000 shares of its 13.5% Series A1 Cumulative Preferred Stock
Due 2009 (the "New Preferred Shares") for 40,000 shares of its 13.5% Series A
Cumulative Preferred Stock Due 2009, issued and sold in a transaction exempt
from registration under the Securities Act of 1933, as amended (the "Original
Preferred Shares"), this form or one substantially equivalent hereto must be
used to accept the Exchange Offer of the Company if (i) certificates for the
Original Preferred Shares are not immediately available; or (ii) time will not
permit all required documents to reach the Exchange Agent (as defined below) on
or prior to the Expiration Date (as defined in the Prospectus) of the Exchange
Offer. Such form may be delivered by hand or transmitted by telegram, telex,
facsimile transmission or letter to the Exchange Agent.
TO: American Stock Transfer Bank & Trust Company (the "Exchange Agent")
By Facsimile:
718-234-5001
Confirm by telephone:
800-937-5449
718-921-8200
Address:
40 Wall Street
46th Floor
New York, NY 10005
Attn: Exchange Department
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO
A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the number of Original Preferred Shares set forth below pursuant
to the guaranteed delivery procedure described in the Prospectus and the Letter
of Transmittal.
SIGN HERE
<TABLE>
<CAPTION>
<S> <C>
Number of Original Preferred Shares Tendered: Signature(s): _______________________________
_____________________________________________ _____________________________________________
Certificate Nos. (if available): Please Print the Following Information:
_____________________________________________ Name(s): ____________________________________
Total Number of Original Preferred Shares: _____________________________________________
_____________________________________________ Address: ____________________________________
Certificate Nos. (if available): Area Code and Tel. No(s): ___________________
_____________________________________________ _____________________________________________
Account Number: _____________________________
Dated: ________________________________, 1998
</TABLE>
GUARANTEE
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17A(d)-15 under the Securities Exchange Act
of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of
certificates tendered hereby, in proper form for transfer, or delivery of such
certificates pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other required documents, is being made within
three trading days after the date of execution of a Notice of Guaranteed
Delivery of the above-named person.
Name of Firm ___________________________________________________________________
Authorized Signature ___________________________________________________________
Number and Street or P.O. Box __________________________________________________
________________________________________________________________________________
City ______________________________ State ____________ Zip Code ________________
Area Code and Tel. No. _________________________________________________________
Dated: ________________________________, 1998
<PAGE> 1
EXHIBIT 99.3
NETWORK PLUS CORP.
OFFER TO EXCHANGE
UP TO 40,000 SHARES OF
13.5% SERIES A1 CUMULATIVE PREFERRED STOCK DUE 2009
FOR
40,000 SHARES OF
13.5% SERIES A CUMULATIVE PREFERRED STOCK DUE 2009
ISSUED AND SOLD IN A
TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
To Our Clients:
Enclosed for your consideration is a Prospectus dated , 1998
(as the same may be amended or supplemented from time to time, the "Prospectus")
and a form of Letter of Transmittal (the "Letter of Transmittal") relating to
the offer (the "Exchange Offer") by Network Plus Corp. (the "Company") to
exchange up to 40,000 shares of its 13.5% Series A1 Cumulative Preferred Stock
Due 2009 (the "New Preferred Shares") for 40,000 shares of its 13.5% Series A
Cumulative Preferred Stock Due 2009, issued and sold in a transaction exempt
from registration under the Securities Act of 1933, as amended (the "Original
Preferred Shares").
The material is being forwarded to you as the beneficial owner of Original
Preferred Shares carried by us for your account or benefit but not registered in
your name. A tender of any Original Preferred Shares may be made only by us as
the registered holder and pursuant to your instructions. Therefore, the Company
urges beneficial owners of Original Preferred Shares registered in the name of a
broker, dealer, commercial bank, trust company or other nominee to contact such
registered holder promptly if they wish to tender Original Preferred Shares in
the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender
any or all Original Preferred Shares carried by us for your account or benefit,
pursuant to the terms and conditions set forth in the Prospectus and Letter of
Transmittal. We urge you to read carefully the Prospectus and Letter of
Transmittal before instructing us to tender your Original Preferred Shares.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN
ORDER TO PERMIT US TO TENDER ORIGINAL PREFERRED SHARES ON YOUR BEHALF IN
ACCORDANCE WITH THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will
expire at 5:00 p.m., Eastern Standard Time, on [day of week] [ ], 1998, unless
extended (the "Expiration Date"). Original Preferred Shares tendered pursuant to
the Exchange Offer may be withdrawn, subject to the procedures described in the
Prospectus, at any time prior to the Expiration Date.
If you wish to have us tender any or all of your Original Preferred Shares
held by us for your account or benefit, please so instruct us by completing,
executing and returning to us the instruction form that appears below. The
accompanying Letter of Transmittal is furnished to you for informational
purposes only and may not be used by you to tender Original Preferred Shares
held by us and registered in our name for your account or benefit.
<PAGE> 2
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Network Plus
Corp.
THIS WILL INSTRUCT YOU TO TENDER THE NUMBER OF ORIGINAL PREFERRED SHARES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED,
PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
Box 1 [ ] Please tender my Original Preferred Shares held by you for my account
or benefit. I have identified on a signed schedule attached hereto
the number of Original Preferred Shares to be tendered if I wish to
tender fewer than all of my Original Preferred Shares.
Box 2 [ ] Please do not tender any Original Preferred Shares held by you for my
account or benefit.
Date: , 1998
______________________________________
______________________________________
SIGNATURE(S)
______________________________________
______________________________________
PLEASE PRINT NAME(S) HERE
- ---------------
Unless a specific contrary instruction is given in a signed Schedule
attached hereto, your signature(s) hereon shall constitute an instruction to us
to tender all of your Original Preferred Shares.
<PAGE> 1
EXHIBIT 99.4
NETWORK PLUS CORP.
OFFER TO EXCHANGE
UP TO 40,000 SHARES OF
13.5% SERIES A1 CUMULATIVE PREFERRED STOCK DUE 2009
FOR
40,000 SHARES OF
13.5% SERIES A CUMULATIVE PREFERRED STOCK DUE 2009
ISSUED AND SOLD IN A
TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated , 1998
(as the same may be amended or supplemented from time to time, the "Prospectus")
and a form of Letter of Transmittal (the "Letter of Transmittal") relating to
the offer (the "Exchange Offer") by Network Plus Corp. (the "Company") to
exchange up to 40,000 shares of its 13.5% Series A1 Cumulative Preferred Stock
Due 2009 (the "New Preferred Shares") for 40,000 shares of its 13.5% Series A
Cumulative Preferred Stock Due 2009, issued and sold in a transaction exempt
from registration under the Securities Act of 1933, as amended (the "Original
Preferred Shares").
We are asking you to contact your clients for whom you hold Original
Preferred Shares registered in your name or in the name of your nominee. In
addition, we ask you to contact your clients who, to your knowledge, hold
Original Preferred Shares registered in their own name. The Company will not pay
any fees or commissions to any broker, dealer or other person in connection with
the solicitation of tenders pursuant to the Exchange Offer. You will, however,
be reimbursed by the Company for customary mailing and handling expenses
incurred by you in forwarding any of the enclosed materials to your clients. The
Company will pay all transfer taxes, if any, applicable to the tender of
Original Preferred Shares to it or its order, except as otherwise provided in
the Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the tender of
Original Preferred Shares and for the information of your clients;
3. A form of letter that may be sent to your clients for whose accounts
you hold Original Preferred Shares registered in your name or the name of your
nominee, with space provided for obtaining the clients' instructions with regard
to the Exchange Offer;
4. A form of Notice of Guaranteed Delivery; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on [day of week] [ ], 1998, unless
extended (the "Expiration Date"). Original Preferred Shares tendered pursuant to
the Exchange Offer may be withdrawn, subject to the procedures described in the
Prospectus, at any time prior to the Expiration Date.
To tender Original Preferred Shares, certificates for Original Preferred
Shares or a Book-Entry Confirmation, a duly executed and properly completed
Letter of Transmittal or a facsimile thereof, and any
<PAGE> 2
other required documents must be received by the Exchange Agent as provided in
the Prospectus and the Letter of Transmittal.
Additional copies of the enclosed material may be obtained from American
Stock Transfer Bank & Trust Company, the Exchange Agent, by calling 800-937-5449
or 718-921-8200. .
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO
THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
